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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
COMMISSION FILE NUMBER: 1-1511
----------------
FEDERAL-MOGUL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MICHIGAN 38-0533580
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER I.D. NO.)
INCORPORATION OR ORGANIZATION)
26555 NORTHWESTERN HIGHWAY
SOUTHFIELD, MICHIGAN 48034
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE: (248) 354-7700
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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<S> <C>
Common Stock and Rights to Purchase New York Stock Exchange
Preferred Shares
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE.
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
The aggregate market value of the voting stock held by non-affiliates of the
Registrant was approximately $3,140,433,537 as of March 30, 1999 based on the
reported last sale price as published for the New York Stock Exchange--
Composite Transactions for such date.
The Registrant had 70,494,095 shares of common stock outstanding as of March
30, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for its 1999 Annual
Meeting of Shareholders filed with the Securities and Exchange Commission
pursuant to Regulation 14A on March 24, 1999, are incorporated by reference in
Part III (Items 10, 11, 12 and 13) of this Report.
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FORWARD-LOOKING STATEMENTS
Certain statements contained or incorporated in this annual report on Form
10-K, which are not statements of historical fact constitute "Forward-Looking
Statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 (The "Act"). Such statements are made in good faith by Federal-Mogul
pursuant to the "Safe Harbor" provisions of the Act.
Forward-Looking statements include financial projections, 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, Fel-Pro and Cooper Automotive into Federal-Mogul, plans to
address computer software issues related to the approach of the year 2000,
plans to address the issue related to the conversion to the Euro, and the
scope of the effect of T&N asbestos liability.
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, Fel-Pro and Cooper Automotive and the
anticipated synergies and operating efficiencies and restructuring charges in
connection with such acquisitions, 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.
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PART I
ITEM 1. BUSINESS.
OVERVIEW
Federal-Mogul Corporation founded in 1899 and incorporated in Michigan in
1924 (referred to herein as "Federal-Mogul" or the "Company"), is a global
manufacturer and distributor of a broad range of vehicular components for
automobiles and light trucks, heavy duty trucks, farm and construction
vehicles and industrial products. The Company manufactures engine bearings,
sealing systems, fuel systems, lighting products, pistons, ignition, brake,
friction and chassis products. The Company's principal customers include many
of the world's original equipment ("OE") manufacturers of such vehicles and
industrial products. Federal-Mogul also manufactures and supplies its products
and related parts to the aftermarket.
The Company has pursued a growth strategy focusing on its core competencies
of manufacturing, engineering and distribution by concentrating efforts and
resources on complimentary acquisitions of manufacturing companies that will
enhance its product base and expand its global reach. Federal-Mogul has made a
commitment to expand its manufactured products to offer OE customers systems
and modules. The Company also intends to expand the global reach of its
manufacturing operations to follow the expansion of OE manufacturers into
Latin America, Eastern Europe and the Asian markets. The Company intends to
couple its expansion of OE business in new geographic markets with growth in
global aftermarket sales.
In February 1998, the Company acquired Fel-Pro, Incorporated ("Fel-Pro"), a
privately owned manufacturer headquartered in Skokie, Illinois for $722
million. The transaction involved $225 million in equity and $497 million in
cash. Fel-Pro is the leading gasket manufacturer for the North American
aftermarket and OE heavy-duty market. Fel-Pro's primary product lines consist
of gaskets, heavy-duty diesel engine products, diesel products, high
performance gaskets and other equipment and chemical products. Fel-Pro's
products including cylinder head and molded rubber gaskets, and marine and
performance gaskets, are marketed under various brand names including
Permatorque Blue (R) , Fel-Coprene (R) , Print-O-Seal (R) and PermaDry
Plus (R). In 1997, Fel-Pro had sales of approximately $500 million. Fel-Pro
had more than 2,700 employees in 16 locations.
In March 1998, Federal-Mogul acquired T&N plc ("T&N"), a supplier of engine
and transmission products for a total purchase price of approximately $2.4
billion. T&N, based in Manchester, England, manufactures and supplies high
technology engineered automotive components and industrial materials including
pistons, friction products, bearings, composites, camshafts and sealing
products servicing OE customers and the aftermarket. In 1997, T&N had sales of
approximately $2.9 billion with about 80% of such sales relating to the global
automotive industry. T&N operated in approximately 200 manufacturing locations
in 24 countries, employing approximately 28,000 people worldwide.
In October 1998, the Company acquired the automotive division of Cooper
Industries, Inc. ("Cooper Automotive"), headquartered in St. Louis, Missouri
for an initial purchase price of approximately $1.9 billion. Cooper Automotive
is a leading supplier of aftermarket parts for repair and maintenance and
serves OE automobile manufacturers worldwide. Cooper Automotive manufactures
and distributes brakes and friction products, chassis parts, ignition and
wiper blades under well-known brand names including Champion (R), Moog (R),
Abex (R) , Wagner (R) and Zanxx (R) . In 1997, Cooper Automotive had sales of
approximately $1.9 billion and employed approximately 14,500 employees in 63
locations.
The above acquisitions are major steps toward Federal-Mogul's strategic
goals of focusing on its core competencies of manufacturing, engineering and
distribution and expanding the Company's product base, geographic reach and
market penetration.
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.
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The following table sets forth the Company's net sales by operating segment
and geographic region as a percentage of total net sales.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1998 1997 1996
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Net Sales by Operating Segment:
<S> <C> <C> <C>
Powertrain Systems............................... 42% 43% 36%
Sealing Systems.................................. 20% 19% 15%
General Products................................. 37% 32% 33%
Divested Activities.............................. 1% 6% 16%
------- -------- --------
100% 100% 100%
======= ======== ========
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1998 1997 1996
------- -------- --------
<S> <C> <C> <C>
Net Sales by Geographic Region:
United States.................................... 52% 62% 59%
Mexico........................................... 3% 5% 3%
Canada........................................... 2% 3% 2%
------- -------- --------
Total North America............................ 57% 70% 64%
------- -------- --------
United Kingdom................................... 12% 1% 1%
Germany.......................................... 11% 7% 9%
France........................................... 7% 2% 1%
Italy............................................ 4% 4% 4%
Other Europe..................................... 4% 6% 6%
------- -------- --------
Total Europe................................... 38% 20% 21%
------- -------- --------
Rest of World.................................... 5% 10% 15%
------- -------- --------
100% 100% 100%
======= ======== ========
</TABLE>
The Company is directing its efforts and resources to expand its core
competencies in manufacturing and distribution by growing the manufacturing
base globally while capitalizing on the aftermarket distribution network. Some
of the growth in connection with the new strategy is expected to come through
acquisitions, which the Company will be exploring on an ongoing basis.
OPERATING DIVISIONS
The Company's integrated operations are conducted under three operating
units corresponding to major product areas: Powertrain Systems, Sealing
Systems and General Products. The operating units and the products associated
with each are described as follows:
POWERTRAIN SYSTEMS products are used primarily in automotive, light truck,
heavy duty, industrial, marine, agricultural, power generation and small air-
cooled engine applications. These components consist primarily of engine
bearings, bushings, washers, large bearings, pistons, piston pins, rings,
liners and ignition products. Powertrain Systems sales accounted for 42% of
the Company's total sales for 1998. Powertrain Systems products are marketed
under the brand names Federal-Mogul(R), Glyco(R), AE Goetze(R), Sterling(R),
Champion(R), PowerPath (R), and Belden (R).
SEALING SYSTEMS products are used in automotive, light truck, heavy-duty
diesel, agricultural, off-highway, marine, railroad, high performance and
industrial applications. These components consist of dynamic seals, gaskets
and wiper blades. Sealing Systems sales accounted for 20% of the Company's
total sales for 1998. Sealing Systems products are marketed under the brand
names National(R), Mather(R), STS(R), Redi-Seal(R), Redi-Sleeve(R),
Unipiston(R), Engine Seal(R), Fel-Pro(R), Payen(R), McCord (R) and Anco (R).
2
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GENERAL PRODUCTS includes camshafts, brake and friction products, sintered
products, systems protection products, fuel systems components, lighting
products, chassis products, and heat transfer products. General Products'
sales accounted for 37% of the Company's total sales in 1998. General Products
are marketed under the brand names Weyburn-Bartel(R), Weyburn-Lydmet(R),
Brico(R), Sintertech(R), Bentley-Harris(R), Silverton(R), FHE(R), Connoisseur
Auto Air Conditioning(R), Carter(R), Signal-Stat(R), Abex(R), Blazer(R),
Zanxx(R), Moog(R), Precision(R) and Wagner(R).
CUSTOMERS
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 aftermarket customers for each category of equipment
described above. Among Federal-Mogul's largest customers are Auto Value, BMW,
CarQuest, Caterpillar, Cummins, DaimlerChrysler, Fiat, Ford, General Motors,
LucasVarity, NAPA, Peugeot, PSA, Renault and Volkswagen/Audi.
ORIGINAL EQUIPMENT
The Company supplies OE customers with a wide variety of precision
engineered parts including engine bearings, oil seals, fuel system components,
lighting products, and pistons. The Company manufactures all of the products
that it sells to OE customers.
The Company'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. The Company has well established relationships with
substantially all major North American and European automotive OE
manufacturers, some pre-existing and others resulting from the acquisitions of
T&N, Cooper Automotive and Fel-Pro. In 1998, approximately 14% of the
Company's net sales were to the three major automotive manufacturers in the
United States, with General Motors Corporation accounting for approximately 6%
of the Company's net sales, Ford Motor Company accounting for approximately 6%
of the Company's net sales and DaimlerChrysler accounting for approximately 2%
of the Company's net sales. In addition, the Company sells OE products to most
of the major automotive manufacturers headquartered outside the United States.
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, Cooper Automotive 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.
AFTERMARKET
Federal-Mogul's domestic customers include independent warehouse
distributors who redistribute products to local parts suppliers called
jobbers, industrial bearing distributors, distributors of heavy duty vehicular
parts, engine rebuilders and retail parts stores. The breadth of Federal-
Mogul's product lines together with the strength of its brand names and sales
force, are central to the Company's aftermarket operations. Internationally,
the Company sells aftermarket products to jobbers, local retail parts stores
and independent warehouse distributors.
RESEARCH AND DEVELOPMENT
The Company's expertise in engineering and research and development ensures
that the latest technologies, processes and materials are considered in
solving problems for customers and bringing new, innovative product to market.
Federal-Mogul provides its customers with real-time engineering capabilities
and design development in their home countries. 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 the Company'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.
3
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Total expenditures for research and development activities were
approximately $85.0 million in 1998, $13.1 million in 1997 and $14.4 million
in 1996. Expenditures for research and development have increased due to the
acquisitions of T&N, Cooper Automotive and Fel-Pro.
RECENT ACQUISITIONS AND DIVESTITURES
Acquisitions
In February 1998, the Company 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 $722 million. Fel-Pro is
a premier gasket manufacturer for the North American aftermarket and OE heavy-
duty market.
In March 1998, the Company acquired T&N plc ("T&N"), a U.K.-based supplier
of engine and transmission products for a total purchase price of
approximately $2.4 billion. T&N manufactures and supplies high technology
engineered automotive components and industrial materials including pistons,
friction products, bearings, systems protection, camshafts and sealing
products.
In October 1998, the Company acquired Cooper Automotive for an initial
purchase price of approximately $1.9 billion. Cooper Automotive is a leading
supplier of aftermarket parts for repair and maintenance and serves OE
automotive manufacturers worldwide. Cooper Automotive is a premier provider of
leading brand name automotive products to the aftermarket and OE market.
Management believes that Federal-Mogul's acquisitions of Fel-Pro, T&N and
Cooper Automotive will:
.establish the Company as a highly competitive Tier I worldwide automotive
supplier ;
.expand the Company's manufactured product portfolio to offer systems and
modules;
.enhance the Company's position as a global supplier of engine and
transmission parts;
. reinforce the Company's ability to provide a high quality service to
both its original equipment and aftermarket customers;
.extend the Company's international presence and accelerate its worldwide
aftermarket growth; and
.broaden the Company's brake/friction and ignition system capabilities.
In December 1998, the Company acquired Glockler Dichtsysteme Gunter Hemmrich
GmbH, a German manufacturer of rubber sealing components and acoustic
decoupling for valve covers, intake manifolds and oil pans with annual sales
of approximately $40 million.
In January 1999, the Company completed the acquisition of Tri-Way Machine
Limited, a privately owned manufacturer of machines and machining systems for
the world's metal cutting industry headquartered in Windsor, Ontario, Canada
with annual sales of approximately $35 million.
In January 1999, the Company announced an agreement to acquire the piston
division of Alcan Deutschland GmbH in Germany, a subsidiary of Alcan Aluminum
Ltd. in Canada. Alcan's piston division manufactures high quality pistons for
passenger cars and commercial vehicles under the highly regarded Nural (R)
brand name. The piston division employs approximately 1,100 people with annual
sales of approximately $150 million. The transaction is subject to regulatory
approval and is expected to close in the second quarter of 1999.
In January 1999, the Company completed its acquisition of two camshaft-
machining plants from Crane Technologies Group, Inc. to expand the capacity of
its automotive products lines. The two plants located in Orland, Indiana and
Jackson, Michigan employ approximately 230 people and have annual sales of
approximately $36 million.
In addition, the Company increased it's ownership to 100% in it's Summerton,
South Carolina gasket manufacturing plant and also increased its ownership in
KFM Bearing Company Ltd., a Korean joint venture with Kukje Special Metal Co.,
from 30% to 87%. In addition, the Company acquired Bimet, a Polish
Manufacturer of engine bearings, bushings and related products. The Company
also increased its ownership from 50.6% to 100% in T&N Holdings Limited
located in South Africa.
Divestitures and Closings
In February 1998, the Company sold its minority interest in Dichtungstechnik
G. Bruss GmbH & Co. KG, a German manufacturer of seals and gaskets. As part of
this transaction, the Company increased its ownership in a related U. S.
partnership to 100%.
4
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In July 1998, the Company sold the Fel-Pro Chemical business to Loctite
Corporation, a part of Henkel KgaA, a global specialist in applied chemistry
headquartered in Dusseldorf, Germany for $57 million.
In December 1998, Federal-Mogul sold T&N's thin wall and dry bearings
operations and certain other engine hard part assets to Dana Corporation for a
purchase price of $430 million. Furthermore, the Company also expects to
realize additional net proceeds of approximately $13 million for the
collection of receivables of the businesses sold.
Net proceeds to the Company from the 1998 divestitures were subsequently
used to pay down debt.
OTHER ACTIVITIES
In January 1999, the Company issued $1.0 billion of bonds ("Notes"),
$400,000,000 of which were 7 3/8% Notes due 2006, and $600,000,000 of which
were 7 1/2% Notes due 2009. The Notes, exempt from registration in reliance on
Rule 144A under the Securities Act, were initially sold to a syndicate of
underwriters led by Merrill Lynch & Co. and Chase Securities Inc. each of whom
agreed to offer or sell such Notes only to qualified institutional buyers in
reliance on to Rule 144A under the Securities Act; to non U.S. persons in
reliance on Regulation S of the Securities Act; and to a limited number of
institutional accredited investors pursuant to Regulation D of the Securities
Act. Net proceeds to the Company, after paying underwriters' discounts of 1.5%
on the 7 3/8% Notes and 1.65% on the 7 1/2% Notes, were used to refinance bank
indebtedness. The Company will file, within 180 days of the date of issuance
of the Notes, a registration statement under the Securities Act to exchange
the Notes for new notes of the Company with substantially identical terms, and
cause the exchange offer to be competed with 270 days after the date of the
original issuance of the Notes.
SUPPLIERS
Federal-Mogul sells its manufactured parts as well as parts manufactured by
other manufacturers to the aftermarket. The products not manufactured by
Federal-Mogul are supplied by numerous companies. In 1998, no outside supplier
of the Company provided products that accounted for more than 5% of the
Company's net sales.
EMPLOYEE RELATIONS
On December 31, 1998, the Company had approximately 54,350 full-time
employees, of whom approximately 25,500 were employed in the United States.
Approximately 36% of the Company's United States employees and approximately
55% of the Company's foreign employees are represented by various unions. Each
of the Company's unionized manufacturing facilities has its own contract with
its own expiration date, and as a result, no contract expiration date affects
more than one facility. The Company believes its labor relations to be good.
ENVIRONMENTAL REGULATIONS
The Company's operations, in common with those of industry generally, are
subject to numerous existing and proposed laws and governmental regulations
designed to protect the environment, particularly regarding plant wastes and
emissions and solid waste disposal. Capital expenditures for property, plant
and equipment for environment control activities did not have a material
impact on the Company's financial position or results of operations in 1998
and are not expected to have a material impact on the Company's financial
position or results of operations in 1999 or 2000.
RAW MATERIALS
The Company does not normally experience supply shortages of raw materials.
Certain of the Company's relationships with its long-term suppliers are
contractual. No outside supplier of the Company provides more than 5% of
products purchased.
5
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Backlog
The majority of the Company's products are not on a backlog status. They are
produced from readily available materials and have a relatively short
manufacturing cycle. For products supplied by outside suppliers, the Company
generally purchases products from more than one source. The Company expects to
be capable of handling the anticipated 1999 sales volumes.
Patents and Licenses
The Company is committed to protecting its technology investments and market
share through an active and growing international patent portfolio. The
international patent portfolio is composed of a large number of foreign (non
U.S.) and U.S. patents and pending patent applications which relate to a wide
variety of products and processes. In the aggregate, the Company's
international patent portfolio is of material importance to its business;
however, the Company does not consider any international patent or group of
international patents relating to a particular product or process to be of
material importance when judged from the standpoint of the business as a
whole.
Competition
The global vehicular parts business is highly competitive. The Company
competes with many of its customers that produce their own components as well
as with independent manufacturers and distributors of component parts in the
United States and abroad. In general, competition for such sales is based on
price, product quality, customer service and the breadth of products offered
by a given supplier. The Company has attempted to meet these competitive
challenges through more efficiently integrating its manufacturing and
distribution operations, expanding its product coverage within its core
businesses, and expanding its worldwide distribution network.
Information About International and Domestic Operations and Export Sales
The Company has both manufacturing and distribution facilities for its
products, principally in the United States, Europe, Latin America, Mexico and
Canada. International operations are subject to certain risks inherent in
carrying on business abroad, including expropriation and nationalization,
currency exchange rate fluctuations and currency controls, and export and
import restrictions. The likelihood of such occurrences and their potential
effect on the Company vary from country to country and are unpredictable.
Detailed results of operations and assets by geographic area for each of the
years ended December 31, 1998, 1997 and 1996 appear in Note 19 of Notes to
Consolidated Financial Statements contained in Item 8 of this Report.
Executive Officers of the Registrant
The executive officers of the Company are its elected officers, other than
its assistant officers. Set forth below are the names, ages, positions and
offices held, and a brief account of the business experience during the past 5
years of each executive officer.
Richard A. Snell, (57). Chairman of the Board and Chief Executive Officer of
Federal-Mogul Corporation. Mr. Snell has served as Chairman of the Board,
Chief Executive Officer and a director of the Corporation since November 1996.
He also served as President from November 1996 to February 1998. Mr. Snell was
previously employed by Tenneco, Inc., from November 1987 to November 1996,
most recently having served as President and Chief Executive Officer of
Tenneco Automotive from September 1993, until he was employed by the Company.
Mr. Snell is also a member of the Board of Directors of Schneider National,
Inc.
Alan R. Begg (44). Vice President--Technology since February 1998. Prior
thereto, 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. He first
became an executive officer in 1998.
6
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DAVID A. BOZYNSKI (44). 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; and Vice President,
Finance--Lines of Business from April 1993 to September 1993. He first became
an executive officer in 1996.
CHARLES B. GRANT (54). Vice President--Corporate Development since December
1992; and Vice President and Controller from May 1988 to December 1992. He
first became an executive officer in 1985.
ALAN C. JOHNSON (50). 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; and
Vice President and President--Powertrain Operations--Americas from 1993 to
January 1995. He first became an executive officer in 1993.
RICHARD P. RANDAZZO (55). Senior Vice President--Human Resources since
February 1999 and Vice President-Human Resources since January 1997. Prior
thereto, Mr. Randazzo was employed by Nextel Communications, Inc. as Senior
Vice President--Human Resources from December 1994 to December 1996; and
Senior Vice President, Human Resources--Americas Region of Asea Brown Boveri,
Inc., from December 1990 to December 1994. He first became an executive
officer in 1997.
THOMAS W. RYAN (52). Executive Vice President since March 1998 and Chief
Financial Officer since February 1997. Prior thereto, Mr. Ryan was employed by
Tenneco Automotive, a division of Tenneco, Inc. as Chief Financial Officer
from January 1995 to February 1997; and Vice President, Treasurer and
Controller of A. O. Smith Corporation from March 1985 to January 1995. He
first became an Federal-Mogul executive officer in 1997.
WILHELM A. SCHMELZER (58). 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; and Vice President and Group Executive--Engine
and Transmission Products--Europe from January 1992 to April 1995. He first
became an executive officer in 1992.
KENNETH P. SLABY (47). Vice President and Controller since April 1996. Prior
thereto, Mr. Slaby held various positions at General Electric Company for 23
years, including Manager--Financial Operations for the global silicones
business from November 1990 to April 1996. He first became an executive
officer in 1996.
FRANK TOMES (56). Executive Vice President--General Products since February
1998. Prior thereto, Mr. Tomes served as Chief Executive--Composites and
Camshafts Group of T&N plc from January 1996 to February 1998; and Chief
Executive of T&N's Industrial Products and Materials Group. He first became an
executive officer in 1998.
GORDON A. ULSH (53). President and Chief Operating Officer since February
1999. Prior thereto, Mr. Ulsh served as Executive Vice President--Worldwide
Aftermarket since October 1998. He previously served in a number of positions
at Cooper Automotive including President of the Cooper Automotive Division;
Executive Vice President of Operations for the automotive products segment of
Cooper Industries; Vice President of Operations, North America for Cooper
Automotive; and Vice President and General Manager of Wagner Lighting. He
first became an executive officer in 1998.
JAMES J. ZAMOYSKI (51). Senior Vice President, General Counsel and Secretary
since February 1999; Vice President--Strategic Planning from June 1997 to
February 1999; Vice President and General Manager, April 1995 to June 1997;
Worldwide Aftermarket Operation--International, November 1993 to April 1996.
He first became an executive officer in 1980.
7
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Generally, officers of the Company are elected at the time of the Annual
Meeting of Shareholders, but the Board of Directors of the Company may also
appoint officers at various other times during the year. Each officer holds
office until his or her successor is elected or appointed or until his or her
resignation or removal.
ITEM 2. PROPERTIES.
The Company conducts its business from its World Headquarters complex in
Southfield, Michigan, which is leased pursuant to a sale/leaseback
arrangement. The principal manufacturing and other materially important
physical properties of the Company at December 31, 1998, are listed below. All
properties are owned in fee except where otherwise noted.
At December 31, 1998, the Company had 474 manufacturing, distribution and
sales and administration office facilities worldwide. Approximately 50% of the
facilities are leased, and the majority of which are distribution, sales and
administration offices. The Company owns the remainder of the facilities.
<TABLE>
<CAPTION>
REST
NORTH OF
TYPE OF FACILITY AMERICA EUROPE WORLD TOTAL
---------------- ------- ------ ----- -----
<S> <C> <C> <C> <C>
Manufacturing........................................ 90 71 66 227
Distribution......................................... 105 43 20 168
Sales and Administration Offices..................... 29 28 22 79
--- --- --- ---
Total................................................ 224 142 108 474
=== === === ===
</TABLE>
The facilities range in size from approximately 1,700 square feet to
1,143,000 square feet. Management believes substantially all of the Company's
property and equipment is in good condition and that it has sufficient
capacity to meet its current and expected manufacturing and distribution
needs. No facility is materially underutilized, except for those being sold or
closed in the normal course of business.
ITEM 3. LEGAL PROCEEDINGS
In the United States, the Company's United Kingdom subsidiary, T&N Ltd., and
two of T&N's United States 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 in the United States based upon asbestos
products allegedly installed in buildings. 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. As of December 31, 1998, the Company
has provided approximately $1.3 billion as its best estimate for future costs
related to resolving asbestos claims. The Company estimates claims will be
filed and paid in excess of the next 20 years. This estimate is based in part
on recent and historical claims experience, medical information and the
current legal environment.
As of December 31, 1998, the T&N Companies had approximately 105,000 claims
pending. During 1998, approximately 85,000 new claims were filed and 54,000
claims were settled, dismissed or otherwise resolved. In addition to the
pending cases above, the T&N Companies have approximately 41,000 claims that
have been settled but will be paid over time. There are a number of factors
that could affect the settlement costs into the future, including but not
limited to: changes in legal environment; possible insolvency of co-
defendants; and the establishment of an acceptable administrative (non-
litigation) claims resolution mechanism.
As of December 31, 1998, T&N is one of a large number of defendants named in
three pending property damage cases pending in two jurisdictions. Provision
has been made in the asbestos reserve for anticipated expenditures in relation
to such cases.
8
<PAGE>
The $1.3 billion total provision held for the T&N Companies is comprised of
an estimate for known claims (pending and settled but not paid) and possible
future claims (IBNR). As of December 31, 1998, the $1.3 billion total
provision is comprised of approximately $460 million related to known claims
and approximately $840 million related to IBNR claims.
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 typical cost of settlement (which is sensitive to the industry in which
the plaintiff claims exposure, the alleged disease type and the jurisdiction
in which the action is being brought), the rate of receipt of claims and the
timing of settlement and, in the United Kingdom, the level of subrogation
claims brought by insurance companies.
The T&N Companies have appointed the Center for Claims Resolution (CCR) as
their exclusive representative in relation to all asbestos-related personal
injury claims made against the T&N Companies in the United States. The CCR
provides to its 20 member companies a litigation defense, claims-handling and
administration service in respect to United States asbestos-related disease
claims. Pursuant to the CCR Producer Agreement, T&N is entitled to appoint a
representative as one of the five voting directors on the CCR's Board of
Directors. Members of the CCR contribute towards indemnity payments in each
claim in which the member is named. Contributions to such indemnity payments
are calculated on a case-by-case basis according to sharing agreements among
the CCR's members.
In 1996, T&N purchased a (Pounds)500 million (approximately $845 million at
the insurance agreement exchange rate of $1.69/(Pounds)) layer of insurance
which will be triggered should the aggregate amount of claims filed after
June 30, 1996, where the exposure occurred prior to that date, exceed
(Pounds)690 million (approximately $1,166 million at the $1.69/(Pounds)
exchange rate). The Company's reserve for claims filed after June 30, 1996
approximates the trigger point of the insurance.
The Company has reviewed the financial viability and legal obligations of
the three reinsurance companies involved and has concluded at this time that
there is little risk of the reinsurers not being able to meet their obligation
to pay, should the claims filed after June 30, 1996 exceed the (Pounds)690
million trigger point.
While management believes that reserves are appropriate for anticipated
losses arising from T&N's asbestos-related claims, given the nature and
complexity of the factors affecting the estimated liability, the actual
liability may differ. No absolute assurances can be given that T&N will not be
subject to material additional liabilities and significant additional
litigation relating to asbestos. In the possible, but unlikely, event that
such liabilities exceed the reserves recorded by the Company and the
additional (Pounds)500 million of insurance coverage, the Company's results of
operations, business, liquidity and financial condition could be materially
adversely affected. The T&N Companies reserves will be reevaluated
periodically as additional information becomes available.
The Company also is one of a large number of defendants in a number of
lawsuits brought by claimants alleging injury due to exposure to asbestos.
Fel-Pro has been named as a defendant in a number of product liability cases
involving asbestos, primarily involving gasket or packing products sold to
ship owners. In addition, subsidiaries of Cooper Automotive have been named as
defendants in a number of product liability cases involving asbestos,
primarily involving friction products. The Company is defending all such
claims vigorously and believes that it, Fel-Pro and the Cooper Automotive
subsidiaries have substantial defenses to liability and adequate insurance
coverage for defense and indemnity. While the outcome of litigation cannot be
predicted with certainty, management believes that asbestos claims pending
against the Company, Fel-Pro and the Cooper Automotive subsidiaries as of
December 31, 1998, will not have a material effect on the Company's financial
position. At December 31, 1998, approximately $20 million in related reserves
have been provided in respect of the possible uninsured portion of the
expenditures on asbestos claims pending against the Company, Fel-Pro and the
Cooper Automotive subsidiaries.
For information respecting lawsuits concerning environmental matters to
which the Company is a party, see "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations--Litigation and
Environmental Matters".
9
<PAGE>
There were no material legal proceedings that were terminated during the
fourth quarter of 1998.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders through the
solicitation of proxies or otherwise during the fourth quarter of 1998.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's common stock is listed on the New York Stock Exchange under
the trading symbol FMO. The approximate number of shareholders of record of
the Company's common stock at March 30, 1999 was 20,527 . The following table
sets forth the high and low sales prices of the Company's common stock for
each calendar quarter as reported on the New York Stock Exchange-Composite
Tape for the last two years:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
HIGH LOW HIGH LOW
QUARTER ------ ------ ------ ------
<S> <C> <C> <C> <C>
First............................................... $54.37 $39.00 $26.75 $21.63
Second.............................................. $69.25 $52.62 $35.38 $24.50
Third............................................... $72.00 $46.62 $39.94 $32.75
Fourth.............................................. $63.00 $33.00 $47.63 $36.75
</TABLE>
The closing price of the Company's common stock as reported on the New York
Stock Exchange-Composite Tape on March 30, 1999 was $45.125.
Quarterly dividends of $.12 per common share were declared for the first
quarter of 1998 and during 1997 and 1996. In May 1998, the Company's Board of
Directors reduced the quarterly dividend of $.12 per common share and
subsequently declared cash dividends payable in the second, third and fourth
quarters of 1998 in the amount of $.0025 per share of common stock. The
Company, consistent with its growth strategy, intends to retain future
earnings in the business and therefore anticipates paying dividends at a
comparable level in the foreseeable future.
10
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table presents information from the Company's consolidated
financial statements for the five years ended December 31, 1998. This
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and the "Financial
Statements and Supplementary Data."
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA
Net sales............... $ 4,468.7 $ 1,806.6 $ 2,032.7 $ 1,999.8 $ 1,889.5
Costs and expenses...... (4,266.9)(1) (1,703.7)(2) (2,258.0)(3) (2,000.7)(4) (1,795.5)
Other expense........... (16.3) (3.4) (3.4) (2.4) (2.5)
Income tax (expense)
benefit................ (93.6) (27.5) 22.4 (2.5) (31.8)
--------- --------- --------- --------- ---------
Net earnings (loss)
before extraordinary
items.................. 91.9 72.0 (206.3) (5.8) 59.7
Extraordinary items --
loss on early
retirement of debt, net
of applicable income
tax benefit............ (38.2) (2.6) -- -- --
--------- --------- --------- --------- ---------
Net earnings (loss)..... $ 53.7 $ 69.4 $ (206.3) $ (5.8) $ 59.7
========= ========= ========= ========= =========
COMMON SHARE SUMMARY
(DILUTED)
Average shares and
equivalents outstanding
(in thousands)......... 53,748 41,854 34,659 34,642 41,800
Earnings (loss) per
share:
Before extraordinary
items................. $ 1.67 $ 1.67 $ (6.20) $ (.42) $ 1.38
Extraordinary items --
loss on early
retirement of debt,
net of applicable
income tax benefit.... (.71) (.06) -- -- --
--------- --------- --------- --------- ---------
Net earnings (loss) per
share.................. $ .96 $ 1.61 $ (6.20) $ (.42) $ 1.38
========= ========= ========= ========= =========
Dividends declared per
share.................. $ .1275 $ .48 $ .48 $ .48 $ .48
========= ========= ========= ========= =========
CONSOLIDATED BALANCE
SHEET DATA
Total assets............ $ 9,940.1 $ 1,802.1 $ 1,455.2 $ 1,701.1 $ 1,481.7
Short-term debt(5)...... 211.0 28.6 280.1 111.9 74.0
Long-term debt.......... 3,130.7 273.1 209.6 481.5 319.4
Company-obligated
mandatorily redeemable
preferred securities of
subsidiary trust
holding
solely convertible
subordinated debentures
of the Company......... 575.0 575.0 -- -- --
Shareholders' equity.... 1,986.2 369.3 318.5 550.3 588.5
OTHER FINANCIAL
INFORMATION
Net cash provided from
(used by) operating
activities............. $ 325.5 $ 215.7 $ 149.0 $ (34.7) $ 24.3
Expenditures for
property, plant,
equipment and other
long-term assets....... 228.5 49.7 54.2 78.5 74.9
Depreciation and
amortization expense... 228.0 51.5 61.9 59.2 54.6
</TABLE>
- - -----------------
(1) Includes a $7.3 million net restructuring charge, a $19.0 million net
charge for adjustment of assets held for sale and other long-lived assets
to fair value, an $18.6 million charge for purchased in-process research
and development, a $22.4 million charge for integration costs, and a $13.3
million net gain related to the British pound currency option and forward
contract.
(2) Includes a $1.1 million net restructuring credit, a $2.4 million charge
for adjustment of assets held for sale and other long-lived assets to fair
value, a $1.6 million credit for reengineering and other related charges,
and a $10.5 million charge related to the British pound currency option
and forward contract.
(3) Includes a $57.6 million restructuring charge, a $151.3 million charge for
adjustment of assets held for sale and other long-lived assets to fair
value, and $11.4 million relating to reengineering and other related
charges.
(4) Includes a $26.9 million restructuring charge, a $51.8 million charge for
adjustment of assets held for sale and other long-lived assets to fair
value, and $13.9 million relating to reengineering and other related
charges.
(5)Includes current maturities of long-term debt (see Note 6 to the
consolidated financial statements).
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. 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 (OE)
manufacturers of such vehicles and industrial products. The Company also
manufactures and supplies its products and related parts to the aftermarket.
Acquisitions
In 1998, the Company acquired T&N plc (T&N), the automotive division of
Cooper Industries, Inc. (Cooper Automotive), Fel-Pro, Incorporated and certain
affiliated entities, which constitute the operating businesses of the Fel-Pro
group of companies (Fel-Pro), and various other acquisitions. For certain
acquisitions, principally Cooper Automotive, the purchase price allocation may
be adjusted as further information becomes available. Goodwill recognized in
connection with these transactions, which were accounted for as purchases, is
being amortized on a straight-line basis over 40 years.
T&N
In March 1998, the Company acquired T&N, a manufacturer based in Manchester,
England, for consideration (including direct costs of the acquisition) of
approximately $2.4 billion. The Company also assumed cash of approximately
$185 million and debt of approximately $745 million.
T&N manufactures and supplies high technology engineered automotive
components and industrial materials. In 1997, T&N had sales of approximately
(Pounds)1.8 billion ($2.9 billion at the 1997 average exchange rate) with
about 80% of such sales relating to the global 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 servicing OE customers and the
aftermarket. T&N operated in approximately 200 locations in 24 countries,
employed over 28,000 people worldwide and served customers globally. T&N's
operations included technical centers in the United Kingdom, Germany and North
America.
Cooper Automotive
In October 1998, the Company acquired Cooper Automotive, headquartered in
St. Louis, Missouri, for initial consideration of approximately $1.9 billion.
Cooper Automotive is a leading supplier of aftermarket parts for repair and
maintenance and serves OE automobile manufacturers worldwide. In 1997, Cooper
Automotive had sales of approximately $1.9 billion. At the time of the
acquisition, Cooper Automotive's principal products consisted of brakes and
friction, lighting, chassis parts, ignition and wiper blades. Cooper
Automotive employed approximately 14,500 employees in 63 locations.
Fel-Pro
In February 1998, the Company acquired Fel-Pro, a privately owned gasket
manufacturer headquartered in Skokie, Illinois, for total consideration of
approximately $722 million, which included 1,030,325.6 shares of Federal-Mogul
Series E Stock with an imputed value of $225 million and approximately $497
million in cash.
Fel-Pro is a leading gasket manufacturer for the North American aftermarket
and the OE heavy-duty market. In 1997, Fel-Pro had sales of approximately $500
million. At the time of the 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
employed approximately 2,700 employees in 16 locations.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS -- Continued
Other Acquisitions
During 1998, the Company acquired other complementary businesses and
increased its ownership in certain joint ventures in order to expand its
manufacturing and distribution capabilities. In the first quarter of 1998, the
Company increased its ownership to 100% in its Summerton, South Carolina
gasket manufacturing plant and also increased its ownership in KFM Bearing
Company Ltd., a Korean joint venture with Kukje Special Metal Co., from 30% to
87%. In addition, the Company acquired Bimet, a Polish manufacturer of engine
bearings, bushings and related products. During the fourth quarter of 1998,
the Company acquired Tri-Way Machine Limited, a Canadian manufacturer of
machining systems for the metal-cutting industry and Glockler Dichtsysteme
Gunter Hemmrich GmbH, a manufacturer of rubber sealing components and acoustic
decoupling for valve covers, intake manifolds and oil pans. Additionally, the
Company increased its ownership from 50.6% to 100% in T&N Holdings Limited
located in South Africa.
Rationalization of Acquired Businesses
In connection with the T&N, Cooper Automotive and Fel-Pro acquisitions in
1998, the Company recognized $216.8 million as acquired liabilities related to
the rationalization and integration of acquired businesses. The
rationalization reserves provide for $180.0 million and $36.8 million in
severance and exit costs, respectively, and were recorded as a component of
goodwill in the purchase price allocation.
The components of the integration plan include: closure of certain
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; consolidation of overlapping aftermarket 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 5,300 full-time employees.
The Company paid $61.6 million related to these rationalization reserves in
1998.
Divestitures of Acquired Businesses
In connection with securing regulatory approvals for the acquisition of T&N,
the Company executed an Agreement Containing Consent Order with the Federal
Trade Commission on February 27, 1998. Pursuant to this agreement, the Company
divested of the T&N Bearings Business and provided for independent management
of those assets pending such divestiture. The agreement stipulated that the
T&N Bearings Business be maintained as a viable, independent competitor of the
Company and that the Company 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.
On December 18, 1998, the Company completed the sale of the T&N Bearings
Business, consisting of the Glacier Vandervell Bearings Group and the AE
Clevite North American non-bearing aftermarket engine hard parts business, to
Dana Corporation for $430 million. These proceeds were subsequently used to
pay down debt. Furthermore, the Company also expects to realize additional net
proceeds of approximately $13 million from the collection of receivables of
the business sold. Prior to the sale of the T&N Bearings Business to Dana
Corporation, a portion of the business was sold for approximately $12 million
in August 1998.
In July 1998, the Company sold the Fel-Pro Chemical Business to Loctite
Corporation, a part of Henkel KGaA, a global specialist in applied chemistry
headquartered in Dusseldorf, Germany, for $57 million.
Operating results for the T&N Bearings and Fel-Pro Chemical Businesses
(which include interest expense of $30 million relating to the holding costs
of the businesses) have been excluded from the consolidated statement of
operations for the year ended December 31, 1998.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS -- Continued
Results of Operations
Net Sales
Sales by operating segment were:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(Millions of Dollars)
<S> <C> <C> <C>
Powertrain Systems................................... $ 1,883 $ 782 $ 739
Sealing Systems...................................... 925 333 295
General Products..................................... 1,636 577 665
Divested Activities.................................. 25 115 334
------- ------- -------
Total Sales........................................ $ 4,469 $ 1,807 $ 2,033
======= ======= =======
</TABLE>
Powertrain Systems sales increased 141% from 1997 to 1998 primarily due to
the acquisitions of T&N and Cooper Automotive. Excluding the impact of these
and other acquisitions, sales decreased 3% due to lower aftermarket sales and
the impact of foreign exchange rate fluctuations, partially offset by certain
original equipment volume increases. Sales in the aftermarket were impacted by
an overall decrease in the engine parts market size due to improved original
equipment quality, and the bankruptcy of a major customer in North America.
Sealing Systems sales increased 178% from 1997 to 1998 primarily due to the
acquisitions of T&N, Cooper Automotive and Fel-Pro. Taking out the impact of
these acquisitions, sales were essentially flat. Original equipment sales
increased slightly due to certain model volume increases while aftermarket
sales decreased primarily due to the bankruptcy of a major customer in North
America.
General Products sales increased 184% from 1997 to 1998 primarily due to the
acquisitions of T&N and Cooper Automotive. Excluding the impact of these
acquisitions, sales decreased 4% primarily due to the impact of foreign
exchange rates and the bankruptcy of a major customer in the North American
aftermarket, slightly offset by certain original equipment volume increases.
Operational EBIT
The accounting policies of the business segments are consistent with those
described in Note 1, "Accounting Policies." Operational EBIT is defined as
Operational Earnings before certain nonrecurring items (such as certain
purchase accounting adjustments and integration costs associated with new
acquisitions), interest and income taxes.
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(Millions of Dollars)
<S> <C> <C> <C>
Powertrain Systems................................. $ 223 $ 68 $ 75
Sealing Systems.................................... 133 26 9
General Products................................... 154 44 31
Divested Activities................................ (8) 1 (22)
------- ------- -------
Operational EBIT................................. $ 502 $ 139 $ 93
======= ======= =======
</TABLE>
Operational EBIT in Powertrain Systems increased 228% in 1998 from 1997 due
to the increase in sales noted above, as well as the streamlining of product
engineering costs and the implementation of Federal-Mogul's constraint
management programs across the combined companies.
Sealing Systems 1998 operational EBIT rose 412% as compared to 1997 due to
higher sales, reduced administrative costs and material sourcing savings as a
result of the acquisitions.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS -- Continued
General Products operational EBIT in 1998 increased 250% versus 1997 due to
increased sales, material sourcing savings and implementation of constraint
management practices as a result of the acquisitions.
Purchased In-Process Research and Development Charge
In connection with the T&N acquisition, the Company recognized an $18.6
million charge in 1998 associated with the estimated fair value of purchased
in-process research and development for which technological feasibility had
not been established and the in-process technology had no future alternative
uses.
Restructuring Charges (Credits)
In 1998, as a result of the T&N, Cooper Automotive and Fel-Pro acquisitions,
the Company recognized $16.3 million of restructuring charges related to
restructuring the Company's operations in place prior to these acquisitions.
The restructuring charges were primarily for employee severance costs, which
result from planned terminations in various business operations of the
Company. The severance costs were based on the estimated amounts 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 1998 restructuring plan will be substantially
completed in 1999.
Also in 1998, the Company recognized restructuring credits of $9.0 million
for a reversal of charges recorded in previous years. The Company was able to
sell, rather than liquidate, its retail operations in Puerto Rico, causing
this reversal.
Primarily as a result of the amendments to the 1996 restructuring plan,
(refer to Note 4, "Restructuring Charges"), 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 was 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'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.
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.
Reengineering and Other Related Charges (Credits)
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
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS -- Continued
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. Operating results for 1997 include a credit of $1.6 million
relating to the reversal of certain 1996 reengineering and other related
charges, as the actual costs were less than the initial estimates.
Adjustment of Assets Held for Sale and Other Long-Lived Assets to Fair Value
In 1998, the Company decided to sell its subsidiary, Bertolotti Pietro e
Figli, S.r.l. (Bertolotti), an Italian aftermarket operation. The carrying
value of Bertolotti's long-lived assets was reduced to 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 charge primarily associated with the write-
down of Bertolotti's assets to the estimated fair value.
Also in 1998, the Company recognized a $1.0 million benefit associated with
the sale of certain international retail assets previously written down to
their realized fair value.
In 1997, the Company recognized a charge of $2.4 million to write down
certain long-lived assets of the international retail aftermarket to fair
value. These assets were sold in 1998 for approximately their adjusted value
and no gain or loss was recorded.
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. The Company has substantially completed the 1996
restructuring plan, selling its South Africa, Australia, Chile and Puerto Rico
retail operations during 1997 and 1998. Also in 1996, based upon the final
sale, the Company recognized an additional write-down of $2.8 million to the
net asset value of the United States ball bearings operations.
Integration Costs
The Company recognized $22.4 million of integration costs in 1998 in
connection with the previously discussed acquisitions. These expenses included
such one-time items as brand integration, costs to pack and move productive
inventory and fixed assets from one location to another and costs to change
the identity of entities acquired.
Interest Expense
Interest expense increased $170.7 million in 1998 to $204.0 million due to
debt financing of the T&N, Cooper Automotive, Fel-Pro and other acquisitions,
offset slightly by debt reductions from cash flow generated from operations.
Interest expense decreased $11.1 million in 1997 to $33.3 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.
Interest Income
The increase in interest income of $3.5 million in 1998 to $10.6 million and
the increase of $4.2 million in 1997 are due to interest earned on the
proceeds of the December 1997 sale of Company-obligated mandatorily redeemable
preferred securities, which were used in March 1998 to finance a portion of
the T&N acquisition.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS -- Continued
International Currency Exchange Losses
International currency exchange losses increased to $4.7 million in 1998 due
primarily to the weakening of the Mexican peso. The decrease of $3.1 million
from 1996 to 1997 is due to the 1997 sale of the Turkish operation and a
devalued Venezuelan bolivar.
Net (Gain) Loss 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. The cost of the option and its
change in fair value have been reflected in the results of operations in the
fourth quarter of 1997. At December 31, 1997, the Company had recognized a net
loss of $10.5 million on the transaction.
In January 1998, the Company settled the option and recognized an additional
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 approximately $2.45 billion. As a result of favorable fluctuations in the
British pound/United States dollar exchange rate during the contract period,
the Company recognized a $30.6 million gain.
The Company entered into the above transactions to serve as economic hedges
for the purchase of T&N. Such transactions, however, do not qualify for hedge
accounting under GAAP, and therefore both the loss on the British pound
currency option and the gain on the British pound forward contract are
reflected in the consolidated statement of operations caption "Net (gain) loss
on British pound currency option and forward contract."
Other Expense, net
The increase in other expense, net, of $12.9 million in 1998 to $16.3
million is due to the expense related to the Company-obligated mandatorily
redeemable preferred securities, issued in December 1997, partially offset by
an increase in earnings from equity investments acquired in the T&N
acquisition and a gain on the divestiture of its minority interest in G. Bruss
GmbH & Co. KG.
Income Taxes
The effective tax rate for 1998 was 50.5% compared to 27.6% in 1997. This
difference was primarily due to non-deductible goodwill, the one-time charge
for purchased in-process research and development and foreign tax rate
differences. The effective tax rate on the loss in 1996 was 9.8% due to losses
in foreign countries where no tax benefit was recorded.
At December 31, 1998, the Company had deferred tax assets, net of a $66.2
million valuation allowance, of $894.0 million and deferred tax liabilities of
$842.5 million. The valuation allowance reserve increased from $44.4 million
in 1997 to $66.2 million in 1998 due to valuation allowances recorded on net
operating loss carryforwards acquired with the acquisitions of T&N, Cooper
Automotive and Fel-Pro. Future reductions to these valuation allowances, if
any, will be applied to reduce goodwill related to the respective
acquisitions.
The net deferred tax asset of $51.5 million included deferred tax assets of
$429.1 million for asbestos liabilities and $165.2 million for postemployment
benefit obligations and deferred tax liabilities of $379.4 million and $326.2
million for fixed asset and intangible asset basis differences, respectively.
The Company expects to realize the assets and liabilities related to these
items over the next 40 years.
Extraordinary Items
The Company incurred extraordinary losses on the early retirement of debt of
$38.2 million and $2.6 million, net of related tax benefits, in 1998 and 1997,
respectively.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS -- Continued
Liquidity and Capital Resources
Cash Flow Provided from Operating Activities
Cash flow provided from operating activities was $325.5 million in 1998.
Cash flow was generated primarily from operations, a decrease in inventories
of $55.9 million and a decrease in accounts receivable of $37.5 million.
Partially offsetting these items were payments against the asbestos liability
of $89.2 million and restructuring and rationalization payments of $78.0
million.
Cash Flow Used by Investing Activities
Cash flow used by investing activities was primarily related to the
acquisitions of T&N, Cooper Automotive and Fel-Pro, net of proceeds from sales
of the T&N Bearings Business and the Fel-Pro Chemical Business. The Company
expects to pay approximately $50 million in taxes related to the sale of the
T&N Bearings Business during the first quarter of 1999. In addition, capital
expenditures of $228.5 million were made for property, plant and equipment to
implement process improvements, information technology, replacement of
existing machinery and equipment and introductions of new products. Capital
expenditures are expected to be approximately $300 million in 1999.
The Cooper Automotive purchase agreement includes a price adjustment based
upon acquired net assets, as defined in the agreement, as of the acquisition
date. The Company anticipates that an additional cash payment of approximately
$100 million will be paid in 1999.
Cash Flow Provided from Financing Activities
Cash flow provided from financing activities was primarily from debt issued
to fund the acquisitions of T&N, Cooper Automotive and Fel-Pro and the
issuance of common stock, partially offset by principal payments on long-term
debt. The Company had total debt of $3,341.7 million at December 31, 1998
compared to $301.7 million at December 31, 1997.
At December 31, 1998, the Company had $400 million available under its
revolving credit facility expiring on December 31, 2003. As of December 31,
1998, there were no borrowings outstanding against this facility.
The Company entered into Senior Credit Agreements in connection with its
acquisitions of T&N and Cooper Automotive totaling $4.625 billion and a Senior
Subordinated Credit Agreement in connection with its acquisition of T&N of
$500 million in 1998. The Senior Credit Agreements had $1.894 billion
outstanding at December 31, 1998 with maturities ranging from 1999 through
2005. There were no borrowings outstanding against the Senior Subordinated
Credit Agreement at December 31, 1998.
The Company issued 26.75 million shares of common stock, including 2.1
million shares which were converted to Series E Preferred Stock, in two equity
offerings in 1998 generating proceeds of $1.373 billion. Proceeds were used to
repay borrowings under the Senior Credit Agreements and Senior Subordinated
Credit Agreement.
The Company issued $1.0 billion of bonds with maturities ranging from six to
twelve years, a weighted-average yield of 7.76% and a weighted-average coupon
of 7.73% in 1998, and $1.0 billion in bonds with maturities ranging from seven
to ten years, a weighted-average yield of 7.53% and a weighted-average coupon
of 7.45% in January 1999. Proceeds from these transactions were used to repay
borrowings under the Senior Credit Agreements. As a result of the 1999
transaction, the Company will recognize an extraordinary charge in the first
quarter of 1999 of approximately $8 million, net of tax, related to early
extinguishment of debt.
On February 24, 1999, the Company entered into a new $1.75 billion Senior
Credit Agreement at variable interest rates, which contains a $1.0 billion
multicurrency revolving credit facility and two term loan components.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS -- Continued
The revolving credit facility has a five-year maturity. The term loan
components of $400 million and $350 million mature in five and six years,
respectively. The proceeds of this Senior Credit Agreement were used to
refinance the prior Senior Credit Agreements entered into in connection with
the T&N and Cooper Automotive acquisitions as well as the $400 million
multicurrency revolving credit facility related to the T&N acquisition. As a
result of these transactions, the Company will recognize an extraordinary
charge in the first quarter of 1999 of approximately $15 million, net of tax,
related to the early extinguishment of debt.
The Company believes that cash flows from operations, together with
borrowings available under the Company's multicurrency revolving credit
facility, will continue to be sufficient to meet its ongoing working capital
requirements.
Litigation and Environmental Matters
T&N Asbestos Litigation
In the United States, the Company's United Kingdom subsidiary, T&N Ltd., and
two of T&N's United States 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 in the United States based upon asbestos
products allegedly installed in buildings. 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. As of December 31, 1998, the Company
has provided approximately $1.3 billion as its best estimate for future costs
related to resolving asbestos claims. The Company estimates claims will be
filed and paid in excess of the next 20 years. This estimate is based in part
on recent and historical claims experience, medical information and the
current legal environment.
As of December 31, 1998, the T&N Companies had approximately 105,000 claims
pending. During 1998, approximately 85,000 new claims were filed and 54,000
claims were settled, dismissed or otherwise resolved. In addition to the
pending cases above, the T&N Companies have approximately 41,000 claims that
have been settled but will be paid over time. There are a number of factors
that could impact the settlement costs into the future, including but not
limited to: changes in legal environment; possible insolvency of co-
defendants; and the establishment of an acceptable administrative (non-
litigation) claims resolution mechanism.
As of December 31, 1998, T&N is one of a large number of defendants named in
three pending property damage cases pending in two jurisdictions. Provision
has been made in the asbestos reserve for anticipated expenditures in relation
to such cases.
The $1.3 billion total provision held for the T&N Companies is comprised of
an estimate for known claims (pending and settled but not paid) and possible
future claims (IBNR). As of December 31, 1998, the $1.3 billion total
provision is comprised of approximately $460 million related to known claims
and approximately $840 million related to IBNR claims.
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 typical cost of settlement (which is sensitive to the industry in which
the plaintiff claims exposure, the alleged disease type and the jurisdiction
in which the action is being brought), the rate of receipt of claims and the
timing of settlement and, in the United Kingdom, the level of subrogation
claims brought by insurance companies.
The T&N Companies have appointed the Center for Claims Resolution (CCR) as
their exclusive representative in relation to all asbestos-related personal
injury claims made against the T&N Companies in the United States. The CCR
provides to its 20 member companies a litigation defense, claims-handling and
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS -- Continued
administration service in respect to United States asbestos-related disease
claims. Pursuant to the CCR Producer Agreement, T&N is entitled to appoint a
representative as one of the five voting directors on the CCR's Board of
Directors. Members of the CCR contribute towards indemnity payments in each
claim in which the member is named. Contributions to such indemnity payments
are calculated on a case-by-case basis according to sharing agreements among
the CCR's members.
In 1996, T&N purchased a (Pounds)500 million (approximately $845 million at
the insurance agreement exchange rate of $1.69/(Pounds)) layer of insurance
which will be triggered should the aggregate amount of claims filed after June
30, 1996, where the exposure occurred prior to that date, exceed (Pounds)690
million (approximately $1,166 million at the $1.69/(Pounds) exchange rate).
The Company's reserve for claims filed after June 30, 1996 approximates the
trigger point of the insurance.
The Company has reviewed the financial viability and legal obligations of
the three reinsurance companies involved and has concluded at this time that
there is little risk of the reinsurers not being able to meet their obligation
to pay, should the claims filed after June 30, 1996 exceed the (Pounds)690
million trigger point.
While management believes that reserves are appropriate for anticipated
losses arising from T&N's asbestos-related claims, given the nature and
complexity of the factors affecting the estimated liability, the actual
liability may differ. No absolute assurances can be given that T&N will not be
subject to material additional liabilities and significant additional
litigation relating to asbestos. In the possible, but unlikely, event that
such liabilities exceed the reserves recorded by the Company and the
additional (Pounds)500 million of insurance coverage, the Company's results of
operations, business, liquidity and financial condition could be materially
adversely affected. The T&N Companies reserves will be reevaluated
periodically as additional information becomes available.
Federal-Mogul, Fel-Pro and Cooper Automotive Asbestos Litigation
The Company also is one of a large number of defendants in a number of
lawsuits brought by claimants alleging injury due to exposure to asbestos.
Fel-Pro has been named as a defendant in a number of product liability cases
involving asbestos, primarily involving gasket or packing products sold to
ship owners. In addition, subsidiaries of Cooper Automotive have been named as
defendants in a number of product liability cases involving asbestos,
primarily involving friction products. The Company is defending all such
claims vigorously and believes that it, Fel-Pro and the Cooper Automotive
subsidiaries have substantial defenses to liability and adequate insurance
coverage for defense and indemnity. While the outcome of litigation cannot be
predicted with certainty, management believes that asbestos claims pending
against the Company, Fel-Pro and the Cooper Automotive subsidiaries as of
December 31, 1998, will not have a material effect on the Company's financial
position. At December 31, 1998, approximately $20 million in related reserves
have been provided in respect of the possible uninsured portion of the
expenditures on asbestos claims pending against the Company, Fel-Pro and the
Cooper Automotive subsidiaries.
Environmental Matters
The Company is a defendant in lawsuits filed in various jurisdictions
pursuant to the federal Comprehensive Environmental Response Compensation and
Liability Act of 1980 (CERCLA) or other similar federal or state environmental
laws which require responsible parties to pay for cleaning up contamination
resulting from hazardous wastes which were discharged into the environment by
them or by others to which they sent such wastes for disposition. In addition,
the Company has been notified by the United States Environmental Protection
Agency and various state agencies that it may be a potentially responsible
party (PRP) under such law 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. At most of the sites that
are likely to be costliest to clean up, which are often current or
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS -- Continued
former commercial waste disposal facilities to which numerous companies sent
waste, the Company's exposure is expected to be limited. Despite the joint and
several liability which might be imposed on the Company under CERLCA and some
of the other laws pertaining to these sites, the Company's share of the total
waste is usually quite small; the other companies which also sent wastes,
often numbering in the hundreds or more, generally include large, solvent
publicly owned companies; and in most such situations the government agencies
and courts have imposed liability in some reasonable relationship to
contribution of waste. 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 $50 million at December
31, 1998 and $11 million at December 31, 1997. The majority of the 1998
increase is attributable to the acquisitions of T&N and Cooper Automotive.
Management believes that such accruals will be adequate to cover the Company's
estimated liability for its exposure in respect of such matters.
Market Risk
In the normal course of business, the Company is subject to market exposure
from changes in foreign exchange rates, interest rates, and raw material
prices. To manage a portion of these inherent risks, the Company purchases
various derivative financial instruments and commodity futures contracts. The
Company does not hold or issue derivative financial instruments for trading
purposes.
Foreign Currency Risk
A substantial portion of the Company's operations consists of manufacturing
and sales activities in foreign jurisdictions. The Company manufactures and
sells its products in North America, Europe, South America, Africa and Asia.
As a result, the Company's financial results could be significantly affected
by factors such as changes in foreign currency exchange rates or weak economic
conditions in the foreign markets in which the Company distributes its
products. The Company's operating results are primarily exposed to changes in
exchange rates between the United States dollar and European currencies.
As currency exchange rates change, translation of the income statements of
the Company's international businesses into United States dollars affects
year-over-year comparability of operating results. The Company does not
generally hedge operating translation risks because cash flows from
international operations are generally reinvested locally.
As of December 31, 1998, the Company's net assets (defined as current assets
less current liabilities) subject to foreign currency translation risk are
$146.8 million. The potential decrease in net assets from a hypothetical 10%
adverse change in quoted foreign currency exchange rates would be
approximately $14.7 million.
The sensitivity analysis presented assumes a parallel shift in foreign
currency exchange rates. Exchange rates rarely move in the same direction.
This assumption may overstate the impact of changing exchange rates on
individual assets and liabilities denominated in a foreign currency.
The Company monitors certain aspects of its foreign currency activities and
larger transactions through the use of foreign currency options or forwards.
The Company generally tries to utilize natural hedges within their foreign
currency activities, including the matching of revenues and costs.
The Company has entered into foreign currency forward contracts to hedge the
British pound against the United States dollar in the amount of $66 million
with an average contract rate of $1.62/(Pounds) and an unrealized loss of $3.5
million at December 31, 1998. The Company has also entered into foreign
currency forward contracts to hedge the British pound against the South
African rand in the amount of $19 million with an average contract rate of
9.99 rand/(Pounds) and an unrealized loss of $4.3 million at December 31,
1998.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS -- CONTINUED
The Company has also entered into foreign currency forward contracts to
hedge foreign currency debt exposures from the British pound to the Australian
dollar, Swiss franc, German mark, Danish krone, Spanish peseta, French franc,
Hong Kong dollar, Italian lira, Japanese yen and Swedish krona whose notional
amounts and related unrealized gains or losses are not material.
All foreign currency forward contracts purchased will expire within the next
twelve months.
Interest Rate Risk
The Company's variable interest expense is sensitive to changes in the
general level of United States interest rates. Some of the Company's interest
expense is fixed through long-term borrowings to mitigate the impact of such
potential exposure. The following table provides information about the
Company's financial instruments that are sensitive to changes in interest
rates. The table presents principal cash flows and related weighted-average
interest rates by expected maturity dates. Weighted-average variable rates are
based upon spot rate observations as of the reporting date.
INTEREST RATE SENSITIVITY
PRINCIPAL AMOUNT BY EXPECTED MATURITY
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
FAIR VALUE AT
1999 2000 2001 2002 2003 THEREAFTER TOTAL DECEMBER 31, 1998
---- ---- ---- ---- ---- ---------- ----- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES
Long-term debt,
including current
portion
Fixed rate............. $ 52.1 $ 65.2 $52.7 $ 10.8 $ 23.7 $1,141.1 $1,345.6 $1,381.2
Average interest rate.. 7.80% 7.84% 7.88% 7.86% 7.86% 7.85% 7.85%
Variable rate.......... $ 56.4 $409.9 $86.4 $115.9 $116.0 $1,109.0 $1,893.6 $1,893.6
Average interest rate.. 7.33% 7.33% 7.33% 7.33% 7.33% 7.33% 7.33%
RATE SENSITIVE
DERIVATIVE FINANCIAL
INSTRUMENTS
Interest rate locks
purchased.............. $300.0 -- -- -- -- -- $ 300.0 $ (0.9)
Average strike rate.... 4.69% -- -- -- -- -- -- --
Forward rate........... 4.66% -- -- -- -- -- -- --
</TABLE>
Commodity Price Risk
The Company is dependent upon the supply of certain raw materials in the
production process and has entered into firm purchase commitments for copper,
aluminum and nickel. The Company uses forward contracts to hedge against the
changes in certain specific commodity prices of the purchase commitments
outstanding. The net unrealized losses at December 31, 1998 for commodity
contracts were $1.4 million.
OTHER MATTERS
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 including information technology (IT)
and non-IT systems. 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
testing, and is implementing the action plan to address the Year 2000 issue
and
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS -- Continued
estimates that the majority of testing will be completed by the end of the
first quarter of 1999. A number of independent third-party reviews have been
performed and others are planned. 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 in a timely manner, the Year 2000 issue
could cause production interruptions that could have a material impact on the
operations of the Company. The Company has initiated development of
contingency plans and will continue to do so throughout the program.
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 hardware and software
for Year 2000 modifications. The total cost of the Year 2000 project is
estimated to be $25 million and is being funded through operating cash flows.
These estimates have been verified by independent third-party audit. Of the
total project cost, approximately $10 million is attributable to the purchase
of new hardware and software which will be capitalized. Maintenance and repair
of existing systems to be expensed as incurred is expected to be approximately
$15 million. As of December 31, 1998, the Company has incurred and expensed
approximately $8 million and capitalized approximately $3 million.
The costs of the project and the date which the Company plans to complete
the Year 2000 modifications are based on management's best estimates, which
were derived utilizing numerous assumptions of future events including the
continued availability of certain resources, third-party modification plans
and other factors. However, there can be no guarantee that these estimates
will be achieved and actual results could differ materially from those plans.
Specific factors that might cause such material differences include, but are
not limited to, the availability and cost of personnel trained in this area,
the ability to locate and correct all relevant computer codes and similar
uncertainties.
Management of the Company believes it has an effective program in place to
resolve the Year 2000 issue in a timely manner. As noted above, the Company
has not yet completed all necessary phases of the Year 2000 program. In the
event that the Company does not complete any additional phases, the Company
would be unable to take customer orders, manufacture and ship products,
invoice customers or collect payments. In addition, disruptions in the economy
generally resulting from Year 2000 issues could also materially adversely
affect the Company. The Company could be subject to litigation for computer
systems product failure, for example, equipment shutdown or failure to
properly date business records. The amount of potential liability and lost
revenue cannot be reasonably estimated at this time.
The Company has contingency plans for certain critical applications and is
working on such plans for others. These contingency plans involve, among other
actions, manual workarounds, increasing inventories, and adjusting staffing
strategies.
Euro Conversion
On January 1, 1999, certain member countries of the European Union
irrevocably fixed the conversion rates between their national currencies and a
common currency, the "Euro," which became their legal currency on that date.
The participating countries' former national currencies continue to exist as
denominations of the Euro
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS -- Continued
until January 1, 2002. The Company has established a steering committee that
is monitoring the business implications of conversion to the Euro, including
the need to adapt internal systems to accommodate Euro-denominated
transactions. The acquisition of T&N has provided the Company with a strong
knowledge base in which to assist with the conversion. While the Company is
still in various stages of assessment and implementation, the Company does not
expect the conversion to the Euro to have a material affect on its financial
condition or results of operations.
Effect of Accounting Pronouncements
In 1998, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) 98-5, Reporting the Costs of Start-Up Activities.
SOP 98-5 is effective January 1, 1999, and requires that start-up costs
capitalized prior to January 1, 1999 be written off and any future start-up
costs be expensed as incurred. The unamortized balance of start-up costs will
be written off as a cumulative effect of an accounting change of approximately
$13 million, net of tax, as of January 1, 1999.
In 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities. The Company expects to adopt the new statement
effective January 1, 2000. The statement requires the Company to recognize all
derivatives on the balance sheet at fair value. The Company does not
anticipate that the adoption of this statement will have a significant effect
on its results of operations or financial condition.
24
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
Item 8. Financial Statements and Supplemental Data
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------
1998 1997 1996
---- ---- ----
(Millions of Dollars,
Except Per Share Amounts)
<S> <C> <C> <C>
Net sales....................................... $4,468.7 $1,806.6 $2,032.7
Cost of products sold........................... 3,290.2 1,381.8 1,660.5
-------- -------- --------
Gross margin.................................... 1,178.5 424.8 372.2
Selling, general and administrative expenses.... 640.8 276.0 320.0
Amortization.................................... 83.8 8.9 12.0
Purchased in-process research and development
charge......................................... 18.6 -- --
Restructuring charges (credits)................. 7.3 (1.1) 57.6
Reengineering and other related charges
(credits)...................................... -- (1.6) 11.4
Adjustment of assets held for sale and other
long-lived assets to fair value................ 19.0 2.4 151.3
Integration costs............................... 22.4 -- --
Interest expense................................ 204.0 33.3 44.4
Interest income................................. (10.6) (7.1) (2.9)
International currency exchange losses.......... 4.7 0.6 3.7
Net (gain) loss on British pound currency option
and forward contract........................... (13.3) 10.5 --
Other expense, net.............................. 16.3 3.4 3.4
-------- -------- --------
Earnings (loss) before income taxes and
extraordinary items......................... 185.5 99.5 (228.7)
Income tax expense (benefit).................... 93.6 27.5 (22.4)
-------- -------- --------
Net earnings (loss) before extraordinary
items....................................... 91.9 72.0 (206.3)
Extraordinary items -- loss on early retirement
of debt, net of applicable income tax benefit.. 38.2 2.6 --
-------- -------- --------
Net earnings (loss).......................... 53.7 69.4 (206.3)
Preferred dividends............................. 3.6 5.5 8.7
-------- -------- --------
Net Earnings (Loss) Available to Common
Shareholders.................................. $ 50.1 $ 63.9 $ (215.0)
======== ======== ========
Earnings (Loss) Per Common Share:
Income (loss) before extraordinary items....... $ 1.84 $ 1.81 $ (6.20)
Extraordinary items............................ (.80) (.07) --
-------- -------- --------
Net Earnings (Loss) Per Common Share......... $ 1.04 $ 1.74 $ (6.20)
======== ======== ========
Earnings (Loss) Per Common Share Assuming
Dilution:
Income (loss) before extraordinary items....... $ 1.67 $ 1.67 $ (6.20)
Extraordinary items............................ (.71) (.06) --
-------- -------- --------
Net Earnings (Loss) Per Common Share Assuming
Dilution.................................... $ .96 $ 1.61 $ (6.20)
======== ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
25
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
----------------------
1998 1997
---- ----
(Millions of Dollars)
<S> <C> <C>
ASSETS
Cash and equivalents................................... $ 77.2 $ 541.4
Accounts receivable.................................... 1,025.0 158.9
Investment in accounts receivable securitization....... 91.1 48.7
Inventories............................................ 1,068.6 277.0
Prepaid expenses and income tax benefits............... 337.7 113.2
---------- ----------
Total Current Assets................................ 2,599.6 1,139.2
Property, plant and equipment.......................... 2,477.5 313.9
Goodwill............................................... 3,398.4 143.8
Other intangible assets................................ 886.4 48.4
Other noncurrent assets................................ 578.2 156.8
---------- ----------
Total Assets........................................ $ 9,940.1 $ 1,802.1
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term debt, including current portion of long-term
debt.................................................. $ 211.0 $ 28.6
Accounts payable....................................... 498.4 102.3
Accrued compensation................................... 200.3 36.8
Restructuring and rationalization reserves............. 178.9 33.9
Current portion of asbestos liability.................. 125.0 --
Income taxes payable................................... 142.2 10.2
Other accrued liabilities.............................. 673.7 117.8
---------- ----------
Total Current Liabilities........................... 2,029.5 329.6
Long-term debt......................................... 3,130.7 273.1
Long-term portion of asbestos liability................ 1,176.7 --
Postemployment benefits................................ 677.0 190.9
Other accrued liabilities.............................. 327.0 50.6
Minority interest in consolidated subsidiaries......... 38.0 13.6
Company-obligated mandatorily redeemable preferred
securities of subsidiary trust holding solely
convertible subordinated debentures of the
Company(1)............................................ 575.0 575.0
Shareholders' Equity
Series C ESOP preferred stock......................... 44.4 49.0
Series E preferred stock.............................. 132.7 --
Common stock.......................................... 336.8 201.0
Additional paid-in capital............................ 1,665.8 332.6
Accumulated deficit................................... (69.9) (123.6)
Unearned ESOP compensation............................ (15.1) (21.8)
Accumulated other comprehensive income................ (106.0) (65.7)
Other................................................. (2.5) (2.2)
---------- ----------
Total Shareholders' Equity.......................... 1,986.2 369.3
---------- ----------
Total Liabilities and Shareholders' Equity.......... $ 9,940.1 $ 1,802.1
========== ==========
</TABLE>
- - ------------------
(1) The sole assets of the Trust are convertible subordinated debentures of
Federal-Mogul with an aggregate principal amount of $575.0 million, which
bear interest at a rate of 7% per annum and mature on December 1, 2027.
Upon repayment, the Company-obligated mandatorily redeemable preferred
securities of subsidiary trust will be mandatorily redeemed.
See accompanying Notes to Consolidated Financial Statements.
26
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------
1998 1997 1996
---- ---- ----
(Millions of Dollars)
<S> <C> <C> <C>
Cash Provided From (Used By) Operating Activities
Net earnings (loss)............................... $ 53.7 $ 69.4 $(206.3)
Adjustments to reconcile net earnings (loss) to
net cash provided from operating activities:
Depreciation and amortization.................... 228.0 51.5 61.9
Purchased in-process research and development
charge.......................................... 18.6 -- --
Restructuring charges (credits).................. 7.3 (1.1) 57.6
Reengineering and other related charges
(credits)....................................... -- (1.6) 11.4
Adjustment of assets held for sale and other
long-lived assets to fair value................. 19.0 2.4 151.3
Loss on early retirement of debt................. 58.1 4.1 --
Vesting of restricted stock...................... 0.7 9.0 0.4
Postemployment benefits.......................... 10.9 (7.7) (2.0)
Decrease in accounts receivable.................. 37.5 7.6 46.5
Decrease in inventories.......................... 55.9 59.9 54.5
Increase (decrease) in accounts payable.......... 5.4 (19.5) (25.5)
Increase (decrease) in current liabilities and
other........................................... (2.4) 67.9 16.8
Payments against restructuring and
rationalization reserves........................ (78.0) (26.2) (17.6)
Payments against asbestos liability.............. (89.2) -- --
--------- ------ -------
Net Cash Provided From Operating Activities..... 325.5 215.7 149.0
Cash Provided From (Used By) Investing Activities
Expenditures for property, plant and equipment and
other long-term assets........................... (228.5) (49.7) (54.2)
Proceeds from sale of business investments........ 53.4 73.6 42.0
Proceeds from sale of options..................... 39.1 -- --
Businesses acquisitions, net of cash acquired..... (4,225.2) (30.5) (0.3)
Other............................................. -- 1.1 --
--------- ------ -------
Net Cash Used By Investing Activities........... (4,361.2) (5.5) (12.5)
Cash Provided From (Used By) Financing Activities
Issuance of common stock.......................... 1,382.2 14.2 0.6
Proceeds from issuance of long-term debt.......... 6,197.5 179.6 --
Principal payments on long-term debt.............. (3,927.6) (127.4) (29.4)
Increase (decrease) in short-term debt............ 0.5 (235.8) (61.4)
Fees paid for debt issuance and other securities.. (76.6) (42.8) --
Fees for early retirement of debt................. (27.4) (4.1) --
Investment in accounts receivable securitization.. 42.6 (31.8) --
Issuance of Company-obligated mandatorily
redeemable preferred securities.................. -- 575.0 --
Dividends......................................... (10.4) (24.8) (26.9)
Other............................................. (9.3) (4.0) (5.7)
--------- ------ -------
Net Cash Provided From (Used By) Financing
Activities..................................... 3,571.5 298.1 (122.8)
--------- ------ -------
Increase (Decrease) in Cash and Equivalents..... (464.2) 508.3 13.7
Cash and equivalents at beginning of year.......... 541.4 33.1 19.4
--------- ------ -------
Cash and Equivalents at End of Year............. $ 77.2 $541.4 $ 33.1
========= ====== =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
27
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Series C Retained Accumulated
ESOP Series D & E Additional Earnings Unearned Other
Preferred Preferred Common Paid-In (Accumulated ESOP Comprehensive
Stock Stock Stock Capital Deficit) Compensation Income Other Total
--------- ------------ ------ ---------- ------------ ------------ ------------- ----- --------
(Millions of Dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December
31, 1995............ $56.8 $ 76.6 $175.2 $ 280.8 $ 40.2 $(34.3) $ (37.3) $(7.7) $ 550.3
Net loss............. (206.3) (206.3)
Currency
translation......... (4.3) (4.3)
Other................ 1.5 1.5
--------
Total Comprehensive
Income............. $ (209.1)
Issuance of stock.... 0.5 1.3 (1.2) 0.6
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
----- ------ ------ -------- ------- ------ ------- ----- --------
Balance at December
31, 1996............ 53.1 76.6 175.7 283.5 (193.0) (28.4) (40.1) (8.9) 318.5
Net earnings......... 69.4 69.4
Currency
translation......... (27.4) (27.4)
Other................ 1.8 1.8
--------
Total Comprehensive
Income............. $ 43.8
Conversion of Series
D preferred stock... (76.6) 22.3 54.3 --
Issuance of stock.... 3.0 14.7 6.7 24.4
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
----- ------ ------ -------- ------- ------ ------- ----- --------
Balance at December
31, 1997............ 49.0 -- 201.0 332.6 (123.6) (21.8) (65.7) (2.2) 369.3
Net earnings......... 53.7 53.7
Currency
translation......... (36.7) (36.7)
Other................ (3.6) (3.6)
--------
Total Comprehensive
Income............. $ 13.4
Issuance of Series E
preferred stock..... 225.0 225.0
Issuance of stock.... (92.3) 135.8 1,338.4 (0.3) 1,381.6
Retirement of Series
C ESOP preferred
stock............... (4.6) (4.6)
Amortization of
unearned ESOP
compensation........ 6.7 6.7
Dividends............ (10.4) (10.4)
Preferred dividend
tax benefits........ 5.2 5.2
----- ------ ------ -------- ------- ------ ------- ----- --------
Balance at December
31, 1998............ $44.4 $132.7 $336.8 $1,665.8 $ (69.9) $(15.1) $(106.0) $(2.5) $1,986.2
===== ====== ====== ======== ======= ====== ======= ===== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Accounting Policies
Organization: Headquartered in Southfield, Michigan, Federal-Mogul is a
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 (OE) manufacturers of such
vehicles and industrial products. The Company also manufactures and supplies
its products and related parts to the aftermarket.
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 53% and 55% of
the inventory at December 31, 1998 and 1997, 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 $39.0 million in 1998 and $44.5 million in 1997.
Inventory quantity reductions resulting in liquidations of certain LIFO
inventory layers increased net earnings by $3.4 million, $3.2 million and $3.1
million ($.06, $.08 and $.09 per diluted share) in 1998, 1997 and 1996,
respectively.
At December 31, inventories consisted of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
(Millions of Dollars)
<S> <C> <C>
Finished products.................................... $ 737.9 $ 254.6
Work-in-process...................................... 147.1 21.8
Raw materials........................................ 208.5 15.7
----------- ---------
1,093.5 292.1
Reserve for inventory valuation...................... (24.9) (15.1)
----------- ---------
$ 1,068.6 $ 277.0
=========== =========
</TABLE>
Goodwill and Other Intangible Assets: At December 31, goodwill and other
intangible assets which result principally from acquisitions, consisted of the
following:
<TABLE>
<CAPTION>
Estimated
Useful Life 1998 1997
----------- ---- ----
(Millions of Dollars)
<S> <C> <C> <C>
Goodwill................................. 40 years $ 3,481.8 $ 163.8
Accumulated amortization................. (83.4) (20.0)
----------- ---------
Total Goodwill......................... $ 3,398.4 $ 143.8
=========== =========
Trademarks............................... 40 years $ 417.6 $ 56.5
Developed technology..................... 12-30 years 390.1 --
Assembled workforce...................... 15 years 88.1 --
Other.................................... 5-20 years 39.9 20.8
----------- ---------
935.7 77.3
Accumulated amortization................. (49.3) (28.9)
----------- ---------
Total Other Intangible Assets.......... $ 886.4 $ 48.4
=========== =========
</TABLE>
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
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. Impairment charges
recorded in 1998, 1997 and 1996 related primarily to assets held for sale.
Revenue Recognition: The Company recognizes revenue and estimated 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 $85.0 million, $13.1 million and $14.4 million for 1998, 1997 and 1996,
respectively.
Costs associated with advertising and promotion are expensed as incurred.
Advertising and promotion expense was $45.9 million, $31.8 million and $34.0
million for 1998, 1997 and 1996, 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 component of accumulated other
comprehensive income.
Effect of Accounting Pronouncements: In April 1998, the American Institute
of Certified Public Accountants issued Statement of Position (SOP) 98-5,
Reporting the Costs of Start-Up Activities. SOP 98-5 is effective January 1,
1999, and requires that start-up costs capitalized prior to January 1, 1999 be
written off and any future start-up costs be expensed as incurred. The
unamortized balance of start-up costs will be written off as a cumulative
effect of an accounting change of approximately $13 million, net of tax, as of
January 1, 1999.
In 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities. The Company expects to adopt the new statement
effective January 1, 2000. The statement requires the Company to recognize all
derivatives on the balance sheet at fair value. The Company does not
anticipate that the adoption of this statement will have a significant effect
on its results of operations or financial condition.
Environmental Liabilities: The Company recognizes environmental liabilities
when a loss is probable and estimable. 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 20, "Litigation and Environmental Matters").
The Company regularly evaluates and revises its estimates for environmental
obligations based on expenditures against established reserves and the
availability of additional information.
Integration Costs: Incremental direct costs associated with integrating
material acquisitions include such one-time items as brand integration, costs
to pack and move productive inventory and fixed assets from one location to
another, and costs to change the identity of entities acquired.
Derivative Financial Instruments: The Company uses interest rate lock
agreements to synthetically manage the interest rate characteristics of
certain outstanding debt to a more desirable fixed rate basis or to limit the
Company's exposure to rising interest rates, forward foreign exchange
contracts to minimize and lock the amount
30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
of currency payments for certain transactions that are denominated in certain
foreign currencies, and forward contracts to hedge against the changes in
certain specific commodity prices of the purchase commitments outstanding
(collectively "Derivative Contracts").
Interest rate differentials to be paid or received as a result of interest
rate lock agreements are accrued and recognized as an adjustment of interest
expense related to the designated debt. Recorded amounts related to derivative
contracts are included in other assets or liabilities. The fair values of
interest rate lock agreements and forward contracts are not recognized in the
financial statements.
Realized and unrealized gains or losses at the time of maturity,
termination, sale or repayment of a derivative contract or designated item are
recorded in a manner consistent with the original designation of the
derivative in view of the nature of the termination, sale or repayment
transaction. Amounts related to interest rate locks are deferred and amortized
as an adjustment to interest expense over the original period of interest
exposure, provided the designated liability continues to exist or is probable
of occurring. Realized and unrealized changes in fair value of derivatives
designated with items that no longer exist or are no longer probable of
occurring are recorded as a component of the gain or loss arising from the
disposition of the designated item.
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 1998.
2. Acquisitions of Businesses
T&N
In March 1998, the Company acquired T&N plc (T&N), a manufacturer based in
Manchester, England for consideration (including direct costs of the
acquisition) of approximately $2.4 billion. The Company also assumed cash of
approximately $185 million and debt of approximately $745 million.
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.
In addition, the Company funded a portion of the T&N acquisition through the
December 1997 sale of 11.5 million shares of Company-obligated mandatorily
redeemable preferred securities (generating gross proceeds of $575 million) by
Federal-Mogul Financing Trust, a wholly owned subsidiary of the Company.
T&N manufactures and supplies high technology engineered automotive
components and industrial materials. In 1997, T&N had sales of approximately
(Pounds)1.8 billion ($2.9 billion at the 1997 average exchange rate) with
about 80% of such sales relating to the global 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 servicing OE customers and the
aftermarket. T&N operated in approximately 200 locations in 24 countries,
employed over 28,000 people worldwide and served customers globally. T&N's
operations included technical centers in the United Kingdom, Germany and North
America.
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 for which technological feasibility had not been established and
the in-process technology had no future alternative uses.
31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
Cooper Automotive
In October 1998, the Company acquired the automotive division of Cooper
Industries, Inc. (Cooper Automotive) headquartered in St. Louis, Missouri, for
initial consideration of approximately $1.9 billion. The Cooper Automotive
purchase agreement includes a price adjustment based upon acquired net assets,
as defined in the agreement, as of the acquisition date. The Company
anticipates additional cash payments of approximately $100 million will be
paid.
Cooper Automotive is a leading supplier of aftermarket parts for repair and
maintenance and serves OE automobile manufacturers worldwide. In 1997, Cooper
Automotive had sales of approximately $1.9 billion. At the time of the
acquisition, Cooper Automotive's principal products consisted of brakes and
friction, lighting, chassis parts, ignition and wiper blades. Cooper
Automotive employed approximately 14,500 employees in 63 locations.
Fel-Pro
In February 1998, the Company 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 gasket manufacturer
headquartered in Skokie, Illinois, for a total consideration of approximately
$722 million, which included 1,030,325.6 shares of Federal-Mogul Series E
Stock with an imputed value of $225 million and approximately $497 million in
cash.
Fel-Pro is a leading gasket 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 the 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
employed approximately 2,700 employees in 16 locations.
The T&N, Cooper Automotive and Fel-Pro acquisitions have been accounted for
as purchases and, accordingly, the total consideration was allocated to the
acquired assets and assumed liabilities based on estimated fair values as of
the acquisition dates. The consolidated statement of operations for the year
ended December 31, 1998 includes the operating results of the acquired
businesses, exclusive of the T&N Bearings Business and the Fel-Pro Chemical
Business (refer to "Divestiture of Acquired Businesses" below) from the
acquisition dates.
In connection with the acquisition of Cooper Automotive, the Company is in
the process of having valuations of acquired property, plant and equipment and
identifiable intangible assets completed. The related purchase price
allocation will be finalized when such valuations and the final purchase price
adjustment are completed in 1999.
Rationalization of Acquired Businesses
In connection with the T&N, Cooper Automotive and Fel-Pro acquisitions in
1998, the Company recognized $216.8 million as acquired liabilities related to
the rationalization and integration of acquired businesses. The
rationalization reserves provide for $180.0 million and $36.8 million in
severance and exit costs, respectively, and were recorded as a component of
goodwill in the purchase price allocation.
The components of the integration plan include: closure of certain
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; consolidation of overlapping aftermarket 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 5,300 full-time employees.
32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
The Company paid $61.6 million related to these rationalization reserves in
1998.
Divestitures of Acquired Businesses
In connection with securing regulatory approvals for the acquisition of T&N,
the Company executed an Agreement Containing Consent Order with the Federal
Trade Commission on February 27, 1998. Pursuant to this agreement, the Company
divested of the T&N Bearings Business and provided for independent management
of those assets pending such divestiture. The agreement stipulated that the
T&N Bearings Business be maintained as a viable, independent competitor of the
Company and that the Company 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.
On December 18, 1998, the Company completed the sale of the T&N Bearings
Business, consisting of the Glacier Vandervell Bearings Group and the AE
Clevite North American non-bearing aftermarket engine hard parts business, to
Dana Corporation for $430 million. These proceeds were subsequently used to
pay down debt. Furthermore, the Company also expects to realize additional net
proceeds of approximately $13 million from the collection of receivables of
the business sold. Prior to the sale of the T&N Bearing Business to Dana
Corporation, a portion of the business was sold for approximately $12 million
in August 1998.
In July 1998, the Company sold the Fel-Pro Chemical Business to Loctite
Corporation, a part of Henkel KGaA, a global specialist in applied chemistry
headquartered in Dusseldorf, Germany, for $57 million.
Operating results for the T&N Bearings and Fel-Pro Chemical Businesses
(which include interest expense of $30 million relating to the holding costs
of the businesses) have been excluded from the consolidated statement of
operations for the year ended December 31, 1998.
Pro Forma Results
The following unaudited pro forma financial information for the years ended
December 31, 1998 and 1997 assume the T&N, Cooper Automotive 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, 1998 equity offerings 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, Cooper Automotive and Fel-Pro
been consummated on the dates indicated, nor are they necessarily indicative
of the Company's future results of operations.
Unaudited Pro Forma Financial Information
(Millions of Dollars, Except Per Share Amounts)
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------
1998 1997
---- ----
<S> <C> <C>
Net sales.......................................... $ 6,444.1 $ 6,644.7
Net earnings (loss)................................ $ 152.0 $ (4.9)
Earnings (loss) per share.......................... $ 2.12 $ (.19)
Earnings (loss) per share assuming dilution........ $ 1.95 $ (.19)
</TABLE>
Other Acquisitions
During 1998, the Company acquired other complementary businesses and
increased its ownership in certain joint ventures in order to expand its
manufacturing and distribution capabilities. In the first quarter of 1998, the
33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
Company increased its ownership to 100% in its Summerton, South Carolina
gasket manufacturing plant and also increased its ownership in KFM Bearing
Company Ltd. (KFM), a Korean joint venture with Kukje Special Metal Co., from
30% to 87%. In addition, the Company acquired Bimet, a Polish manufacturer of
engine bearings, bushings and related products. During the fourth quarter of
1998, the Company acquired Tri-Way Machine Limited (Tri-Way), a Canadian
manufacturer of machining systems for the metal-cutting industry and Glockler
Dichtsysteme Gunter Hemmrich GmbH (Glockler), a manufacturer of rubber sealing
components and acoustic decoupling for valve covers, intake manifolds and oil
pans. Additionally, the Company increased its ownership from 50.6% to 100% in
T&N Holdings Limited located in South Africa.
The Summerton, KFM, Bimet, Tri-Way, Glockler, and T&N Holdings Limited
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 total cash
consideration paid for these acquisitions approximated $93 million. The
consolidated statement of operations for the year ended December 31, 1998
includes the operating results of the acquired businesses from the applicable
date of acquisition.
3. Sales of Businesses
Divestitures
In February 1998, the Company divested its minority interest in G. Bruss
GmbH & Co. KG (Bruss), a German manufacturer of seals and gaskets. As part of
the divestiture agreement the Company increased its ownership to 100% in its
Summerton, South Carolina gasket manufacturing plant (refer to Note 2,
"Acquisitions of Businesses"). The Company received net proceeds of
approximately $46 million related to the divestiture agreement and recognized
a gain on the divestiture of $6.0 million. The gain on the divestiture is
included as a component of other expense. In addition, the Company closed or
sold substantially all its remaining retail aftermarket operations during
1998.
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 sales of Bruss and the electrical products manufacturing
operations, sales of businesses in 1998, 1997 and 1996 relate to assets
previously adjusted to fair value (refer to Note 7, "Adjustment of Assets Held
for Sale and Other Long-Lived Assets to Fair Value"). 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.
34
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
4. Restructuring Charges
The following is a summary of restructuring charges and related activity for
1996, 1997 and 1998 (in millions of dollars):
<TABLE>
<CAPTION>
1995 Restructuring 1996 Restructuring 1997 Restructuring 1998 Restructuring
Provision Provision Provision Provision
---------------------- --------------------- ---------------------- ---------------------
Severance Exit Severance Exit Severance Exit Severance Exit Total
----------- --------- ----------- -------- ----------- --------- ----------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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) (11.6) (3.7) (0.1) -- (17.1)
--------- --------- --------- -------- --------- --------- --------- -------- ------
Balance of restructuring
reserves at December
31, 1997............... -- 0.8 5.6 8.7 16.6 5.3 37.0
1998 restructuring
charges............... -- -- -- -- -- -- $ 16.0 $ 0.3 16.3
Adjustment to
restructuring
reserves.............. -- -- -- (2.4) (4.6) (2.0) -- -- (9.0)
--------- --------- --------- -------- --------- --------- --------- -------- ------
1998 restructuring
charges (net).......... -- -- -- (2.4) (4.6) (2.0) 16.0 0.3 7.3
Payments against
restructuring
reserves............... -- (0.8) (1.1) (5.0) (6.1) (0.1) (3.3) -- (16.4)
--------- --------- --------- -------- --------- --------- --------- -------- ------
Balance of restructuring
reserves at December
31, 1998............... $ -- $ -- $ 4.5 $ 1.3 $ 5.9 $ 3.2 $ 12.7 $ 0.3 $ 27.9
========= ========= ========= ======== ========= ========= ========= ======== ======
</TABLE>
The Company's total restructuring reserves at December 31, 1998 of $27.9
million include $4.2 million of severance, which was anticipated to be paid
over the next two years, and was classified as noncurrent other accrued
liabilities in the balance sheet.
1998 Restructuring Provision
In 1998, as a result of the T&N, Cooper Automotive and Fel-Pro acquisitions,
the Company recognized $16.3 million of restructuring charges related to
restructuring the Company's operations in place prior to these acquisitions.
Employee severance costs result from planned terminations of approximately
1,800 employees in various business operations of the Company. The severance
costs were based on the estimated amounts 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 1998 restructuring plan will be substantially completed in
1999.
Also in 1998, the Company recognized restructuring credits of $9.0 million
for a reversal of charges recorded in previous years. The Company was able to
sell, rather than liquidate, its retail operations in Puerto Rico causing this
reversal.
35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
1997 Restructuring Provision
Results of operations in 1997 include a $22.0 million charge for 1997
severance and exit costs. The restructuring actions were designed to improve
the Company's cost structure, streamline operations and divest the Company of
underperforming assets.
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.
As of December 31, 1998, employee severance actions related to the 1997
charges resulted in the termination of approximately 200 employees.
1996 Restructuring Provision
Primarily due to the anticipated T&N and Fel-Pro transactions (refer to Note
2, "Acquisitions of Businesses"), the Company elected not to fully implement
the following actions under the 1996 restructuring plan:
.Reductions to the operational and administrative staff were not made to
the extent originally planned.
.Reconfiguration of the North American distribution network was altered
to accommodate the planned integration of T&N and Fel-Pro aftermarket
operations.
.Relocation of certain European manufacturing product lines to lower cost
areas within Europe and related workforce reductions did not take place.
Management of the Company decided not to pursue this action, primarily in
anticipation of the integration of future acquisitions.
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.
As of December 31, 1998, employee severance costs related to the 1996 charge
have resulted in the termination of approximately 700 employees, primarily in
the international retail aftermarket and wholesale aftermarket operations, the
North American distribution business and a closed manufacturing operation.
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.
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. The cost of the option and its
change in fair value have been reflected in the results of operations in the
fourth quarter of 1997. At December 31, 1997, the Company recognized a net
loss of $10.5 million on the transaction. In January 1998, the Company settled
the option and recognized an additional 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 approximately $2.45 billion. As a result of favorable fluctuations in the
British pound/United States dollar exchange rate during the contract period,
the Company recognized a $30.6 million gain.
36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
The Company entered into the above transactions to serve as economic hedges
for the purchase of T&N. Such transactions, however, do not qualify for hedge
accounting under GAAP, and therefore both the loss on the British pound
currency option and the gain on the British pound forward contract are
reflected in the consolidated statement of operations caption "Net (gain) loss
on British pound currency option and forward contract."
6. Debt
Long-term debt at December 31 consists of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
(Millions of Dollars)
<S> <C> <C>
Senior Credit Agreements................................ $ 1,893.6 $ --
Notes due 2004 -- 7.5%, issued in 1998.................. 249.5 --
Notes due 2006 -- 7.75%, issued in 1998................. 399.9 --
Notes due 2010 -- 7.875%, issued in 1998................ 349.2 --
Medium-term notes -- due between 1999 and 2005, average
rate of 8.4%, issued in 1994 and 1995.................. 125.0 125.0
Senior notes -- due in 2007, rate of 8.8%, issued in
1997................................................... 124.7 124.6
ESOP obligation -- due in 1999 and 2000, average rate of
7.19%.................................................. 14.7 21.9
Other................................................... 82.6 11.8
----------- ---------
3,239.2 283.3
Less current maturities included in short-term debt..... 108.5 10.2
----------- ---------
$ 3,130.7 $ 273.1
=========== =========
</TABLE>
In 1998, in connection with the acquisitions of T&N and Cooper Automotive,
the Company entered into Senior Credit Agreements. The Company had $1,893.6
outstanding under these Senior Credit Agreements as of December 31, 1998 which
are due from 1999 to 2005 with an average interest rate of 7.33%.
The proceeds from the 2004, 2006 and 2010 notes were used to repay amounts
previously outstanding under the Senior Credit Agreements. Such repayments and
other repayments resulting from the proceeds of equity offerings (refer to
Note 12, "Capital Stock and Preferred Share Purchase Rights") and the early
retirement of private placement debt assumed in the T&N acquisition and
related make-whole payment resulted in the extraordinary loss on the early
retirement of debt in 1998 of $38.2 million, net of applicable income tax
benefits of $19.9 million.
The Company has pledged 100% of the capital stock of certain United States
subsidiaries, 65% of capital stock of certain foreign subsidiaries and certain
inter-company loans to secure the Senior Credit Agreements of the Company;
certain of such pledges also extend to the Notes, Medium-term notes and Senior
notes. In addition, certain subsidiaries of the Company have guaranteed the
senior debt (refer to Note 22, "Audited Consolidating Condensed Financial
Information of Guarantor Subsidiaries").
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.
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 which was subsequently replaced by the $400
37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
million multicurrency revolving credit facility related to the T&N
acquisition. As of December 31, 1998 and 1997, there were no borrowings
outstanding against the multicurrency revolving credit facility. The weighted
average interest rate for the Company's short-term debt was approximately
7.75% and 9.9% as of December 31, 1998 and 1997, respectively.
On February 24, 1999, the Company entered into a new $1.75 billion Senior
Credit Agreement at variable interest rates, which contains a $1.0 billion
multicurrency revolving credit facility and two term loan components. The
revolving credit facility has a five-year maturity. The term loan components
of $400 million and $350 million mature in five and six years, respectively.
The proceeds of this Senior Credit Agreement were used to refinance the prior
Senior Credit Agreements entered into in connection with the T&N and Cooper
Automotive acquisitions as well as the $400 million multicurrency revolving
credit facility related to the T&N acquisition. As a result of these
transactions, the Company will recognize an extraordinary charge in the first
quarter of 1999 of approximately $15 million, net of tax, related to the early
extinguishment of debt.
Aggregate maturities of long-term debt for each of the years following 1999
are, in millions: 2000 --$475.1; 2001 -- $139.1; 2002 -- $126.7; 2003 --
$139.7 and thereafter $2,250.1.
Interest paid in 1998, 1997 and 1996 was $173.4 million, $30.7 million and
$43.5 million, respectively.
7. Adjustment of Assets Held For Sale and Other Long-Lived Assets to Fair
Value
In 1998, the Company decided to sell its subsidiary, Bertolotti Pietro e
Figli, S.r.l. (Bertolotti), an Italian aftermarket operation. The carrying
value of Bertolotti's long-lived assets was reduced to 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.
Also in 1998, the Company recognized a $1.0 million benefit associated with
the sale of certain international retail assets previously written down to
their realized fair value.
In 1997, the Company recognized a charge of $2.4 million to write down
certain long-lived assets of the international retail aftermarket to fair
value. These assets were sold in 1998 for approximately their adjusted value
and no gain or loss was recorded.
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. The Company has substantially completed the 1996
restructuring plan, selling its South Africa, Australia, Chile and Puerto Rico
retail operations during 1997 and 1998. Also in 1996, based upon the final
sale, the Company recognized an additional write-down of $2.8 million to the
net asset value of the United States ball bearings operations.
8. Reengineering and Other Related Charges (Credits)
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 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.
Operating results for 1997 include a credit of $1.6 million relating to the
reversal of certain 1996 reengineering and other related charges, as the
actual costs were less than the initial estimates.
38
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
9. Changes in Accounting Estimates
In 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.
10. Financial Instruments
Foreign Exchange Risk and Commodity Price Management
The Company is subject to exposure to market risks from changes in foreign
exchange rates and raw material price fluctuations. Derivative financial
instruments are utilized by the Company to reduce those risks. Except for the
British pound currency option and forward contract discussed in Note 5, the
Company does not hold or issue derivative financial instruments for trading
purposes.
As of December 31, 1998, the Company has foreign exchange forward contracts
principally for British pound exposures relating to the United States dollar
and the South African rand totaling a notional amount of $127 million. At
December 31, 1998, there was an unrealized loss of $9.1 million related to
foreign exchange contracts. The Company did not have foreign exchange forward
contracts or currency option contracts at December 31, 1997.
The Company enters into copper contracts to hedge against the risk of price
increases. These contracts are expected to offset the effects of price changes
on the firm purchase commitments for copper. Under the agreements, the Company
was committed to purchase 7.3 million pounds of copper. The net unrealized
loss on these firm purchase commitments was $0.8 million at December 31, 1998.
In addition, in 1998, the Company had also entered into aluminum and nickel
contracts as a hedge to offset the effects of price changes. The net
unrealized losses at December 31, 1998 were $0.4 million and $0.2 million for
aluminum and nickel contracts, respectively.
Deferred gains and losses are included in other assets and liabilities and
recognized in operations when the future purchase, sale or payment (in the
case of the asbestos liability) occurs, or at the point in time when the
purchase, sale or payment is no longer expected to occur.
Interest Rate Locks
The Company had $300 million of interest rate locks outstanding as of
December 31, 1998 with an unrealized loss of $0.9 million. These interest rate
locks were entered into as a hedge in anticipation of the bond issuance of
$1.0 billion in January 1999 (refer to Note 23, "Subsequent Events").
Accounts Receivable Securitization
During 1998, the Company replaced an existing accounts receivable
securitization program with a new program which provides up to $150 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 financial
conduit. Amounts excluded from the balance sheets under these arrangements
were $105.8 million and $63.2 million at December 31, 1998 and 1997,
respectively. The Company's retained interest in the accounts receivable sold
to FMFC is included in the consolidated balance sheet caption "Investment in
Accounts Receivable Securitization."
39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
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 $60.4 million and $18.7
million at December 31, 1998 and 1997, respectively, is based upon the
expected collectibility of trade accounts receivable.
Fair Value of Financial Instruments
The carrying amounts of certain financial instruments such as cash and
equivalents, accounts receivable, accounts payable and short-term debt
approximate their fair values. The carrying amounts and estimated fair values
of the Company's long-term debt were $3,130.7 million and $3,166.3 million,
respectively, at December 31, 1998. 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.
11. 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, 1998, 1997 and
1996, was $144.2 million, $42.6 million and $49.8 million, respectively.
At December 31, property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
Estimated
Useful Life 1998 1997
----------- ---- ----
(Millions of Dollars)
<S> <C> <C> <C>
Land................................... -- $ 139.4 $ 29.1
Buildings and building improvements.... 24-40 years 560.1 124.0
Machinery and equipment................ 3-12 years 2,097.6 363.4
----------- ----------
2,797.1 516.5
Accumulated depreciation............... (319.6) (202.6)
----------- ----------
$ 2,477.5 $ 313.9
=========== ==========
</TABLE>
Future minimum payments under noncancelable operating leases with initial or
remaining terms of more than one year are, in millions: 1999 -- $52.9; 2000 --
$40.3; 2001 -- $33.6; 2002 -- $27.2; 2003 -- $24.0 and thereafter $73.8.
Future minimum lease payments have been reduced by approximately $29.2 million
for amounts to be received under sublease agreements.
Total rental expense under operating leases was $46.5 million in 1998, $29.1
million in 1997 and $33.8 million in 1996, exclusive of property taxes,
insurance and other occupancy costs generally payable by the Company.
40
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
12. Capital Stock and Preferred Share Purchase Rights
The Company's articles of incorporation authorize the issuance of
260,000,000 shares of common stock, of which 67,233,216 shares, 40,196,603
shares and 35,130,359 shares were outstanding at December 31, 1998, 1997 and
1996, respectively.
In February 1998, in connection with the Fel-Pro acquisition, the Company
issued 1,030,325.6 shares 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. Subsequently, in conjunction with the June 1998 common stock
offering described below, the Company converted 422,581 shares of Series E
Stock into approximately 2.1 million shares of common stock.
In February 1999, all outstanding shares of the Company's Series E Stock
were exchanged into the Company's common stock (refer to Note 23, "Subsequent
Events").
In June 1998, the Company issued 12.7 million shares of common stock,
including 2.1 million shares which were converted from Series E Stock. The net
proceeds from the sale of the common stock of $592 million were used to prepay
the entire outstanding principal amount under the Senior Subordinated Credit
Agreement and partially repay the Senior Credit Agreement (refer to Note 2,
"T&N" in "Acquisitions").
In December 1998, the Company completed an equity offering of 14.1 million
shares of common stock. The net proceeds from the sale of the common stock of
$781.2 million were used to reduce the Senior Credit Agreements associated
with the acquisition of Cooper Automotive.
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 the outstanding Series D Convertible Exchangeable
Preferred Stock.
The Company's ESOP covers substantially all domestic salaried employees and
allocates Series C ESOP Convertible Preferred Stock to eligible employees
based on their contributions to the Salaried Employees' Investment Program.
There were 724,644, 762,939 and 835,898 shares of Series C ESOP preferred
stock outstanding at December 31, 1998, 1997 and 1996, respectively. The
Series C ESOP preferred shares pay dividends at a rate of 7.5%. The Company
repurchased and retired 38,295 Series C ESOP preferred shares valued at $4.6
million during 1998 and 72,959 Series C ESOP preferred shares valued at $4.1
million during 1997, all of which represent plan distributions or fund
transfers for participants of 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 1998,
$5.2 million in 1997 and $4.2 million in 1996. The Company made cash
contributions to the plan of $8.2 million in 1998 and $8.1 million in 1997 and
1996, including preferred stock dividends of $3.6 million in 1998, $3.8
million in 1997 and $4.1 million in 1996. 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 563,995 and
160,649 at December 31, 1998, and
41
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
512,147 and 250,792 at December 31, 1997, respectively. There were no
committed-to-be-released shares at December 31, 1998 and December 31, 1997.
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.
These Rights will expire on April 30, 1999, after which they will be replaced
by Rights authorized under a new Shareholder Rights Plan adopted by the Board
of Directors in February of 1999. Under the new plan, each Right will entitle
shareholders to buy one-one thousandth of a share of a newly created Series F
preferred stock at a price of $250.
As distributed, the Rights trade together with the common stock of the
Company. They may be exercised or traded separately only after the earlier to
occur of (i) ten days following a public announcement that a person or group
of persons has obtained the right to acquire 10% or more of the outstanding
common stock of the Company (20% in the case of certain institutional
investors), or (ii) ten business days (or such later date as may be determined
by action of the Board of Directors) following the commencement or
announcement of an intent to make a tender offer or exchange offer which would
result in beneficial ownership by a person or group of persons of 10% or more
of the Company's outstanding common stock. Additionally, if the Company is
acquired in a merger or other business combination, each Right will entitle
its holder to purchase, at the Right's exercise price, shares of the acquiring
Company's common stock (or stock of the Company if it is the surviving
corporation) having a market value of twice the Right's exercise price.
The Rights may be redeemed at the option of the Board of Directors for $.01
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 April
30, 2009.
13. Company-Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trust Holding Solely Convertible Subordinated Debentures of the
Company
In December 1997, the Company'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 the Company. The TCP Securities represent an
undivided interest in the Affiliate's assets, with a liquidation preference of
$50 per security.
Distributions 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 statements 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.
42
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
14. Accumulated Other Comprehensive Income
The components of other comprehensive income are as follows:
<TABLE>
<CAPTION>
Currency
Translation Other Total
----------- ----- -----
(Millions of Dollars)
<S> <C> <C> <C>
Balance at December 31, 1996.................... $ (38.2) $(1.9) $ (40.1)
Current period change........................... (27.4) 1.8 (25.6)
------- ----- -------
Balance at December 31, 1997.................... (65.6) (0.1) (65.7)
Current period change........................... (36.7) (3.6) (40.3)
------- ----- -------
Balance at December 31, 1998.................... $(102.3) $(3.7) $(106.0)
======= ===== =======
</TABLE>
The earnings associated with the Company's investment in its foreign
subsidiaries are considered to be permanently invested and no provision for
United States Federal and state income taxes on those earnings or translation
adjustments have been provided.
15. 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>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Numerator:
Net earnings (loss) after extraordinary items.......... $53.7 $69.4 $(206.3)
Extraordinary items -- loss on early retirement of debt
net of applicable tax benefit......................... 38.2 2.6 --
----- ----- -------
Net earnings (loss) before extraordinary items......... 91.9 72.0 (206.3)
Series C preferred dividend requirement................ (2.3) (2.4) (2.5)
Series D preferred dividend requirement................ -- (3.1) (6.2)
Series E preferred dividend requirement................ (1.3) -- --
----- ----- -------
Numerator for basic earnings per share -- income (loss)
available to common shareholders before extraordinary
items................................................. $88.3 $66.5 $(215.0)
Effect of dilutive securities:
Series C preferred dividend requirement............... 2.3 2.4 --
Series D preferred dividend requirement............... -- 3.1 --
Series E preferred dividend requirement............... 1.3 -- --
Additional required ESOP contribution................. (2.1) (1.9) --
----- ----- -------
Numerator for diluted earnings per share -- income
(loss) available to common shareholders after assumed
conversions, before extraordinary item................ $89.8 $70.1 $(215.0)
Numerator for basic earnings per share -- income (loss)
available to common shareholders after extraordinary
item.................................................. $50.1 $63.9 $(215.0)
Numerator for diluted earnings per share -- income
(loss) available to common shareholders after
extraordinary item.................................... $51.6 $67.5 $(215.0)
</TABLE>
43
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Denominator:
Denominator for basic earnings per share -- weighted
average shares........................................... $48.1 $36.6 $ 34.7
Effect of dilutive securities:
Dilutive stock options outstanding....................... 0.8 0.4 --
Nonvested stock.......................................... 0.1 0.3 --
Conversion of Series C preferred stock................... 1.5 1.6 --
Conversion of Series D preferred stock................... -- 3.0 --
Conversion of Series E preferred stock................... 3.2 -- --
----- ----- ------
Dilutive potential common shares.......................... 5.6 5.3 --
Denominator for dilutive earnings per share -- adjusted
weighted average shares and assumed conversions.......... 53.7 41.9 34.7
===== ===== ======
Basic earnings (loss) per share before extraordinary
items..................................................... $1.84 $1.81 $(6.20)
===== ===== ======
Basic earnings (loss) per share after extraordinary items.. $1.04 $1.74 $(6.20)
===== ===== ======
Diluted earnings (loss) per share before extraordinary
items..................................................... $1.67 $1.67 $(6.20)
===== ===== ======
Diluted earnings (loss) per share after extraordinary
items..................................................... $ .96 $1.61 $(6.20)
===== ===== ======
</TABLE>
For additional disclosures regarding the Series C, Series D and Series E
preferred stock, the employee stock options and nonvested stock shares, refer
to Note 12, "Capital Stock and Preferred Share Purchase Rights," and Note 16,
"Incentive Stock Plans".
Convertible preferred securities (refer to Note 13, "Company-Obligated
Mandatorily Redeemable Preferred Securities of Subsidiary Trust Holding Solely
Convertible Subordinated Debentures of the Company") redeemable for 11.2
million shares of common stock were outstanding for 1998 and a portion of 1997
but were not included in the computation of diluted earnings per share because
the effect would be antidilutive.
16. 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 six months to five years after their date
of grant, as determined by the Board of Directors at the time of grant. At
December 31, 1998, there were 2,752,952 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 $0.7 million, $9.0 million and $0.4
million in 1998, 1997 and 1996, 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
Statement of Financial Accounting Standards
44
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
No. 123 (Statement 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>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net earnings (loss) as reported........................ $53.7 $69.4 $(206.3)
Pro forma.............................................. $48.3 $70.7 $(207.1)
Basic earnings (loss) per share as reported............ $1.04 $1.74 $ (6.20)
Pro forma.............................................. $0.93 $1.78 $ (6.22)
Diluted earnings (loss) per share as reported.......... $0.96 $1.61 $ (6.20)
Pro forma.............................................. $0.86 $1.64 $ (6.22)
</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 1998, 1997 and 1996,
respectively: risk-free interest rates of 6.5%; dividend yields of 0.2%, 1.5%
and 2.3%; volatility factors of the expected market price of the Company's
common stock of 30.1%, 27.2% and 11.2% 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 required to consider
only 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 $22.36, $9.99 and $3.34, and 1.1, 0.9 and 0.3 for 1998,
1997 and 1996, respectively. The weighted-average fair value and total number
(in millions) of nonvested stock awards granted was $53.52, $24.47 and $18.90
and 0.1, 0.1 and 0.2 for 1998, 1997 and 1996, respectively. All options and
stock awards that are not vested at December 31, 1998, vest solely on
employees' rendering additional service.
The following table summarizes the activity relating to the Company's
incentive stock plans:
<TABLE>
<CAPTION>
Number Weighted-
of Shares Average
(In Millions) Price
------------- ---------
<S> <C> <C>
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/stock granted.................................. 1.2 57.94
Options exercised/stock vested......................... (0.5) 21.85
Options/stock lapsed or canceled....................... (0.1) 31.49
---- ------
Outstanding at December 31, 1998........................ 2.8 $40.50
==== ======
Options exercisable at December 31, 1998............... 0.6 $30.11
==== ======
Options exercisable at December 31, 1997............... 0.9 $23.07
==== ======
Options exercisable at December 31, 1996............... 1.3 $22.50
==== ======
</TABLE>
45
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
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,
1998:
<TABLE>
<CAPTION>
Weighted-Average
Outstanding ---------------------
Range Awards Price Remaining Life
----- ----------- ------ --------------
<S> <C> <C> <C>
Options:
$15.69-$23.50............................. 0.5 $21.79 3 years
$23.51-$35.25............................. 0.7 $28.16 3 years
$35.26-$52.87............................. 0.4 $42.12 5 years
$52.88-$70.69............................. 1.1 $59.32 5 years
Nonvested stock............................ 0.1
---
Total.................................... 2.8
===
</TABLE>
17. Postemployment Benefits
The Company sponsors several defined benefit pension plans (Pension
Benefits) and health care and life insurance benefits (Other Benefits) for
certain employees around the world. The Company funds the Pension Benefits
based on the funding requirements of federal and international laws and
regulations in advance of benefit payments and the Other Benefits as benefits
are provided to the employees.
Components of net periodic benefit cost for the year ended December 31:
<TABLE>
<CAPTION>
United States Plans International Plans
------------------------------------------ ----------------------
Pension Benefits Other Benefits Pension Benefits
---------------------- ------------------ ----------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ---- ---- ---- ----
(Millions of Dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Service cost............ $ 16.4 $ 7.8 $ 9.0 $ 4.4 $ 2.5 $2.8 $ 26.7 $ 0.3 $ 0.4
Interest cost........... 29.9 14.0 15.0 19.2 10.5 10.8 100.7 1.9 2.5
Expected return on plan
assets................. (48.1) (24.2) (24.3) -- -- -- (123.6) -- --
Net amortization and
deferral............... (4.3) (4.2) (3.2) (0.6) (0.5) (0.5) -- -- --
Curtailment loss
(gains)................ 1.6 -- 3.7 -- -- (7.5) -- -- --
------ ------ ------ ----- ----- ---- -------- ----- -----
Net periodic (benefit)
cost................... $ (4.5) $ (6.6) $ 0.2 $23.0 $12.5 $5.6 $ 3.8 $ 2.2 $ 2.9
====== ====== ====== ===== ===== ==== ======== ===== =====
</TABLE>
Change in benefit obligation:
<TABLE>
<CAPTION>
United States Plans International Plans
------------------------------------ ----------------------
Pension Benefits Other Benefits Pension Benefits
------------------ ---------------- ----------------------
1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ----
(Millions of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Benefit obligation at
beginning of year...... $ 197.2 $ 211.1 $ 150.4 $ 150.8 $ 26.6 $ 34.5
Service cost............ 16.4 7.8 4.4 2.5 26.7 0.3
Interest cost........... 29.9 14.0 19.2 10.5 100.7 1.9
Acquisitions............ 496.7 -- 297.3 -- 1,834.3 --
Company contributions... -- -- -- -- 13.3 --
Benefits paid........... (26.0) (20.6) (15.0) (8.2) (124.3) (1.7)
Plan amendments......... 9.9 -- -- -- -- --
Actuarial gains and
losses and changes in
actuarial assumptions.. 4.8 -- 12.6 (5.2) 161.3 (3.5)
Settlements and
curtailments........... (11.4) (15.1) -- -- -- (4.9)
-------- -------- ------- ------- ----------- --------
Benefit obligation at
end of year............ $ 717.5 $ 197.2 $ 468.9 $ 150.4 $ 2,038.6 $ 26.6
======== ======== ======= ======= =========== ========
</TABLE>
46
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
Change in plan assets:
<TABLE>
<CAPTION>
United States Plans International Plans
------------------------------------ ---------------------
Pension Benefits Other Benefits Pension Benefits
------------------ ---------------- ---------------------
1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ---------
(Millions of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Fair value of plan
assets at beginning of
year................... $ 293.7 $ 262.6 $ -- $ -- $ -- $ --
Actual return on plan
assets................. 25.3 61.8 -- -- 157.6 --
Acquisitions............ 487.1 -- -- -- 1,918.4 --
Company contributions... 7.9 5.0 -- -- 21.4 1.7
Benefits paid........... (26.0) (20.6) -- -- (124.3) (1.7)
Settlements and
curtailments........... (12.6) (15.1) -- -- -- --
-------- -------- ------- ------- ---------- --------
Fair value of plan
assets at end of year.. $ 775.4 $ 293.7 $ -- $ -- $ 1,973.1 $ --
======== ======== ======= ======= ========== ========
Funded status of the
plan................... $ 57.9 $ 96.5 $(468.9) $(150.4) $ (65.5) $ (26.6)
Unrecognized net asset
at transition.......... 0.3 (2.0) -- -- -- --
Unrecognized net
actuarial (gain) loss.. (30.1) (60.3) 8.9 (3.8) 129.6 2.8
Unrecognized prior
service cost........... 17.6 9.7 (2.9) (3.5) -- --
-------- -------- ------- ------- ---------- --------
Prepaid (accrued)
benefit cost........... $ 45.7 $ 43.9 $(462.9) $(157.7) $ 64.1 $ (23.8)
======== ======== ======= ======= ========== ========
</TABLE>
Weighted-average assumptions as of December 31:
<TABLE>
<CAPTION>
United States Plans International Plans
---------------------------------------------------
Pension Benefits Other Benefits Pension Benefits
---------------------------------------------------
1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ----
(Millions of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Discount rate............. 7.25% 7.5% 7.25% 7.5% 5.5-6% 6.5%
Expected return on plan
assets................... 10% 10% -- -- 7.5% --
Rate of compensation
increase................. 4.25-5% 4.5% -- -- 2.5-3.9% 2.5%
</TABLE>
Amounts applicable to the Company's pension plans with accumulated benefit
obligations in excess of plan assets are as follows:
<TABLE>
<CAPTION>
United States Plans 1998 1997
- - ------------------- ---- ----
<S> <C> <C>
Projected benefit obligation...................................... $138.1 $56.4
Accumulated benefit obligation.................................... 137.9 55.5
Fair value of plan assets......................................... 126.6 49.9
</TABLE>
<TABLE>
<CAPTION>
International Plans 1998 1997
- - ------------------- ---- ----
<S> <C> <C>
Projected benefit obligation...................................... $180.0 $26.6
Accumulated benefit obligation.................................... 171.0 26.6
Fair value of plan assets......................................... -- --
</TABLE>
Amounts recognized in the balance sheet consist of:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
------------------ ----------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Prepaid (accrued) benefit cost............ $ 109.8 $ 20.1 $(462.9) $(157.7)
Accrued benefit liability................. (12.7) (1.3) -- --
Intangible asset.......................... 7.3 1.1 -- --
Accumulated other comprehensive income.... 3.4 0.1 -- --
-------- ------- ------- -------
Net amount recognized..................... $ 107.8 $ 20.0 $(462.9) $(157.7)
======== ======= ======= =======
</TABLE>
47
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
At December 31, 1998, the assumed annual health care cost trend used in
measuring the APBO approximated 7.1% in 1998, declining to 6.7% in 1999 and to
an ultimate annual rate of 5.5% estimated to be achieved in 2009. Increasing
the assumed cost trend rate by 1% each year would have increased the APBO by
approximately 11.5% and 8.3% at December 31, 1998 and 1997, respectively.
Aggregate service and interest costs would have increased by approximately
13.3% for 1998 and 9.4% for 1997 and 1996.
18. 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 items
consisted of the following:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(Millions of
Dollars)
<S> <C> <C> <C>
Domestic.............................................. $(73.4) $50.1 $ (88.3)
International......................................... 258.9 49.4 (140.4)
------ ----- -------
$185.5 $99.5 $(228.7)
====== ===== =======
</TABLE>
Significant components of the provision for income taxes (tax benefit) are
as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(Millions of
Dollars)
<S> <C> <C> <C>
Current:
Federal............................................... $(12.1) $ 9.6 $ (4.0)
State and local....................................... 10.0 0.2 2.3
International......................................... 65.4 6.6 6.3
------ ----- ------
Total current....................................... 63.3 16.4 4.6
Deferred:
Federal................................................ 33.0 6.1 (25.2)
State and local........................................ 2.1 0.7 (1.8)
International.......................................... (4.8) 4.3 --
------ ----- ------
Total deferred...................................... 30.3 11.1 (27.0)
------ ----- ------
$ 93.6 $27.5 $(22.4)
====== ===== ======
</TABLE>
The reconciliation of income taxes (tax benefit) computed at the United
States federal statutory tax rate to income tax expense (benefit) is:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(Millions of
Dollars)
<S> <C> <C> <C>
Income taxes (tax benefits) at United States
statutory rate.................................... $ 64.9 $34.9 $(80.1)
Tax effect from:
State income taxes................................ 7.9 0.8 0.7
Foreign operations, net of foreign tax credits.... 5.6 (2.7) 55.9
Sale of international retail/wholesale
operations....................................... (11.5) (6.8) --
Goodwill amortization............................. 19.7 -- --
Purchased in-process research and development..... 6.5 -- --
Tax credits and other............................. 0.5 1.3 1.1
------ ----- ------
$ 93.6 $27.5 $(22.4)
====== ===== ======
</TABLE>
48
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
The following table summarizes the Company's total provision for income
taxes/(tax benefits):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(Millions of
Dollars)
<S> <C> <C> <C>
Income tax expense (benefit)......................... $ 93.6 $27.5 $(22.4)
Extraordinary items.................................. (19.8) (1.5) --
T&N Bearings Divestiture............................. 56.1 -- --
Allocated to equity:
Currency translation................................ 15.3 (3.6) (4.9)
Preferred dividends................................. (1.2) (1.3) (1.5)
Incentive stock plans............................... (3.9) (3.4) --
Investment securities............................... -- (0.6) 0.8
Other............................................... 0.2 1.2 0.7
------ ----- ------
$140.3 $18.3 $(27.3)
====== ===== ======
</TABLE>
Significant components of the Company's deferred tax assets and liabilities
as of December 31 are as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
(Millions of
Dollars)
<S> <C> <C>
Deferred tax assets:
Asbestos................................................. $ 429.1 $ --
Postemployment benefits.................................. 165.2 58.2
Net operating loss carryforwards of international
subsidiaries............................................ 121.5 45.0
Restructuring reserves................................... 98.8 --
Inventory basis.......................................... 34.2 10.3
Allowance for doubtful accounts.......................... 15.2 11.3
Other temporary differences.............................. 96.2 52.0
------- ------
Total deferred tax assets.............................. 960.2 176.8
Valuation allowance for deferred tax assets............... (66.2) (44.4)
------- ------
Net deferred tax assets................................ 894.0 132.4
------- ------
Deferred tax liabilities:
Fixed asset basis differences............................ (379.4) (50.5)
Intangible asset basis differences....................... (326.2) --
Deferred gains........................................... (130.0) --
Pension.................................................. (6.9) (17.3)
------- ------
Total deferred tax liabilities......................... (842.5) (67.8)
------- ------
$ 51.5 $ 64.6
======= ======
Deferred tax assets and liabilities are recorded in the consolidated balance
sheets as follows:
<CAPTION>
1998 1997
---- ----
(Millions of
Dollars)
<S> <C> <C>
Assets:
Prepaid expenses and income tax benefits................. $ 187.3 $ 46.6
Noncurrent assets........................................ -- 26.7
Liabilities:
Other current accrued liabilities........................ -- (4.2)
Other long-term accrued liabilities...................... (135.8) (4.5)
------- ------
$ 51.5 $ 64.6
======= ======
</TABLE>
49
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
Income taxes paid in 1998, 1997 and 1996 were $34.7 million, $2.6 million
and $6.7 million, respectively.
Undistributed earnings of the Company's international subsidiaries amounted
to approximately $229 million at December 31, 1998 and $77 million at December
31, 1997. Since these earnings are considered by the Company to be permanently
reinvested, no taxes were provided in 1998 or 1997. 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.
At December 31, 1998, the Company has $159 million in net operating loss
carryforwards in the United Kingdom and Germany with no expiration date or
valuation allowance. Also, the Company has $174 million of additional foreign
net operating loss carryforwards with a full valuation allowance and various
expiration dates. Included in the previous amounts are $145 million of net
operating loss carryforwards acquired with the purchases of T&N, Cooper
Automotive and Fel-Pro. A valuation allowance was recorded on $64 million of
these purchased net operating loss carryforwards, thereby increasing the
balance in the valuation allowance reserve for 1998. The reduction in these
valuation allowances, if any, will be applied to reduce goodwill related to
the respective acquisitions.
19. Operations By Industry Segment and Geographic Area
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 (Statement 131), Disclosures about
Segments of an Enterprise and Related Information, for the year ended December
31, 1998. Statement 131 established standards for reporting information about
operating segments in annual financial statements and requires selected
information about operating segments in interim financial reports issued to
stockholders. It also established standards for related disclosures about
products, services and geographic areas. Operating segments are defined as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the Company, in deciding how to
allocate resources and in assessing performance.
The Company operates in three fundamental business segments (excluding
Divested Activities): Powertrain Systems, Sealing Systems and General
Products.
Powertrain Systems, which consist of internal engine components directly
involved in creating a vehicle's movement. These components consist primarily
of engine bearings, bushings, pistons, piston pins, rings, liners and ignition
products.
Sealing Systems, which provide for the encapsulation of fluids and gases
from the engine, transmission and axle and also prevent external objects from
entering the systems. They consist of dynamic seals (found between components
that move in relation to one another) and gaskets (located between components
that are static in relation to one another).
General Products, which consist of the Company's remaining product lines,
primarily camshafts, sintered products (engine components made from powdered
metal), chassis components and systems protection products (used for shielding
against heat, noise, abrasion and stone impingement) and friction products.
Divested Activities include the historical operating results and assets of
aftermarket operations in South Africa, Australia, Chile and its heavy wall
bearing operations in Germany and Brazil which were sold or closed in 1997.
During 1996, the Company divested its United States ball bearings and
electrical products manufacturing operations. In addition, the Company
divested its minority interest in G. Bruss GmbH & Co. (refer to Note 3, "Sales
of Businesses").
50
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
The accounting policies of the business segments are consistent with those
described in the summary of significant accounting policies. The Company
evaluates segmental performance based on several factors, including both
Economic Value Added (EVA) and Operational EBIT, as defined as Operational
Earnings before certain nonrecurring items (such as certain purchase
accounting adjustments and integration costs associated with new
acquisitions), interest and income taxes. Pursuant to Statement 131,
Operational EBIT for each segment is shown below, as it is most consistent
with the measurement principles used in measuring the corresponding amounts in
the consolidated financial statements.
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(Millions of
Dollars)
<S> <C> <C> <C>
Net Sales:
Powertrain Systems................................ $1,883 $ 782 $ 739
Sealing Systems................................... 925 333 295
General Products.................................. 1,636 577 665
Divested Activities............................... 25 115 334
------ ------ ------
Total........................................... $4,469 $1,807 $2,033
====== ====== ======
<CAPTION>
1998 1997 1996
---- ---- ----
(Millions of
Dollars)
<S> <C> <C> <C>
Operational EBIT:
Powertrain Systems................................ $ 223 $ 68 $ 75
Sealing Systems................................... 133 26 9
General Products.................................. 154 44 31
Divested Activities............................... (8) 1 (22)
------ ------ ------
Total........................................... $ 502 $ 139 $ 93
====== ====== ======
<CAPTION>
1998 1997 1996
---- ---- ----
(Millions of
Dollars)
<S> <C> <C> <C>
Reconciliation:
Total segments operational EBIT................... $ 502 $ 139 $ 93
Net interest and other financing costs............ (233) (29) (39)
Restructuring, impairment and other special
charges.......................................... (20) (10) (283)
Acquisition related costs......................... (63) -- --
------ ------ ------
Earnings (loss) before income taxes and
extraordinary item............................. $ 186 $ 100 $ (229)
====== ====== ======
<CAPTION>
1998 1997 1996
---- ---- ----
(Millions of
Dollars)
<S> <C> <C> <C>
Assets:
Powertrain Systems................................ $3,590 $ 786 $ 608
Sealing Systems................................... 1,640 382 243
General Products.................................. 4,687 508 456
Divested Activities............................... 23 126 148
------ ------ ------
Total........................................... $9,940 $1,802 $1,455
====== ====== ======
</TABLE>
51
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(Millions of
Dollars)
<S> <C> <C> <C>
Capital Expenditures:
Powertrain Systems........................................... $116 $28 $25
Sealing Systems.............................................. 33 13 10
General Products............................................. 80 9 10
Divested Activities.......................................... -- -- 9
---- --- ---
Total...................................................... $229 $50 $54
==== === ===
<CAPTION>
1998 1997 1996
---- ---- ----
(Millions of
Dollars)
<S> <C> <C> <C>
Depreciation and Amortization:
Powertrain Systems........................................... $104 $28 $27
Sealing Systems.............................................. 43 11 10
General Products............................................. 81 12 14
Divested Activities.......................................... -- 1 11
---- --- ---
Total...................................................... $228 $52 $62
==== === ===
</TABLE>
Included in the consolidated financial statements are amounts relating to
geographic locations listed below. This geographic information is based on the
location of Federal-Mogul operations.
<TABLE>
<CAPTION>
Net Property,
Plant
Net Sales and Equipment
-------------------- ----------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
(Millions of Dollars)
<S> <C> <C> <C> <C> <C> <C>
United States............................. $2,345 $1,111 $1,177 $1,422 $166 $169
Mexico.................................... 124 87 73 30 7 7
Canada.................................... 76 58 57 39 1 1
------ ------ ------ ------ ---- ----
Total North America.................... 2,545 1,256 1,307 1,491 174 177
United Kingdom............................ 516 21 18 312 9 11
Germany................................... 478 126 175 318 105 127
France.................................... 327 33 35 113 9 10
Italy..................................... 200 71 81 77 9 11
Other Europe.............................. 188 117 122 62 3 4
------ ------ ------ ------ ---- ----
Total Europe........................... 1,709 368 431 882 135 163
Rest of World............................. 215 183 295 104 5 10
------ ------ ------ ------ ---- ----
Total.................................. $4,469 $1,807 $2,033 $2,477 $314 $350
====== ====== ====== ====== ==== ====
</TABLE>
20. Litigation and Environmental Matters
T&N Asbestos Litigation
In the United States, the Company's United Kingdom subsidiary, T&N Ltd., and
two of T&N's United States 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 in the United States based upon asbestos
products allegedly installed in buildings. 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. As of December 31, 1998,
52
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
the Company has provided approximately $1.3 billion as its best estimate for
future costs related to resolving asbestos claims. The Company estimates
claims will be filed and paid in excess of the next 20 years. This estimate is
based in part on recent and historical claims experience, medical information
and the current legal environment.
As of December 31, 1998, the T&N Companies had approximately 105,000 claims
pending. During 1998, approximately 85,000 new claims were filed and 54,000
claims were settled, dismissed or otherwise resolved. In addition to the
pending cases above, the T&N Companies have approximately 41,000 claims that
have been settled but will be paid over time. There are a number of factors
that could impact the settlement costs into the future, including but not
limited to: changes in legal environment; possible insolvency of co-
defendants; and the establishment of an acceptable administrative (non-
litigation) claims resolution mechanism.
As of December 31, 1998, T&N is one of a large number of defendants named in
three pending property damage cases pending in two jurisdictions. Provision
has been made in the asbestos reserve for anticipated expenditures in relation
to such cases.
The $1.3 billion total provision held for the T&N Companies is comprised of
an estimate for known claims (pending and settled but not paid) and possible
future claims (IBNR). As of December 31, 1998, the $1.3 billion total
provision is comprised of approximately $460 million related to known claims
and approximately $840 million related to IBNR claims.
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 typical cost of settlement (which is sensitive to the industry in which
the plaintiff claims exposure, the alleged disease type and the jurisdiction
in which the action is being brought), the rate of receipt of claims and the
timing of settlement and, in the United Kingdom, the level of subrogation
claims brought by insurance companies.
The T&N Companies have appointed the Center for Claims Resolution (CCR) as
their exclusive representative in relation to all asbestos-related personal
injury claims made against the T&N Companies in the United States. The CCR
provides to its 20 member companies a litigation defense, claims-handling and
administration service in respect to United States asbestos-related disease
claims. Pursuant to the CCR Producer Agreement, T&N is entitled to appoint a
representative as one of the five voting directors on the CCR's Board of
Directors. Members of the CCR contribute towards indemnity payments in each
claim in which the member is named. Contributions to such indemnity payments
are calculated on a case by case basis according to sharing agreements among
the CCR's members.
In 1996, T&N purchased a (Pounds)500 million (approximately $845 million at
the insurance agreement exchange rate of $1.69/(Pounds)) layer of insurance
which will be triggered should the aggregate amount of claims filed after June
30, 1996, where the exposure occurred prior to that date, exceed (Pounds)690
million (approximately $1,166 million at the $1.69/(Pounds) exchange rate).
The Company's reserve for claims filed after June 30, 1996, approximates to
the trigger point of the insurance.
The Company has reviewed the financial viability and legal obligations of
the three reinsurance companies involved and has concluded at this time that
there is little risk of the reinsurers not being able to meet their obligation
to pay, should the claims filed after June 30, 1996 exceed the (Pounds)690
million trigger point.
While management believes that reserves are appropriate for anticipated
losses arising from T&N's asbestos-related claims, given the nature and
complexity of the factors affecting the estimated liability, the actual
liability may differ. No absolute assurances can be given that T&N will not be
subject to material additional liabilities and significant additional
litigation relating to asbestos. In the possible, but unlikely, event that
such liabilities exceed the reserves recorded by the Company and the
additional (Pounds)500 million of insurance coverage,
53
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
the Company's results of operations, business, liquidity and financial
condition could be materially adversely affected. The T&N Companies reserves
will be reevaluated periodically as additional information becomes available.
Federal-Mogul, Fel-Pro and Cooper Automotive Asbestos Litigation
The Company also is one of a large number of defendants in a number of
lawsuits brought by claimants alleging injury due to exposure to asbestos.
Fel-Pro has been named as a defendant in a number of product liability cases
involving asbestos, primarily involving gasket or packing products sold to
ship owners. In addition, subsidiaries of Cooper Automotive have been named as
defendants in a number of product liability cases involving asbestos,
primarily involving friction products. The Company is defending all such
claims vigorously and believes that it, Fel-Pro and the Cooper Automotive
subsidiaries have substantial defenses to liability and adequate insurance
coverage for defense and indemnity. While the outcome of litigation cannot be
predicted with certainty, management believes that asbestos claims pending
against the Company, Fel-Pro and the Cooper Automotive subsidiaries as of
December 31, 1998, will not have a material effect on the Company's financial
position. At December 31, 1998, approximately $20 million in related reserves
have been provided in respect of the possible uninsured portion of the
expenditures on asbestos claims pending against the Company, Fel-Pro and the
Cooper Automotive subsidiaries.
Other
The Company is involved in various other legal actions and claims, directly
and through its subsidiaries (including T&N Limited 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.
The Company is a defendant in lawsuits filed in various jurisdictions
pursuant to the federal Comprehensive Environmental Response Compensation and
Liability Act of 1980 (CERCLA) or other similar federal or state environmental
laws which require responsible parties to pay for cleaning up contamination
resulting from hazardous wastes which were discharged into the environment by
them or by others to which they sent such wastes for disposition. In addition,
the Company has been notified by the United States Environmental Protection
Agency and various state agencies that it may be a potentially responsible
party (PRP) under such law 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. At most of the sites that
are likely to be costliest to clean up, which are often current or former
commercial waste disposal facilities to which numerous companies sent waste,
the Company's exposure is expected to be limited. Despite the joint and
several liability which might be imposed on the Company under CERLCA and some
of the other laws pertaining to these sites, the Company's share of the total
waste is usually quite small; the other companies which also sent wastes,
often numbering in the hundreds or more, generally include large, solvent
publicly owned companies; and in most such situations the government agencies
and courts have imposed liability in some reasonable relationship to
contribution of waste. 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 $50 million at December
31, 1998 and $11 million at December 31, 1997. The majority of the 1998
increase is attributable to the acquisitions of T&N and Cooper Automotive.
Management believes that such accruals will be adequate to cover the Company's
estimated liability for its exposure in respect of such matters.
54
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
21. Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
First(1) Second(2) Third(3) Fourth(4) Year
-------- --------- -------- --------- ----
(Millions of Dollars, Except Per Share
Amounts)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1998:
Net sales..................... $658.0 $1,214.0 $1,121.2 $1,475.5 $4,468.7
Gross margin.................. 161.3 317.4 292.9 406.9 1,178.5
Net earnings before
extraordinary items.......... (7.2) 28.4 34.6 36.1 91.9
Extraordinary item--loss on
early retirement of debt, net
of tax benefit............... -- (31.3) -- (6.9) (38.2)
Net earnings (loss)........... (7.2) (2.9) 34.6 29.2 53.7
Diluted earnings per share.... (.20) (.07) .58 .48 .96
Stock price
High.......................... $54.37 $ 69.25 $ 72.00 $ 63.00
Low........................... $39.00 $ 52.62 $ 46.62 $ 33.00
<CAPTION>
First Second(5) Third Fourth(6) 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.... .32 .61 .40 .28 1.61
Stock price
High.......................... $26.75 $ 35.38 $ 39.94 $ 47.63
Low........................... $21.63 $ 24.50 $ 32.75 $ 36.75
</TABLE>
- - ------------------
Dividends on the capital stock of the Company are payable at the discretion of
the Company's Board of Directors. In May 1998, the Board of Directors reduced
the quarterly dividend from $.12 per share and subsequently declared cash
dividends payable in the second, third and fourth quarters of 1998 in the
amount of $.0025 per share of common stock. The Company, consistent with its
growth strategy, intends to retain future earnings in the business and
therefore anticipates paying dividends at a comparable level in the
foreseeable future.
(1) Includes an $18.6 million charge for purchased in-process research and
development, a $10.5 million restructuring charge, a $19.0 million net
charge for an adjustment of assets held for sale and other long-lived
assets to fair value and $1.0 million of integration costs.
(2) Includes $3.7 million of integration costs.
(3) Includes $9.0 million of integration costs and a $6.6 million
restructuring credit.
(4) Includes a $3.4 million net restructuring charge and $8.7 million of
integration costs.
(5) Includes an income tax benefit of $6.8 million related to the sales of the
South African and Australian businesses.
(6) Includes $1.1 million for a net restructuring credit, a $2.4 million
charge for 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 charge related to the British pound currency option.
55
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
22. CONSOLIDATING CONDENSED FINANCIAL INFORMATION OF GUARANTOR SUBSIDIARIES
Certain subsidiaries of the Company (as listed below, collectively the
"Guarantor Subsidiaries") have guaranteed fully and unconditionally, on a
joint and several basis, the obligation to pay principal and interest under
the Company's Senior Credit Agreement with the Chase Manhattan Bank, NA
("Chase").
T&N HOLDING COMPANIES
Federal-Mogul Dutch Holdings Inc.
Federal-Mogul UK Holdings Inc.
Federal-Mogul UK Holdings Limited
Federal-Mogul Global Inc.
FEDERAL-MOGUL SUBSIDIARIES
Federal-Mogul Venture Corporation
Federal-Mogul Global Properties Inc.
Carter Automotive Company
Federal-Mogul Worldwide Inc.
COOPER AUTOMOTIVE SUBSIDIARIES
Federal-Mogul Ignition Company
Federal-Mogul Products, Inc.
Federal-Mogul Aviation, Inc.
The Company issued notes in 1998 which are guaranteed by the Guarantor
Subsidiaries. The Guarantor Subsidiaries also guarantee the Company's
previously existing publicly registered Medium-term notes and Senior notes.
The T&N Holding Companies (as listed above) are wholly owned subsidiaries of
the Company and were incorporated in January 1998 in order to effectuate the
Company's acquisition of T&N plc. These subsidiaries have no operations and
act solely as holding companies of subsidiaries which have guaranteed fully
and unconditionally on a joint and several basis, the obligation to pay
principal and interest of the Notes, Medium-term notes and Senior notes. (the
"Guarantees").
In addition, certain other wholly owned subsidiaries of the Company, the
Federal-Mogul Subsidiaries (as listed above), will provide the Guarantees. The
Federal-Mogul Subsidiaries are included in the Company's consolidated
financial statements for all periods.
The Cooper Automotive Subsidiaries (as listed above) acquired on October 9,
1998, are wholly owned subsidiaries of the Company and also will provide the
Guarantees.
In lieu of providing separate audited financial statements for the Guarantor
Subsidiaries, the Company has included the accompanying audited consolidating
condensed financial statements based on the Company's understanding of the
Securities and Exchange Commission's interpretation and application of Rule 3-
10 of the Securities and Exchange Commission's Regulation S-X and Staff
Accounting Bulletin 53. Management does not believe that separate financial
statements of the Guarantor Subsidiaries are material to investors. Therefore,
separate financial statements and other disclosures concerning the Guarantor
Subsidiaries are not presented.
56
<PAGE>
FEDERAL-MOGUL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
December 31, 1998
(Millions of Dollars)
<TABLE>
<CAPTION>
(Unconsolidated)
------------------------------------
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales............... $1,285.7 $ 437.4 $2,896.2 $(150.6) $4,468.7
Cost of products sold... 907.8 309.1 2,223.9 (150.6) 3,290.2
-------- ------- -------- ------- --------
Gross margin.......... 377.9 128.3 672.3 -- 1,178.5
Selling, general and
administrative
expenses............... 293.9 74.8 272.1 -- 640.8
Amortization............ 21.5 9.1 53.2 -- 83.8
Purchased in-process
research and
development charge..... -- -- 18.6 -- 18.6
Restructuring charges .. 7.3 -- -- 7.3
Adjustment of assets
held for sale and other
long-lived assets to
fair value............. 19.0 -- -- 19.0
Integration costs....... 5.5 -- 16.9 -- 22.4
Interest expense........ 215.0 1.5 221.4 (233.9) 204.0
Interest income......... (60.8) (107.2) (76.5) 233.9 (10.6)
International currency
exchange (losses)...... 1.0 1.1 2.6 -- 4.7
Net (gain) loss on
British pound currency
option and forward
contract............... (13.3) -- -- -- (13.3)
Other expense (income),
net.................... (1.4) (22.2) 39.9 -- 16.3
-------- ------- -------- ------- --------
Earnings (loss) before
income taxes and
extraordinary items.. (109.8) 171.2 124.1 -- 185.5
Income tax expense ..... 20.6 1.3 71.7 -- 93.6
-------- ------- -------- ------- --------
Net earnings (loss)
before extraordinary
item................. (130.4) 169.9 52.4 -- 91.9
Extraordinary items--
loss on early
retirement of debt, net
of applicable income
tax benefit............ 19.3 -- 18.9 -- 38.2
-------- ------- -------- ------- --------
Net earnings (loss)
before equity in
earnings (loss) of
subsidiaries......... $ (149.7) $ 169.9 $ 33.5 $ -- $ 53.7
Equity in earnings
(loss) of
subsidiaries........... 203.4 74.7 -- (278.1) --
-------- ------- -------- ------- --------
Net earnings............ $ 53.7 $ 244.6 $ 33.5 $(278.1) $ 53.7
======== ======= ======== ======= ========
</TABLE>
57
<PAGE>
FEDERAL-MOGUL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
DECEMBER 31, 1997
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
(UNCONSOLIDATED)
---------------------- NON-
GUARANTOR GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales............... $1,092.4 $ -- $776.3 $(62.1) $1,806.6
Cost of products sold... 839.4 -- 604.5 (62.1) 1,381.8
-------- ----- ------ ------ --------
Gross margin.......... 253.0 -- 171.8 -- 424.8
Selling, general and
administrative
expenses............... 178.8 (0.2) 97.4 -- 276.0
Amortization............ 7.8 1.1 -- 8.9
Restructuring credits... (1.1) -- -- (1.1)
Reengineering and other
related charges
(credits).............. (1.6) -- -- -- (1.6)
Adjustment of assets
held for sale and other
long-lived assets to
fair value............. 2.4 -- -- 2.4
Interest expense........ 27.5 9.8 (4.0) 33.3
Interest income......... (11.1) 4.0 (7.1)
International currency
exchange (losses)...... 9.7 -- (9.1) -- 0.6
Net (gain) loss on
British pound currency
option and forward
contract............... 10.5 -- -- -- 10.5
Other expense (income),
net.................... 16.1 (15.5) 2.8 -- 3.4
-------- ----- ------ ------ --------
Earnings (loss) before
income taxes and
extraordinary items.. 14.0 15.7 69.8 -- 99.5
Income tax expense ..... 5.8 5.3 16.4 -- 27.5
-------- ----- ------ ------ --------
Net earnings (loss)
before extraordinary
item................. 8.2 10.4 53.4 -- 72.0
Extraordinary items--
loss on early
retirement of debt, net
of applicable income
tax benefit............ 2.6 -- -- -- 2.6
-------- ----- ------ ------ --------
Net earnings before
equity in earnings
(loss) of
subsidiaries......... $ 5.6 $10.4 $ 53.4 $ -- $ 69.4
Equity in earnings
(loss) of
subsidiaries........... 63.8 -- -- (63.8) --
-------- ----- ------ ------ --------
Net earnings............ $ 69.4 $10.4 $ 53.4 $(63.8) $ 69.4
======== ===== ====== ====== ========
</TABLE>
58
<PAGE>
FEDERAL-MOGUL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
DECEMBER 31, 1996
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
(UNCONSOLIDATED)
---------------------- NON-
GUARANTOR GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales............... $1,200.0 $ -- $898.6 $(65.9) $2,032.7
Cost of products sold... 1,027.5 0.4 698.5 (65.9) 1,660.5
-------- ------ ------ ------ --------
Gross margin.......... 172.5 (0.4) 200.1 -- 372.2
Selling, general and
administrative
expenses............... 196.7 -- 123.3 -- 320.0
Amortization............ 10.0 -- 2.0 -- 12.0
Restructuring charges .. 57.6 -- -- -- 57.6
Reengineering and other
related charges
(credits).............. 11.4 -- -- -- 11.4
Adjustment of assets
held for sale and other
long-lived assets to
fair value............. 151.3 -- -- 151.3
Interest expense........ 33.0 -- 20.3 (8.9) 44.4
Interest income......... (11.8) -- -- 8.9 (2.9)
International currency
exchange (losses)...... 2.4 1.3 -- 3.7
Other expense (income),
net.................... (18.8) (17.3) 39.5 -- 3.4
-------- ------ ------ ------ --------
Earnings (loss) before
income taxes and
extraordinary items.. (259.3) 16.9 13.7 -- (228.7)
Income tax expense
(benefit).............. (50.9) 5.7 22.8 -- (22.4)
-------- ------ ------ ------ --------
Net earnings (loss)
before equity in
earnings (loss) of
subsidiaries......... $ (208.4) $ 11.2 $ (9.1) $ -- $ (206.3)
Equity in earnings
(loss) of
subsidiaries........... 2.1 -- -- (2.1) --
-------- ------ ------ ------ --------
Net earnings............ $ (206.3) $ 11.2 $ (9.1) $ (2.1) $ (206.3)
======== ====== ====== ====== ========
</TABLE>
59
<PAGE>
FEDERAL-MOGUL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING CONDENSED BALANCE SHEET
DECEMBER 31, 1998
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
(UNCONSOLIDATED)
---------------------- NON-
GUARANTOR GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and equivalents.... $ 25.3 $ 20.7 $ 31.2 -- $ 77.2
Accounts receivable..... 13.9 395.9 615.2 -- 1,025.0
Investment in accounts
receivable
securitization......... -- -- 91.1 -- 91.1
Inventories............. 186.8 441.2 440.6 -- 1,068.6
Prepaid expenses and
income tax benefits.... 52.9 174.9 109.9 -- 337.7
-------- -------- -------- --------- --------
Total current assets.... 278.9 1,032.7 1,288.0 -- 2,599.6
Property, plant and
equipment.............. 230.0 684.7 1,562.8 -- 2,477.5
Goodwill................ 589.4 676.4 2,132.6 -- 3,398.4
Other intangible
assets................. 44.6 423.6 418.2 -- 886.4
Investment in
subsidiaries........... 5,114.7 1,666.7 -- (6,781.4) --
Intercompany accounts,
net.................... (515.2) 1,208.2 (693.0) -- --
Other non current
assets................. 103.0 51.9 423.3 -- 578.2
-------- -------- -------- --------- --------
Total Assets............ $5,845.4 $5,744.2 $5,131.9 $(6,781.4) $9,940.1
======== ======== ======== ========= ========
LIABILITIES
Short-term debt,
including current
portion of long-term
debt................... $ 90.7 $ 16.0 $ 104.3 -- $ 211.0
Accounts payable........ 82.0 149.5 266.9 -- 498.4
Accrued compensation.... 71.9 117.0 11.4 -- 200.3
Restructuring and
rationalization
reserves............... 5.8 -- 173.1 -- 178.9
Current portion of
asbestos liability..... -- -- 125.0 -- 125.0
Income taxes payable.... 21.7 24.3 96.2 -- 142.2
Other accrued
liabilities............ 271.4 115.7 286.6 -- 673.7
-------- -------- -------- --------- --------
Total current
liabilities............ 543.5 422.5 1,063.5 -- 2,029.5
Long-term debt.......... 3,077.2 1.2 52.3 -- 3,130.7
Long-term portion of
asbestos liability..... -- 20.0 1,156.7 -- 1,176.7
Postemployment
benefits............... 218.2 207.6 251.2 -- 677.0
Other accrued
liabilities............ 12.2 255.0 59.8 -- 327.0
Minority interest in
consolidated
subsidiaries........... 8.1 1.5 28.4 -- 38.0
Company-obligated
mandatorily redeemable
preferred securities of
solely convertible
subordinated debentures
of the Company......... -- -- 575.0 -- 575.0
Shareholders' equity.... 1,986.2 4,836.4 1,945.0 (6,781.4) 1,986.2
-------- -------- -------- --------- --------
Total Liabilities and
Shareholders' Equity... $5,845.4 $5,744.2 $5,131.9 $(6,781.4) $9,940.1
======== ======== ======== ========= ========
</TABLE>
60
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING CONDENSED BALANCE SHEET
December 31, 1997
(Millions of Dollars)
<TABLE>
<CAPTION>
(Unconsolidated)
--------------------
Non-
Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and equivalents.... $504.9 $ 0.1 $ 36.4 -- $ 541.4
Accounts receivable..... 47.1 -- 111.8 -- 158.9
Investment in accounts
receivable
securitization......... -- -- 48.7 -- 48.7
Inventories............. 166.3 -- 110.7 -- 277.0
Prepaid expenses and
income tax benefits.... 99.9 -- 13.3 -- 113.2
------ ----- -------- ------- --------
Total current assets.... 818.2 0.1 320.9 -- 1,139.2
Property, plant and
equipment.............. 162.5 2.0 149.4 -- 313.9
Goodwill................ 107.0 -- 36.8 -- 143.8
Other intangible
assets................. 28.3 -- 20.1 -- 48.4
Investment in
subsidiaries........... 503.1 5.8 (508.9) --
Intercompany accounts,
net.................... (702.8) 9.7 693.1 -- --
Other non current
assets................. 61.9 -- 94.9 -- 156.8
------ ----- -------- ------- --------
Total Assets............ $978.2 $17.6 $1,315.2 $(508.9) $1,802.1
====== ===== ======== ======= ========
LIABILITIES
Short-term debt,
including current
portion of long-term
debt................... $ 16.8 $ -- $ 11.8 $ -- $ 28.6
Accounts payable........ 60.5 -- 41.8 -- 102.3
Accrued compensation.... 27.7 -- 9.1 -- 36.8
Restructuring and
rationalization
reserves............... 22.3 -- 11.6 -- 33.9
Income taxes payable.... 10.2 -- -- -- 10.2
Other accrued
liabilities............ 27.1 13.3 77.4 -- 117.8
------ ----- -------- ------- --------
Total current
liabilities............ 164.6 13.3 151.7 -- 329.6
Long-term debt.......... 266.7 -- 6.4 -- 273.1
Postemployment
benefits............... 164.0 -- 26.9 -- 190.9
Other accrued
liabilities............ -- 50.6 -- 50.6
Minority interest in
consolidated
subsidiaries........... 13.6 -- -- -- 13.6
Company-obligated
mandatorily redeemable
preferred securities of
solely convertible
subordinated debentures
of the Company......... -- 575.0 -- 575.0
Shareholders' equity.... 369.3 4.3 504.6 (508.9) 369.3
------ ----- -------- ------- --------
Total Liabilities and
Shareholders' Equity... $978.2 $17.6 $1,315.2 $(508.9) $1,802.1
====== ===== ======== ======= ========
</TABLE>
61
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
DECEMBER 31, 1998
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
(UNCONSOLIDATED)
----------------------- NON-
GUARANTOR GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Cash Provided From
Operating
Activities........... $ 131.5 $ 122.0 $ 72.0 $ -- $ 325.5
Expenditures for
property, plant and
equipment.............. (37.4) (7.6) (183.5) -- (228.5)
Proceeds from sale of
business investments... 3.8 -- 49.6 -- 53.4
Proceeds from sale of
options................ -- -- 39.1 -- 39.1
Business acquisitions,
net of cash acquired... (2,369.7) -- (1,855.5) -- (4,225.2)
--------- -------- --------- -------- ---------
Net Cash Used By
Investing
Activities........... (2,403.3) (7.6) (1,950.3) -- (4,361.2)
Issuance of common
stock.................. 1,382.2 -- -- -- 1,382.2
Proceeds from issuance
of long-term debt...... 6,197.5 -- -- -- 6,197.5
Principal payments on
long-term debt......... (3,678.7) (0.3) (248.6) -- (3,927.6)
Increase (decrease) in
short-term debt........ 73.9 10.5 (83.9) -- 0.5
Fees paid for debt
issuance and other
securities............. (76.6) -- -- -- (76.6)
Fees for early
retirement of debt..... -- -- (27.4) -- (27.4)
Change in intercompany
accounts............... 16.4 (1,689.2) 1,672.8 -- --
Contributions paid to
affiliates............. (2,150.1) (565.4) -- 2,715.5 --
Contributions received
from affiliates........ -- 2,150.1 565.4 (2,715.5) --
Investment in accounts
receivable
securitization......... 42.6 -- -- -- 42.6
Dividends............... (10.4) -- -- -- (10.4)
Other................... (4.6) 0.5 (5.2) -- (9.3)
--------- -------- --------- -------- ---------
Net Cash Provided From
(Used By) Financing
Activities........... 1,792.2 (93.8) 1,873.1 -- 3,571.5
--------- -------- --------- -------- ---------
Net Increase
(Decrease) in Cash... $ (479.6) $ 20.6 $ (5.2) $ -- $ (464.2)
========= ======== ========= ======== =========
</TABLE>
62
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
DECEMBER 31, 1997
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
(UNCONSOLIDATED)
-----------------------
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
--------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Net Cash Provided From Op-
erating
Activities............... $ (23.2) $ 5.9 $ 233.0 $ 215.7
Expenditures for property,
plant and equipment........ (24.7) -- (25.0) (49.7)
Proceeds from sale of
business investments....... 61.5 -- 12.1 73.6
Business acquisitions, net
of cash acquired........... -- -- (30.5) (30.5)
Other....................... -- -- 1.1 1.1
--------- ------ ------- -------
Net Cash Used By Investing
Activities............... 36.8 -- (42.3) (5.5)
Issuance of common stock.... 14.2 -- -- 14.2
Proceeds from issuance of
long-term debt............. 179.6 -- -- 179.6
Principal payments on long-
term debt.................. (97.8) -- (29.6) (127.4)
Increase (decrease) in
short-term debt............ (227.4) -- (8.4) (235.8)
Fees paid for debt issuance
and other securities....... (42.8) -- -- (42.8)
Fees for early retirement of
debt....................... -- -- (4.1) (4.1)
Change in intercompany
accounts................... 675.2 2.6 (677.8) --
Investment in accounts
receivable securitization.. (31.8) -- -- (31.8)
Issuance of Company-
obligated mandatorily
redeemable preferred
securities................. -- -- 575.0 575.0
Dividends................... (12.0) (8.5) (4.3) (24.8)
Other....................... -- -- (4.0) (4.0)
--------- ------ ------- -------
Net Cash Provided From
(Used By) Financing
Activities............... 457.2 (5.9) (153.2) 298.1
--------- ------ ------- -------
Net Increase (Decrease) in
Cash..................... $ 470.8 -- $ 37.5 $ 508.3
========= ====== ======= =======
</TABLE>
63
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
DECEMBER 31, 1996
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
(UNCONSOLIDATED)
----------------------
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
-------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Net Cash Provided From
Operating Activities........ $ (72.7) $ 4.3 $217.4 $ 149.0
Expenditures for property,
plant and equipment......... (24.7) -- (29.5) (54.2)
Proceeds from sale of
business investments........ 42.0 -- -- 42.0
Business acquisitions, net of
cash acquired............... -- -- (.3) (0.3)
-------- ----- ------ -------
Net Cash Used By Investing
Activities................ 17.3 -- (29.8) (12.5)
Issuance of common stock..... 0.6 -- -- 0.6
Principal payments on long-
term debt................... (26.4) -- (3.0) (29.4)
Increase (decrease) in short-
term debt................... (33.5) -- (27.9) (61.4)
Change in intercompany
accounts.................... 151.3 4.0 (155.3) --
Dividends.................... (23.8) (8.3) 5.2 (26.9)
Other........................ -- -- (5.7) (5.7)
-------- ----- ------ -------
Net Cash Provided From
(Used By) Financing
Activities................ 68.2 (4.3) (186.7) (122.8)
-------- ----- ------ -------
Net Increase (Decrease) in
Cash...................... $ 12.8 $ -- $ 0.9 $ 13.7
======== ===== ====== =======
</TABLE>
64
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Concluded
23. Subsequent Events
On January 7, 1999, the Company announced that it has agreed to acquire the
piston division of Alcan Deutschland GmbH in Germany, a subsidiary of Alcan
Aluminum Limited in Canada. Alcan's piston division manufactures high quality
pistons for passenger cars and commercial vehicles under the highly regarded
Nural brand name. The piston division employs approximately 1,100 people at
its manufacturing facility in Nuremberg, Germany with annual sales in excess
of $150 million.
On January 14, 1999, the Company issued $1.0 billion of bonds with
maturities ranging from seven to ten years, a weighted average yield of 7.53%
and a weighted average coupon of 7.45%. Proceeds were used to repay borrowings
under the Senior Credit Agreements. As a result of this transaction, the
Company will recognize an extraordinary charge in the first quarter of 1999 of
approximately $8 million, net of tax, related to early extinguishment of debt.
On January 20, 1999, the Company completed its acquisition of two camshaft
machining plants from Crane Technologies Group Inc. to expand the capacity of
its automotive products lines. The two plants located in Orland, Indiana and
Jackson, Michigan employ approximately 230 people and have annual sales of
approximately $36 million.
On February 24, 1999, the Company entered into a new $1.75 billion Senior
Credit Agreement at variable interest rates which contains a $1.0 billion
multicurrency revolving credit facility and two term loan components. The
revolving credit facility has a five-year maturity. The term loan components
of $400 million and $350 million mature in five and six years, respectively.
The proceeds of this Senior Credit Agreement were used to refinance the prior
Senior Credit Agreements entered into in connection with the T&N and Cooper
Automotive acquisitions as well as the $400 million multicurrency revolving
credit facility related to the T&N acquisition.
As a result of these transactions, the Company will recognize an
extraordinary charge in the first quarter of 1999 of approximately $15
million, net of tax, related to early extinguishment of debt.
On February 24, 1999, all outstanding shares of the Company's Series E Stock
were exchanged into shares of the Company's common stock. Each of the 607,745
remaining shares of the Series E Stock were exchanged into five shares of the
Company's common stock.
65
<PAGE>
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
To Our Shareholders:
The management of Federal-Mogul has the responsibility for preparing the
accompanying financial statements and for their integrity and objectivity. The
financial statements were prepared in accordance with generally accepted
accounting principles and include amounts based on the best estimates and
judgments of management. Management also prepared the other financial
information in this report and is responsible for its accuracy and consistency
with the financial statements. Federal-Mogul has retained independent
auditors, ratified by election by the shareholders, to audit the financial
statements.
Federal-Mogul maintains internal accounting control systems which are
adequate to provide reasonable assurance that assets are safeguarded from loss
or unauthorized use and which produce records adequate for preparation of
financial information. The systems controls and compliance are reviewed by a
program of internal audits. There are limits inherent in all systems of
internal accounting control based on the recognition that the cost of such a
system not exceed the benefits derived. We believe Federal-Mogul's system
provides this appropriate balance.
The Audit Committee of the Board of Directors, comprised of four outside
directors, performs an oversight role related to financial reporting. The
Committee periodically meets jointly and separately with the independent
auditors, internal auditors and management to review their activities and
reports and to take any action appropriate to their findings. At all times,
the independent auditors have the opportunity to meet with the Audit
Committee, without management representatives present, to discuss matters
related to their audit.
/s/ Dick Snell
Dick Snell
Chairman and Chief Executive Officer
/s/ Tom Ryan
Tom Ryan
Executive Vice President and
Chief Financial Officer
66
<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, 1998 and 1997, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1998. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Federal-Mogul Corporation and subsidiaries at December 31, 1998 and 1997,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1998, 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 and Young, LLP
Detroit, Michigan
February 3, 1999,
except for Note 23, as to which
the date is February 24, 1999
67
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information required by this item will appear (a) under the caption
"Election of Directors" in the Company's definitive Proxy Statement dated
March 22, 1999 relating to its 1999 Annual Meeting of Shareholders (the "1999
Proxy Statement") (except for the information appearing under the caption
"Compensation of Directors"), which information is incorporated herein by
reference; (b) under the caption "Information on Securities--Section 16(a)
Beneficial Ownership Reporting Compliance of the Exchange Act" in the 1999
Proxy Statement, which information is incorporated herein by reference; and
(c) under the caption "Executive Officers of the Company" at the end of Part I
of this Annual Report.
Item 11. Executive Compensation.
The information required by this item will appear under the caption
"Executive Compensation" in the 1999 Proxy Statement (excluding the
information appearing under the captions "Certain Related Transactions" and
"Compensation Committee Report on Executive Compensation") and under the
caption "Compensation of Directors" in the 1999 Proxy Statement, and is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this item will appear under the caption
"Information on Securities--Directors' and Officers' Ownership of Stock" and
"Ownership of Stock by Principal Owners" in the 1999 Proxy Statement and is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
The information required by this item will appear under the caption "Certain
Related Transactions" in the 1999 Proxy Statement and is incorporated herein
by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) The following documents are filed as part of this report:
1. Financial Statements: Financial statements filed as part of this
Annual Report on Form 10-K are listed under Part II, Item 8 hereof.
2. Financial Statement Schedules:
Schedule II--Valuation and Qualifying Accounts
Financial Statements and Schedules Omitted:
Schedules other than those listed above are omitted because they
are not required or applicable under instructions contained in
Regulation S-X or because the information called for is shown in the
financial statements and notes thereto.
68
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FEDERAL-MOGUL CORPORATION AND SUBSIDIARIES
(IN MILLIONS)
<TABLE>
<CAPTION>
COLUMN
COLUMN A COLUMN B COLUMN C COLUMN D E
-------- --------- ------------------- ------------ -------
ADDITIONS
-------------------
BALANCE CHARGED CHARGED TO BALANCE
AT TO COSTS OTHER AT END
BEGINNING AND ACCOUNTS-- DEDUCTIONS-- OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
----------- --------- -------- ---------- ------------ -------
<S> <C> <C> <C> <C> <C>
Year Ended December 31,
1998:
Valuation allowance for
trade receivable......... $18.7 $7.6 $34.1(1) -- $60.4
Reserve for inventory
valuation................ 15.1 1.6 8.2(1) -- 24.9
Valuation allowance for
deferred tax assets...... 44.4 -- 21.8(2) -- 66.2
Year Ended December 31,
1997:
Valuation allowance for
trade receivable......... 16.3 3.5 -- 1.1(3) 18.7
Reserve for inventory
valuation................ 48.0 1.5 -- 34.4(4) 15.1
Valuation allowance for
deferred tax assets...... 89.4 -- 45.0(5) 44.4
Year Ended December 31,
1996:
Valuation allowance for
trade receivable......... 18.7 10.9 13.3(3) 16.3
Reserve for inventory
valuation................ 25.2 22.8 48.0
Valuation allowance for
deferred tax assets...... 23.7 65.7 -- 89.4
</TABLE>
- - ------------------
(1) Amounts related to the acquisition of business.
(2) Increase due to purchased foreign net operating loss carryforwards.
(3) Uncollectable accounts charged off net of recoveries.
(4) Decrease due to the disposal of certain foreign subsidiaries and the
disposal of slow moving and obsolete inventory that was fully reserved.
(5) Disposition of certain international retail operations plus utilization of
foreign net operating loss carryforwards.
69
<PAGE>
3. EXHIBITS:
The Company will furnish upon request any of the following exhibits
upon payment of the Company's reasonable expenses for furnishing such
exhibit.
<TABLE>
<S> <C>
2.1 Recommended Cash Offer for T&N plc, dated as of November 13, 1997. (Incorporated
by reference to Exhibit 2.1 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1997 (the "1997 10-K")
2.2 Equity Purchase Agreement between the Company and The Sellers with respect to the
acquisition of Fel-Pro Incorporated, dated as of January 9, 1998. (Incorporated by
reference to Exhibit 2.2 to the Company's 1997 10-K.)
2.3 Purchase and Sale Agreement between Cooper Industries, Inc. and Federal-Mogul
Corporation, dated August 17, 1998. (Incorporated by reference to Exhibit 2.1 to
the Company's Current Report on Form 8-K filed October 26, 1998.)
3.1 The Company's Second Restated Articles of Incorporation, as amended. (Incorporated
by reference to Exhibit 3.1 to the Company's Registration Statement No. 333-
50413.)
*3.2 The Company's Bylaws, as amended.
4.1 Rights Agreement (the "Rights Agreement") between the Company and National Bank of
Detroit, as Rights Agent, with The Bank of New York as successor Rights Agent.
(Incorporated by reference to Exhibit 1 to the Company's Registration Statement on
Form 8-A, dated November 7, 1988.)
4.2 Amendment, dated November 13, 1998, to the Rights Agreement (Incorporated by
reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998.)
4.3 Rights Agreement dated as of February 24, 1999 between the Company and The Bank of
New York, as Rights Agent. (Incorporated by reference to Exhibit 4 to the
Company's Current Report on Form 8-K filed February 25, 1999.)
4.4 Purchase Agreement for 10,000,000 Trust Convertible Preferred Securities of
Federal-Mogul Financing Trust, dated as of November 24, 1997. (Incorporated by
reference to Exhibit 4.6 to the Company's 1997 10-K.)
4.5 Registration Rights Agreement, dated as of December 1, 1997, by and among the
Company, Federal-Mogul Financing Trust and Morgan Stanley & Co. Inc. as Initial
Purchaser. (Incorporated by reference to Exhibit 4.7 to the Company's 1997 10-K.)
4.6 Indenture between the Company and The Bank of New York, dated as of December 1,
1997, with respect to the Subordinated Debentures. (Incorporated by reference to
Exhibit 4.8 to the Company's 1997 10-K.)
4.7 First Supplemental Indenture between the Company and The Bank of New York, dated
as of December 1, 1997, with respect to the Subordinated Debentures. (Incorporated
by reference to Exhibit 4.9 to the Company's 1997 10-K.)
*4.8 Indenture among Federal-Mogul Corporation and The Bank of New York dated as of
January 20, 1999.
4.9 Registration Agreement, dated as of January 9, 1998, by and among the Company and
the Investors identified on Schedule 1 thereto relating to the Series E Mandatory
Exchangeable Preferred Stock. (Incorporated by reference to Exhibit 4.10 to the
Company's 1997 10-K.)
</TABLE>
70
<PAGE>
<TABLE>
<S> <C>
10.1 The Company's 1984 Stock Option Plan, as last amended. (Incorporated by reference
to Exhibit 10.2 to the Company's 1994 10-K.)
10.2 Federal-Mogul Corporation 1989 Performance Incentive Stock Plan, as amended.
(Incorporated by reference to Exhibit 10.14 to the Company's 1994 10-K.)
10.3 Federal-Mogul Corporation 1997 Amended and Restated Long-Term Incentive Plan, as
adopted by the Shareholders of the Company on May 20, 1998 (Incorporated by
reference to the Company's 1998 Definitive Proxy Statement on Form 14A.)
10.4 The Company's 1977 Supplemental Compensation Plan, as amended and restated.
(Incorporated by reference to Exhibit 10.27 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1994.)
10.5 Form of Executive Severance Agreement between the Company and certain executive
officers (Incorporated by reference to Exhibit 10.5 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1996 (the "1996 10-K".)
10.6 Amended and Restated Deferred Compensation Plan for Corporate Directors.
(Incorporated by reference to Exhibit 10.7 to the Company's Annual Report on Form
10-K for the year ended December 31, 1990 (the "1990 10-K".)
10.7 Supplemental Executive Retirement Plan, as amended. (Incorporated by reference to
Exhibit 10.10 to the Company's 1992 10-K.)
10.8 Description of Umbrella Excess Liability Insurance for the Senior Management Team.
(Incorporated by reference to Exhibit 10.11 to the Company's 1990 10-K.)
10.9 Federal-Mogul Corporation Executive Loan Program. (Incorporated by reference to
Exhibit 10.26 to the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1994.)
10.10 Federal-Mogul Corporation Non-Employee Director Stock Plan. (Incorporated by
reference to Exhibit 4 to the Company's Registration Statement on Form S-8
(Registration No. 33-54301)
10.11 Amended and Restated Declaration of Trust of Federal-Mogul Financing Trust, dated
as of December 1, 1997. (Incorporated by reference to Exhibit 10.34 to the
Company's 1997 10-K.)
10.12 Common Securities Guarantee Agreement, dated as of December 1, 1997, among the
Company and Federal-Mogul Financing Trust. (Incorporated by reference to Exhibit
10.35 to the Company's 1997 10-K.)
*10.13 Third Amended and Restated Credit Agreement, dated as of February 24, 1999, in the
amount of $1,750,000,000 among the Company, The Foreign Subsidiary Borrowers, the
Lenders and The Chase Manhattan Bank.
*10.14 Receivables Sale And Contribution Agreement, dated as of November 20, 1998, among
the Company, Carter Automotive Company, Inc., Federal-Mogul Canada Limited and
Federal-Mogul Funding Corporation.
*10.15 Receivable Interest Purchase Agreement, dated as of November 20, 1998, among the
Company, Federal-Mogul Funding Corporation, Falcon Asset Securitization
Corporation and The First National Bank of Chicago.
*21 Subsidiaries of the Registrant.
</TABLE>
71
<PAGE>
<TABLE>
<S> <C>
*23.1 Consent of Ernst & Young LLP.
*24 Powers of Attorney.
*27 Financial Data Schedule.
</TABLE>
- - ------------------
* Filed Herewith
(b) Reports on Form 8-K:
On November 24, 1998, the Company filed a Current Report on Form 8-K/A to
report Item 7 historical and proforma financial information provided related
to the acquisition of Cooper Automotive.
On February 25, 1999, the Company filed a Current Report on Form 8-K to
report the Rights Agreement dated as of February 24, 1999, between the Company
and The Bank of New York, as Rights Agent.
(c) Separate financial statements of affiliates whose securities are pledged
as collateral.
1) Financial statements of Federal-Mogul Ignition Company and
subsidiaries (and the Cooper Automotive division of Cooper Industries,
Inc., its predecessor) including consolidated balance sheets as of
December 31, 1998 and 1997, and the related statements of operations
and comprehensive income and cash flows for the periods January 1, 1998
through October 9, 1998, October 10, 1998 through December 31, 1998 and
for each of the two years in the period ended December 31, 1997.
2) Financial statements of Federal-Mogul Products, Inc. and
subsidiaries (formerly owned by Cooper Industries and the Moog
Automotive division of Cooper Industries, Inc., its predecessor)
including consolidated balance sheets as of December 31, 1998 and 1997,
and the related statements of operations and comprehensive income and
cash flows for the periods January 1, 1998 through October 9, 1998,
October 10, 1998 through December 31, 1998 and for each of the two
years in the period ended December 31, 1997.
3) Financial statements of Federal-Mogul Aviation, Inc. (and Champion
Aviation, Inc., a subsidiary of Cooper Industries Inc., its
predecessor) including consolidated balance sheets as of December 31,
1998 and 1997, and the related statements of operations and
comprehensive income and cash flows for the periods January 1, 1998
through October 9, 1998, October 10, 1998 through December 31, 1998 and
for each of the two years in the period ended December 31, 1997.
72
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Federal-Mogul Corporation
We have audited the accompanying consolidated balance sheets of Federal-
Mogul Products, Inc. and subsidiaries and the Moog Automotive division of
Cooper Industries (the Predecessor) as of December 31, 1998 and 1997,
respectively, and the related consolidated statements of operations and
comprehensive income and cash flows for the period October 10, 1998 through
December 31, 1998 and for the Predecessor for the period January 1, 1998
through October 9, 1998 and for each of the two years in the period ended
December 31, 1997. These financial statements are the responsibility of the
respective 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 consolidated financial position of Federal-Mogul
Products, Inc. and subsidiaries at December 31, 1998 and the Predecessor at
December 31, 1997, and the consolidated results of their operations and their
cash flows for the period October 10, 1998 through December 31, 1998 and for
the Predecessor for the period January 1, 1998 through October 9, 1998, and
for each of the two years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.
/s/ Ernst & Young LLP
Detroit, Michigan
January 29, 1999
73
<PAGE>
FEDERAL-MOGUL PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
PREDECESSOR
-------------------------------------------
PERIOD OCTOBER 10, PERIOD JANUARY 1, YEAR ENDED YEAR ENDED
1998 THROUGH 1998 THROUGH DECEMBER 31, DECEMBER 31,
DECEMBER 31, 1998 OCTOBER 9, 1998 1997 1996
------------------ ----------------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues................ $170.2 $666.7 $842.0 $862.9
Cost of sales........... 120.1 428.4 573.1 589.9
Selling and
administrative
expenses............... 28.5 136.8 196.2 182.2
Amortization expense.... 2.9 11.9 15.1 19.3
Nonrecurring charges.... -- 27.3 101.5
Other expense, net...... 1.9 1.6 1.9 0.5
Interest expense........ 15.1 -- 0.4 0.4
------ ------ ------ ------
Income/(loss) before
income taxes......... 1.7 88.0 28.0 (30.9)
Income taxes............ 1.0 38.4 16.0 5.3
------ ------ ------ ------
Net income/(loss)... 0.7 49.6 12.0 (36.2)
Components of
Comprehensive Income:
Minimum pension
liability, net of
tax.................. -- -- (1.6) (0.1)
Translation
adjustments, net of
tax.................. (0.8) (1.6) 2.0 (0.8)
------ ------ ------ ------
Comprehensive income
(loss)............. $ (0.1) $ 48.0 $ 12.4 $(37.1)
====== ====== ====== ======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
74
<PAGE>
FEDERAL-MOGUL PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
PREDECESSOR
-----------
1998 1997
-------- -----------
(IN MILLIONS)
<S> <C> <C>
ASSETS
Cash..................................................... $ 7.7 $ --
Accounts receivable (net of allowance for doubtful
accounts of $16.7 million and $31.8 million)............ 183.5 155.2
Inventories.............................................. 208.0 222.9
Other.................................................... 15.4 13.1
-------- --------
Total current assets................................... 414.6 391.2
Property, plant and equipment, less accumulated
depreciation............................................ 294.3 196.3
Intangibles, less accumulated amortization............... 339.8 528.9
Other assets............................................. 19.2 2.9
-------- --------
Total assets........................................... $1,067.9 $1,119.3
======== ========
LIABILITIES AND NET PARENT INVESTMENT
Accounts payable......................................... $ 77.1 $ 73.9
Accrued liabilities...................................... 107.9 127.8
-------- --------
Total current liabilities.............................. 185.0 201.7
Long-term debt........................................... 0.8 3.5
Other long-term liabilities.............................. 71.6 61.7
Net parent investment.................................... 810.5 852.4
-------- --------
Liabilities and net parent investment.................. $1,067.9 $1,119.3
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
75
<PAGE>
FEDERAL-MOGUL PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PREDECESSOR
PERIOD ------------------------------
OCTOBER 10, PERIOD
1998 JANUARY 1, YEAR YEAR
THROUGH 1998 THROUGH ENDED ENDED
DECEMBER 31, OCTOBER 9, DECEMBER DECEMBER
1998 1998 31, 1997 31, 1996
------------ ------------ -------- --------
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income/(loss)............... $ 0.7 $ 49.6 $ 12.0 $(36.3)
Adjustments to reconcile to net
cash provided by operating
activities:
Depreciation expense............ 7.2 18.0 25.2 23.7
Amortization expense............ 2.9 11.8 15.1 17.9
Nonrecurring asset write-down... -- -- 36.2 --
Changes in assets and
liabilities:
Accounts receivable........... 16.7 (43.2) 11.5 (3.0)
Inventories................... 31.0 (18.7) (18.1) (12.0)
Accounts payable and accrued
liabilities.................. (12.2) (28.6) (14.1) 7.4
Other assets and liabilities,
net.......................... 1.5 (7.9) 14.4 47.1
------ ------ ------ ------
Net cash provided by (used
in) operating activities... 47.8 (19.0) 82.2 44.8
Cash flows from investing
activities:
Cash paid for acquired
businesses..................... -- -- -- (5.1)
Capital expenditures............ (4.9) (18.8) (36.3) (42.4)
Proceeds from sales of property,
plant and equipment............ 4.9 5.8 2.2 4.5
------ ------ ------ ------
Net cash used in investing
activities................. -- (13.0) (34.1) (43.0)
Cash flows from financing
activities:
Net short-term borrowings....... -- -- -- 0.5
Repayments of long-term debt.... (0.3) (2.4) (3.5) (1.0)
Transfers from (to) parent...... (40.6) 37.8 (45.1) (1.3)
------ ------ ------ ------
Net cash provided by (used
in) financing activities... (40.9) 35.4 (48.6) (1.8)
Effect of exchange rate changes on
cash and cash equivalents........ (1.0) (1.6) 0.5 --
------ ------ ------ ------
Increase in cash and cash
equivalents...................... 5.9 1.8 -- --
Cash, beginning of period... 1.8 -- -- --
------ ------ ------ ------
Cash, end of period......... $ 7.7 $ 1.8 $ -- $ --
====== ====== ====== ======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
76
<PAGE>
FEDERAL-MOGUL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
The accompanying financial statements reflect the consolidated assets,
liabilities and operations of Federal-Mogul Products, Inc. and subsidiaries
("Products"). Products is a wholly-owned subsidiary of Federal-Mogul
Corporation ("Federal-Mogul"). Products was previously known as the Moog
Automotive Division of Cooper Industries, Inc. ("Cooper"). Federal-Mogul
purchased the automotive divisions of Cooper, including Products, on October
9, 1998 for approximately $2.0 billion of which approximately $750 million is
attributable to Products. The assets and liabilities of Products have been
adjusted to their fair values as of October 9, 1998. All related purchase
accounting adjustments as recorded by Federal-Mogul and related to Products
have been reflected herein. Such adjustments consist principally of the
following:
Increase in net book value to fair value (in millions):
<TABLE>
<S> <C>
Inventory.................................. $ 8.0
Fixed Assets............................... 94.1
Identifiable intangible assets............. 147.2
Liabilities for severance and exit cost.... 99.2
Decrease in goodwill....................... 321.5
</TABLE>
In connection with the acquisition, Federal-Mogul is in the process of
having valuations of acquired property, plant and equipment and identifiable
intangible assets completed. In addition, the related purchase agreement
includes a price adjustment based upon acquired net assets, as defined in the
agreement, as of the acquisition date. The purchase price allocations included
in the accompanying financial statements are based upon management's best
estimates and currently available information. Such purchase price allocations
will be finalized when such valuations and the final purchase price
adjustments are completed in 1999. Actual results could differ from the above
estimates.
Products operates with financial and operations staff on a decentralized
basis. Its parent provides certain centralized services for employee benefits
administration, cash management, risk management, legal services, public
relations, domestic tax reporting and internal and external audit. Its parent
bills Products for all direct costs incurred on behalf of Products. General
corporate, accounting, tax, legal and other administrative costs that are not
directly attributable to the operations of Products have been allocated based
on a ratio of Products' revenues to consolidated revenues. Management believes
that this allocation method is reasonable. .
The accompanying consolidated financial statements include the accounts of
Products as described above. These statements are presented as if Products had
existed as an entity separate from its parent during the period presented and
include the assets, liabilities, revenues and expenses that are directly
related to Products' operations.
Products' separate domestic debt related to industrial revenue bonds and
related interest expense have been included in the consolidated financial
statements. Because Products is fully integrated into its parent's worldwide
cash management system, all of their cash requirements are provided by its
parent and any excess cash generated by Products is transferred to its parent.
77
<PAGE>
FEDERAL-MOGUL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 2: Summary of Significant Accounting Policies
Principles of Consolidation: The consolidated financial statements include
the accounts of Products, and its subsidiaries. Intercompany accounts and
transactions have been eliminated.
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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Inventories: Inventories are carried at cost or, if lower, net realizable
value. Through October 9, 1998 cost was determined using the first-in, first-
out (FIFO) method. For October 10, 1998 and thereafter, cost was determined
using the last-in, first-out method, which at December 31, 1998 approximated
FIFO.
Revenue Recognition: Products recognizes revenue and estimated returns from
product sales and the related customer incentive and warranty expense when
goods are shipped to the customer.
Property, Plant and Equipment: Property, plant and equipment are stated at
cost. Depreciation is provided over the estimated useful lives of the related
assets using primarily the straight-line method. This method is applied to
group asset accounts, which in general have the following lives: buildings--10
to 40 years and machinery and equipment--3 to 20 years.
Goodwill and Other Intangible Assets: At December 31, goodwill and other
intangible assets which result principally from acquisitions, consisted of the
following:
<TABLE>
<CAPTION>
Estimated
Useful Life 1998 1997
----------- ------ ------
(in millions)
<S> <C> <C> <C>
Goodwill...................................... 40 years $195.5 $603.4
Accumulated amortization...................... (1.1) (74.5)
------ ------
Total Goodwill................................ $194.4 $528.9
====== ======
Trademarks.................................... 40 years $ 66.2 $ --
Developed technology.......................... 12-30 years 67.4 --
Assembled workforce........................... 15 years 13.6 --
------ ------
147.2
Accumulated amortization...................... (1.8) --
------ ------
Total Other Intangible Assets................. $145.4 $ --
====== ======
</TABLE>
Intangible assets are periodically reviewed for impairment based on an
assessment of future cash flows to ensure that they are appropriately valued.
There were no impairment charges during 1998 or 1997. Intangible assets are
amortized on a straight-line basis over their estimated useful lives.
Net Parent Investment: The Net Parent Investment account reflects the
balance of Products's historical earnings, intercompany debt, accrued and
deferred income taxes and other transactions between Products and its parent.
Effect of Accounting Pronouncements: In April 1998, the American Institute
of Certified Public Accountants issued Statement of Position (SOP) 98-5,
Reporting the Costs of Start-Up Activities. SOP 98-5 is effective January 1,
1999, and requires that start-up costs capitalized prior to January 1, 1999 be
written off and any future start-up costs be expensed as incurred. The Company
does not anticipate that the adoption of this statement will have a
significant effect on its results of operations or financial position.
78
<PAGE>
FEDERAL-MOGUL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 Canadian subsidiaries for which the
Canadian Dollar is the functional currency are reflected in the consolidated
financial statements as a component of accumulated other comprehensive income.
Fair Value of Financial Instruments: The carrying amounts of certain
financial instruments such as cash and equivalents, accounts receivable and
accounts payable approximate their fair value.
Note 3: Nonrecurring Charges
During 1997, the Products incurred charges of $14.7 million ($9.0 million
after income taxes) for actions management committed to during the period
after concluding an evaluation of certain sales, marketing and distribution
activities and information systems relating to year 2000 compliance efforts.
The 1997 charges include adjustments to the carrying value of assets of $23.8
million and expenditures for replaced systems of $3.5 million.
During 1997, Cooper began negotiations with Standard Motor Products, Inc.
("SMP") to exchange their temperature control business for the brake products
business owned by SMP. The 1997 nonrecurring charge includes adjustments to
the carrying value of the assets of the remanufacturing businesses, including
a portion of the temperature control business, which were in the process of
being divested. Effective March 28, 1998, Products completed the exchange of
the automotive temperature control business for the brake products business of
Standard Motor Products. For accounting purposes, the exchange transaction is
recorded as the sale of Products' temperature control business and the
purchase of the Standard Motor Products' brake business. The fair market
values of the temperature control business assets were equal to the net book
value of the assets after the write-down of the assets in 1997. The
acquisition cost of the brake business assets was approximately $81 million.
In February 1998, Products also completed the sale of the constant velocity
joint remanufacturing business for approximately $4 million.
During 1997, the impact of existing system capabilities to function at the
turn of the century was assessed. Products is implementing new enterprise
systems to be year 2000 compliant. The rollout of new enterprise-wide software
began in 1997 and was completed during 1998. Products recorded a $11.3 million
charge in 1997 primarily related to the adjustment in the carrying value of
abandoned hardware and software.
Note 4: Inventories
At December 31 inventories consisted of the following:
<TABLE>
<CAPTION>
1998 1997
------ ------
(in millions)
<S> <C> <C>
Raw materials............................................. $ 59.0 $ 61.0
Work-in-process........................................... 19.0 19.4
Finished goods............................................ 130.0 156.4
Perishable tooling and supplies........................... -- 7.3
------ ------
208.0 244.1
Inventory valuation allowances............................ -- (21.2)
------ ------
Net inventories......................................... $208.0 $222.9
====== ======
</TABLE>
79
<PAGE>
FEDERAL-MOGUL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5: PROPERTY, PLANT AND EQUIPMENT
At December 31 property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
1998 1997
------- ------
(IN MILLIONS)
<S> <C> <C>
Property, plant and equipment:
Land and land improvements............................. $ 10.4 $ 9.8
Buildings.............................................. 89.4 68.1
Machinery and equipment................................ 201.7 220.4
------- ------
301.5 298.3
Accumulated depreciation............................... (7.2) (100.1)
------- ------
$ 294.3 $198.2
======= ======
</TABLE>
NOTE 6: COMMITMENTS AND CONTINGENCIES
At December 31, 1998, Products had accruals of $.8 million with respect to
potential product liability claims and $6.0 million with respect to potential
environmental liabilities, including $4.0 million classified as a long-term
liability, based on Products' current estimate of the most likely amount of
losses that it believes will be incurred.
Environmental remediation costs are accrued based on estimates of known
environmental remediation exposures. Such accruals are adjusted as information
develops or circumstances change. The environmental liability accrual includes
$5.9 million related to sites owned by Products and $.1 million for retained
environmental liabilities related to sites previously owned by Products and
third-party sites where Products were a contributor. Third-party sites usually
involve multiple contributors where Products' liability will be determined
based on an estimate of Products' proportionate responsibility for the total
cleanup. The amounts actually accrued for such sites are based on these
estimates as well as an assessment of the financial capacity of the other
potentially responsible parties.
It has been Products' consistent practice to include the entire product
liability accrual and a significant portion of the environmental liability
accrual as current liabilities, although only approximately 10-20% of the
balance classified as current will be spent on an annual basis.
Products has not utilized any form of discounting in establishing its
product or environmental liability accruals. While environmental liability
accruals involve estimates that can have wide ranges of potential liability,
Products has taken a proactive approach and has managed the costs in both of
these areas over the years. Products does not believe that the nature of their
products, production processes, or materials or other factors involved in the
manufacturing process subject Products to unusual risks or exposures for
product or environmental liability. Products' greatest exposure to inaccuracy
in their estimates is with respect to the constantly changing definitions of
what constitutes an environmental liability or an acceptable level of cleanup.
Products also is one of a large number of defendants in a number of lawsuits
brought by claimants alleging injury due to exposure to asbestos. Products is
defending all such claims vigorously and believes that it has substantial
defenses to liability and adequate insurance coverage for defense and
indemnity. While the outcome of litigation cannot be predicted with certainty,
management believes that asbestos claims pending against Products as of
December 31, 1998, will not have a material effect on its financial position.
Approximately $20 million in related reserves have been provided in respect of
the possible uninsured portion of the expenditures on pending asbestos claims.
NOTE 7: RESTRUCTURING
In connection with acquisitions accounted for using the purchase method of
accounting, Products records, to the extent appropriate, accruals for the
costs of closing duplicate facilities and severing redundant personnel
80
<PAGE>
FEDERAL-MOGUL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
as part of integrating the acquired business into existing operations.
Significant accruals include plant shut-down and realignment costs, and
facility relocations, and aggregated $25.0 million and $9.3 million at
December 31, 1998 and 1997, respectively. Substantially all payments related
to December 31, 1997 accruals were made in 1998.
NOTE 8: LONG-TERM DEBT AND OTHER BORROWING ARRANGEMENTS
Products' cash and indebtedness is managed on a worldwide basis by its
parent. The majority of the cash provided by or used by a particular division,
including Products is provided through this consolidated cash and debt
management system. As a result, the amount of cash or debt historically
related to Products is not determinable. For purposes of Products' historical
financial statements, identifiable debt was allocated to Products during each
year with all of Products' positive or negative cash flows being treated as
cash transferred to or from Cooper. The specifically identifiable industrial
revenue bonds (the "IRB") and specifically identifiable international debt was
assigned to Products.
Federal-Mogul financed the acquisition of Cooper Automotive through the
issuance of long-term debt. As such, the net parent investment balance at
December 31, 1998 represents intercompany debt. Federal-Mogul charges interest
on this balance based on its incremental borrowing rate, which approximated
7.75% at December 31, 1998.
For purposes of Products' historical financial statements, interest expense
has been computed using the actual interest rate with respect to the IRB and
Canadian short-term borrowings. Total interest related to long-term debt and
short-term debt paid during 1998, 1997 and 1996 was $0.5 million, $0.5 million
and $0.5 million, respectively.
Federal-Mogul has pledged 100% of Products' capital stock to secure certain
outstanding debt of Federal-Mogul. In addition, Products has guaranteed fully
and unconditionally, on a joint and several basis, the obligation to pay
principal and interest under Federal-Mogul's Senior Credit Agreement and its
publicly registered debt which approximates $3.1 billion at December 31, 1998.
Such pledges and guarantees have also been made by certain other subsidiaries
of Federal-Mogul.
NOTE 9: NET PARENT INVESTMENT
Changes in net parent investment were as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
Balance at January 1, 1996................................ $909.6
Comprehensive income.................................... (37.1)
Intercompany transactions, net.......................... (.4)
------
Balance at December 31, 1996.............................. 872.1
Comprehensive income.................................... 12.4
Intercompany transactions, net.......................... (32.1)
------
Balance at December 31, 1997.............................. 852.4
Comprehensive income for the period January 1, 1999
through October 9, 1998................................ 48.0
Intercompany transactions, net.......................... 53.1
------
Balance at October 9, 1998................................ $953.5
======
Federal-Mogul initial investment in Products.............. $833.2
Comprehensive income for the period October 10, 1998
through December 31, 1998.............................. (.1)
Intercompany transactions, net.......................... (22.6)
------
Balance at December 31, 1998.............................. $810.5
======
</TABLE>
Intercompany transactions are principally cash transfers between Products
and its parent.
81
<PAGE>
FEDERAL-MOGUL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10: INCOME TAXES
Products files a consolidated return with its parent for U.S. federal income
tax purposes. Federal income tax expense is calculated on a separate-return
basis for financial reporting purposes.
<TABLE>
<CAPTION>
PERIOD PERIOD
OCTOBER 10, JANUARY 1,
1998 THROUGH 1998 THROUGH
DECEMBER 31, OCTOBER 9,
1998 1998 1997 1996
------------ ------------ ----- ----
<S> <C> <C> <C> <C>
Components of income tax
expense:
Current................. $1.0 $55.3 $24.6 $5.7
Deferred (credit)....... -- (16.9) (8.6) (0.4)
---- ----- ----- ----
Income Tax Expense...... $1.0 $38.4 $16.0 $5.3
==== ===== ===== ====
</TABLE>
A reconciliation between the statutory federal income tax rate and the
effective tax rate is as follows:
<TABLE>
<CAPTION>
PERIOD PERIOD
OCTOBER 10, JANUARY 1,
1998 THROUGH 1998 THROUGH
DECEMBER 31, OCTOBER 9,
1998 1998 1997 1996
------------ ------------ ---- ----
<S> <C> <C> <C> <C>
U.S. Federal statutory rate..... 35% 35% 35% 35%
State and Local Taxes........... 4 4 5 1
Nondeductible Goodwill.......... 24 5 15 (15)
Automotive Asset write-down..... -- -- -- (40)
Other........................... (6) -- (2) 2
--- --- --- ---
Effective Tax Rate.............. 57% 44% 53% (17)%
=== === === ===
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carring amount of assets and liabilities for financial reporting
purposes and the related amounts used for income tax purposes. Significant
components of the Company's net deferred tax asset is non-deductible accruals
and depreciation timing differences.
<TABLE>
<CAPTION>
1998 1997
------- ------
<S> <C> <C>
Current deferred tax assets............................. $ 76.6 $ 40.8
Long-term deferred tax assets/(liabilities)............. (115.4) (50.6)
------- ------
Net deferred liabilities................................ $(38.8) $ (9.8)
======= ======
</TABLE>
As Products files a consolidated tax return with its parent, the net
deferred tax liability at December 31, 1998 and 1997 is a component in the net
parent investment.
NOTE 11: PENSION PLANS
In 1996 and 1997, as part of Cooper, employees of Products participated in
numerous pension plans covering substantially all domestic employees and
pension and similar arrangements in accordance with local customs covering
employees at foreign locations. The assets of the various domestic and foreign
plans were maintained in various trusts and consisted primarily of equity and
fixed-income securities. Funding policies range
82
<PAGE>
FEDERAL-MOGUL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
from five to thirty years. Pension benefits for salaried employees were
generally based upon career earnings. Benefits for hourly employees were
generally based on a dollar unit, multiplied by years of service. The amount
of expense and the funded status with respect to the defined benefit pension
plans of Products, exclusive of the Cooper Salaried Employee Benefit Plan, is
set forth in the table below. In addition, most U.S. salaried employees of
Products participated in the Cooper Salaried Employee Benefit Plan. The amount
of expense allocated to Products for this plan was $.3 million and $.7 million
for the years ended December 31, 1997 and 1996, respectively. During 1997 and
1996, Products' expense with respect to domestic and foreign defined
contribution plans (primarily related to various groups of hourly employees)
amounted to $2.2 million and $1.8 million, respectively. Products' aggregate
pension expense amounted to $3.7 million and $3.7 million during 1997 and
1996, respectively.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------
1997 1996
------ ------
(IN MILLIONS)
<S> <C> <C>
Components of defined benefit plan net pension expense:
Service cost--benefits earned during the year......... $ 0.8 $ 0.7
Interest cost on projected benefit obligation......... 1.4 1.4
Actual return on assets............................... (1.8) (1.4)
Net amortization and deferral......................... 0.8 0.5
------ ------
Net pension expense................................. $ 1.2 $ 1.2
====== ======
</TABLE>
<TABLE>
<CAPTION>
ASSETS ACCUMULATED
EXCEED BENEFITS
ACCUMULATED EXCEED
BENEFITS ASSETS
----------- -----------
(IN MILLIONS)
<S> <C> <C>
Funded status of the plans at December 31, 1997
Actuarial present value of:
Vested benefit obligation..................... $(12.8) $(7.7)
====== =====
Accumulated benefit obligation................ $(12.8) $(9.9)
====== =====
Projected benefit obligation.................. $(12.8) $(9.9)
Plan assets at fair value....................... 14.1 3.4
------ -----
Projected benefit obligation less than (in
excess of) plan assets......................... 1.3 (6.5)
Unrecognized net loss (gain).................... (0.2) 4.2
Unrecognized net (asset) obligation from
adoption date.................................. -- --
Unrecognized prior service cost................. -- 0.8
Adjustment required to recognize minimum
liability...................................... -- (5.0)
------ -----
Pension asset (liability) at end of year........ $ 1.1 $(6.5)
====== =====
</TABLE>
<TABLE>
<S> <C>
Actuarial assumptions used:
Discount rate.................................................... 7 1/2%
Rate of compensation increase.................................... 4 3/4%
Expected long-term rate of return on assets...................... 8 1/2%
</TABLE>
During 1998, the various pension plans of Products were merged into other
plans of Cooper. As such, the related pension liabilities were recorded to net
parent investment. These multi-employer plans were in-turn
83
<PAGE>
FEDERAL-MOGUL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
assumed by Federal-Mogul in its acquisition of the automotive division of
Cooper. The expense charged to Products by Cooper during the period January 1,
1998 to October 9, 1998 was $2.2 million. The credit to Products from Federal-
Mogul for the period October 10, 1998 to December 31, 1998 was approximately
$450,000. Such plans were required to be fully funded by Cooper prior to the
acquisition by Federal-Mogul. The fully funded aggregated projected benefit
obligation of such plans of $352 million was based upon a discount rate of
7.25% at December 31, 1998.
NOTE 12: POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
As part of Cooper and subsequently Federal-Mogul, benefits provided to
employees of Products under various multi-employer postretirement plans other
than pensions, all of which are unfunded, include retiree medical care, dental
care, prescriptions and life insurance, with medical care accounting for
approximately 90% of the total. The majority of participants under such plans
are retirees. The expense related to such plans approximated $1.3 million, $1
million, $1.7 million, and $0.6 million, for 1996, 1997, the period January 1,
1998 to October 9, 1998 and October 10, 1998 to December 31, 1998,
respectively. The unfunded projected benefit obligation of these plans
aggregated approximately $209 million at December 31, 1998 based upon a
discount rate of 6.75%.
NOTE 13: DOMESTIC AND INTERNATIONAL OPERATIONS
Products operates in a single business segment, Automotive Products.
Products manufactures and distributes wiper blades, lamps, brake friction
materials and other products for use by the automotive aftermarket and in
automobile assemblies. In addition, Products manufactures and distributes
suspension, steering driveline and brake system components and material for
the automotive aftermarket. No single customer accounted for 10% or more of
revenues in 1998, 1997 or 1996. All revenues and assets of Products reside in
North America, principally in the United States.
NOTE 14: CONCENTRATIONS OF CREDIT RISK
Products grants credit to their customers, which are primarily in the
automotive industry. Credit risk with respect to trade receivables is
generally diversified due to the large number of entities comprising Products'
customer base and their dispersion across many different countries. Products
performs periodic credit evaluations of their customers and generally do not
require collateral.
During the first quarter of 1998, a large customer filed for reorganization
under Chapter 11 of the U.S. Bankruptcy Code. Products had receivables from
the customer of approximately $12.5 million at the time of the filing which
were written off in 1997.
84
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Federal-Mogul Corporation
We have audited the accompanying consolidated balance sheets of Federal-
Mogul Ignition Company and subsidiaries and the Cooper Automotive Division of
Cooper Industries (the Predecessor) as of December 31, 1998 and 1997,
respectively and the related consolidated statements of operations and
comprehensive income and cash flows for the period October 10, 1998 through
December 31, 1998 and for the Predecessor for the period January 1, 1998
through October 9, 1998, and for each of the two years in the period ended
December 31, 1997. These financial statements are the responsibility of the
respective 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 consolidated financial position of Federal-Mogul
Ignition Company and subsidiaries at December 31, 1998 and the Predecessor at
December 31, 1997, and the consolidated results of their operations and their
cash flows for the period October 10, 1998 through December 31, 1998 and for
the Predecessor for the period January 1, 1998 through October 9, 1998, and
for each of the two years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.
/s/ Ernst & Young LLP
Detroit, Michigan
January 29, 1999
85
<PAGE>
FEDERAL-MOGUL IGNITION COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(IN MILLIONS)
<TABLE>
<CAPTION>
PREDECESSOR
-----------------------------------------
PERIOD OCTOBER 10, PERIOD JANUARY 1, YEAR ENDED YEAR ENDED
1998 THROUGH 1998 THROUGH DECEMBER 31, DECEMBER
DECEMBER 31, 1998 OCTOBER 9, 1998 1997 31, 1996
------------------ ----------------- ------------ ----------
<S> <C> <C> <C> <C>
Revenues................ $233.1 $782.8 $1,031.3 $1,040.2
Cost of sales........... 169.1 557.9 721.3 727.1
Selling and
administrative
expenses............... 40.1 132.4 171.1 178.0
Amortization expense.... 4.4 13.7 17.6 14.4
Nonrecurring charges.... -- -- 16.2 0.5
Other expense, net...... 2.8 15.4 12.6 12.4
Interest expense........ 15.1 1.5 0.6 0.2
------ ------ -------- --------
Income before income
taxes................ 1.6 61.9 91.9 107.6
Income taxes ........... 1.0 26.8 38.3 43.8
------ ------ -------- --------
Net income............ $ 0.6 $ 35.1 $ 53.6 $ 63.8
Components of
comprehensive income
Minimum pension
liability, net of tax.. -- -- 5.6 (0.4)
Translation adjustments,
net of tax............. (2.4) 6.0 (23.0) (0.7)
------ ------ -------- --------
Comprehensive income.. $ (1.8) $ 41.1 $ 36.2 $ 62.7
====== ====== ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
86
<PAGE>
FEDERAL-MOGUL IGNITION COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
PREDECESSOR
-----------
1998 1997
-------- -----------
(IN MILLIONS)
<S> <C> <C>
ASSETS
Cash..................................................... $ 13.1 $ 1.5
Accounts receivable (net of allowance for doubtful
accounts of $6.0 million and $6.7 million).............. 212.6 227.6
Inventories.............................................. 238.9 211.6
Other.................................................... 17.5 14.4
-------- --------
Total current assets................................... 482.1 455.1
-------- --------
Property, plant and equipment, less accumulated
depreciation............................................ 410.2 329.2
Intangibles, less accumulated amortization............... 741.3 581.4
Other assets............................................. 19.7 14.1
-------- --------
Total assets........................................... $1,653.3 $1,379.8
======== ========
LIABILITIES AND NET PARENT INVESTMENT
Short-term debt.......................................... $ 16.0 $ 35.5
Accounts payable......................................... 75.8 97.5
Accrued compensation..................................... 21.7 30.0
Restructuring and rationalization reserves............... 32.9 19.5
Other accrued liabilities................................ 69.9 47.5
-------- --------
Total current liabilities.............................. 216.3 230.0
-------- --------
Other long-term liabilities.............................. 28.8 52.7
Net parent investment.................................... 1,408.2 1,097.1
-------- --------
Liabilities and net parent investment.................... $1,653.3 $1,379.8
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
87
<PAGE>
FEDERAL-MOGUL IGNITION COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
PREDECESSOR
--------------------------------------------
YEAR
PERIOD OCTOBER 10, PERIOD JANUARY 1, ENDED
1998 THROUGH 1998 THROUGH YEAR ENDED DECEMBER
DECEMBER 31, 1998 OCTOBER 9, 1998 DECEMBER 31, 1997 31, 1996
------------------ ----------------- ----------------- --------
<S> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income ........... $ (0.6) $ 35.1 $ 53.6 $63.8
Adjustments to reconcile
to net cash provided by
operating activities:
Depreciation expense.. 9.1 31.8 39.7 45.1
Loss on sale of
assets............... -- 1.0 --
Amortization expense.. 4.4 13.7 17.6 14.4
Nonrecurring asset
write-down........... -- -- 6.9 85.3
Changes in assets and
liabilities:
Accounts
receivables........ (1.1) 12.4 (2.2) (17.7)
Inventories......... 4.8 (27.1) (1.9) 19.6
Accounts payable and
accrued
liabilities........ 29.1 (9.3) (13.6) (22.9)
Other assets and
liabilities, net... (47.1) (0.8) (10.8) (74.8)
------ ------ ------ ------
Net cash provided
by (used in)
operating
activities....... (0.2) 56.8 89.3 112.8
Cash flows from
investing activities:
Cash paid for acquired
businesses........... -- (8.5) (20.1) (50.3)
Capital expenditures.. (7.6) (29.8) (42.1) (44.7)
Proceeds from sales of
property, plant and
equipment............ 1.4 0.4 0.9 5.4
------ ------ ------ ------
Net cash used in
investing
activities....... (6.2) (37.9) (61.3) (89.6)
Cash flows from
financing activities:
Net short-term
borrowings
(repayments)......... (2.4) (33.1) 30.6 --
Borrowings
(repayments) of long-
term debt............ (0.1) 0.3 -- (0.5)
Transfers from (to)
parent............... (23.8) 58.2 (62.5) (20.0)
------ ------ ------ ------
Net cash provided
by (used in)
financing
activities....... (26.3) 25.4 (31.9) (20.5)
Effect of exchange rate
changes on cash and
cash equivalents....... -- -- 2.1 (0.8)
------ ------ ------ ------
Increase (decrease) in
cash and cash
equivalents............ (32.7) 44.3 (1.8) 1.9
Cash beginning of
period........... 45.8 1.5 3.3 1.4
------ ------ ------ ------
Cash end of
period........... $ 13.1 $ 45.8 $ 1.5 $3.3
====== ====== ====== ======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
88
<PAGE>
FEDERAL-MOGUL IGNITION COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
The accompanying financial statements reflect the consolidated assets,
liabilities and operations of Federal-Mogul Ignition Company and subsidiaries
(Ignition). Ignition is a wholly owned subsidiary of Federal-Mogul Corporation
("Federal-Mogul"). Ignition was previously known as the Cooper Divisions of
Cooper Industries, Inc. ("Cooper"). Federal-Mogul purchased the automotive
divisions of Cooper, including Ignition, on October 9, 1998 for approximately
$2.0 billion, of which approximately $1.25 billion was attributable to
Ignition. The assets and liabilities of Ignition have been adjusted to their
fair values as of October 9, 1998. All related purchase accounting adjustments
as recorded by Federal-Mogul and related to Ignition have been reflected
herein. Such adjustments consist principally of the following:
<TABLE>
<S> <C>
Increase in net book value to estimable fair value (in
millions):
Inventory..................................................... $ 10.0
Fixed assets.................................................. 114.5
Identifiable intangible assets................................ 264.9
Other liabilities ............................................ 125.1
Decrease in goodwill.......................................... 86.9
</TABLE>
In connections with the acquisition, Federal-Mogul is in the process of
having valuations of acquired property, plant and equipment and identifiable
intangible assets completed. In addition, the related purchase agreement
includes a price adjustment based upon acquired net assets, as defined in the
agreement, as of the acquisition date. The purchase price allocations included
in the accompanying financial statements are based upon management's best
estimates and current available information. Such purchase price allocations
will be finalized when such valuations and the final purchase price
adjustments are completed in 1999. Actual results could differ from the above
estimates.
The business units that comprise Ignition (including Ignition's
headquarters) operate with financial and operations staff on a decentralized
basis. Federal-Mogul provides (and Cooper had provided) certain centralized
services for employee benefits administration, cash management, risk
management, legal services, public relations, domestic tax reporting and
internal and external audit. Ignition is billed for all direct costs incurred
on its behalf. General corporate, accounting, tax, legal and other
administrative costs that are not directly attributable to the operations of
Ignition have been allocated based on a ratio of Ignition's revenues to
consolidated revenues. Management believes that this allocation method is
reasonable.
The accompanying combined financial statements include the accounts of
Ignition as described above. These statements are presented as if Ignition had
existed as an entity separate from its parent during the period presented and
include the assets, liabilities, revenues and expenses that are directly
related to Ignition's operations.
Ignition's separate domestic debt and related interest expense have been
included in the consolidated financial statements. Because Ignition is fully
integrated into its parent's worldwide cash management system, all of their
cash requirements are provided by its parent and any excess cash generated by
Ignition is transferred to the parent.
89
<PAGE>
FEDERAL-MOGUL IGNITION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements include
the accounts of Ignition, and its subsidiaries. Intercompany accounts and
transactions have been eliminated.
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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Inventories: Inventories are carried at cost or, if lower, net realizable
value. Through October 9, 1998 cost was determined using the first-in, first-
out (FIFO) method. For October 10, 1998 and thereafter, cost was determined
using the last-in, first-out method, which as of December 31, 1998,
approximated FIFO.
Property, Plant and Equipment: Property, plant and equipment are stated at
cost. Depreciation is provided over the estimated useful lives of the related
assets using primarily the straight-line method. This method is applied to
group asset accounts, which in general have the following lives: buildings--10
to 40 years; and machinery and equipment--3 to 20 years.
Goodwill and Other Intangible Assets: At December 31, goodwill and other
intangible assets which result principally from acquisitions, consisted of the
following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE 1998 1997
----------- ------ -------
(MILLIONS OF
DOLLARS)
<S> <C> <C> <C>
Goodwill..................................... 40 years $480.8 $ 718.5
Accumulated amortization..................... (2.7) (137.1)
------ -------
Total Goodwill............................... $478.1 $ 581.4
====== =======
Trademarks................................... 40 years $176.5 $ --
Developed technology......................... 12-30 years 68.2 --
Assembled workforce.......................... 15 years 20.2 --
------ -------
264.9
Accumulated amortization..................... (1.7) --
------ -------
Total Other Intangible Assets................ $263.2 $ --
====== =======
</TABLE>
Intangible assets are periodically reviewed for impairment based on an
assessment of future cash flows to ensure that they are appropriately valued.
There were no impairment charges during 1998 or 1997. Intangible assets are
amortized on a straight-line basis over their estimated useful lives.
Net Parent Investment: The Net Parent Investment account reflects the
balance of Ignition's historical earnings, intercompany debt, accrued and
deferred income taxes and other transactions between Ignition's and its
parent.
Revenue Recognition: Ignition recognizes revenue and estimated returns from
product sales and the related customer incentive and warranty expense when
goods are shipped to the customer.
Currency Translation: Exchange adjustments related to international currency
transactions and translation adjustments for subsidiaries whose functional
currency is the United States dollar (principally those located in highly
inflationary economies) are reflected in the consolidated statements of
operations. Translation adjustments of international subsidiaries for which
the local currency is the functional currency are reflected in the
consolidated financial statements as a component of accumulated other
comprehensive income.
90
<PAGE>
FEDERAL-MOGUL IGNITION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Effect of Accounting Pronouncements: In April 1998, the American Institute
of Certified Public Accountants issued Statement of Position (SOP) 98-5
Reporting the Costs of Start-Up Activities. SOP 98-5 is effective January 1,
1999 and requires that start-up costs capitalized prior to January 1, 1999 be
written off and any future start-up costs be expensed as incurred. Ignition
does not anticipate that the adoption of this statement will have a
significant effect on its results of operations or financial position.
In 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities. Ignition expects to adopt the new statement effective
January 1, 2000. The statement requires Ignition to recognize all derivatives
on the balance sheet at fair value. Ignition does not anticipate that the
adoption of this statement will have a significant effect on its results of
operations or financial condition.
Fair Value of Financial Instruments: The carrying amounts of certain
financial instruments such as cash and equivalents, accounts receivable,
accounts payable and short-term debt approximate their fair values.
Derivative Financial Instruments: On a recurring basis, foreign currency
forward exchange contracts and commodity contracts are entered into to reduce
risks of adverse changes in foreign exchange rates and commodity prices. All
contracts are hedges of actual or anticipated transactions with the gain or
loss on the contract recognized in the same period and in the same category of
income or expense as the underlying hedged transaction. Ignition did not enter
into speculative derivative transactions or hedges of anticipated transactions
unless there is a high probability the transactions will occur. Due to the
short term of contracts and a restrictive policy, contract terminations or
anticipated transactions that do not occur are rare and insignificant events
that are accounted for through income in the period they occur.
NOTE 3: NONRECURRING CHARGES
During 1997, Ignition incurred charges of $16.2 million ($9.9 million after
income taxes) for actions management committed to during the period after
concluding an evaluation of certain sales, marketing and distribution
activities and information systems . The 1997 charges include adjustments to
the carrying value of assets of $6.9 million and expenditures for replacing
systems and facility consolidations of $9.3 million.
Ignition has begun a consolidation of certain sales, marketing and
distribution activities. Adjustments to the carrying value of assets and exit
costs were recorded for projects committed to by management. Severance and
certain other costs related to projects committed to by management are not
expensed until the affected employees are notified. A majority of the
consolidations have been announced and such costs were accrued and expensed
during 1997.
NOTE 4: ACQUISITIONS
Ignition completed one product-line acquisition in 1998 which had an
aggregate cost of $8.5 million and $5.5 of goodwill was recorded. During 1997
Ignition completed two product-line acquisitions and one small product-line
acquisition in 1996. The 1997 acquisitions had an aggregate cost of $20.1
million and $14.0 million of goodwill was recorded, on a preliminary basis,
with respect to the acquisitions. The total cost of the 1996 acquisition was
approximately $50.3 million and $36.1 million of goodwill was recorded with
respect to the acquisition. The operations of these businesses were not
significant on a pro forma to historical operations of Ignition.
The acquisitions have been accounted for as purchases and the results of the
acquisitions are included in the consolidated income statements since the
respective acquisition dates.
91
<PAGE>
FEDERAL-MOGUL IGNITION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5: INVENTORIES
At December 31 inventories consisted of the following:
<TABLE>
<CAPTION>
1998 1997
------ ------
(IN MILLIONS)
<S> <C> <C>
Raw materials.............................................. $ 45.4 $ 42.2
Work-in-process............................................ 51.8 41.7
Finished goods............................................. 113.2 126.1
Perishable tooling and supplies............................ 28.5 28.6
------ ------
238.9 238.6
Inventory valuation allowances............................. -- (27.0)
------ ------
Net inventories.......................................... $238.9 $211.6
====== ======
</TABLE>
NOTE 6: PROPERTY, PLANT AND EQUIPMENT
At December 31 property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
1998 1997
------ ------
(IN MILLIONS)
<S> <C> <C>
Property, plant and equipment:
Land and land improvements.............................. $ 10.3 $ 11.8
Buildings............................................... 105.4 126.9
Machinery and equipment................................. 303.6 463.5
------ ------
419.3 602.2
Accumulated depreciation................................ (9.1) (273.0)
------ ------
$410.2 $329.2
====== ======
</TABLE>
NOTE 7: COMMITMENTS AND CONTINGENCIES
At December 31, 1998, Ignition had accruals of $15.7 million with respect to
potential environmental liabilities, including $8.2 million classified as a
long-term liability, based on Ignition's current estimate of the most likely
amount of losses that it believes will be incurred.
Environmental remediation costs are accrued based on estimates of known
environmental remediation exposures. Such accruals are adjusted as information
develops or circumstances change. The environmental liability accrual includes
$6.6 million related to sites owned by Ignition and $9.1 million for retained
environmental liabilities related to sites previously owned by Ignition and
third-party sites where Ignition was a contributor. Third-party sites usually
involve multiple contributors where Ignition's liability will be determined
based on an estimate of Ignition's proportionate responsibility for the total
cleanup. The amounts actually accrued for such sites are based on these
estimates as well as an assessment of the financial capacity of the other
potentially responsible parties.
Ignition has not utilized any form of discounting in establishing its
environmental liability accrual. While the environmental liability accrual
involves estimates that can have wide ranges of potential liability, Ignition
has taken a proactive approach and have managed environmental costs over the
years. Ignition does not believe that the nature of their products, production
processes, or materials or other factors involved in the manufacturing process
are subject to unusual risks or exposures for environmental liability.
Ignition's greatest exposure to inaccuracy in their estimates is with respect
to the constantly changing definitions of what constitutes an environmental
liability or an acceptable level of cleanup.
92
<PAGE>
FEDERAL-MOGUL IGNITION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8: RESTRUCTURING
In connection with acquisitions accounted for using the purchase method of
accounting, Ignition recorded, to the extent appropriate, accruals for the
costs of closing duplicate facilities, severing redundant personnel and
integrating the acquired business into existing operations of Ignition.
Significant accruals include plant shut-down and realignment costs, and
relocations, and aggregated $32.9 million, and $10.5 million at December 31,
1998 and 1997, respectively. Substantially all payments related to December
31, 1997 accruals were made in 1998.
NOTE 9: BORROWING ARRANGEMENTS
Ignition cash and indebtedness is managed on a worldwide basis by its
parent. The majority of the cash provided by or used by a particular division,
including Ignition is provided through this consolidated cash and debt
management system. As a result, the amount of cash or debt historically
related to Ignition is not determinable. For purposes of Ignition's historical
financial statements, identifiable debt was allocated to Ignition during each
year with all of Ignition's positive or negative cash flows being treated as
cash transferred to or from its parent.
Federal-Mogul funded the acquisition of Ignition through the issuance of
long-term debt. As such, the net parent investment at December 31, 1998
represents intercompany debt. Federal-Mogul charges Ignition interest on this
balance based on its incremental borrowing rate, which approximated 7.75% at
December 31, 1998.
Ignition has international short-term borrowing facilities under which $16.0
million and $35.5 million was outstanding at December 31, 1998 and 1997
respectively.
For purposes of Ignition's historical financial statements, interest expense
has been computed using the actual interest rate with respect to international
short-term borrowings. Total interest related to short-term debt paid during
1998, 1997 and 1996 was $1.5 million, $.6 million and $.2 million,
respectively.
Federal-Mogul has pledged 100% of Ignition's capital stock to secure certain
outstanding debt of Federal-Mogul. In addition, Ignition has guaranteed fully
and unconditionally, on a joint and general basis, the obligation to pay
principal and interest under Federal-Mogul's Senior Credit Agreement and its
publicly registered debt which approximate $3.1 billion at December 31, 1998.
Such pledges have also been made by certain other subsidiaries of Federal-
Mogul.
93
<PAGE>
FEDERAL-MOGUL IGNITION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10: NET PARENT INVESTMENT
Changes in net parent investment were as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
Balance at January 1, 1996................................ $1,103.1
Comprehensive income.................................... 62.7
Intercompany transactions, net.......................... (36.2)
--------
Balance at December 31, 1996.............................. 1,129.6
Comprehensive income.................................... 36.2
Intercompany transactions, net.......................... (68.7)
--------
Balance at December 31, 1997.............................. 1,097.1
Comprehensive income for the period January 1, 1998
through October 9, 1998................................ 41.1
Intercompany transactions, net.......................... 95.6
--------
Balance at October 9, 1998................................ $1,233.8
========
Federal-Mogul initial investment in Ignition.............. $1,462.2
Comprehensive income for the period October 10, 1998
through December 31, 1998.............................. (1.8)
Intercompany transactions, net.......................... (52.2)
--------
Balance at December 31, 1998.............................. $1,408.2
========
</TABLE>
Intercompany transactions were principally cash transfers between Ignition
and its parent.
NOTE 11: INCOME TAXES
Ignition files a consolidated return with its parent for U.S. federal income
tax purposes. Federal income tax expense is calculated on a separate-return
basis for financial reporting purposes.
<TABLE>
<CAPTION>
PERIOD
PERIOD JANUARY 1,
OCTOBER 10, 1998
1998 THROUGH THROUGH YEAR ENDED YEAR ENDED
DECEMBER 31, OCTOBER 9, DECEMBER 31, DECEMBER 31,
1998 1998 1997 1996
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Components of income tax
expense:
Current............... $2.4 $43.8 $39.1 $41.1
Deferred.............. -- (17.0) (0.8) 2.7
---- ----- ----- -----
Income Tax Expense.... $2.4 $26.8 $38.3 $43.8
==== ===== ===== =====
<CAPTION>
PERIOD
PERIOD JANUARY 1,
OCTOBER 10, 1998
1998 THROUGH THROUGH YEAR ENDED YEAR ENDED
DECEMBER 31, OCTOBER 9, DECEMBER 31, DECEMBER 31,
1998 1998 1997 1996
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Effective tax rate
reconciliation:
U.S. Federal statutory
rate................. 35% 35% 35% 35%
State and Local
Taxes................ 4 4 4 3
Nondeductible
Goodwill............. 50 8 7 6
Other................. (26) (4) (3) (3)
---- ----- ----- -----
Effective Tax Rate.... 63% 43% 43% 41%
==== ===== ===== =====
</TABLE>
94
<PAGE>
FEDERAL-MOGUL IGNITION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the related amounts used for income tax purposes. Significant
components of the Ignition net deferred tax asset is non-deductible accruals
and depreciation timing differences.
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Current deferred tax assets/(liabilities)................. $ 64.3 $ 17.2
Long term deferred tax assets/(liabilities................ (51.9) 113.0
------ ------
Net deferred tax assets................................... $(12.4) $130.2
====== ======
</TABLE>
As Ignition files a consolidated tax return with its parent, the net
deferred tax asset at December 31, 1998 and net deferred tax liability at 1997
is a component of the net parent investment.
NOTE 12: PENSION PLANS
In 1996 and 1997 as part of Cooper, employees of Ignition participated in
numerous pension plans covering substantially all domestic employees and
pension and similar arrangements in accordance with local customs covering
employees at foreign locations. The assets of the various domestic and foreign
plans were maintained in various trusts and consisted primarily of equity and
fixed-income securities. Funding policies range from five to thirty years.
Pension benefits for salaried employees were generally based upon career
earnings. Benefits for hourly employees were generally based on a dollar unit,
multiplied by years of service. The amount of expense and the funded status
with respect to the defined benefit pension plans of the Ignition, exclusive
of the Cooper Salaried Employee Benefit Plan, is set forth in the table below.
In addition, most U.S. salaried employees of Ignition participated in the
Cooper Salaried Employee Benefit Plan. The amount of expense allocated to
Ignition for this plan was $0.4 million and $1.0 million for the years ended
December 31, 1997 and 1996, respectively. During 1997 and 1996, Ignition
expense with respect to domestic and foreign defined contribution plans
(primarily related to various groups of hourly employees) amounted to $3.2
million and $2.6 million, respectively. Ignition aggregate pension expense
amounted to $10.1 million and $10.6 million during 1997 and 1996,
respectively.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------
1997 1996
------ ------
(IN MILLIONS)
<S> <C> <C>
Components of defined benefit plan net pension expense:
Service cost--benefits earned during the year......... $ 3.5 $ 3.3
Interest cost on projected benefit obligation......... 18.0 17.5
Actual return on assets............................... (25.6) (17.8)
Net amortization and deferral......................... 10.6 4.0
------ ------
Net pension expense................................. $ 6.5 $ 7.0
====== ======
</TABLE>
95
<PAGE>
FEDERAL-MOGUL IGNITION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
ASSETS EXCEED ACCUMULATED BENEFITS
ACCUMULATED BENEFITS EXCEED ASSETS
-------------------- --------------------
(IN MILLIONS)
<S> <C> <C>
Funded status of the plans at
December 31, 1997
Actuarial present value of:
Vested benefit obligation... $(5.8) $(218.7)
===== =======
Accumulated benefit
obligation................. $(5.8) $(241.3)
===== =======
Projected benefit
obligation................. $(8.2) $(247.8)
Plan assets at fair value..... 7.8 209.0
----- -------
Projected benefit obligation
in excess of plan assets..... (0.4) (38.8)
Unrecognized net loss......... 0.3 43.8
Unrecognized net (asset)
obligation from adoption
date......................... -- 0.1
Unrecognized prior service
cost......................... -- 4.2
Adjustment required to
recognize minimum liability.. -- (28.7)
----- -------
Pension liability at end of
year......................... $(0.1) $ (19.4)
===== =======
</TABLE>
<TABLE>
<CAPTION>
----------------------
DOMESTIC INTERNATIONAL
-------- -------------
<S> <C> <C>
Actuarial assumptions used:
Discount rate................................... 7 1/2% 6-7 1/4%
Rate of compensation increase................... 4 3/4% 4 1/2-6%
Expected long-term rate of return on assets..... 8 1/2% 7 1/2-9 3/4%
</TABLE>
In 1998, the various pension plans of Ignition were merged into other plans
of Cooper. As such, the related pension liabilities were recorded to
intercompany debt. These multi-employer plans were in-turn
assumed by Federal-Mogul in its acquisition of Ignition. Such plans were
required to be fully funded by Cooper prior to the acquisition by Federal-
Mogul. The aggregated fully funded projected benefit obligation of such plans
of $352,000,000 was based upon a discount rate of 7.25% at December 31, 1998.
The expense charged to Ignition by Cooper during the period January 1, 1998 to
October 9, 1998 was $7.3 million. The credit to Ignition from Federal-Mogul
for the period October 10, 1998 to December 31, 1998 was $465,000.
NOTE 13: POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
As part of Cooper and subsequently Federal-Mogul, benefits provided to
employees of Ignition under various multi-employer postretirement plans other
than pensions, all of which are unfunded, include retiree medical care, dental
care, prescriptions and life insurance, with medical care accounting for
approximately 90% of the total. The majority of participants under such plans
are retirees. The expense related to such plans approximated $12.1 million,
$11.4 million, $4.4 million, and $2.8 million for 1996, 1997, the period
January 1, 1998 to October 9, 1998, and October 10, 1998 to December 31, 1998,
respectively. The unfunded projected benefit obligation of these plans
aggregated approximately $209 million at December 31, 1998 based upon a
discount rate of 6.75%
96
<PAGE>
FEDERAL-MOGUL IGNITION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
NOTE 14: NORTH AMERICA, EUROPE AND OTHER OPERATIONS
Ignition operates in a single business segment, Automotive Products. It
manufactures and distributes spark plugs, wiper blades, lamps, and other
products for use by the automotive aftermarket and in automobile assemblies.
No single customer accounted for 10% or more of combined revenues in 1998,
1997 or 1996.
<TABLE>
<CAPTION>
REVENUES ASSETS
-------------------------------------------------------------- -----------------
PERIOD OCTOBER 10, PERIOD JANUARY 1, YEAR ENDED YEAR ENDED DECEMBER 31,
1998 THROUGH 1998 THROUGH DECEMBER 31, DECEMBER 31, -----------------
DECEMBER 31, 1998 OCTOBER 9, 1998 1997 1996 1998 1997
------------------ ----------------- ------------ ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
North America........... $150.8 $506.1 $ 711.4 $ 715.7 $1,025.1 $ 827.9
Europe.................. 59.1 195.1 253.8 258.5 463.0 469.1
Other................... 23.2 81.6 66.1 66.0 165.2 82.8
------ ------ -------- -------- -------- --------
Consolidated.......... $233.1 $782.8 $1,031.3 $1,040.2 $1,653.3 $1,379.8
====== ====== ======== ======== ======== ========
</TABLE>
NOTE 15: CONCENTRATIONS OF CREDIT RISK
Ignition grants credit to their customers, which are primarily in the
automotive industry. Credit risk with respect to trade receivables is
generally diversified due to the large number of entities comprising the
customer base and their dispersion across many different countries. Ignition
performs periodic credit evaluations of their customers and generally do not
require collateral.
NOTE 16: SUMMARY OF NONCASH INVESTING AND FINANCING ACTIVITIES
The following noncash transactions have been excluded from the combined
statements of cash flows:
<TABLE>
<CAPTION>
1998 1997 1996
----- ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Assets acquired and liabilities assumed or
incurred from the acquisition of businesses:
Fair value of assets acquired................. $11.3 $ 27.0 $ 50.7
Cash used to acquire businesses, net of cash
acquired..................................... (8.5) (20.1) (50.3)
----- ------ ------
Liabilities assumed or incurred............. $ 2.8 $ 6.9 $ 0.4
===== ====== ======
</TABLE>
97
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Federal-Mogul Corporation:
We have audited the accompanying balance sheets of Federal-Mogul Aviation,
Inc. and the Aviation Division of the Cooper Automotive Division of Cooper
Industries (the Predecessor) as of December 31, 1998 and 1997, respectively,
and the related statements of operations and cash flows for the periods
October 10, 1998 through December 31, 1998, and for the Predecessor for the
period January 1, 1998 through October 9, 1998 and for each of the two years
in the period ended December 31, 1997. These financial statements are the
responsibility of the respective 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 Federal-Mogul Aviation,
Inc. at December 31, 1998 and the Predecessor at December 31, 1997, and the
results of its operations and its cash flows for the period October 10, 1998
through December 31, 1998 and for the Predecessor for the period January 1,
1998 through October 9, 1998, and for each of the two years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Detroit, Michigan
February 12, 1999
98
<PAGE>
FEDERAL-MOGUL AVIATION, INC.
STATEMENTS OF OPERATIONS
(thousands)
<TABLE>
<CAPTION>
Predecessor
---------------------------
Year ended
October 10- Janaury 1- December 31,
December 31, October 9, ----------------
1998 1998 1997 1996
------------ ---------- ------- -------
<S> <C> <C> <C> <C>
Revenues.............................. $13,579 $46,836 $58,449 $52,461
Cost of sales......................... 8,977 31,738 36,918 35,062
Selling and administrative expenses... 995 3,808 6,448 5,500
Amortization expense.................. 289 309 168 376
Interest expense...................... 1,394 -- 9 --
Other (income)/expense, net........... 224 12 (290) 260
------- ------- ------- -------
Income before income taxes.......... 1,700 10,969 15,196 11,263
Income taxes.......................... 776 4,314 6,034 4,480
------- ------- ------- -------
Net income.......................... $ 924 $ 6,655 $ 9,162 $ 6,783
======= ======= ======= =======
</TABLE>
See accompanying Notes to Financial Statements.
99
<PAGE>
FEDERAL-MOGUL AVIATION, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-------------------
Predecessor
1998 1997
------- -----------
(thousands)
<S> <C> <C>
Assets
Cash...................................................... $ 1 $ 1
Accounts receivable....................................... 7,104 6,086
Inventories............................................... 18,255 13,072
Other..................................................... -- 16
------- -------
Total current assets.................................... 25,360 19,175
Property, plant and equipment, less accumulated
depreciation............................................. 19,448 14,518
Goodwill, less accumulated amortization................... 28,546 16,488
Other intangibles, less accumulated amortization.......... 15,704 --
Other assets.............................................. -- 7
------- -------
Total assets............................................ $89,058 $50,188
======= =======
Liabilities and Net Parent Investment
Accounts payable.......................................... $ 3,456 $ 2,481
Accrued compensation...................................... 607 603
Restructuring and rationalization reserves................ 119 2,192
Other accrued liabilities................................. 683 1,072
------- -------
Total current liabilities............................... 4,865 6,348
Other long-term liabilities............................... -- 936
Net parent investment..................................... 84,193 42,904
------- -------
Total liabilities and net parent investment............. $89,058 $50,188
======= =======
</TABLE>
See accompanying Notes to Financial Statements.
100
<PAGE>
FEDERAL-MOGUL AVIATION, INC.
STATEMENTS OF CASH FLOWS
(THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR
-----------------------------
YEAR ENDED
OCTOBER 10- JANUARY 1- DECEMBER 31,
DECEMBER 31, OCTOBER 9, ------------------
1998 1998 1997 1996
------------ ---------- -------- --------
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income...................... $ 924 $ 6,655 $ 9,162 $ 6,783
Adjustments to reconcile to net
cash provided by operating
activities:
Depreciation expense............ 287 2,122 2,556 2,514
Amortization expense............ 289 309 168 376
Changes in assets and
liabilities:
Accounts receivable........... 600 (1,618) 1,228 (1,366)
Inventories................... 300 (4,883) 45 4,650
Accounts payable and accrued
liabilities.................. (795) (1,624) 36 162
Other assets and liabilities,
net.......................... -- 23 151 44
------- ------- -------- --------
Net cash provided by
operating activities....... 1,605 984 13,346 13,163
Cash flows from investing
activities:
Capital expenditures............ (275) (420) (528) (323)
Cash flows from financing
activities:
Net intercompany activity with
parent......................... (1,330) (564) (12,819) (12,840)
------- ------- -------- --------
Decrease in cash ................. -- -- (1) --
Cash at beginning of
period..................... 1 1 2 2
------- ------- -------- --------
Cash at end of period....... $ 1 $ 1 $ 1 $ 2
======= ======= ======== ========
</TABLE>
See accompanying Notes to Financial Statements.
101
<PAGE>
FEDERAL-MOGUL AVIATION, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
The accompanying financial statements reflect the assets, liabilities and
operations of Federal-Mogul Aviation, Inc. ("Aviation"). Aviation is a wholly
owned subsidiary of Federal-Mogul Corporation ("Federal-Mogul"). Aviation was
previously an operating unit included in the Cooper Automotive Division of
Cooper Industries, Inc. ("Cooper"). Federal-Mogul purchased the automotive
divisions of Cooper, including Aviation, on October 9, 1998 for approximately
$2.2 billion of which approximately $83 million is attributable to Aviation.
The assets and liabilities of Aviation have been adjusted to their fair values
as of October 9, 1998. All related purchase accounting adjustments as recorded
by Federal-Mogul and related to Aviation have been reflected herein. Such
adjustments consist principally of the following:
<TABLE>
<S> <C>
Increase in net book value to fair value (in thousands):
Inventory....................................................... $ 600
Property, plant and equipment................................... 6,900
Intangible assets (including goodwill).......................... 28,000
</TABLE>
In connection with the acquisition, Federal-Mogul is in the process of
having valuations of acquired property, plant and equipment and identifiable
intangible assets completed. In addition, the related purchase agreement
includes a price adjustment based upon acquired net assets, as defined in the
agreement, as of the acquisition date. The purchase price allocations included
in the accompanying financial statements are based upon management's best
estimates and currently available information. Such purchase price allocations
will be finalized when such valuations and the final purchase price adjustment
are completed in 1999. Actual results could differ from the above estimates.
Aviation operates with complete financial and operations staff on a
decentralized basis. Its parent provides certain centralized services for
employee benefits administration, cash management, risk management, legal
services, public relations, domestic tax reporting and internal and external
audit. Its parent bills Aviation for all direct costs incurred on behalf of
Aviation. General corporate, accounting, tax, legal and other administrative
costs that are not directly attributable to the operations of Aviation have
been allocated based on a ratio of Aviation's revenues to consolidated
revenues. Management believes that this allocation method is reasonable.
The accompanying financial statements include the accounts of Aviation as
described above. These statements are presented as if Aviation had existed as
an entity separate from its parent during the period presented and include the
assets, liabilities, revenues and expenses that are directly related to
Aviation's operations.
Because Aviation is fully integrated into its parent's worldwide cash
management system, all of their cash requirements are provided by its parent
and any excess cash generated by Aviation is transferred.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
102
<PAGE>
FEDERAL-MOGUL AVIATION, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Inventories: Inventories are carried at cost or, if lower, net realizable
value. Through October 9, 1998 cost determined using the first-in, first-out
(FIFO) method. From October 10, 1998 and thereafter, cost was determined using
the last-in, first-out (LIFO) method, which at December 31, 1998, approximated
FIFO.
Revenue Recognition: The Company recognizes revenue and estimated returns
from product sales and the related customer incentive and warranty expense
when goods are shipped to the customer.
Property, Plant and Equipment: Property, plant and equipment are stated at
cost. Depreciation is provided over the estimated useful lives of the related
assets using primarily the straight-line method. This method is applied to
group asset accounts, which in general have the following lives: buildings--10
to 40 years and machinery and equipment--3 to 20 years.
Goodwill and Other Intangible Assets: At December 31, goodwill and other
intangible assets which result principally from acquisitions, consisted of the
following (in thousands):
<TABLE>
<CAPTION>
Estimated
Useful Life 1998 1997
----------- ------- -------
<S> <C> <C> <C>
Goodwill.................................... 40 years $28,710 $19,544
Accumulated amortization.................... (164) (3,056)
------- -------
Total Goodwill.............................. $28,546 $16,488
======= =======
Trademarks.................................. 40 years $10,790 $ --
Developed technology........................ 12-30 years 3,825 --
Assembled workforce......................... 15 years 1,214 --
------- -------
15,829 --
Accumulated amortization.................... (125) --
------- -------
Total other intangible assets............... $15,704 $ --
======= =======
</TABLE>
Intangible assets are periodically reviewed for impairment based on an
assessment of future cash flows to ensure that they are appropriately valued.
Intangible assets are amortized on a straight-line basis over their estimated
useful lives.
Net Parent Investment: The Net Parent Investment account reflects the
balance of Aviation's historical earnings, intercompany debt, accrued and
deferred income taxes and other transactions between Aviation and its parent.
Effect of Accounting Pronouncements: In April 1998, the American Institute
of Certified Public Accountants issued Statement of Position (SOP) 98-5,
Reporting the Costs of Start-Up Activities. SOP 98-5 is effective January 1,
1999, and requires that start-up costs capitalized prior to January 1, 1999 be
written off and any future start-up costs be expensed as incurred. The Company
does not anticipate that the adoption of this statement will have a
significant effect on its results of operations or financial position.
Fair Value of Financial Instruments: The carrying amounts of certain
financial instruments such as cash and equivalents, accounts receivable and
accounts payable approximate their fair value.
103
<PAGE>
FEDERAL-MOGUL AVIATION, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3: INVENTORIES
At December 31, inventories consisted of the following:
<TABLE>
<CAPTION>
1998 1997
------- -------
(THOUSANDS)
<S> <C> <C>
Raw materials............................................ $ 5,100 $ 4,810
Work-in-process.......................................... 9,315 7,955
Finished goods........................................... 2,159 1,784
Perishable tooling and supplies.......................... 1,681 1,686
------- -------
18,255 16,235
Inventory valuation allowances........................... -- (3,163)
------- -------
Net inventories........................................ $18,255 $13,072
======= =======
</TABLE>
NOTE 4: 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. At December 31, property, plant and equipment consisted of the
following:
<TABLE>
<CAPTION>
1998 1997
------- -------
(THOUSANDS)
<S> <C> <C>
Property, plant and equipment:
Land and land improvements........................... $ 148 $ 268
Buildings............................................ 9,335 9,408
Machinery and equipment.............................. 10,253 23,814
------- -------
19,736 33,490
Accumulated depreciation............................. (288) (18,972)
------- -------
$19,448 $14,518
======= =======
</TABLE>
NOTE 5: COMMITMENTS AND CONTINGENCIES
In connection with acquisitions accounted for using the purchase method of
accounting, Aviation records, to the extent appropriate, accruals for the
costs of closing duplicate facilities, severing redundant personnel and
integrating the acquired business into existing operations of Aviation.
Significant accruals include plant shut-down and realignment costs, and
facility relocations, and aggregated $0.2 million and $2.2 million at December
31, 1998 and 1997, respectively.
Amounts expended totaled $2.0 million, $1.1 million and $0 in 1998, 1997 and
1996, respectively. The spending related primarily to downsizing and
consolidating facilities.
Federal-Mogul has pledged 100% of Aviation's capital stock to secure certain
outstanding debt of Federal-Mogul. In addition, Aviation has guaranteed fully
and unconditionally, on a joint and several basis, the obligation to pay
principal and interest under Federal-Mogul's Senior Credit Agreement and its
publicly traded registered debt which approximate $3.1 billion at December 31,
1998. Such pledges and guarantees have also been made by certain other
subsidiaries of Federal-Mogul.
104
<PAGE>
FEDERAL-MOGUL AVIATION, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6: NET PARENT INVESTMENT
Changes in net parent investment during the three years ended December 31,
1998 were as follows:
<TABLE>
<S> <C>
Balance at January 1, 1996.................................... $ 48,530
Net intercompany transactions with parent................... (13,411)
Net income.................................................. 6,783
--------
Balance at December 31, 1996.................................. 41,902
Net intercompany transactions with parent................... (8,160)
Net income.................................................. 9,162
--------
Balance at December 31, 1997.................................. 42,904
Net intercompany transactions with parent................... (1,927)
Net income for period from January 1, 1998 to October 10,
1998....................................................... 6,655
--------
Balance at October 9, 1998.................................... $ 47,632
========
Federal-Mogul investment in Aviation.......................... $ 81,979
Net intercompany transactions with parent................... 1,290
Net income for period from October 10, 1998 to December 31,
1998....................................................... 924
--------
Balance at December 31, 1998.................................. $ 84,193
========
</TABLE>
Federal-Mogul financed the acquisition of Cooper Automotive through the
issuance of long-term debt. As such, the net parent investment balance at
December 31, 1998 represents intercompany debt. Federal-Mogul charges interest
on this balance based on its incremental borrowing rate, which approximated
7.75% at December 31, 1998.
NOTE 7: INCOME TAXES
Aviation files a consolidated return with its parent for U.S. federal income
tax purposes. Federal income tax expense is calculated on a separate-return
basis for financial reporting purposes. A reconciliation between Aviation's
statutory federal income tax rate and its effective tax rate is summarized
below:
<TABLE>
<CAPTION>
PERIOD PERIOD
JANUARY 1, OCTOBER 10,
1998 THROUGH 1998 THROUGH
OCTOBER 9, DECEMBER 31,
1998 1998 1997 1996
------------ ------------ ---- ----
<S> <C> <C> <C> <C>
Effective tax rate reconciliation:
U.S. Federal statutory rate...... 35.0% 35.0% 35.0% 35.0%
State and Local Taxes............ 4.0 4.0 4.0 4.0
Other............................ 0.3 6.6 0.7 0.7
---- ---- ---- ----
Effective Tax Rate............... 39.3% 45.6% 39.7% 39.7%
==== ==== ==== ====
</TABLE>
Deferred taxes and income taxes payable are a component of the net
investment in parent.
NOTE 8: PENSION PLANS
Employees of Aviation participate in pension plans covering substantially
all employees of its parent. The assets of the various domestic plans are
maintained in various trusts and consist primarily of equity and fixed-income
securities. Funding policies range from five to thirty years. Pension benefits
for salaried employees are
105
<PAGE>
FEDERAL-MOGUL AVIATION, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
generally based upon career earnings. Benefits for hourly employees are
generally based on a dollar unit, multiplied by years of service. The pension
expense charged to Aviation by the plans during the period October 10, 1998 to
December 31, 1998, January 1, 1998 to October 9, 1998, and the years ended
December 31, 1997 and 1996 approximated 0, $0.3 million, $0.4 million and $0.4
million, respectively. Such plans were required to be fully funded by Cooper,
prior to the acquisition by Federal-Mogul. The aggregated fully funded
projected benefit obligation of such plans of $352 million was based upon a
discount rate of 7.25% at December 31, 1998.
In addition, most salaried employees of Aviation participate in the Cooper
Salaried Employee Benefit Plan. The amount of expense allocated to Aviation
during the period October 10, 1998 to December 31, 1998, January 1, 1998 to
October 9, 1998, and the years ended December 31, 1997 and 1996 approximated
$15,000, $0.2 million, $24,000 and $0.1 million, respectively.
In addition, most hourly employees participate in various defined
contribution plans. The amount of expense allocated to Aviation during the
period October 10, 1998 to December 31, 1998, January 1, 1998 to October 9,
1998, and the years ended December 31, 1997 and 1996 approximated $0.1
million, $0.2 million, $0.2 million and $0.2 million, respectively.
Note 9: Benefits Other Than Pensions
Benefits provided to employees of Aviation under various multi-employer
postretirement plans other than pensions, all of which are unfunded, include
retiree medical care, dental care, prescriptions and life insurance, with
medical care accounting for approximately 90% of the total. Such benefit
expenses charged to Aviation by the multi-employer plans during the period
October 10, 1998 to December 31, 1998, January 1, 1998 to October 9, 1998 and
for the years ended December 31, 1997 and 1996, approximated $0.2 million,
$0.3 million, $0.7 million and $0.7 million, respectively.
All full-time employees of Aviation, except for certain bargaining unit
employees, were eligible to participate in the Cooper Savings Plan ("CO-SAV").
Under the terms of the Plan, employee savings deferrals were partially matched
with contributions of Cooper Common stock consisting of either an allocation
of shares in Cooper's Employee Stock Ownership Plan ("ESOP") or new shares
issued to the ESOP. All assets of the CO-SAV and ESOP Plans shall be
transferred to the multi-employer defined contribution plans which Aviation
participates.
The Aviation Division's compensation expense with respect to the CO-SAV plan
and the ESOP was approximately $0.1 million, $0.2 million and $0.3 million in
1998, 1997 and 1996, respectively.
Note 10: Concentration of Credit Risk and Other
Aviation grants credit to their customers, which are primarily in the
aerospace industry. Credit risk with respect to trade receivables is generally
diversified due to the large number of entities comprising Aviation's customer
base. Aviation performs periodic credit evaluations of their customers and
generally do not require collateral.
Aviation operates in a single business segment manufacturing internal engine
parts for the aerospace industry. Aviation manufactures and distributes
ignition parts for use in the aerospace aftermarket and original equipment
industry. One customer, a distributor of these ignition parts, accounted for
approximately 30% of sales ion the periods October 10, 1998 to December 31,
1998 and January 1, 1998 to October 9, 1998, and 26% and 25% for the years
ended December 31, 1997 and 1996, respectively. No other customer accounted
for 10% or more of revenues in 1998, 1997 or 1996. All of Aviation's
operations are conducted in the United States.
106
<PAGE>
SIGNATURES
Pursuant to the requirements to Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Federal-Mogul Corporation
/s/ Thomas W. Ryan
By: _________________________________
Thomas W. Ryan
Executive Vice President and Chief
Financial Officer
Dated: March 31, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in their capacities.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Richard A. Snell Chairman and Chief Executive Officer
___________________________________________
Richard A. Snell
/s/ Thomas W. Ryan Executive Vice President and Chief
___________________________________________ Financial Officer (Principal Financial
Thomas W. Ryan Officer)
/s/ Kenneth P. Slaby Vice President and Controller (Principal
___________________________________________ Accounting Officer)
Kenneth P. Slaby
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
* Director
___________________________________________
John F. Fannon
* Director
___________________________________________
Roderick M. Hills
* Director
___________________________________________
Paul Scott Lewis
* Director
___________________________________________
Antonio Madero
* Director
___________________________________________
Robert S. Miller, Jr.
* Director
___________________________________________
John C. Pope
* Director
___________________________________________
Sir Geoffrey Whalen C.B.E.
</TABLE>
/s/ James J. Zamoyski
By___________________________________
James J. Zamoyski
Attorney-in-fact
2
<PAGE>
Exhibit 3.2
BYLAWS
OF
FEDERAL-MOGUL CORPORATION
<PAGE>
BYLAWS
OF
FEDERAL-MOGUL CORPORATION
INDEX
-----
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I - SHAREHOLDERS 1
- - ------------------------
/1/Section 1 - Annual Meeting 1
/2/Section 2 - Special Meeting 1
Section 3 - Place of Meeting 1
Section 4 - Notice of Meeting 1
/3/Section 5 - Adjourned Meetings 2
Section 6 - Voting Lists 2
Section 7 - Quorum 2
Section 8 - Manner of Acting 2
/4/Section 9 - Postponement of Annual or Special Meeting 3
/5/Section 10 - Nomination and Shareholder Business Bylaw 3
ARTICLE II - DIRECTORS 5
- - ----------------------
Section 1 - General Powers 5
/6/Section 2 - Number, Tenure, Qualifications, & Removal 6
Section 3 - Annual Meetings 6
Section 4 - Regular Meetings 6
Section 5 - Special Meetings 6
/7/Section 6 - Notice 7
Section 7 - Quorum 7
Section 8 - Manner of Acting 8
Section 9 - Vacancies 8
Section 10 - Compensation 8
Section 11 - Committees 8
</TABLE>
______________________
/1/ Amended 5/21/85, 7/25/90
/2/ Amended 11/03/88
/3/ Amended 7/25/90
/4/ Amended 7/25/90
/5/ Amended 7/25/90, 2/24/99
/6/ Amended 8/01/84, 2/04/88, 2/08/89, 9/28/89, 7/24/91, 4/26/95, 2/04/98,
5/20/98, 2/24/99
/7/ Amended 7/25/90
-i-
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE III - OFFICERS 9
- - ----------------------
Section 1 - Number 9
Section 2 - Election and Term of Office 9
Section 3 - Removal and Resignations 9
Section 4 - Vacancies 9
Section 5 - The Chief Executive Officer 10
Section 6 - Authority of Officers, Agents and Employees, Generally 10
Section 7 - The Chairman of the Board, The Vice Chairman
of the Board and The President 11
/8/Section 8 - The Secretary 11
Section 9 - The Treasurer 11
Section 10 - Assistant Secretaries and Assistant Treasurers 12
Section 11 - Remuneration 12
/9/ARTICLE IV - INDEMNIFICATION OF DIRECTORS, OFFICERS,
- - -------------------------------------------------------
EMPLOYEES AND AGENTS 13
--------------------
Section 1 - Non-Derivative Actions 13
Section 2 - Derivative Actions 13
Section 3 - Expenses or Successful Defense 14
Section 4 - Definition 14
Section 5 - Contract Right; Limitation on Indemnity 14
Section 6 - Right of Claimant to Bring Suit 15
Section 7 - Proportionate Indemnity 16
Section 8 - Expense Advance 16
Section 9 - Non-Exclusivity of Rights 16
Section 10 - Indemnification of Employees and Agents of
the Corporation 16
Section 11 - Insurance 17
Section 12 - No Liability if Determination Made in Good Faith 17
Section 13 - Scope of Indemnity; Changes in Michigan Law 17
Section 14 - Severability 18
ARTICLE V - FIXING RECORD DATE 18
- - ------------------------------
ARTICLE VI - LOANS, CHECKS, DEPOSITS, ETC. 19
- - ------------------------------------------
Section 1 - Loans 19
Section 2 - Checks, Drafts, etc. 19
Section 3 - Deposits 19
</TABLE>
___________________________
/8/ Amended 8/10/84
/9/ Amended 11/03/88
-ii-
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE VII - CERTIFICATES FOR SHARES 19
- - -------------------------------------
/10/Section 1 - Certificates for Shares 19
Section 2 - Lost Certificates 20
Section 3 - Transfer of Shares 20
Section 4 - Regulations 20
Section 5 - Elimination of Certificates for Stock 20
ARTICLE VIII - FISCAL YEAR 20
- - --------------------------
ARTICLE IX - SEAL 21
- - -----------------
/11/ARTICLE X - EMERGENCY PROVISIONS 21
- - ------------------------------------
Section 1 - General 21
Section 2 - Unavailable Directors 21
Section 3 - Authorized Number of Directors 21
Section 4 - Quorum 22
Section 5 - Creation of Emergency Committee 22
Section 6 - Constitution of Emergency Committee 22
Section 7 - Powers of Emergency Committee 23
Section 8 - Directors Becoming Available 23
Section 9 - Election of Board of Directors 23
Section 10 - Termination of Emergency Committee 23
ARTICLE XI - AMENDMENTS 23
- - -----------------------
</TABLE>
__________________________
/10/ Amended 7/28/90
/11/ Amended 8/01/84
-iii-
<PAGE>
BYLAWS
OF
FEDERAL-MOGUL CORPORATION
-------------------------
ARTICLE I
---------
Shareholders
Section 1. Annual Meeting. The annual meeting of the shareholders shall be
- - --------- --------------
held on the fourth Wednesday in May of each year or at such other date as the
Board of Directors in its discretion shall determine at the time stated in the
notice of meeting, for the purpose of electing directors and for the transaction
of such other business as may be determined by the Board of Directors or as
otherwise properly may come before the meeting. If the day fixed for the annual
meeting shall be a legal holiday at the place of meeting, such meeting shall be
held on the next succeeding business day.
Section 2. Special Meetings. Special meetings of the shareholders may be
- - --------- ----------------
called by the Chairman of the Board, or by the President, or pursuant to
resolution of the Board of Directors. Business transacted at a special meeting
of stockholders shall be confined to the purpose or purposes of the meeting as
stated in the notice of the meeting.
Section 3. Place of Meeting. The Board of Directors may designate any place
- - --------- ----------------
either within or without the State of Michigan as the place of meeting for any
annual or special meeting of shareholders called by the Board of Directors. If
no designation is made or if a special meeting be called otherwise than by the
Board of Directors, the place of meeting shall be the registered office of the
Corporation in the State of Michigan.
Section 4. Notice of Meetings. Written or printed notice stating the time,
- - --------- ------------------
place and purposes of a meeting of shareholders shall be given not less than ten
nor more than sixty days before the date of the meeting, by mail, by or at the
direction of the Chairman of the Board, the President, the Secretary, or the
directors or persons calling the meeting, to each shareholder of record entitled
to
<PAGE>
vote at such meeting. If mailed, such notice shall be deemed to be given when
deposited in the United States mail in a sealed envelope addressed to the
shareholder at his address as it appears on the records of the Corporation, with
postage thereon prepaid.
Section 5. Adjourned Meetings. Any annual or special meeting of shareholders
- - --------- ------------------
may be adjourned by the chairman of the meeting or pursuant to resolution of the
Board of Directors. Notice need not be given of an adjourned meeting of
shareholders if the time and place thereof are announced at the meeting at which
the adjournment is taken. At the adjourned meeting only such business may be
transacted as might have been transacted at the original meeting. If after the
adjournment the Board of Directors fixes a new record date for the adjourned
meeting, a notice of the adjourned meeting shall be given to each shareholder of
record on the new record date entitled to vote at the meeting.
Section 6. Voting Lists. It shall be the duty of the officer or agent who
- - --------- ------------
shall have charge of the stock transfer books for shares of the Corporation to
make and certify a complete list of the shareholders entitled to vote at a
shareholder's meeting or any adjournment thereof, arranged in alphabetical order
within each class and series, with the addresses of, and the number of shares
held by, each shareholder. Such list shall be produced at the time and place of
the meeting, shall be subject to the inspection by any shareholder during the
whole time of the meeting, and shall be prima facie evidence as to who are the
shareholders entitled to examine such list or to vote in person or by proxy at
such meeting.
Section 7. Quorum. Unless a greater or lesser quorum is provided by law, a
- - --------- ------
majority of the outstanding shares of the Corporation entitled to vote,
represented in person or by proxy, shall constitute a quorum at any meeting of
shareholders. The shareholders present in person or by proxy at such meeting
may continue to do business until adjournment, notwithstanding the withdrawal of
enough shareholders to leave less than a quorum. Whether or not a quorum is
present, the meeting may be adjourned by a vote of the shares present.
Section 8. Manner of Acting. The election of directors shall be determined by
- - --------- ----------------
a plurality of the votes cast by the holders of shares entitled to vote thereon
or their proxies. Except as otherwise provided by law, or by the Articles of
Incorporation, all other matters shall be determined by a
-2-
<PAGE>
majority of the votes cast by the holders of shares entitled to vote thereon or
their proxies.
Section 9. Postponement of Annual or Special Meeting. The Board of Directors
- - --------- -----------------------------------------
acting by resolution may postpone and reschedule any previously scheduled annual
or special meeting of shareholders.
Section 10. Nomination and Shareholder Business Bylaw.
- - ---------- -----------------------------------------
(A) Annual Meetings of Shareholders.
-------------------------------
(1) Nominations of persons for election to the Board of Directors of the
Corporation and the proposal of business to be considered by the shareholders
may be made at an annual meeting of shareholders (a) pursuant to the
Corporation's notice of meeting, (b) by or at the direction of the Board of
Directors or (c) by any shareholder of the Corporation who was a shareholder of
record at the time of giving of notice provided for in this Bylaw, who is
entitled to vote at the meeting and who complied with the notice procedures set
forth in this Bylaw.
(2) For nominations or other business to be properly brought before an
annual meeting by a shareholder pursuant to clause (c) of paragraph (A) (1) of
this Bylaw, the shareholder must have given timely notice thereof in writing to
the Secretary of the Corporation. To be timely, a shareholder's notice shall be
delivered to the Secretary at the principal executive offices of the Corporation
not less than 75 days nor more than 100 days prior to the first anniversary of
the preceding year's annual meeting; provided, however, that in the event that
the date of the annual meeting is advanced by more than 30 days or delayed by
more than 60 days from such anniversary date, notice by the shareholder to be
timely must be so delivered not earlier than the 100th day prior to such annual
meeting and not later than the close of business on the later of the 75th day
prior to such annual meeting or the 10th day following the day on which public
announcement of the date of such meeting is first made. Such shareholder's
notice shall set forth (a) as to each person whom the shareholder proposes to
nominate for election or reelection as a director, all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act
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of 1934, as amended (the "Exchange Act") (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected); (b) as to any other business that the shareholder proposes
to bring before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such shareholder and the
beneficial owner, if any, on whose behalf the proposal is made; (c) as to the
shareholder giving the notice and the beneficial owner, if any, on whose behalf
the nomination or proposal is made (i) the name and address of such shareholder,
as they appear on the Corporation's books, and of such beneficial owner and (ii)
the class and number of shares of the Corporation which are owned beneficially
and of record by such shareholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph (A) (2) of
this Bylaw to the contrary, in the event that the number of directors to be
elected to the Board of Directors of the Corporation is increased and there is
no public announcement naming all of the nominees for director or specifying the
size of the increased Board of Directors made by the Corporation at least 70
days prior to the first anniversary of the preceding year's annual meeting, a
shareholder's notice required by this Bylaw shall also be considered timely, but
only with respect to nominees for any new positions created by such increase, if
it shall be delivered to the Secretary at the principal executive offices of the
Corporation not later than the close of business on the 10th day following the
day on which such public announcement is first made by the Corporation.
(B) Special Meetings of Shareholders. Only such business shall be conducted at
--------------------------------
a special meeting of shareholders as shall have been brought before the meeting
pursuant to the Corporation's notice of meeting. Nominations of persons for
election to the Board of Directors may be made at a special meeting of
shareholders at which directors are to be elected pursuant to the Corporation's
notice of meeting (a) by or at the direction of the Board of Directors or (b) by
any shareholder of the Corporation who is a shareholder of record at the time of
giving of notice provided hereunder, who shall be entitled to vote at the
meeting and who complies with the notice procedures set forth in this Bylaw.
Nominations by shareholders of persons for election to the Board of Directors
may be made at such a special meeting of shareholders if this shareholder's
notice required by paragraph (A) (2) of this Bylaw shall be delivered to the
Secretary at the principal executive offices of the
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Corporation not earlier than the 100th day prior to such special meeting and not
later than the close of business on the later of the 75th day prior to such
special meeting or the 10th day following the day on which public announcement
is first made of the date of the special meeting and of the nominees proposed by
the Board of Directors to be elected at such meeting.
(C) General.
-------
(1) Only such persons who are nominated in accordance with the procedures
set forth in this Bylaw shall be eligible to serve as directors and only such
business shall be conducted at a meeting of shareholders as shall have been
brought before the meeting in accordance with the procedure set forth in this
Bylaw. The Chairman of the meeting shall have the power and duty to determine
whether a nomination or any business proposed to be brought before the meeting
was made in accordance with the procedures set forth in this Bylaw and, if any
proposed nomination or business is not in compliance with this Bylaw, to declare
that such defective proposal shall be disregarded.
(2) For purposes of this Bylaw, "public announcement" shall mean disclosure
in a press release reported by the Dow Jones News Service, Associated Press or
comparable national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to Sections 13,
14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Bylaw, a shareholder
shall also comply with all applicable requirements of the Exchange Act and the
rules and regulations thereunder with respect to the matters set forth in this
Bylaw. Nothing in this Bylaw shall be deemed to affect any rights of
shareholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
ARTICLE II
----------
Directors
Section 1. General Powers. The business and affairs of the Corporation shall
- - --------- --------------
be managed by its Board of Directors, except as otherwise provided by law or by
the Articles of Incorporation.
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<PAGE>
Section 2. Number, Tenure and Qualifications, and Removal. The number of
- - ---------- ----------------------------------------------
directors of the Corporation shall be as determined from time to time by the
Board of Directors but effective February 24, 1999, shall be eight (8) members.
Each director shall hold office for the term for which he is named or elected
and until his successor shall have been elected and qualified, or until his
resignation or removal. The age limit for directors, including directors who
have served as Chief Executive Officer of the Corporation shall be age seventy-
two, and for employee directors who have not served as Chief Executive Officer
of the Corporation shall be age sixty-five. A director shall not be eligible
for re-election at the annual meeting of the shareholders next following the
date on which he attains the applicable age limit. Notwithstanding the
foregoing provisions of this Section 2, the term of office of an employee
director who has not served as Chief Executive Officer of the Corporation shall
expire upon termination of his employment unless the Board of Directors shall
theretofore have requested that he continue to hold office following such
termination of employment. Any director may be removed from office as a
director but only for cause and by the affirmative vote of the holders of a
majority of the shares entitled to vote at an election of directors.
Section 3. Annual Meetings. The newly elected Board of Directors shall meet
- - --------- ---------------
immediately following the annual meeting of shareholders at the place where such
annual shareholders meeting is held for the purpose of the organization of the
Board, the election of officers, and the transaction of such other business as
may properly come before the meeting, and no notice of such meeting shall be
necessary.
Section 4. Regular Meetings. Regular meetings of the Board of Directors may be
- - --------- ----------------
held without notice at such times and at such places, within or without the
State of Michigan, as shall from time to time be determined by the Board.
Section 5. Special Meetings. Special meetings of the Board of Directors may be
- - --------- ----------------
called by the Chairman of the Board, the President or a majority of the
directors, and shall be called at the request of any two directors. Such
meetings, if called by the Chairman of the Board, the President or by a majority
of the directors may be held at such place within or without the State of
Michigan as the Chairman of the Board, the President or as a majority of the
Board of Directors may from
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time to time determine. If any such special meetings are called other than by
the Chairman of the Board, the President or a majority of the Board of
Directors, they shall be held at the registered office of the Corporation in the
State of Michigan unless otherwise consented to in writing by all of the
directors or unless previous nuclear attack prevents the holding of a meeting at
such place, in which case such meeting shall be held as close to such registered
office as possible.
Section 6. Notice. Notice of any special meeting of directors shall be given
- - --------- ------
by or at the direction of the Chairman of the Board, the President, the
Secretary or the directors calling the meeting by written notice delivered
personally or mailed to each director at his business address, or by telegram.
If mailed, such notice shall be given at least four days prior to the meeting
and shall be deemed to be given when deposited in the United States mail in a
sealed envelope so addressed, with postage thereon prepaid. If notice be given
by telegram, such notice shall be given at least twenty-four hours prior to the
meeting and shall be deemed to be given when the telegram is delivered to the
telegraph company. Any director may waive notice of any meeting. The
attendance of a director at, or participation in, any meeting shall constitute a
waiver of notice of such meeting, unless the director, at the beginning of the
meeting, or upon his or her arrival, objects to the meeting or the transacting
of business at the meeting and does not thereafter vote for or assent to any
action taken at the meeting. A director may participate in a meeting by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can communicate with each other and
such participation shall constitute attendance at any meeting. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the Board of Directors need be specified in the notice or waiver of notice of
such meeting.
Section 7. Quorum. A majority of the Board of Directors then in office shall
- - --------- ------
constitute a quorum for the transaction of business at any meeting of the Board
of Directors, but, if less than a majority of the directors are present at said
meeting, a majority of the directors present may adjourn the meeting from time
to time without further notice.
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<PAGE>
Section 8. Manner of Acting. The vote of the majority of directors present at
- - --------- ----------------
the meeting at which a quorum is present shall be the act of the Board of
Directors, unless a larger number is required by law, the Articles of
Incorporation or these Bylaws.
Section 9. Vacancies. Vacancies in the Board of Directors may be filled by a
- - --------- ---------
majority of the remaining members of the Board though less than a quorum. Such
vacancies may be filled for a term of office continuing only until the next
election of Directors by the Shareholders.
Section 10. Compensation. Directors as such shall not receive any stated
- - ---------- ------------
salaries for their services, but by resolution of the Board of Directors,
adopted by a majority of directors then in office, a fixed sum and expenses of
attendance, if any may be allowed for attendance at each meeting of the Board of
Directors; provided that nothing herein contained shall be construed to preclude
any director from serving the Corporation in any capacity other than as a
director or officer and receiving compensation therefor.
Section 11. Committees. The Board of Directors may designate one or more
- - ---------- ----------
committees, each committee to consist of one or more directors, and may
designate one or more directors as alternate members of a committee to replace
an absent or disqualified member at a committee meeting. In the absence or
disqualification of a member of a committee, the members thereof present at a
meeting and not disqualified from voting, whether or not they constitute a
quorum, may by unanimous vote appoint another director to act at the meeting in
the place of such absent or disqualified member. Committees and each member
thereof shall serve at the pleasure of the Board.
To the extent provided by the resolution of the Board of Directors a committee
shall have and may exercise all powers and authority of the Board in the
management of the business and affairs of the Corporation.
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<PAGE>
ARTICLE III
-----------
Officers
Section 1. Number. The Board of Directors shall elect a Chairman of the Board,
- - --------- ------
a President, a Secretary and a Treasurer, (and shall designate a Chief Executive
Officer in accordance with Section 5 of this Article III) and may elect a Vice
Chairman of the Board, a Controller, one or more Executive Vice Presidents, Vice
Presidents, Assistant Secretaries, Assistant Treasurers and such other officers
and agents as it may deem necessary for the transaction of the business of the
Corporation. No one of the said officers except the Chairman of the Board, the
Vice Chairman of the Board, and the President need be a director. Two or more
of the above offices except those of President and Vice President may be held by
the same person, but no officer shall execute, acknowledge or verify any
instrument in more than one capacity if the instrument is required by law or the
Articles of Incorporation or these Bylaws to be executed, acknowledged or
verified by two or more officers.
Section 2. Election and Term of Office. The officers of the Corporation shall
- - --------- ---------------------------
be elected annually by the Board of Directors at the first meeting of the Board
of Directors held after each annual meeting of shareholders subject to the power
of the Board of Directors to designate any office at any time and elect any
person thereto. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as conveniently may be. Each
officer shall hold office for the term for which he is elected and until his
successor is elected and qualified or until his resignation or removal.
Section 3. Removal and Resignations. Any officer or agent may be removed by
- - --------- ------------------------
the Board of Directors with or without cause. An officer may resign by written
notice to the Corporation. Such resignations shall be effective upon receipt by
the Corporation or at a subsequent time specified in the notice of resignation.
Section 4. Vacancies. The Board of Directors shall have the power to fill any
- - --------- ---------
vacancies in any office occurring from whatever reason.
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<PAGE>
Section 5. The Chief Executive Officer. The Board of Directors shall designate
- - --------- ---------------------------
either the Chairman of the Board or the President as the Chief Executive
Officer. Subject to the direction and under the supervision of the Board of
Directors, the Chief Executive Officer shall manage the business and affairs of
the Corporation, and shall be in charge of its property and have control over
its officers, agents and employees. Subject to the direction and under the
supervision of the Board of Directors, the Chief Executive Officer may execute
in the name of the Corporation all deeds, bonds, mortgages, contracts and other
documents except in cases where the execution thereof shall be expressly and
specifically delegated by the Board of Directors or these Bylaws exclusively to
some other person or persons. If the office of Chairman of the Board and Chief
Executive Officer are combined, the President may act as the Chief Executive
Officer in the case of the Chairman's sickness, disability or temporary absence
from the Corporation's Registered Office, and whether or not the Chairman is
sick, disabled or absent, the President may execute on behalf of the Corporation
any deed, bond, mortgage, contract or document which a Chief Executive Officer
is authorized hereinabove to execute, subject to the direction and supervision
of the Board of Directors and the Chief Executive Officer. If the offices of
President and Chief Executive Officer are combined, the Executive Vice President
with the greatest length of service in such capacity or, if there be no
Executive Vice President, the Chairman of the Board, may act as the Chief
Executive Officer in the case of the President's sickness, disability or
temporary absence from the Corporation's Registered Office, and whether or not
the President is sick, disabled or absent, such Executive Vice President or
Chairman of the Board, as the case may be, may execute on behalf of the
Corporation any deed, bond, mortgage, contract or document which a Chief
Executive Officer is authorized hereinabove to execute, subject to the direction
and supervision of the Board of Directors and the Chief Executive Officer.
Section 6. Authority of Officers, Agents and Employees, Generally. Except as
- - --------- ------------------------------------------------------
otherwise provided by law, the Articles of Incorporation or these Bylaws, all
officers, agents and employees of the Corporation shall have such powers and
perform such duties as from time to time may be prescribed by the Board of
Directors, or the Chief Executive Officer. However, unless specifically
authorized by resolution of the Board of Directors, a person who is not an
officer of the Corporation shall have no authority to execute on its behalf any
(1) contract for the purchase or sale of lands or
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<PAGE>
buildings, (2) deed, (3) lease of lands or buildings, (4) mortgage, (5)
instrument creating any lien on the personal or real property of the Corporation
or (6) contract or other instrument not entered into in the ordinary course of
business.
Section 7. The Chairman of the Board, The Vice Chairman of the Board and the
- - --------- -----------------------------------------------------------------
President. In addition to the powers and duties elsewhere herein conferred or
- - ---------
provided for, the Chairman of the Board, the Vice Chairman of the Board and the
President shall have the following powers and duties subject to the direction
and under the supervision of the Board of Directors. The Chairman of the Board
shall preside at meetings of the Board of Directors and of the shareholders. In
the absence of the Chairman of the Board, the Vice Chairman of the Board, if
such office shall be created, shall so preside. The President shall preside at
meetings of the Board of Directors and of the shareholders in the absence of the
Chairman of the Board and any Vice Chairman of the Board.
Section 8. The Secretary. In addition to the powers and duties elsewhere
- - --------- -------------
herein conferred or provided for, the Secretary shall have the following powers
and duties subject to the direction and under the supervision of the Board of
Directors and the Chief Executive Officer. He shall attend all meetings of the
Board and all meetings of the shareholders and act as clerk thereof and record
all votes and the minutes of all proceedings in a book to be kept for that
purpose. He shall perform like duties for all directors' committees when
required. He shall have custody of the seal of the Corporation and shall have
authority to cause such seal to be affixed to or impressed or otherwise
reproduced upon all documents the execution of which on behalf of the
Corporation shall have been duly authorized. He shall cause to be kept records
containing the names and addresses of all shareholders of the Corporation, the
number, class and series of shares held by each and the dates when they
respectively became shareholders of record thereof at the registered office of
the Corporation or at the office of its transfer agent within or without the
State of Michigan. In general, he shall perform the duties usually incident to
the office of Secretary. At any meeting of the shareholders or Board of
Directors at which the Secretary is not present a Secretary Pro Tempore or Clerk
of the meeting may be appointed by the meeting.
Section 9. The Treasurer. In addition to the powers and duties elsewhere
- - --------- -------------
herein conferred or provided for, the Treasurer shall have the following powers
and duties subject to the direction and
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<PAGE>
under the control of the Board of Directors and the Chief Executive Officer. He
shall have the custody of the corporate funds and securities and shall keep full
and accurate accounts of receipts and disbursements in books belonging to the
Corporation. He shall deposit all moneys and other valuable effects in the name
of and to the credit of the Corporation, in such depositaries as may be
designated by the Board of Directors, and, in general, he shall perform the
duties usually incident to the office of Treasurer. If required by the Board of
Directors, the Treasurer shall furnish the corporation with a proper bond, in a
sum and with one or more sureties satisfactory to the Board of Directors, for
the faithful performance of the duties of his office, and for the restoration to
the Corporation in case of his death, resignation, retirement or removal from
office of all books, papers, vouchers, money and other property of whatever kind
in his possession or under his control and belonging to the Corporation.
Section 10. Assistant Secretaries and Assistant Treasurers. In addition to the
- - ---------- ----------------------------------------------
powers and duties elsewhere herein conferred or provided for, Assistant
Secretaries and Assistant Treasurers shall have the following powers and duties
subject to the direction and under the supervision of the Board of Directors and
the Chief Executive Officer. Any Assistant Secretary or Assistant Treasurer may
act as the Secretary or Treasurer, respectively, in the case of the sickness,
disability or temporary absence from the Registered Office of the Corporation of
the Secretary or Treasurer, as the case may be. In addition, any Assistant
Secretary shall have the authority to cause the seal of the Corporation to be
affixed to or impressed or otherwise reproduced upon all documents the execution
of which on behalf of the Corporation shall have been duly authorized whether or
not the Secretary is sick, disabled or absent.
Section 11. Remuneration. The Board of Directors shall set from time to time
- - ---------- ------------
the remuneration of the officers of the Corporation after reviewing the
recommendation of the Chief Executive Officer and as appropriate the report or
recommendation of a committee of the Board consisting of one or more directors
who are not also salaried employees of the Corporation.
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<PAGE>
ARTICLE IV
----------
Indemnification of
Directors, Officers, Employees and Agents
Section 1. Non-Derivative Actions. Subject to all of the other provisions of
- - ---------- ----------------------
this Article IV, the Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to or called as a witness in any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (whether formal or informal) and any
appeal thereof (other than an action by or in the right of the Corporation) by
reason of the fact that the person is, was or agreed to become a director or
officer of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, partner, trustee, employee, or agent of
another foreign or domestic corporation, partnership, joint venture, trust or
other enterprise, whether for profit or not, against expenses (including
attorneys' fees), judgments, penalties, fines, and amounts paid in settlement
actually and reasonably incurred by him or her in connection with such action,
suit or proceeding if the person acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best interests of the
Corporation or its shareholders, and with respect to any criminal action or
proceeding, if the person had no reasonable cause to believe his or her conduct
was unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which the person reasonably believed to be in
or not opposed to the best interests of the Corporation or its shareholders,
and, with respect to any criminal action or proceeding, had reasonable cause to
believe that his or her conduct was unlawful.
Section 2. Derivative Actions. Subject to all of the provisions of this
- - --------- ------------------
Article IV, the Corporation shall indemnify any person who was or is a party to
or is threatened to be made a party to, or called as a witness in any
threatened, pending or completed action or suit and any appeal thereof by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that the person is or was a director of officer of the Corporation, or is
or was serving at the request of the Corporation as a director, officer,
partner, trustee, employee, or agent of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise, whether for profit or
not,
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against expenses (including actual and reasonable attorneys' fees) and amounts
paid in settlement incurred by the person in connection with such action or suit
if the person acted in good faith and in a manner the person reasonably believed
to be in or not opposed to the best interests of the Corporation or its
shareholders. However, indemnification shall not be made for any claim, issue or
matter in which such person has been found liable to the Corporation unless and
only to the extent that the court in which such action or suit was brought has
determined upon application that, despite the adjudication of liability but in
view of all circumstances of the case, such person is fairly and reasonably
entitled to indemnification for the expenses which the court considers proper.
Section 3. Expenses or Successful Defense. To the extent that a person has
- - --------- ------------------------------
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Sections 1, 2, 8 or 13 of these Bylaws, or in defense
of any claim, issue or matter in the action, suit or proceeding, the person
shall be indemnified against expenses (including actual and reasonable
attorneys' fees) incurred by such person in connection with the action, suit or
proceeding and any action, suit or proceeding brought to enforce the mandatory
indemnification provided by this Section 3.
Section 4. Definition. For the purposes of Sections 1, 2 and 13, "other
- - --------- ----------
enterprises" shall include employee benefit plans; "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan; and
"serving at the request of the Corporation" shall include any service as a
director, officer, employee, or agent of the Corporation which imposes duties
on, or involves services by, the director or officer with respect to an employee
benefit plan, its participants or beneficiaries; and a person who acted in good
faith and in a manner the person reasonably believed to be in the interest of
the participants and beneficiaries of an employee benefit plan shall be
considered to have acted in a manner "not opposed to the best interests of the
Corporation or its shareholders" as referred to in Sections 1 and 2.
Section 5. Contract Right; Limitation on Indemnity. This Article IV shall be
- - --------- ---------------------------------------
applicable to all proceedings commenced or continuing after its adoption,
whether such arise out of events, acts or omissions which occurred prior or
subsequent to such adoption, and shall continue as to a person who has ceased to
be a director, officer or a person serving at the request of the Corporation as
a director, trustee, fiduciary, employee, agent or officer of another
corporation, partnership, joint
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venture, trust or other person. This article IV shall be deemed to be a contract
between the Corporation and each person who, at any time that this Article IV is
in effect, serves or agrees to serve in any capacity which entitles him or her
to indemnification hereunder and any repeal or other modification of this
Article IV or any repeal or modification of the Michigan Business Corporation
Act or any other applicable law shall not limit any rights of indemnification
for proceedings then existing or later arising out of events, acts or omissions
occurring prior to such repeal or modification for proceedings commenced after
such repeal or modification to enforce this Article IV with regard to
proceedings arising out of acts, omissions or events occurring prior to such
repeal or modification. The right to indemnification conferred in this Article
IV shall apply to services of a director or officer as an employee or agent of
the Corporation as well as in such person's capacity as a director or officer.
Except as provided in Sections 3 and 6 of these Bylaws, the Corporation shall
have no obligations under this Article IV to indemnify any person in connection
with any proceeding, or part thereof, initiated by such person without
authorization by the Board of Directors.
Section 6. Right of Claimant to Bring Suit. If a claim under Sections 1, 2, 8
- - --------- -------------------------------
or 13 of this Article is not paid in full by the Corporation within thirty days
after a written claim has been received by the Corporation, the claimant may at
any time thereafter bring suit against the Corporation to recover the unpaid
amount of the claim and, if successful in whole or in part, the claimant shall
be entitled to be paid also the expense of prosecuting such claim. It shall be
a defense to any such action (other than an action brought to enforce a claim
for expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any is required, has been
tendered to the Corporation) that indemnification of the claimant is prohibited
by applicable law, but the burden of proving such defense shall be on the
Corporation. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, its General Counsel or its shareholders)
to have made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances, nor an actual
determination by the Corporation (including its Board of Directors, independent
legal counsel, its General Counsel or its shareholders) that indemnification of
the claimant is prohibited by applicable law, shall be a defense to the action
or create a presumption that indemnification of the claimant is prohibited by
applicable law.
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Section 7. Proportionate Indemnity. If a person is entitled to indemnification
- - --------- -----------------------
under Sections 1, 2 or 13 of these Bylaws for a portion of expenses, including
attorneys' fees, judgments, penalties, fines, and amounts paid in settlements,
but not for the total amount thereof, the Corporation shall indemnify the person
for the portion of the expenses, judgments, penalties, fines, or amounts paid in
settlement for which the person is entitled to be indemnified.
Section 8. Expense Advance. Expenses incurred in defending a civil or criminal
- - --------- ---------------
action, suit or proceeding and any appeal thereof described in Sections 1, 2 or
13 of these Bylaws shall be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding; provided, however, that if
--------- -------
required by the Michigan Business Corporation Act, such expenses shall not be
paid by the Corporation unless the Corporation receives an undertaking by or on
behalf of the person involved to repay the expenses if it is ultimately
determined that the person is not entitled to be indemnified by the Corporation.
Section 9. Non-Exclusivity of Rights. The indemnification or advancement of
- - --------- -------------------------
expenses provided under this Article IV is not exclusive of other rights to
which a person seeking indemnification or advancement of expenses may be
entitled under any statute, provision of the Corporation's Articles of
Incorporation, contractual arrangement, vote of the shareholders or
disinterested directors or otherwise. However, the total amount of expenses
advanced or indemnified from all sources combined shall not exceed the amount of
actual expenses incurred by the person seeking indemnification or advancement of
expenses.
Section 10. Indemnification of Employees and Agents of the Corporation. The
- - ---------- ----------------------------------------------------------
Corporation may, to the extent authorized from time to time by the Board of
Directors, or by written opinion of the General Counsel with respect to agents
and employees of the Corporation not serving on its Executive Council or
Advisory Board or their equivalents, grant rights to indemnification and to the
advancement of expenses to any employee or agent of the Corporation to the
fullest extent of the provisions of this Article IV with respect to the
indemnification and advancement of expenses of directors and officers of the
Corporation.
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Section 11. Insurance. The Corporation may purchase and maintain insurance on
- - ---------- ---------
behalf of any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, partner, trustee, employee or agent of another Corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against the person and incurred by him or her in any such capacity or
arising out of his or her status as such, whether or not the Corporation would
have power to indemnify the person against such liability under these Bylaws of
the State of Michigan.
Section 12. No Liability if Determination Made in Good Faith. Neither the
- - ---------- ------------------------------------------------
Corporation nor its directors or officers nor any person acting on its behalf
shall be liable to anyone for any determination as to the existence or absence
of conduct which would provide a basis for making or refusing to make any
payment under this Article IV or for taking or omitting to take any other action
under this Article, in reliance upon the advice of counsel.
Section 13. Scope of Indemnity; Changes in Michigan Law. Notwithstanding any
- - ---------- -------------------------------------------
of the other provisions in this Article IV, each person who was or is a party or
is threatened to be made a party to or called as a witness in any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (whether formal or informal) and any appeal
thereof (hereinafter a "proceeding"), by reason of the fact that the person is,
was or agreed to become a director or officer of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, partner,
trustee, employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise, whether for profit or
not, whether the basis of such proceeding is alleged action in an official
capacity as a director, officer, employee, trustee, or agent or in any other
capacity while serving as a director, officer, employee, trustee, or agent,
shall be indemnified and held harmless by the Corporation to the fullest extent
authorized by the Michigan Business Corporation Act, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than said law permitted the Corporation to provide prior to such
amendment), against all expenses (including attorneys' fees and other expenses
of litigation), judgments, fines, penalties and amounts paid in settlement
actually and reasonably incurred by such person in connection therewith and such
indemnification shall continue as to a person who has
-17-
<PAGE>
ceased to be a director, officer, employee, trustee, or agent and shall inure to
the benefit of his or her heirs, executors and administrators: provided,
however, that, except as provided in Sections 3 and 6 hereof, the Corporation
shall indemnify any such person seeking indemnification in connection with a
proceeding (or part thereof) initiated by such person only if such proceeding
(or part thereof) was authorized by the Board of Directors of the Corporation.
Section 14. Severability. If any portion of this Article IV shall be
- - ---------- ------------
invalidated or held to be unenforceable on any ground by any court of competent
jurisdiction, the decision of which shall not have been reversed on appeal, such
invalidity or unenforceability shall not affect the other provisions hereof, and
this Article shall be construed in all respects as if such invalid or
unenforceable provisions had been omitted therefrom.
ARTICLE V
---------
Fixing Record Date
In order to determine the shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or entitled to receive
payment of any dividend or other distribution or allotment of any rights, or for
the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. If no record date is fixed, the record date for determining
shareholders entitled to notice of or to vote at a meeting of shareholders shall
be at the close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held, and the record date for
determining shareholders for any other purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto. A determination of shareholders of record entitled to notice of or to
vote at a meeting of shareholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
-18-
<PAGE>
ARTICLE VI
----------
Loans, Checks, Deposits, etc.
Section 1. Loans. No loans shall be contracted on behalf of the Corporation
- - --------- -----
and no evidences of indebtedness shall be issued in its name unless authorized
by a resolution of the Board of Directors. Such authority may be general or
confined to specific instances.
Section 2. Checks, Drafts, etc. All checks, drafts, or other orders for the
- - --------- -------------------
payment of money, notes or other evidences of indebtedness issued in the name of
the Corporation shall be signed by such officers, employees, or agents of the
Corporation and in such manner as shall from time to time be determined by or
pursuant to and in accordance with general or specific resolutions of the Board
of Directors.
Section 3. Deposits. All funds of the Corporation not otherwise employed shall
- - --------- --------
be deposited from time to time to the credit of the Corporation in such banks,
trust companies or other depositaries as the Board of Directors may select.
Such selection shall be by or pursuant to and in accordance with a general or
specific resolution of the Board of Directors.
ARTICLE VII
-----------
Certificates for Shares
Section 1. Certificates for Shares. Certificates representing shares of the
- - --------- -----------------------
Corporation shall be in such form conforming to applicable laws as may be
determined by the Board of Directors and shall be signed by or in the name of
the Corporation by the Chairman of the Board, the Vice Chairman of the Board,
the President or a Vice President and may also be signed by the Treasurer, an
Assistant Treasurer, the Secretary or an Assistant Secretary of the Corporation,
certifying the number, and class and series of shares represented by such
certificate. The signatures of the officers may be facsimiles if the
certificate is countersigned by a transfer agent or registered by a registrar
other than the Corporation or its employee. In case any officer has signed or
whose facsimile signature has been placed upon a certificate ceases to be such
officer before such certificate is issued, it may be issued by the Corporation
with the same effect as if he were such officer at the date of issue.
-19-
<PAGE>
Section 2. Lost Certificates. If a certificate of stock be lost or destroyed,
- - --------- -----------------
a new certificate of the identical tenor of the one alleged to be lost or
destroyed may be issued upon satisfactory proof of such loss or destruction, and
the giving of a bond sufficient to indemnify the Corporation against any claim
that may be made against the Corporation on account of the alleged lost or
destroyed certificate or the issuance of such a new certificate.
Section 3. Transfer of Shares. Transfers of shares of the Corporation shall be
- - --------- ------------------
made only on the books of the Corporation by the registered holder thereof or by
his attorney thereunto authorized by power of attorney duly executed and filed
with the Secretary or transfer agent of the Corporation, and on surrender for
cancellation of the certificate for such shares. The person in whose name
shares stand on the books of the Corporation shall be deemed the owner thereof
for all purposes as regards the Corporation.
Section 4. Regulations. The Board of Directors may make such rules and
- - --------- -----------
regulations as it may deem expedient concerning the issue, transfer and
registration of the certificates for shares. It may appoint one or more
transfer agents or registrars or both, and may require all certificates to bear
the signature of either or both.
Section 5. Elimination of Certificates for Stock. The Corporation may by
- - --------- -------------------------------------
resolution of the Board of Directors eliminate certificates representing shares
of the Corporation and provide for such other methods of recording, noticing
ownership and disclosure as may be provided by the rules of any national
securities exchange on which such shares are listed.
ARTICLE VIII
------------
Fiscal Year
The fiscal year of the Corporation shall begin on the first day of January in
each year and end on the thirty-first day of December in each year.
-20-
<PAGE>
ARTICLE IX
----------
Seal
The following shall be the design for the corporate seal of the Corporation:
two concentric rings with the words "Federal-Mogul Corporation, Michigan"
between the circles and the words "Corporate Seal" in the center.
ARTICLE X
---------
Emergency Provisions
Section 1. General. The provisions of this Article shall be operative only
- - --------- -------
during a national emergency declared by the President of the United States or
the person performing the President's functions, or in the event of a nuclear,
atomic or other attack on the United States or a disaster making it impossible
or impracticable for the Corporation to conduct its business without recourse to
the provisions of this Article. Said provisions in such event shall override
all other Bylaws of the Corporation in conflict with any provisions of this
Article, and shall remain operative so long as it remains impossible or
impracticable to continue the business of the Corporation otherwise, but
thereafter shall be inoperative; provided that all actions taken in good faith
pursuant to such provisions shall thereafter remain in full force and effect
unless and until revoked by action taken pursuant to the provisions of the
Bylaws other than those contained in this Article.
Section 2. Unavailable Directors. All directors of the Corporation who are not
- - --------- ---------------------
available to perform their duties as directors by reason of physical or mental
incapacity or for any other reason or who are unwilling to perform their duties
or whose whereabouts are unknown shall automatically cease to be directors, with
like effect as if such persons had resigned as directors, so long as such
unavailability continues.
Section 3. Authorized Number of Directors. The authorized number of directors
- - --------- ------------------------------
shall be the number of directors remaining after eliminating those who have
ceased to be directors pursuant to Section 2 of this Article, or the minimum
number required by law, whichever number is greater.
-21-
<PAGE>
Section 4. Quorum. The number of directors necessary to constitute a quorum
- - --------- ------
shall be one-third of the authorized number of directors as specified in the
foregoing Section, or such other minimum number as, pursuant to the law or
lawful decree then in force, it is possible for the Bylaws of a corporation to
specify.
Section 5. Creation of Emergency Committee. In the event the number of
- - --------- -------------------------------
directors remaining after eliminating those who have ceased to be directors
pursuant to Section 2 of this Article is less than the minimum number of
authorized directors required by law, then until the appointment of additional
directors to make up such required minimum, all the powers and authorities which
the Board could by law delegate, including all powers and authorities which the
Board could delegate to a committee, shall be automatically vested in an
emergency committee, and the emergency committee shall thereafter manage the
affairs of the Corporation pursuant to such powers and authorities and shall
have all other powers and authorities as may by law or lawful decree be
conferred on any person or body of persons during a period of emergency.
Section 6. Constitution of Emergency Committee. The emergency committee shall
- - --------- -----------------------------------
consist of all the directors remaining after eliminating those who have ceased
to be directors pursuant to Section 2 of this Article, provided that such
remaining directors are not less than three in number. In the event such
remaining directors are less than three in number, the emergency committee shall
consist of three persons, who shall be the remaining director or directors and
either one or two officers or employees of the Corporation, as the remaining
director or directors may in writing designate. If there is no remaining
director, the emergency committee shall consist of the three most senior
officers of the Corporation who are available to serve, and if and to the extent
that officers are not available, the most senior employees of the Corporation.
Seniority shall be determined in accordance with any designation of seniority in
the minutes of the proceedings of the Board, and in the absence of such
designation, shall be determined by rate of remuneration. In the event that
there are no remaining directors and no officers or employees of the Corporation
available, the emergency committee shall consist of three persons designated in
writing by the shareholder owning the largest number of shares of record as of
the date of the last record date.
-22-
<PAGE>
Section 7. Powers of Emergency Committee. The emergency committee, once
- - --------- -----------------------------
appointed, shall govern its own procedures and shall have power to increase the
number of members thereof beyond the original number, and in the event of a
vacancy or vacancies therein, arising at any time, the remaining member or
members of the emergency committee shall have the power to fill such vacancy or
vacancies. In the event at any time after its appointment all members of the
emergency committee shall die or resign or become unavailable to act for any
reason whatsoever, a new emergency committee shall be appointed in accordance
with the foregoing provisions of this Article.
Section 8. Directors Becoming Available. Any person who has ceased to be a
- - --------- ----------------------------
director pursuant to the provisions of Section 2 of this Article and who
thereafter becomes available to serve as a director shall automatically become a
member of the emergency committee.
Section 9. Election of Board of Directors. The emergency committee shall, as
- - --------- ------------------------------
soon after its appointment as is practicable, take all requisite action to
secure the election of a Board of Directors, and upon such election all the
powers and authorities of the emergency committee shall cease.
Section 10. Termination of Emergency Committee. In the event, after the
- - ---------- ----------------------------------
appointment of an emergency committee, a sufficient number of persons who ceased
to be directors pursuant to Section 2 of this Article become available to serve
as directors, so that if they had not ceased to be directors as aforesaid, there
would be enough directors to constitute the minimum number of directors required
by law, then all such persons shall automatically be deemed to be reappointed as
directors and the powers and authorities of the emergency committee shall be at
an end.
ARTICLE XI
----------
Amendments
These Bylaws may be altered or new Bylaws may be made and adopted by the
affirmative vote of a majority of the Board of Directors.
-23-
<PAGE>
EXHIBIT 4.8
____________________
FEDERAL-MOGUL CORPORATION,
THE GUARANTORS PARTY HERETO FROM TIME TO TIME,
AND
THE BANK OF NEW YORK,
AS TRUSTEE
_______________
INDENTURE
Dated as of January 20, 1999
_______________
________________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I Definitions and Incorporation by Reference.............................................................1
SECTION 1.1. Definitions.........................................................................1
SECTION 1.2. Other Definitions...................................................................9
SECTION 1.3. Incorporation by Reference of Trust Indenture Act...................................9
SECTION 1.4. Rules of Construction..............................................................10
ARTICLE II The Securities.......................................................................................10
SECTION 2.1. Form, Dating and Terms.............................................................10
SECTION 2.2. Execution and Authentication.......................................................19
SECTION 2.3. Registrar and Paying Agent.........................................................20
SECTION 2.4. Paying Agent To Hold Money in Trust................................................20
SECTION 2.5. Securityholder Lists...............................................................21
SECTION 2.6. Transfer and Exchange..............................................................21
SECTION 2.7. Form of Certificate to be Delivered in Connection with Transfers to Institutional
Accredited Investors..............................................................24
SECTION 2.8. Form of Transfers Pursuant to be Delivered in Connection with Transfers Pursuant
to Regulation S...................................................................27
SECTION 2.9. Mutilated, Destroyed, Lost or Stolen Securities....................................29
SECTION 2.10. Temporary Securities...............................................................29
SECTION 2.11. Cancellation.......................................................................30
SECTION 2.12. Payment of Interest; Defaulted Interest............................................30
SECTION 2.13. Computation of Interest............................................................31
SECTION 2.14. CUSIP Numbers......................................................................31
ARTICLE III Covenants...........................................................................................31
SECTION 3.1. Payment of Principal, Premium, if any, and Interest, if any........................31
SECTION 3.2. Maintenance of Office or Agency....................................................32
SECTION 3.3. Money for Securities Payments to be Held in Trust; Unclaimed Money.................32
SECTION 3.4. Corporate Existence................................................................33
SECTION 3.5. Reports by the Company.............................................................33
SECTION 3.6. Annual Review Certificate; Notice of Defaults or Events of Default.................34
SECTION 3.7. Books of Record and Account........................................................34
SECTION 3.8. Limitation on Liens................................................................35
SECTION 3.9. Limitation on Sale and Lease-Back Transactions.....................................36
</TABLE>
i
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<TABLE>
<S> <C>
ARTICLE IV Consolidation, Merger or Sale by the Company.........................................................37
SECTION 4.1. Consolidation, Merger or Sale of Assets Permitted..................................37
ARTICLE V Redemption of Securities..............................................................................38
SECTION 5.1. Applicability of Article...........................................................38
SECTION 5.2. Election to Redeem; Notice to Trustee..............................................38
SECTION 5.3. Selection of Securities to be Redeemed.............................................38
SECTION 5.4. Notice of Redemption...............................................................39
SECTION 5.5. Deposit of Redemption Price........................................................40
SECTION 5.6. Securities Payable on Redemption Date..............................................40
SECTION 5.7. Securities Redeemed in Part........................................................40
ARTICLE VI Defaults and Remedies................................................................................41
SECTION 6.1. Events of Default..................................................................41
SECTION 6.2. Acceleration; Rescission and Annulment.............................................42
SECTION 6.3. Collection of Indebtedness and Suits for Enforcement by Trustee....................43
SECTION 6.4. Trustee May File Proofs of Claim...................................................43
SECTION 6.5. Trustee May Enforce Claims Without Possession of Securities........................43
SECTION 6.6. Delay or Omission Not Waiver.......................................................44
SECTION 6.7. Waiver of Past Defaults............................................................44
SECTION 6.8. Control by Majority................................................................44
SECTION 6.9. Limitation on Suits by Holders.....................................................44
SECTION 6.10. Rights of Holders to Receive Payment...............................................45
SECTION 6.11. Application of Money Collected.....................................................45
SECTION 6.12. Restoration of Rights and Remedies.................................................46
SECTION 6.13. Rights and Remedies Cumulative.....................................................46
SECTION 6.14. Waiver of Usury, Stay or Extension Laws............................................46
SECTION 6.15. Undertaking for Costs..............................................................47
ARTICLE VII Trustee.............................................................................................47
SECTION 7.1. Certain Duties and Responsibilities of the Trustee.................................47
SECTION 7.2. Rights of Trustee..................................................................47
SECTION 7.3. Trustee May Hold Securities........................................................48
SECTION 7.4. Money Held in Trust................................................................48
SECTION 7.5. Trustee's Disclaimer...............................................................49
SECTION 7.6. Notice of Defaults.................................................................49
SECTION 7.7. Reports by Trustee to Holders......................................................49
SECTION 7.8. Securityholder Lists...............................................................49
SECTION 7.9. Compensation and Indemnity.........................................................49
SECTION 7.10. Replacement of Trustee.............................................................50
SECTION 7.11. Acceptance of Appointment by Successor.............................................52
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
SECTION 7.12. Eligibility; Disqualification......................................................53
SECTION 7.13. Merger, Conversion, Consolidation or Succession to Business........................53
SECTION 7.14. Appointment of Authenticating Agent................................................53
ARTICLE VIII Discharge of Indenture; Defeasance.................................................................55
SECTION 8.1. Termination of Company's and Guarantors' Obligations Under this Indenture...........55
SECTION 8.2. Application of Trust Funds.........................................................56
SECTION 8.3. Applicability of Defeasance Provisions; Company's Option to Effect Defeasance
or Covenant Defeasance............................................................56
SECTION 8.4. Defeasance and Discharge...........................................................56
SECTION 8.5. Covenant Defeasance................................................................57
SECTION 8.6. Conditions to Defeasance or Covenant Defeasance....................................57
SECTION 8.7. Deposited Money and Government Obligations to be Held in Trust.....................59
SECTION 8.8. Repayment to Company................................................................59
SECTION 8.9. Indemnity for Government Obligations...............................................59
ARTICLE IX Supplemental Indentures..............................................................................59
SECTION 9.1. Supplemental Indentures Without Consent of Holders.................................59
SECTION 9.2. Supplemental Indentures with Consent of Holders....................................60
SECTION 9.3. Compliance With Trust Indenture Act................................................62
SECTION 9.4. Execution of Supplemental Indentures...............................................62
SECTION 9.5. Effect of Supplemental Indentures..................................................62
SECTION 9.6. Reference in Securities to Supplemental Indentures.................................62
ARTICLE X Guarantees............................................................................................62
SECTION 10.1. Guarantees.........................................................................62
SECTION 10.2 Obligations of Guarantors Unconditional............................................64
SECTION 10.3. Limitation on Guarantors' Liability.................................................64
SECTION 10.4. Releases of Guarantees.............................................................65
SECTION 10.5. Application of Certain Terms and Provisions to Guarantors..........................65
SECTION 10.6. Additional Guarantors..............................................................66
ARTICLE XI Miscellaneous........................................................................................66
SECTION 11.1. Trust Indenture Act Controls.......................................................66
SECTION 11.2. Notices............................................................................66
SECTION 11.3. Communication by Holders with other Holders........................................67
SECTION 11.4. Certificate and Opinion as to Conditions Precedent.................................67
SECTION 11.5. Statements Required in Certificate or Opinion......................................67
SECTION 11.6. When Securities Disregarded........................................................68
SECTION 11.7. Rules by Trustee, Paying Agent and Registrar.......................................68
</TABLE>
iii
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<TABLE>
<S> <C>
SECTION 11.8. Legal Holidays.....................................................................68
SECTION 11.9. GOVERNING LAW......................................................................68
SECTION 11.10. No Recourse Against Others.........................................................68
SECTION 11.11. Successors.........................................................................68
SECTION 11.12. Multiple Originals.................................................................69
SECTION 11.13. Variable Provisions................................................................69
SECTION 11.14. Qualification of Indenture.........................................................69
SECTION 11.15. Table of Contents; Headings........................................................69
SECTION 11.16. Separability.......................................................................69
SECTION 11.17. Benefits of Indenture..............................................................69
</TABLE>
EXHIBIT A Form of the Initial Security
EXHIBIT B Form of the Exchange Security
iv
<PAGE>
CROSS-REFERENCE TABLE
---------------------
<TABLE>
<CAPTION>
TIA Section Indenture Section
- - ----------- -----------------
<S> <C>
310(a)(1).............................................................................. 7.12
(a)(2............................................................................... 7.12
(a)(3).............................................................................. 1.3
(a)(4).............................................................................. 1.3
(b)................................................................................. 7.10; 7.12
311(a)................................................................................. 1.3
(b)................................................................................. 1.3
312(a)................................................................................. 7.8
(b)................................................................................. 11.3
(c)................................................................................. 11.3
313(a)................................................................................. 7.7
(b)................................................................................. 7.7
(c)................................................................................. 7.7
(d)................................................................................. 7.7
314(a)................................................................................. 3.5; 3.6
(b)................................................................................. 3.5
(c)................................................................................. 11.4
(d)................................................................................. 3.5
(e)................................................................................. 11.5
315(a)................................................................................. 7.1
(b)................................................................................. 7.6
(c)................................................................................. 7.1
(d)................................................................................. 7.1
(e)................................................................................. 6.15
316(a)(last............................................................................ 11.6
sentence)
(a)(1)(A)........................................................................... 6.2; 6.8
(a)(1)(B)........................................................................... 6.7
(a)(2).............................................................................. 1.3
(b)................................................................................. 6.9; 6.10
317(a)(1).............................................................................. 6.3
(a)(2).............................................................................. 6.4
(b)................................................................................. 3.3
318(a)................................................................................. 11.1
</TABLE>
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be
part of this Indenture.
v
<PAGE>
INDENTURE dated as of January 20, 1999, among Federal-Mogul
Corporation, a Michigan corporation (the "Company"), the companies listed on the
signature pages hereto that are subsidiaries of the Company (the "Guarantors")
and The Bank Of New York, a New York banking corporation, as trustee (the
"Trustee").
Each party agrees as follows for the benefit of the other parties and
for the equal and ratable benefit of the Holders of (i) the Company's 7 3/8%
Notes due 2006 and the Company's 7 1/2% Notes due 2009 (together, the "Initial
Securities"), (ii) if and when issued in exchange for Initial Securities as
provided in the Registration Rights Agreement (as hereinafter defined), the
Company's 7 3/8% Notes due 2006 and the Company's 7 1/2% Notes due 2009
(together, the "Exchange Securities") and (iii) if and when issued as provided
in the Registration Rights Agreement, the Private Exchange Securities (as
defined in the Registration Rights Agreement; together with Initial Securities
and Exchange Securities, the "Securities").
ARTICLE I
Definitions and Incorporation by Reference
------------------------------------------
SECTION 1.1. Definitions.
-----------
"1997 Credit Agreement" means the Second Amended and Restated Credit
Agreement among the Company, The Chase Manhattan Bank as Administrative Agent
and the lenders thereunder, dated as of December 18, 1997, as amended from time
to time.
"1998 Credit Agreements" means (i) the Loan Agreement among the
Company, The Chase Manhattan Bank as Administrative Agent and the lenders
thereunder, dated as of September 30, 1998, as amended from time to time, and
(ii) the 364-Day Revolving Credit Agreement among the Company, The Chase
Manhattan Bank as Administrative Agent and the lenders thereunder, dated as of
September 30, 1998, as amended from time to time.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the 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.
"Attributable Debt," when used in connection with a Sale and Lease-
Back Transaction, shall mean, as of any particular time, the lesser of (i) the
fair value (as determined by the Board of Directors) of the property subject to
such arrangement and (ii) the then present value (computed by discounting at the
Composite Rate) of the obligation of a lessee for net rental payments during the
remaining term of any lease in respect of such property (including any period
for which such lease has been extended or may, at the option of the lessor, be
extended). The terms "net rental payments" under any lease for any period shall
mean the sum of the rental
<PAGE>
payments required to be paid in such period by the lessee thereunder, not
including, however, any amounts required to be paid by such lessee (whether or
not designated as rental or additional rental) on account of maintenance and
repairs, insurance, taxes, assessments, water rates or similar charges required
to be paid by such lessee thereunder or any amounts required to be paid by such
lessee thereunder contingent upon the amount of sales, maintenance and repairs,
insurance, taxes, assessments, water rates or similar charges.
"Authenticating Agent" means any authenticating agent appointed by the
Trustee pursuant to Section 7.14.
"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
on any Business Day and in the same or different Authorized Newspapers.
"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 or the equivalent body of any Guarantor, as applicable, certified by
the Secretary or an Assistant Secretary of the Company, or the equivalent
officer of any Guarantor, as applicable, to have been duly adopted by the Board
of Directors or the equivalent body of any Guarantor, as applicable, 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 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.
"Closing Date" means the date on which the Initial Securities are
issued.
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Exchange Act, 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.
"Company" means Federal-Mogul Corporation or a successor corporation.
"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.
2
<PAGE>
"Composite Rate" means, as of any particular time, the rate of
interest, per annum, compounded semiannually, equal to the sum of the rates of
interest borne by each of the Securities Outstanding under this Indenture, as
specified on the face of each of the Securities.
"Consolidated Assets" means the Company's assets, determined in
accordance with GAAP and consolidated for financial reporting purposes in
accordance with GAAP, such assets to be valued at book value.
"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.
"Credit Agreements" means the 1997 Credit Agreement and the 1998
Credit Agreements.
"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.
"Defaulted Interest" shall have the meaning set forth in Section 2.12.
"Definitive Securities" means certificated Securities, including
Institutional Accredited Investor Notes.
"DTC" means The Depository Trust Company, its nominees and their
respective successors and assigns, or such other depository institution
hereinafter appointed by the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Offer" shall have the meaning set forth in the Registration
Rights Agreement.
"Exchange Securities" has the meaning ascribed to it in the second
introductory paragraph of this Indenture.
"Funded Indebtedness" means all Indebtedness of the Company and its
Restricted Subsidiaries maturing by its terms more than one year after, or which
is renewable or extendable at the option of the Company for a period ending more
than one year after, the date as of which Funded Indebtedness is being
determined.
"GAAP" means such accounting principles as are generally accepted in
the United States at the date of this Indenture.
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"Government Obligations" means securities which are (i) direct
obligations of the United States, 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, the payment of
which is unconditionally guaranteed as a full faith and credit obligation by the
United States, which 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.
"Guarantee" means the guarantee of the Securities by each Guarantor
under Article X hereof.
"Guarantors" means (i) the Subsidiaries of the Company which have
executed this Indenture as a Guarantor as of the date hereof, and (ii) each of
the Company's Subsidiaries, whether formed, created or acquired after the
Closing Date, which become a guarantor of Securities pursuant to the provisions
of this Indenture.
"Holder" or "Securityholder" means the Person in whose name a Security
is registered in the Note Register.
"Indebtedness" means, without duplication, (i) all obligations in
respect of borrowed money or for the deferred purchase or acquisition price of
property (including all types of real, personal, tangible, intangible or mixed
property) or services (excluding trade accounts payable, deferred taxes and
accrued liabilities which arise in the ordinary course of business) which are,
in accordance with GAAP, includible as a liability on a balance sheet
consolidated for financial reporting purposes in accordance with GAAP, (ii) all
amounts representing the capitalization of rental obligations in accordance with
GAAP, and (iii) all Contingent Obligations with respect to the foregoing; for
purposes of clause (iii), "Contingent Obligation" means, as to any Person, any
obligation of such Person guaranteeing or in effect guaranteeing any
Indebtedness, leases, dividends or other obligations ("primary obligations") of
any other Person (the "primary obligor") in any manner, whether directly or
indirectly, including, without limitation, any obligation of such Person,
whether or not contingent, (a) to purchase any such primary obligation or any
property constituting direct or indirect security therefor, (b) to advance or
supply funds (1) for the purchase or payment of any such primary obligation or
(2) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency of the primary obligor, (c) to
purchase property, securities or services primarily for the purpose of assuring
the beneficiary of any such primary obligation of the ability of the primary
obligor to make payment of such primary obligation or (d) otherwise to assure or
hold harmless the beneficiary of such primary obligation against loss in respect
thereof; provided, however, that the term "Contingent Obligation" shall not
-------- -------
include the endorsement of instruments for deposit or collection in the ordinary
course of business. The term "Contingent Obligation" shall also
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include the liability of a general partner in respect of the primary obligations
of a partnership in which it is a general partner. The amount of any Contingent
Obligation of a Person shall be deemed to be an amount equal to the principal
amount of the primary obligation in respect to which such Contingent Obligation
is made.
"Indenture" means this Indenture as originally executed or as amended
or supplemented from time to time and shall include the forms and terms of each
series of Securities established as contemplated hereunder.
"Initial Securities" means the Company's 7 3/8% Notes due 2006 and the
Company's 7 1/2% Notes due 2009, each issued on the Closing Date.
"Legal Holiday" has the meaning ascribed to it in Section 11.8.
"Maturity", when used with respect to any Security, means the date on
which the principal of such Security becomes due and payable as therein or
herein provided, whether at the Stated Maturity or by declaration of
acceleration, call for redemption or otherwise.
"Non-U.S. Person" means a person who is not a U.S. person, as defined
in Regulation S.
"Note Register" means the register of Securities, maintained by the
Registrar, pursuant to Section 2.3.
"Obligations" means any principal, premiums, interest, penalties,
fees, indemnifications, reimbursements, damages and other liabilities payable
under the documentation governing any indebtedness.
"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.
"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.
"Outstanding", when used with respect to Securities, means, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except:
(a) Securities theretofore cancelled by the Trustee or delivered to the
Trustee for cancellation;
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(b) 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; 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;
(c) Securities, except to the extent provided in Sections 8.4 and 8.5, with
respect to which the Company has effected defeasance and/or covenant
defeasance as provided in Article VIII; and
(d) Securities which have been paid pursuant to Section 2.9 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, 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 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.
"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 Section 2.3.
"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 Property" means the principal manufacturing facilities
owned by the Company or a Restricted Subsidiary located in the United States,
except such as the Board of
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Directors, in its good faith opinion, reasonably determines is not significant
to the business, financial condition and earnings of the Company and its
consolidated Subsidiaries taken as a whole, as evidenced by a Board Resolution,
and except for: (i) any and all personal property including, without limitation,
(a) motor vehicles and other rolling stock, and (b) office furnishings and
equipment and information and electronic data processing equipment, (ii) any
property financed through obligations issued by state, territory or possession
of the United States, or any political subdivision or instrumentality of the
foregoing, or (iii) any real property held for development or sale.
"Private Exchange Securities" shall have the meaning set forth in the
Registration Rights Agreement relating to the Initial Securities.
"QIB" means any "qualified institutional buyer" (as defined in Rule
144A under the Securities Act).
"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.
"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.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of January 20, 1999, as amended from time to time, among the
Company, Merrill, Lynch, Pierce, Fenner & Smith Incorporated and Chase
Securities Inc.
"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.
"Restricted Period" means the 40 consecutive days beginning on and
including the later of (A) the day on which the Initial Securities are offered
to persons other than distributors (as defined in Regulation S under the
Securities Act) and (B) the Closing Date.
"Restricted Securities Legend" means the Private Placement Legend set
forth in clause (A) of Section 2.1(c) or the Regulation S Legend set forth in
clause (B) of Section 2.1(c), as applicable.
"Restricted Subsidiary" means any consolidated Subsidiary that owns
any Principal Property.
"Securities" means the collective reference to the Initial Securities,
Exchange Securities and Private Exchange Securities.
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"Securities Act" means the Securities Act of 1933, as amended
"Securities Custodian" means the custodian with respect to the Global
Security (as appointed by DTC), or any successor Person thereto and shall
initially be the Trustee.
"Series", when used with respect to the Securities, means each of (i)
the Initial Securities due 2006, the Exchange Securities due 2006 and the
Private Exchange Securities due 2006, collectively; and (ii) the Initial
Securities due 2009, the Exchange Securities due 2009 and the Private Exchange
Securities due 2009, collectively.
"Stated Maturity", when used with respect to any Security, means the
date specified in such Security as the fixed date on which the principal of such
Security is due and payable.
"Subsidiary" means a corporation more than 50% of the outstanding
voting stock of which is owned, directly or indirectly, by the Company or by one
or more other Subsidiaries, or by the Company and one or more other
Subsidiaries. For the purposes of this definition, "voting stock" means stock
which ordinarily has voting power for the election of directors, whether at all
times or only so long as no senior class of stock has such voting power by
reason of any contingency.
"TIA" or "Trust Indenture Act" means the Trust Indenture Act of 1939
as in effect on the date of this Indenture, except as provided in Section 9.3.
"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.
"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 the United States of America (including the
States and the District of Columbia), its territories, its possessions and other
areas subject to its jurisdiction.
"Western Europe" means Austria, Belgium, Denmark, France, Germany,
Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden,
Switzerland and the United Kingdom and Northern Ireland.
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SECTION 1.2. Other Definitions.
-----------------
Term Defined in
---- Section
-------
"Agent Member"...................................... 2.1(d)
"Bankruptcy Law".................................... 6.1
"Custodian"......................................... 6.1
"Definitive Securities"............................. 2.1(e)
"Event of Default".................................. 6.1
"Exchange Global Note".............................. 2.1(a)
"Global Securities"................................. 2.1(a)
"IAIs".............................................. 2.1(a)
"Institutional Accredited Investor Note"............ 2.1(a)
"Notice of Default"................................. 6.1(c)
"Paying Agent"...................................... 2.3
"Private Placement Legend".......................... 2.1(c)
"Registrar"......................................... 2.3
"Regulation S"...................................... 2.1(a)
"Regulation S Certificate".......................... 2.1(a)
"Regulation S Global Note".......................... 2.1(a)
"Regulation S Legend"............................... 2.1(c)
"Regulation S Note"................................. 2.1(a)
"Regulation S Permanent Global Note"................ 2.1(a)
"Regulation S Temporary Global Note"................ 2.1(a)
"Release Date"...................................... 2.1(a)
"Resale Restriction Termination Date"............... 2.6
"Rule 144A"......................................... 2.1(a)
"Rule 144A Global Note"............................. 2.1(a)
"Rule 144A Note".................................... 2.1(a)
"Sale and Lease-back Transaction"................... 3.9
"Special Record Date"............................... 2.12
SECTION 1.3. Incorporation by Reference of Trust Indenture Act. This
Indenture is subject to the mandatory provisions of the TIA which are
incorporated by reference in and made a part of this Indenture. The following
TIA terms have the following meanings:
"indenture securities" means the Securities.
"indenture security holder" means a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
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"obligor" on the indenture securities means the Company and any other
obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined in the TIA by reference to another statute or defined by the
Commission rules have the meanings assigned to them by such definitions.
SECTION 1.4 Rules of Construction. For all purposes of this
---------------------
Indenture, except as otherwise expressly provided or unless the context
otherwise requires:
(a) a term has the meaning assigned to it;
(b) an accounting term not otherwise defined has the meaning assigned to
it in accordance with GAAP;
(c) "or" is not exclusive;
(d) "including" means including without limitation;
(e) words in the singular include the plural and words in the plural
include the singular; and
(f) 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.
ARTICLE II
The Securities
--------------
SECTION 2.1. Form, Dating and Terms. (a) The Initial Securities
----------------------
are being offered and sold by the Company pursuant to a Purchase Agreement,
dated January 14, 1999, among the Company, the Guarantors, Merrill Lynch,
Pierce, Fenner & Smith Incorporated and Chase Securities Inc. The Initial
Securities will be resold initially only to (A) qualified institutional buyers
(as defined in Rule 144A under the Securities Act ("Rule 144A")) in reliance on
Rule 144A ("QIBs") (B) institutional "accredited investors" (as defined in Rules
501(a)(1), (2), (3) and (7) under the Securities Act) who are not QIBs
("IAIs")and (C) Persons other than U.S. Persons (as defined in Regulation S
under the Securities Act ("Regulation S")) in reliance on Regulation S. Such
Initial Securities may thereafter be transferred to among others, QIBs,
purchasers in reliance on Regulation S and IAIs in accordance with Rule 501 of
the Securities Act in accordance with the procedure described herein.
Initial Securities of each series offered and sold to QIBs in the
United States of America in reliance on Rule 144A (each, a "Rule 144A Note")
will be issued on the Closing Date in the form of a permanent global Security,
without interest coupons, substantially in the form of Exhibit A, which is
hereby incorporated by reference and made a part of this Indenture,
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including appropriate legends as set forth in Section 2.1(c) (each, a "Rule 144A
Global Note"), deposited with the Trustee, as custodian for DTC, duly executed
by the Company and authenticated by the Trustee as hereinafter provided. The
Rule 144A Global Note for each series may be represented by more than one
certificate, if so required by DTC's rules regarding the maximum principal
amount to be represented by a single certificate. The aggregate principal amount
of the Rule 144A Global Note for each series may from time to time be increased
or decreased by adjustments made on the records of the Trustee, as custodian for
DTC or its nominee, as hereinafter provided.
Initial Securities of each series offered and sold outside the United
States of America (each, a "Regulation S Note") in reliance on Regulation S will
be issued on the Closing Date in the form of a temporary global Security,
without interest coupons, substantially in the form set forth in Exhibit A which
is hereby incorporated by reference and made a part of this Indenture, including
appropriate legends as set forth in Section 2.1(c) (each, a "Regulation S
Temporary Global Note"). Beneficial interests in the Regulation S Temporary
Global Note of each series will be exchangeable for beneficial interests in a
single permanent global security for such series (each, a "Regulation S
Permanent Global Note", together with the applicable Regulation S Temporary
Global Note for such series, the "Regulation S Global Note" for such series) on
or within a reasonable period after the expiration of the Restricted Period (the
"Release Date") upon the receipt by the Trustee or its agent of a certificate (a
"Regulation S Certificate") certifying that the Holder of the beneficial
interest in the Regulation S Temporary Global Note of such series is a non-
United States Person within the meaning of Regulation S. Upon receipt by the
Trustee or Paying Agent of a Regulation S Certificate for any series, (i) with
respect to the first such Regulation S Certificate, the Company shall execute
and upon receipt of a Company Order for authentication, the Authenticating Agent
shall authenticate and deliver to the custodian, the applicable Regulation S
Permanent Global Note for such series and (ii) with respect to the first and all
subsequent Regulation S Certificates, the custodian shall exchange on behalf of
the applicable beneficial owners the portion of the applicable Regulation S
Temporary Global Note of such series covered by such Regulation S Certificates
for a comparable portion of the applicable Regulation S Permanent Global Note
for such series. Upon any exchange of a portion of a Regulation S Temporary
Global Note of any series for a comparable portion of a Regulation S Permanent
Global Note for such series, the custodian shall endorse on the schedules
affixed to each of such Regulation S Global Note (or on continuations of such
schedules affixed to each of such Regulation S Global Note and made parts
thereof) appropriate notations evidencing the date of transfer and (x) with
respect to the applicable Regulation S Temporary Global Note for such series, a
decrease in the principal amount thereof equal to the amount covered by the
applicable certification and (y) with respect to the applicable Regulation S
Permanent Global Note for such series, an increase in the principal amount
thereof equal to the principal amount of the decrease in the applicable
Regulation S Temporary Global Note pursuant to clause (x) above.
The Regulation S Global Note of each series will be deposited with the
Trustee, as custodian for DTC, duly executed by the Company and authenticated by
the Trustee as hereinafter provided. The Regulation S Global Note of each
series may be represented by more than one certificate, if so required by DTC's
rules regarding the maximum principal amount to be represented by a single
certificate. The aggregate principal amount of the Regulation S Global
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Note of each series may from time to time be increased or decreased by
adjustments made on the records of the Trustee, as custodian for DTC or its
nominee, as hereinafter provided.
Initial Securities of each series offered and sold to IAIs in the
United States of America will be issued on the Closing Date in non-global, fully
registered form, without interest coupons, substantially in the form set forth
in Exhibit A, which is hereby incorporated by reference and made a part of this
Indenture, including appropriate legends as set forth in Section 2.1(c), duly
executed by the Company and authenticated by the Trustee as hereinafter provided
(each, an "Institutional Accredited Investor Note"). Upon such issuance, the
Trustee shall register any such Institutional Accredited Investor Note in the
name of the beneficial owner or owners of such note (or the nominee of such
beneficial owner or owners) and deliver the certificates for such Institutional
Accredited Investor Notes to the respective beneficial owner or owners. Upon
transfer of such Institutional Accredited Investor Notes of any series to a QIB
or to a Non-U.S. Person, such Institutional Accredited Investor Notes of such
series will, unless the Rule 144A Global Note for such series, in the case of a
transfer to a QIB, or the Regulation S Global Note for such series, in the case
of a transfer to a Non-U.S. Person, has previously been exchanged for Definitive
Securities of such series pursuant to Section 2.1(e), be exchanged for an
interest in a Global Security of such series pursuant to the provisions of
Section 2.6.
Exchange Securities of each series exchanged for interests in the Rule
144A Note of such series, the Regulation S Note of such series and the
Institutional Accredited Investor Notes of such series will be issued in the
form of a permanent global Security substantially in the form of Exhibit B,
which is hereby incorporated by reference and made a part of this Indenture,
deposited with the Trustee as hereinafter provided, including the appropriate
legend set forth in Section 2.1(c) (each, a "Exchange Global Note"). The
Exchange Global Note for each series may be represented by more than one
certificate, if so required by DTC's rules regarding the maximum principal
amount to be represented by a single certificate.
Each Rule 144A Global Note for any series, each Regulation S Global
Note for any series and each Exchange Global Note for any series are sometimes
collectively herein referred to as the "Global Securities" for such series.
The principal of (and premium, if any) and interest on the Securities
shall be payable at the office or agency of the Company maintained for such
purpose in the Borough of Manhattan in the City of New York, or at such other
office or agency of the Company as may be maintained for such purpose pursuant
to Section 2.3; provided, however, that, at the option of the Company, each
-------- -------
installment of interest may be paid by check mailed to addresses of the Persons
entitled thereto as such addresses shall appear on the Note Register and;
provided, further, that all payments with respect to the Securities, the Holders
- - -------- -------
of which have given wire transfer instructions to the Company and the Paying
Agent prior to the applicable record date for such payment, will be required to
be made by wire transfer of immediately available funds to the accounts
specified by the Holders thereof. Payments in respect of Securities represented
by a Global Security (including principal, premium and interest) will be made by
wire transfer of immediately available funds to the accounts specified by DTC.
12
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The Private Exchange Securities of each series shall be in the form of
Exhibit A. The Securities of each series may have notations, legends or
endorsements required by law, stock exchange rule or usage, in addition to those
set forth on Exhibits A and B and in Section 2.1(c). The Company and the
Trustee shall approve the forms of the Securities and any notation, endorsement
or legend on them. Each Security shall be dated the date of its authentication.
The terms of the Securities set forth in Exhibit A and Exhibit B are part of the
terms of this Indenture and, to the extent applicable, the Company and the
Trustee, by their execution and delivery of this Indenture, expressly agree to
be bound by such terms.
(b) Denominations. The Securities of each series shall be issuable only
-------------
in fully registered form, without interest coupons, and in denominations of
$1,000 and any integral multiple thereof, provided, that each Institutional
--------
Accredited Investor Note shall be in a minimum denomination of $250,000.
(c) Restrictive Legends. Unless and until (i) an Initial Security of any
-------------------
series is sold under an effective registration statement or (ii) an Initial
Security of any series is exchanged for an Exchange Security of such series in
connection with an effective registration statement, in each case pursuant to
the Registration Rights Agreement or a similar agreement,
(A) the Rule 144A Global Note of such series and the Institutional
Accredited Investor Notes of such series shall bear the following legend (the
"Private Placement Legend") on the face thereof:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION OR UNLESS THE TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT
TO, SUCH REGISTRATION. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE
HEREOF (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER"
(AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN
INSTITUTIONAL ACCREDITED INVESTOR (AS DEFINED IN RULE 501(a)(1), (2),
(3) OR (7) UNDER THE SECURITIES ACT) (AN "ACCREDITED INVESTOR") THAT
IS ACQUIRING THE SECURITIES FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF
SUCH INSTITUTIONAL ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES AND
NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY
DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, (2) AGREES THAT IT
WILL NOT PRIOR TO (X) THE DATE WHICH IS TWO YEARS AFTER THE LATER OF
THE ORIGINAL ISSUE DATE HEREOF (OR
13
<PAGE>
OF ANY PREDECESSOR OF THIS SECURITY) OR THE LAST DAY ON WHICH THE
COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY
OR ANY PREDECESSOR OF THIS SECURITY AND (Y) SUCH LATER DATE, IF ANY,
AS MAY BE REQUIRED BY APPLICABLE LAWS (THE "RESALE RESTRICTION
TERMINATION DATE"), OFFER, SELL OR OTHERWISE TRANSFER THIS SECURITY
EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) PURSUANT TO A
REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE
SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR
RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A
"QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT
OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE
TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO
OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED
STATES, PURSUANT TO RULE 904 OF REGULATION S, (E) TO AN ACCREDITED
INVESTOR THAT IS ACQUIRING THE SECURITIES FOR ITS OWN ACCOUNT, OR FOR
THE ACCOUNT OF SUCH INSTITUTIONAL ACCREDITED INVESTOR, FOR INVESTMENT
PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION
WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, IN EACH
CASE IN A MINIMUM PRINCIPAL AMOUNT OF $250,000 OR (F) PURSUANT TO
ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT, SUBJECT TO THE RIGHT OF THE COMPANY AND THE TRUSTEE TO
REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATIONS AND/OR
INFORMATION SATISFACTORY TO EACH OF THEM PRIOR TO ANY SUCH OFFER, SALE
OR TRANSFER PURSUANT TO CLAUSE (D), (E) OR (F) AND (3) AGREES THAT IT
WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. THIS LEGEND WILL BE
REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE TRANSACTION
TERMINATION DATE. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION",
"UNITED STATES" AND "U.S. PERSON" HAVE THE RESPECTIVE MEANINGS GIVEN
TO THEM BY REGULATION S UNDER THE SECURITIES ACT"; and
(B) the Regulation S Global Note of each series shall bear the
following legend (the "Regulation S Legend") on the face thereof:
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"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION OR UNLESS THE TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT
TO, SUCH REGISTRATION. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE
HEREOF (1) REPRESENTS THAT IT IS NOT A U.S. PERSON OR PURCHASING FOR
THE ACCOUNT OF A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN
"OFFSHORE TRANSACTION" PURSUANT TO RULE 903 OR 904 OF REGULATION S
UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT PRIOR TO (X) THE
DATE WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE
HEREOF (OR OF ANY PREDECESSOR OF THIS SECURITY) OR THE LAST DAY ON
WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF
THIS SECURITY OR ANY PREDECESSOR OF THIS SECURITY AND (Y) SUCH LATER
DATE, IF ANY, AS MAY BE REQUIRED BY APPLICABLE LAWS, OFFER, SELL OR
OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR ANY
SUBSIDIARY THEREOF, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS
BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS
THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A
PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS
OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO
WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON
RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT
OCCUR OUTSIDE THE UNITED STATES, PURSUANT TO RULE 904 OF REGULATION S,
(E) TO AN INSTITUTIONAL ACCREDITED INVESTOR (AS DEFINED IN RULE
501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) (AN "ACCREDITED
INVESTOR") THAT IS ACQUIRING THE SECURITIES FOR ITS OWN ACCOUNT, OR
FOR THE ACCOUNT OF SUCH INSTITUTIONAL ACCREDITED INVESTOR, FOR
INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN
CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT,
IN EACH CASE IN A MINIMUM PRINCIPAL AMOUNT OF $250,000 OR (F) PURSUANT
TO ANOTHER AVAILABLE EXEMPTION FROM THE
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REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE RIGHT
OF THE COMPANY AND THE TRUSTEE TO REQUIRE THE DELIVERY OF AN OPINION
OF COUNSEL, CERTIFICATIONS AND/OR INFORMATION SATISFACTORY TO EACH OF
THEM PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (D),
(E) OR (F) AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM
THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF
THIS LEGEND. THIS LEGEND WILL BE REMOVED AFTER 40 CONSECUTIVE DAYS
BEGINNING ON AND INCLUDING THE LATER OF (A) THE DAY ON WHICH THE
SECURITIES ARE OFFERED TO PERSONS OTHER THAN DISTRIBUTORS (AS DEFINED
IN REGULATION S) AND (B) THE DATE OF THE CLOSING OF THE ORIGINAL
OFFERING. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION", "UNITED
STATES" AND "U.S. PERSON" HAVE THE RESPECTIVE MEANINGS GIVEN TO THEM
BY REGULATION S UNDER THE SECURITIES ACT."
(C) The Global Securities of each series, whether or not an Initial
Security, shall bear the following legend on the face thereof:
"UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW
YORK, NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS
MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH
AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF
OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL
SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE
RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE
HEREOF."
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(D) The Regulation S Temporary Global Note of each series shall also
bear the following legend on the face thereof:
THIS GLOBAL NOTE IS A TEMPORARY GLOBAL NOTE FOR PURPOSES OF REGULATION S
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "1933
ACT"). NEITHER THIS TEMPORARY GLOBAL NOTE NOR ANY INTEREST HEREIN MAY BE
OFFERED, SOLD OR DELIVERED, EXCEPT AS PERMITTED UNDER THE INDENTURE
REFERRED TO BELOW.
NO BENEFICIAL OWNERS OF THIS TEMPORARY GLOBAL NOTE SHALL BE ENTITLED TO
RECEIVE PAYMENT OF PRINCIPAL OR INTEREST HEREON UNLESS THE REQUIRED
CERTIFICATIONS HAVE BEEN DELIVERED PURSUANT TO THE TERMS OF THE INDENTURE.
(E) Each Institutional Accredited Investor Note shall also bear the
following additional legend on the face thereof:
IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR
AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH TRANSFER
AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIED WITH THE
FOREGOING RESTRICTIONS.
(d) Book-Entry Provisions. (i) This Section 2.1(d) shall apply only to
---------------------
Global Securities of each series deposited with the Trustee, as custodian for
DTC.
(ii) Each Global Security for any series initially shall (x) be
registered in the name of DTC or the nominee of DTC, (y) be delivered to
the Trustee as custodian for DTC and (z) bear legends as set forth in
Section 2.1(c).
(iii) Members of, or participants in, DTC ("Agent Members") shall
have no rights under this Indenture with respect to any Global Security
held on their behalf by DTC or by the Trustee as the custodian of DTC or
under such Global Security, and DTC may be treated by the Company, the
Trustee and any agent of the Company or the Trustee as the absolute owner
of such Global Security for all purposes whatsoever. Notwithstanding the
foregoing, nothing herein shall prevent the Company, the Trustee or any
agent of the Company or the Trustee from giving effect to any written
certification, proxy or other authorization furnished by DTC or impair, as
between DTC and its Agent Members, the operation of customary practices of
DTC governing the exercise of the rights of a holder of a beneficial
interest in any Global Security.
(iv) In connection with any transfer of a portion of the beneficial
interest in a Global Security of any series pursuant to subsection (e) of
this Section to beneficial
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owners who are required to hold Definitive Securities or to IAIs who shall
hold certificated Institutional Accredited Investor Notes pursuant to
Section 2.1(a), the Securities Custodian shall reflect on its books and
records the date and a decrease in the principal amount of such Global
Security in an amount equal to the principal amount of the beneficial
interest in the Global Security to be transferred, and the Company shall
execute, and the Trustee shall authenticate and deliver, one or more
Definitive Securities of like series, tenor and amount.
(v) In connection with the transfer of an entire Global Security of
any series to beneficial owners pursuant to subsection (e) of this Section,
such Global Security shall be deemed to be surrendered to the Trustee for
cancellation, and the Company shall execute, and the Trustee shall
authenticate and deliver, to each beneficial owner identified by DTC in
exchange for its beneficial interest in such Global Security, an equal
aggregate principal amount of Definitive Securities of such series of
authorized denominations.
(vi) The registered holder of a Global Security of any series may
grant proxies and otherwise authorize any person, including Agent Members
and persons that may hold interests through Agent Members, to take any
action which a Holder is entitled to take under this Indenture or the
Securities of such series.
(e) Definitive Securities. (i) Except as provided below, owners of
---------------------
beneficial interests in Global Securities of any series will not be
entitled to receive Definitive Securities of such series. Definitive
Securities of any series shall be transferred to all beneficial owners in
exchange for their beneficial interests in a Global Security of such series
if (a) DTC notifies the Company that it is unwilling or unable to continue
as depositary for such Global Security or DTC ceases to be a clearing
agency registered under the Exchange Act, at a time when DTC is required to
be so registered in order to act as depositary, and in each case a
successor depositary is not appointed by the Company within 90 days of such
notice or (b) the Company executes and delivers to the Trustee and
Registrar an Officers' Certificate stating that such Global Security shall
be so exchangeable or (c) an Event of Default has occurred and is
continuing and the Registrar has received a request from DTC.
(ii) Any Definitive Security of any series delivered in exchange for
an interest in a Global Security of such series pursuant to Section 2.1
(d)(iv) or (v) shall, except as otherwise provided by Section 2.6(c), bear
the applicable legend regarding transfer restrictions applicable to the
Definitive Security set forth in Section 2.1(c).
(iii) In connection with the exchange of a Definitive Security of any
series for a beneficial interest in a Global Security of such series
pursuant to a transfer of an Institutional Accredited Investor Note of such
series to a QIB or a Non-U.S. Person, upon receipt by the Trustee of such
Institutional Accredited Investor Note, duly endorsed or accompanied by
appropriate instruments of transfer in accordance with Section 2.6(a), the
Trustee shall cancel such Institutional Accredited Investor Note and cause,
or direct the Securities Custodian to cause, in accordance with the
standing instructions and
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<PAGE>
procedures existing between DTC and the Securities Custodian, the aggregate
principal amount of Securities of such series represented by the Global
Security of such series to be increased accordingly. If no Global
Securities of such series are then Outstanding, the Company shall issue and
the Trustee shall authenticate, upon written order of the Company in the
form of an Officers' Certificate, a new Global Security for such series in
the appropriate principal amount. The Trustee shall deliver copies of each
certification and instruction received by it to DTC and, upon receipt
thereof, the Securities Custodian shall reflect on its books and records
the date and an increase in the principal amount of such Global Security of
such series in an amount equal to the principal amount of the Institutional
Accredited Investor Note of such series so transferred to reflect the
exchange of such Institutional Accredited Investor Note for an interest in
the Global Security.
(iv) In connection with the exchange of a portion of a Definitive
Security of any series for a beneficial interest in a Global Security of
such series, the Trustee shall cancel such Definitive Security, and the
Company shall execute, and the Trustee shall authenticate and deliver, to
the transferring Holder a new Definitive Security representing the
principal amount not so transferred.
SECTION 2.2. Execution and Authentication. One Officer shall sign
----------------------------
the Securities for the Company by manual or facsimile signature. If an Officer
whose signature is on a Security no longer holds that office at the time the
Trustee authenticates the Security, the Security shall be valid nevertheless,
after giving effect to any exchange of Initial Securities for Exchange
Securities.
A Security shall not be valid until an authorized signatory of the
Trustee manually authenticates the Security. The signature of the Trustee on a
Security shall be conclusive evidence that such Security has been duly and
validly authenticated and issued under this Indenture.
At any time and from time to time after the execution and delivery of
this Indenture, the Trustee shall authenticate and make available for delivery:
(1) the Initial Securities for issue on the Closing Date in an aggregate
principal amount of $1,000,000,000, and (2) Exchange Securities for issue only
in an Exchange Offer pursuant to the Registration Rights Agreement, and only in
exchange for the applicable Initial Securities of the same series of an equal
principal amount, in each case upon a Company Order. Such Company Order shall
specify the amount of the Securities of each series to be authenticated and the
date on which the original issue of Securities of such series are to be
authenticated and whether the Securities of such series are to be Initial
Securities or Exchange Securities. The aggregate principal amount of Securities
which may be authenticated and delivered under this Indenture is limited to
$1,000,000,000 outstanding, except for Securities authenticated and delivered
upon registration or transfer of, or in exchange for, or in lieu of, other
Securities of the same class pursuant to Section 2.6, Section 2.9, Section 2.10,
Section 5.7, Section 9.6 and except for transactions similar to the Exchange
Offer.
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In case the Company, pursuant to Article IV, shall be consolidated or
merged with or into any other Person or shall transfer or lease all or
substantially all of its assets to any Person, and the successor Person formed
by or surviving any such consolidation or any such merger, or to which such
transfer or lease shall have been made, shall have executed an indenture
supplemental hereto with the Trustee pursuant to Article IV, any of the
Securities of any series authenticated or delivered prior to such consolidation,
merger, conveyance, transfer or lease may, from time to time, at the request of
the successor Person, be exchanged for other Securities of such series executed
in the name of the successor Person with such changes in phraseology and form as
may be appropriate, but otherwise in substance of like tenor as the Securities
surrendered for such exchange and of like principal amount; and the Trustee,
upon Company Order of the successor Person, shall authenticate and deliver
Securities as specified in such order for the purpose of such exchange. If
Securities of any series shall at any time be authenticated and delivered in any
new name of a successor Person pursuant to this Section 2.2 in exchange or
substitution for or upon registration of transfer of any Securities of such
series, such successor Person, at the option of the Holders but without expense
to them, shall provide for the exchange of all Securities of such series at the
time Outstanding for Securities of such series authenticated and delivered in
such new name.
SECTION 2.3. Registrar and Paying Agent. The Company shall
--------------------------
maintain an office or agency where Securities of each series may be presented
for registration of transfer or for exchange (the "Registrar") and an office or
agency where Securities of each series may be presented for payment (the "Paying
Agent"). The Corporate Trust Office of the Trustee shall be such office or
agency of the Company, unless the Company shall designate and maintain some
other office or agency for one or more such purposes; provided, however, that
-------- -------
the Company will maintain such an office or agency in a city in Western Europe
so long as the Securities of any series are listed on the Luxembourg Stock
Exchange and the rules of such Exchange so require. The Company initially
appoints the Trustee as Registrar and Paying Agent for the Securities of each
series.
The Company shall cause each of the Registrar and the Paying Agent to
maintain an office or agency in the Borough of Manhattan, The City of New York.
The Registrar shall keep a register of the Securities of each series and of
their transfer and exchange (the "Note Register"). The Company may have one or
more co-registrars and one or more additional paying agents. The term "Paying
Agent" includes any additional paying agent.
The Company shall enter into an appropriate agency agreement with any
Registrar, Paying Agent or co-registrar not a party to this Indenture, which
shall incorporate the terms of the TIA. The agreement shall implement the
provisions of this Indenture that relate to such agent. The Company shall
notify the Trustee of the name and address of each such agent. If the Company
fails to maintain a Registrar or Paying Agent, the Trustee shall act as such and
shall be entitled to appropriate compensation therefor pursuant to Section 7.9.
The Company may act as Paying Agent, Registrar, co-registrar or transfer agent.
SECTION 2.4. Paying Agent To Hold Money in Trust. By at least
-----------------------------------
10:00 a.m. (New York City time) on the date on which any principal of or
interest on any Security is due
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<PAGE>
and payable, the Company shall deposit with the Paying Agent a sum sufficient to
pay such principal or interest when due. The Company shall require each Paying
Agent (other than the Trustee) to agree in writing that such Paying Agent shall
hold in trust for the benefit of Securityholders or the Trustee all money held
by such Paying Agent for the payment of principal of or interest on the
Securities of each series and shall notify the Trustee in writing of any default
by the Company or any Guarantor in making any such payment. If the Company acts
as Paying Agent, it shall segregate the money held by it as Paying Agent and
hold it as a separate trust fund. The Company at any time may require a Paying
Agent (other than the Trustee) to pay all money held by it to the Trustee and to
account for any funds disbursed by such Paying Agent. Upon complying with this
Section, the Paying Agent (if other than the Company) shall have no further
liability for the money delivered to the Trustee. Upon any bankruptcy,
reorganization or similar proceeding with respect to the Company, the Trustee
shall serve as Paying Agent for the Securities of each series.
SECTION 2.5. 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 Securityholders of each series of Securities. If
the Trustee is not the Registrar, or to the extent otherwise required under the
TIA, the Company shall furnish to the Trustee, in writing at least seven
Business Days before each interest payment date 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 of the names and addresses of Securityholders of
each series of Securities.
SECTION 2.6. Transfer and Exchange.
---------------------
(a) The following provisions shall apply with respect to any proposed
transfer of a Rule 144A Note of any series or an Institutional Accredited
Investor Note of any series prior to the date which is two years after the later
of the date of its original issue and the last date on which the Company or any
affiliate of the Company was the owner of such Securities (or any predecessor
thereto) (the "Resale Restriction Termination Date"):
(i) a transfer of a Rule 144A Note of any series or an Institutional
Accredited Investor Note of any series or a beneficial interest therein to
a QIB shall be made upon the representation of the transferee in the form
of an assignment on the reverse of the certificate that it is purchasing
the Security of such series for its own account or an account with respect
to which it exercises sole investment discretion and that it and any such
account is a "qualified institutional buyer" within the meaning of Rule
144A, and is aware that the sale to it is being made in reliance on Rule
144A and acknowledges that it has received such information regarding the
Company as the undersigned has requested pursuant to Rule 144A or has
determined not to request such information and that it is aware that the
transferor is relying upon its foregoing representations in order to claim
the exemption from registration provided by Rule 144A;
(ii) a transfer of a Rule 144A Note of any series or an Institutional
Accredited Investor Note of any series or a beneficial interest therein to
an IAI shall be made upon receipt by the Trustee or its agent of a
certificate substantially in the form set forth in
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Section 2.7 from the proposed transferee and, if requested by the Company
or the Trustee, the delivery of an opinion of counsel, certification and/or
other information satisfactory to each of them; and
(iii) a transfer of a Rule 144A Note of any series or an
Institutional Accredited Investor Note of any series or a beneficial
interest therein to a Non-U.S. Person shall be made upon receipt by the
Trustee or its agent of a certificate from the proposed transferee either
(x) substantially in the form set forth in Section 2.8, or (y) certifying
that such transfer is being made in compliance with Rule 144 under the
Securities Act and, in either case, if requested by the Company or the
Trustee, the delivery of an opinion of counsel, certification and/or other
information satisfactory to each of them.
(b) The following provisions shall apply with respect to any proposed
transfer of a Regulation S Note of any series prior to the expiration of the
Restricted Period:
(i) a transfer of a Regulation S Note of any series or a beneficial
interest therein to a QIB shall be made upon the representation of the
transferee, in the form of assignment on the reverse of the certificate,
that it is purchasing the Security of such series for its own account or an
account with respect to which it exercises sole investment discretion and
that it and any such account is a "qualified institutional buyer" within
the meaning of Rule 144A, and is aware that the sale to it is being made in
reliance on Rule 144A and acknowledges that it has received such
information regarding the Company as the undersigned has requested pursuant
to Rule 144A or has determined not to request such information and that it
is aware that the transferor is relying upon its foregoing representations
in order to claim the exemption from registration provided by Rule 144A;
(ii) a transfer of a Regulation S Note of any series or a beneficial
interest therein to an IAI shall be made upon receipt by the Trustee or its
agent of a certificate substantially in the form set forth in Section 2.7
from the proposed transferee and, if requested by the Company or the
Trustee, the delivery of an opinion of counsel, certification and/or other
information satisfactory to each of them; and
(iii) a transfer of a Regulation S Note of any series or a beneficial
interest therein to a Non-U.S. Person shall be made upon receipt by the
Trustee or its agent of a certificate substantially in the form set forth
in Section 2.8 hereof from the proposed transferee and, if requested by the
Company or the Trustee, receipt by the Trustee or its agent of an opinion
of counsel, certification and/or other information satisfactory to each of
them.
After the expiration of the Restricted Period, interests in the
Regulation S Note of any series may be transferred without requiring
certification set forth in Section 2.7, Section 2.8 or any additional
certification.
(c) Restricted Securities Legend. Upon the transfer, exchange or
----------------------------
replacement of Securities of any series not bearing a Restricted Securities
Legend, the Registrar shall deliver Securities of any series that do not bear a
Restricted Securities Legend. Upon the transfer,
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<PAGE>
exchange or replacement of Securities of any series bearing a Restricted
Securities Legend, the Registrar shall deliver only Securities of any series
that bear a Restricted Securities Legend unless there is delivered to the
Registrar an Opinion of Counsel to the effect that neither such legend nor the
related restrictions on transfer are required in order to maintain compliance
with the provisions of the Securities Act.
(d) The Company shall deliver to the Trustee an Officers' Certificate
setting forth the Resale Restriction Termination Date and the Restricted Period.
The Registrar shall retain copies of all letters, notices and other
written communications received pursuant to Section 2.1 or this Section 2.6.
The Company shall have the right to inspect and make copies of all such letters,
notices or other written communications at any reasonable time upon the giving
of reasonable written notice to the Registrar.
(e) Obligations with Respect to Transfers and Exchanges of Securities.
-----------------------------------------------------------------
(i) To permit registrations of transfers and exchanges, the Company
shall, subject to the other terms and conditions of this Article II,
execute and the Trustee shall authenticate Definitive Securities and Global
Securities at the Registrar's or co-registrar's request.
(ii) No service charge shall be made to a Holder for any registration
of transfer or exchange, but the Company may require payment of a sum
sufficient to cover any transfer tax, assessments, or similar governmental
charge payable in connection therewith (other than any such transfer taxes,
assessments or similar governmental charges payable upon exchange or
transfer pursuant to Sections 2.10, 5.7 or 9.6).
(iii) The Registrar or co-registrar shall not be required to register
the transfer of or exchange of any Security for a period being: (1) 15 days
before the mailing of a notice of an offer to repurchase or redeem
Securities and ending at the close of business on the day of such mailing
or (2) 15 days before an interest payment date and ending on such interest
payment date.
(iv) Prior to the due presentation for registration of transfer of
any Security, the Company, the Trustee, the Paying Agent, the Registrar or
any co-registrar may deem and treat the person in whose name a Security is
registered as the absolute owner of such Security for the purpose of
receiving payment of principal of and interest on such Security and for all
other purposes whatsoever, whether or not such Security is overdue, and
none of the Company, the Trustee, the Paying Agent, the Registrar or any
co-registrar shall be affected by notice to the contrary.
(v) Any Definitive Security of any series (including any
Institutional Accredited Investor Note) delivered in exchange for an
interest in a Global Security of such series pursuant to Section 2.1(d)
shall, except as otherwise provided by Section 2.6(c), bear the applicable
legend regarding transfer restrictions applicable to the Definitive
Security set forth in Section 2.1(c).
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(vi) All Securities of any series issued upon any transfer or
exchange pursuant to the terms of this Indenture shall evidence the same
debt and shall be entitled to the same benefits under this Indenture as the
Securities of such series surrendered upon such transfer or exchange.
(f) No Obligation of the Trustee. (i) The Trustee shall have no
----------------------------
responsibility or obligation to any beneficial owner of a Global Security
of any series, a member of, or a participant in, DTC or other Person with
respect to the accuracy of the records of DTC or its nominee or of any
participant or member thereof, with respect to any ownership interest in
the Securities of any series or with respect to the delivery to any
participant, member, beneficial owner or other Person (other than DTC) of
any notice (including any notice of redemption) or the payment of any
amount or delivery of any Securities of any series (or other security or
property) under or with respect to such Securities of such series. All
notices and communications to be given to the Holders and all payments to
be made to Holders in respect of the Securities of any series shall be
given or made only to or upon the order of the registered Holders of the
Securities of such series (which shall be DTC or its nominee in the case of
a Global Security). The rights of beneficial owners in any Global Security
shall be exercised only through DTC subject to the applicable rules and
procedures of DTC. The Trustee may rely and shall be fully protected in
relying upon information furnished by DTC with respect to its members,
participants and any beneficial owners.
(ii) The Trustee shall have no obligation or duty to monitor,
determine or inquire as to compliance with any restrictions on transfer
imposed under this Indenture or under applicable law with respect to any
transfer of any interest in any Security of any series (including any
transfers between or among DTC participants, members or beneficial owners
in any Global Security of any series) other than to require delivery of
such certificates and other documentation or evidence as are expressly
required by, and to do so if and when expressly required by, the terms of
this Indenture, and to examine the same to determine substantial compliance
as to form with the express requirements hereof.
SECTION 2.7. Form of Certificate to be Delivered in Connection with
------------------------------------------------------
Transfers to Institutional Accredited Investors.
- - --------- -------------------------------------
[Date]
Federal-Mogul Corporation
c/o The Bank of New York, as Trustee
101 Barclay Street, Floor 21 West
New York, New York 10286
Dear Sirs:
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<PAGE>
In connection with our proposed purchase of % Notes due
(the "Securities") of Federal-Mogul Corporation, a Michigan corporation (the
"Company"), we confirm that:
l. We are an institutional "accredited investor" (as defined in Rule
50l(a)(l), (2), (3) or (7) of Regulation D under the Securities Act of 1933, as
amended (the "Securities Act")), purchasing for our own account or for the
account of such an institutional "accredited investor" in each case in a minimum
principal amount of Securities of $250,000 and we are acquiring the Securities
for investment purposes and not with a view to, or for offer or sale in
connection with, any distribution in violation of the Securities Act or other
applicable securities laws and we have such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risk of our investment in the Securities, and we and any accounts for which we
are acting are each able to bear the economic risk of our or its investment.
2. We understand and acknowledge that the Securities have not been
registered under the Securities Act, or any other applicable securities law and
may not be offered, sold or otherwise transferred except in compliance with the
registration requirements of the Securities Act or any other applicable
securities law, or pursuant to an exemption therefrom, and in each case in
compliance with the conditions for transfer set forth below. We agree on our
own behalf and on behalf of any investor account for which we are purchasing
Securities to offer, sell or otherwise transfer such Securities prior to the
date which is two years after the later of the date of original issue and the
last date on which the Company or any affiliate of the Company was the owner of
such Securities (or any predecessor thereto) (the "Resale Restriction
Termination Date") only (a) to the Company, (b) pursuant to a registration
statement which has been declared effective under the Securities Act, (c) for so
long as the Securities are eligible for resale pursuant to Rule 144A under the
Securities Act, to a person we reasonably believe is a "Qualified Institutional
Buyer" within the meaning of Rule 144A (a "QIB") that purchases for its own
account or for the account of a QIB and to whom notice is given that the
transfer is being made in reliance on Rule 144A (d) pursuant to offers and sales
to non-U.S. persons that occur outside the United States within the meaning of
Regulation S under the Securities Act, (e) to an institutional "accredited
investor" within the meaning of subparagraphs (a)(1), (a)(2), (a)(3) or (a)(7)
of Rule 501 under the Securities Act that is acquiring the Securities for its
own account or for the account of such institutional "accredited investor," for
investment purposes and not with a view to, or for offer or sale in connection
with, any distribution in violation of the Securities Act, and in each case, in
a minimum principal amount of Securities of $250,000 or (f) pursuant to any
other available exemption from the registration requirements of the Securities
Act, subject in each of the foregoing cases to any requirement of law that the
disposition of our property or the property of such investor account or accounts
be at all times within our or their control and in compliance with any
applicable state securities laws. The foregoing restrictions on resale will not
apply subsequent to the Resale Restriction Termination Date. If any resale or
other transfer of the Securities is proposed to be made pursuant to clause (e)
above prior to the Resale Restriction Termination Date, the transferor shall
deliver to the trustee (the "Trustee") under this Indenture pursuant to which
the Securities are issued and to the Company a letter from the transferee
substantially in the form of this letter, which shall provide, among other
things, that the transferee is a person or entity defined in paragraph 1 of this
letter and that it is acquiring
25
<PAGE>
such notes for investment purposes and not for distribution in violation of the
Securities Act. We acknowledges that the Company and the Trustee reserve the
right prior to any offer, sale or other transfer of the Securities pursuant to
clauses (d), (e) and (f) above prior to the Resale Restriction Termination Date
to require the delivery of an opinion of counsel, certifications and/or other
information satisfactory to the Company and the Trustee.
3. We are acquiring the notes purchased by us for our own account or
for one or more accounts as to each of which we exercise sole investment
discretion.
4. You are entitled to rely upon this letter and you are irrevocably
authorized to produce this letter or a copy hereof to any interested party in
any administrative or legal proceeding or official inquiry with respect to the
matters covered hereby.
Very truly yours,
By: (Name of Purchaser)
Date:
Upon transfer, the Securities would be registered in the name of the new
beneficial owner as follows:
Name Address Taxpayer ID Number
---- ------- ------------------
26
<PAGE>
SECTION 2.8. Form of Transfers Pursuant to be Delivered in Connection
--------------------------------------------------------
with Transfers Pursuant to Regulation S.
- - ---------------------------------------
[Date]
Federal-Mogul Corporation
c/o The Bank of New York, as Trustee
101 Barclay Street, Floor 21 West
New York, New York 10286
Re: Federal-Mogul Corporation
% Notes due (the "Securities")
-------------------------------------------
Ladies and Gentlemen:
In connection with our proposed sale of $_________ aggregate principal
amount of the Securities, we confirm that such sale has been effected pursuant
to and in accordance with Regulation S under the United States Securities Act of
1933, as amended (the "Securities Act"), and, accordingly, we represent that:
(a) the offer of the Securities was not made to a person in the United
States;
(b) either (i) at the time the buy order was originated, the transferee was
outside the United States or we and any person acting on our behalf reasonably
believed that the transferee was outside the United States or (ii) the
transaction was executed in, on or through the facilities of a designated off-
shore securities market and neither we nor any person acting on our behalf knows
that the transaction has been pre-arranged with a buyer in the United States;
(c) no directed selling efforts have been made in the United States in
contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S,
as applicable; and
(d) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act.
In addition, if the sale is made during a restricted period and the
provisions of Rule 903(c)(3) or Rule 904(c)(l) of Regulation S are applicable
thereto, we confirm that such sale has been made in accordance with the
applicable provisions of Rule 903(c)(3) or Rule 904(c)(l), as the case may be.
27
<PAGE>
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By:_________________________________
____________________________________
Authorized Signature
28
<PAGE>
SECTION 2.9. Mutilated, Destroyed, Lost or Stolen Securities. If a
-----------------------------------------------
mutilated Security of any series is surrendered to the Registrar or if the
Holder of a Security of any series claims that such Security has been lost,
destroyed or wrongfully taken, the Company shall issue and the Trustee shall
authenticate a replacement Security of such series if the requirements of
Section 8-405 of the Uniform Commercial Code are met and the Holder satisfies
any other reasonable requirements of the Trustee. If required by the Trustee or
the Company, such Holder shall furnish an indemnity bond sufficient in the
judgment of the Company and the Trustee to protect the Company, the Trustee, the
Paying Agent, the Registrar and any co-registrar from any loss which any of them
may suffer if a Security is replaced, and, in the absence of notice to the
Company or the Trustee that such Security has been acquired by a bona fide
purchaser, the Company shall execute and upon Company Order the Trustee shall
authenticate and make available for delivery, in exchange for any such mutilated
Security of any series or in lieu of any such destroyed, lost or stolen Security
of any series, a new Security of like series, tenor and principal amount,
bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security of any
series has become or is about to become due and payable, the Company in its
discretion may, instead of issuing a new Security, pay such Security of such
series.
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) in connection
therewith.
Every new Security of any series issued pursuant to this Section in
lieu of any mutilated, destroyed, lost or stolen Security of such series shall
constitute an original additional contractual obligation of the Company, any
Guarantor (if applicable) and any other obligor upon the Securities of such
series, whether or not the mutilated, destroyed, lost or stolen Security shall
be at any time enforceable by anyone, and shall be entitled to all benefits of
this Indenture equally and proportionately with any and all other Securities of
such series 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 of any series.
SECTION 2.10. Temporary Securities. Until Definitive Securities of
--------------------
any series are ready for delivery, the Company may prepare and the Trustee shall
authenticate temporary Securities for such series. Temporary Securities shall
be substantially in the form of Definitive Securities but may have variations
that the Company considers appropriate for temporary Securities. Without
unreasonable delay, the Company shall prepare and the Trustee shall authenticate
Definitive Securities. After the preparation of Definitive Securities of any
series, the temporary Securities for such series shall be exchangeable such
Definitive Securities upon surrender of such temporary Securities at any office
or agency maintained by the Company for that purpose and such exchange shall be
without charge to the Holder. Upon surrender for
29
<PAGE>
cancellation of any one or more temporary Securities for any series, the Company
shall execute, and the Trustee shall authenticate and make available for
delivery in exchange therefor, one or more Definitive Securities for such series
representing an equal principal amount of Securities of such series. Until so
exchanged, the Holder of temporary Securities of any series shall in all
respects be entitled to the same benefits under this Indenture as a holder of
Definitive Securities of such series. At the end of the Restricted Period, the
Regulation S Temporary Global Note for any series will be exchangeable for the
Regulation S Permanent Global Note for such series as set forth in Section
2.1(a).
SECTION 2.11. Cancellation. The Company at any time may deliver
------------
Securities to the Trustee for cancellation. The Registrar and the Paying Agent
shall forward to the Trustee any Securities surrendered to them for registration
of transfer exchange or payment. The Trustee and no one else shall cancel and
return to the Company all Securities surrendered for registration of transfer,
exchange, payment or cancellation. The Company may not issue new Securities to
replace Securities it has paid or delivered to the Trustee for cancellation for
any reason other than in connection with a transfer or exchange.
SECTION 2.12. Payment of Interest; Defaulted Interest. Interest on
---------------------------------------
any Security of any series 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 such 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 of the Company maintained for such purpose pursuant to Section 2.3.
Any interest on any Security of any series which is payable, but is
not punctually paid or duly provided for when the same becomes due and payable,
shall forthwith cease to be payable to the Holder on the relevant regular record
date by virtue of having been such a Holder, and such defaulted interest and (to
the extent lawful) interest on such defaulted interest at the rate borne by the
Securities of such series (such defaulted interest and interest thereon herein
collectively called "Defaulted Interest") shall be paid by the Company, at its
election in each case, as provided in clause (a) or (b) below:
(a) The Company may elect to make payment of any Defaulted Interest to the
Persons in whose names the Securities of such series (or their respective
predecessor Securities) are registered at the close of business on a Special
Record Date (as defined below) 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 of the Persons entitled
to such Defaulted Interest as in this clause (a) provided. Thereupon the
Trustee shall fix a record date (the "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
30
<PAGE>
notice of the proposed payment of such Defaulted Interest and the Special Record
Date therefor to be given in the manner provided for in Section 11.2, 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
given, such Defaulted Interest shall be paid to the Persons in whose names the
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 (b).
(b) The Company may make payment of such Defaulted Interest to the Persons
in whose names such 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 the 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, such
manner of payment shall be deemed practicable by the Trustee.
(c) Subject to the foregoing provisions of this Section, each Security of
any series delivered under this Indenture upon registration of, transfer of or
in exchange for or in lieu of any other Security of such series shall carry the
rights to interest accrued and unpaid, and to accrue, which were carried by such
other Security of such series.
SECTION 2.13. Computation of Interest. Interest on the Securities of
-----------------------
each series shall be computed on the basis of a 360-day year of twelve 30-day
months.
SECTION 2.14. CUSIP Numbers. The Company in issuing the Securities
-------------
of each series may use "CUSIP" numbers and, if so, the Trustee shall use "CUSIP"
numbers in notices of redemption as a convenience to Holders; provided, however,
-------- -------
that any such notice may state that no representation is made as to the
correctness of such numbers either as printed on the Securities of each series
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 of each
series, and any such redemption shall not be affected by any defect in or
omission of such CUSIP numbers.
ARTICLE III
Covenants
---------
SECTION 3.1. 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 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.
31
<PAGE>
SECTION 3.2. Maintenance of Office or Agency.
-------------------------------
The Company will maintain in each Place of Payment for any series of
Securities an office or agency where the Securities of that series may be
presented or surrendered for payment, where the 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. The Corporate Trust Office of the Trustee shall
be such an office or agency of the Company, unless the Company may designate and
maintain some other office or agency for one or more of such purposes; provided,
--------
however, that the Company will maintain such an office or agency in a city in
- - -------
Western Europe so long as the Securities of any series are listed on the
Luxembourg Stock Exchange and the rules of such Exchange so require. The
Company will give prompt written notice to the Trustee of 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.
The Company may also from time to time designate one or more other
offices or agencies where the Securities of any series may be presented or
surrendered for any or all such purposes and may from time to time rescind any
such designation; 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 of any series for such
purposes. The Company will give prompt written notice to the Trustee of any
such designation or rescission and any change in the location of any such other
office or agency.
SECTION 3.3. 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 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 other than the
Trustee to execute and deliver to the Trustee an instrument in which such Paying
Agent shall agree with the Trustee, subject to the provisions of this Section,
that such Paying Agent will:
(a) hold all sums held by it for the payment of the principal of, premium,
if any, or interest, if any, on the 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;
(b) give the Trustee notice of any default by the Company or any Guarantor
(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
32
<PAGE>
(c) 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 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 3.4. Corporate Existence. Subject to Article IV, 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 3.4 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 3.5. 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 Exchange Act; 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,
33
<PAGE>
documents and reports which may be required pursuant to Section 13 of the
Exchange Act 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;
(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 3.5, as may be required by rules and
regulations prescribed from time to time by the Commission; and
(e) to comply with Sections 313(b) and 313(d) of the Trust Indenture Act,
to the extent applicable.
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 3.6. 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
the fiscal year next following the Closing Date), 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
3.6, 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 6.1(d) hereof,
written notice of the occurrence of such Default or Event of Default.
SECTION 3.7. 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.
34
<PAGE>
SECTION 3.8. Limitation on Liens. (a) So long as the Securities
-------------------
shall be Outstanding, the Company will not create or assume, and will not permit
any Restricted Subsidiary to create or assume, any notes, bonds, debentures or
other similar evidences of Indebtedness secured by any mortgage, pledge,
security interest or lien (any such mortgage, pledge, security interest or lien
being referred to herein as a "Mortgage" or "Mortgages") of or upon any
Principal Property owned by the Company or by any Restricted Subsidiary or on
shares of capital stock or evidence of Indebtedness of any Restricted
Subsidiary, whether owned at the date of this Indenture or hereafter acquired,
without making effective provision, and the Company in such case will make or
cause to be made effective provision, whereby all Securities (together with, if
the Company shall so determine, any other Indebtedness of the Company or such
Restricted Subsidiary, whether then existing or thereafter created which is not
subordinated to the Securities) shall be secured by such a Mortgage equally and
ratably with (or prior to) any and all other Indebtedness thereby secured, so
long as such Indebtedness shall be so secured; provided, however, that the
-------- -------
foregoing shall not apply to any of the following:
(i) Mortgages on any Principal Property, shares of stock of
Indebtedness of any corporation existing at the time such corporation
becomes a Subsidiary;
(ii) Mortgages on any Principal Property, shares of stock or
Indebtedness acquired, constructed or improved by the Company or any
Restricted Subsidiary after the date of this Indenture which are created or
assumed prior to, or contemporaneously with, such acquisition, construction
or improvement or within 365 days after the acquisition, completion of
construction or improvement or commencement of commercial operation of such
property, to secure or provide for the payment of all or any part of the
purchase price or the cost of such construction or improvement thereof;
(iii) Mortgages on any Principal Property, shares of stock or
Indebtedness existing at the time of acquisition thereof (including
acquisition through merger or consolidation);
(iv) Mortgages on any Principal Property or shares of stock or
Indebtedness acquired from a corporation which is merged with or into the
Company or a Restricted Subsidiary;
(v) Mortgages on any Principal Property, shares of stock or
Indebtedness to secure Indebtedness to the Company or to a Restricted
Subsidiary;
(vi) Mortgages on any Principal Property, shares of stock or
Indebtedness in favor of the United States of America or any State thereof
or The Commonwealth of Puerto Rico, or any department, agency or
instrumentality or political subdivision of the United States of America or
any State thereof or The Commonwealth of Puerto Rico, to secure partial,
progress, advance or other payments, or to secure any Indebtedness incurred
for the purpose of financing all or any part of the cost of acquiring,
constructing or improving any Principal Property, shares of stock or
Indebtedness subject to such Mortgages (including Mortgages incurred in
connection with pollution control, industrial
35
<PAGE>
revenue, Title XI maritime financings or similar financings), or other
Mortgages in connection with the issuance of tax-exempt industrial revenue
bonds;
(vii) Mortgages existing as of the date of this Indenture;
(viii) Mortgages for taxes, assessments or other government charges,
the validity of which is being contested in good faith by appropriate
proceedings and materialmen's, mechanics' and other like Mortgages, or
deposits to obtain the release of such Mortgages;
(ix) Mortgages created or deposits made to secure the payment of
workers' compensation claims or the performance of, or in connection with,
tenders, bids, leases, public or statutory obligations, surety and appeal
bonds, contracts, performance and return-of-money bonds or to secure (or in
lieu of) surety or appeal bonds and Mortgages made in the ordinary course
of business for similar purposes; and
(x) any extension, renewal or replacement (or successive
extensions, renewals or replacements), in whole or in part, of any Mortgage
referred to in the foregoing clauses (i) to (ix), inclusive; provided,
---------
however, that such extension, renewal or replacement shall be limited to
-------
all or a part of the property, shares of stock or Indebtedness which
secured the Mortgage so extended, renewed or replaced (plus improvements on
such property).
Notwithstanding the foregoing, the Company or any Restricted
Subsidiary may create or assume Mortgages in addition to those permitted by the
immediately preceding paragraph, and renew, extend or create such Mortgages,
provided, that at the time of such creation, assumption, renewal or replacement,
- - --------
and after giving effect thereto, the aggregate amount of all Indebtedness so
secured by such a Mortgage as provided above (not including Indebtedness
excluded as provided in clauses (i) through (x) of the immediately preceding
paragraph), plus all Attributable Debt of the Company and its Restricted
Subsidiaries in respect of Sale and Lease-Back Transactions (defined in Section
3.9 below) which would not be permitted by either clause (i) or (ii) of the
first paragraph under Section 3.9 below, would not exceed 20% of Consolidated
Assets.
(b) So long as any Indebtedness under the 1998 Credit Agreements (or any
other credit agreement renewing, refunding, replacing, restating, refinancing or
extending the 1998 Credit Agreements) is secured by shares of capital stock or
evidences of Indebtedness of any Restricted Subsidiary, the Securities shall
also be secured by such collateral. In the event that the Indebtedness incurred
under the 1998 Credit Agreements (or any other credit agreement renewing,
refunding, replacing, restating, refinancing or extending the 1998 Credit
Agreements) ceases for any reason to be secured by any collateral securing the
Securities, the Securities shall also cease to be secured by such collateral,
whether or not a Default or an Event of Default is then outstanding for any
reason.
SECTION 3.9. Limitation on Sale and Lease-Back Transactions. So
----------------------------------------------
long as the Securities shall be Outstanding, the Company will not, nor will it
permit any Restricted Subsidiary to, enter into any arrangement with any Person
(other than the Company or any
36
<PAGE>
Restricted Subsidiary) providing for the leasing by the Company or a Restricted
Subsidiary of any Principal Property owned by the Company or such Restricted
Subsidiary (except for leases for a term of not more than three years), which
property has been or is to be sold or transferred by the Company or such
Restricted Subsidiary to such person on the security of such Principal Property
more than 365 days after the acquisition thereof or the completion of
construction and commencement of full operation thereof (a "Sale and Lease-Back
Transaction"), unless either (a) the Company or such Restricted Subsidiary would
be entitled pursuant to Section 3.8 to incur Indebtedness secured by a Mortgage
on the Principal Property to be leased back equal in amount to the Attributable
Debt with respect to such Sale and Lease-Back Transaction without equally and
ratably securing the Securities, or (b) the Company shall, and in any such case
the Company covenants that it will, apply or cause to be applied an amount equal
to the greater of the net proceeds or the fair value (as determined by the Board
of Directors of the Company) of the property so sold to the purchase of
Principal Property or to the retirement (other than any mandatory retirement),
within 365 days of the effective date of any such Sale and Lease-Back
Transaction, of Securities or other Funded Indebtedness; provided, however, that
-------- -------
any such retirement of Securities shall be made in accordance with this
Indenture; and provided, further, that the amount to be applied to such
-------- -------
retirement of Securities or other Funded Indebtedness shall be reduced by an
amount equal to the sum of (i) an amount equal to the principal amount of any
Securities delivered within 365 days after the effective date of such Sale and
Lease-Back Transaction to the Trustee for retirement and cancellation, and (ii)
the principal amount of other Funded Indebtedness voluntarily retired by the
Company within such 365-day period, excluding, in each case, retirements
pursuant to mandatory sinking fund or prepayment provisions and payments at
Maturity.
Notwithstanding the foregoing, the Company or any Restricted
Subsidiary may enter into Sale and Lease-Back Transactions in addition to any
permitted by the immediately preceding paragraph and without any obligation to
retire any Securities or other Indebtedness; provided, that at the time of
--------
entering into such Sale and Lease-Back Transaction and after giving effect
thereto, Attributable Debt resulting from such Sale and Lease-Back Transaction,
plus the aggregate amount of all Indebtedness secured by a Mortgage (not
including Indebtedness excluded as provided in clauses (i) through (x) under
Section 3.8 above), does not exceed 20% of Consolidated Assets.
ARTICLE IV
Consolidation, Merger or Sale by the Company
--------------------------------------------
SECTION 4.1. 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:
(a) 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
37
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organized and existing under the laws of the United States, any State thereof or
the District of Columbia;
(b) 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;
(c) immediately after giving effect to the transaction, no Default or
Event of Default exists; and
(d) if, as a result of any such consolidation or merger or such 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 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 (b) 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 all such obligations
of the Company shall terminate.
ARTICLE V
Redemption of Securities
------------------------
SECTION 5.1. Applicability of Article. Securities of any series
------------------------
which are redeemable before their Stated Maturity shall be redeemable in
accordance with their terms and in accordance with this Article.
SECTION 5.2. Election to Redeem; Notice to Trustee. The election
-------------------------------------
of the Company to redeem any Securities 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 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.
SECTION 5.3. Selection of Securities to be Redeemed. If less than
---------------------------------------
all the Securities of a series 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 a manner as the
38
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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 the Securities of the series that are Outstanding 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 of that series, or any integral multiple of $1000 in excess thereof)
of the principal amount of Securities 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 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 shall relate, in the
case of any Securities redeemed or to be redeemed only in part, to the portion
of the principal amount of such Securities which has been or is to be redeemed.
SECTION 5.4. Notice of Redemption. Notice of redemption shall be
--------------------
given in the manner provided in Section 11.2 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:
(a) the Redemption Date;
(b) the Redemption Price;
(c) if less than all of 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;
(d) 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 charge, a new
Security or Securities of authorized denominations for the principal amount
thereof remaining unredeemed;
(e) the Place of Payment where such Securities are to be surrendered for
payment for the Redemption Price;
(f) that Securities of the series called for redemption must be
surrendered to the Paying Agent to collect the Redemption Price;
39
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(g) 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;
and
(h) 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 5.5. 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 3.3) an amount of money 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.
SECTION 5.6. 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. Upon surrender of any such Security,
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 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.
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 5.7. Securities Redeemed in Part. Upon surrender of a
---------------------------
Security that is redeemed in part at the office or agency of the Company
maintained for such purpose pursuant to Section 3.2 (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.
40
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ARTICLE VI
Defaults and Remedies
---------------------
SECTION 6.1. 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):
(a) the Company defaults in the payment of interest on any Security of
that series when the same becomes due and payable and such default continues for
a period of 30 days;
(b) 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;
(c) 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 that 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;
(d) 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 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
- - -------- -------
41
<PAGE>
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;
(e) 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 pay its debts generally as
they become due or (F) takes corporate action in furtherance of any such action;
or
(f) 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.
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 this 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 this
Indenture, the term "Custodian" means any receiver, trustee, assignee,
liquidator or similar official under any Bankruptcy Law.
SECTION 6.2. 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 of and accrued interest, if any, on the Securities of
that series to be due and payable and upon any such declaration such principal
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
42
<PAGE>
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 6.7. No such rescission shall affect
any subsequent default or impair any right consequent thereon.
SECTION 6.3. Collection of Indebtedness and Suits for Enforcement by
-------------------------------------------------------
Trustee. The Company covenants that if:
- - -------
(a) default is made in the payment of any interest on any Security, if
any, when such interest becomes due and payable and such default continues for a
period of 30 days, or
(b) 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
Holder of such Security, the whole amount then due and payable on such Security
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 Security 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.
If an Event of Default with respect to the 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
including, without limitation seeking recourse against any Guarantor.
SECTION 6.4. 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 (or any other obligor upon the
Securities, including any Guarantor), 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 7.9.
SECTION 6.5. Trustee May Enforce Claims Without Possession of
------------------------------------------------
Securities. All rights of action and claims under this Indenture or the
- - ----------
Securities or any Guarantee may be
43
<PAGE>
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 6.6. 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 6.7. Waiver of Past Defaults. In addition to the
-----------------------
provisions of Section 6.2, 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 (a) 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 (b) in
respect of a covenant or provision hereof which pursuant to Section 9.2 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 6.8. Control by Majority. 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 the
Securities of that series; provided, however, that (a) the Trustee may refuse to
-------- -------
follow any direction that conflicts with law or this Indenture (b) 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 (c) 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 6.9. Limitation on Suits by Holders. No Holder of any
------------------------------
Security of any series shall have any right to institute any proceeding,
judicial or otherwise, with respect to this Indenture, or for the appointment of
a receiver or trustee, or for any other remedy hereunder, unless:
(a) the Holder has previously given written notice to the Trustee of a
continuing Event of Default with respect to the Securities of that series;
44
<PAGE>
(b) 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;
(c) 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;
(d) 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
(e) 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.
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 6.10. Rights of Holders to Receive Payment. Notwithstanding
------------------------------------
any other provision of this Indenture, but subject to Section 3.2, the right of
any Holder of a Security to receive payment of principal of, premium, if any,
and, subject to Sections 2.1, 2.3 and 2.12, 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), or, subject to Section 6.9, 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 6.11. 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 7.9;
Second: to Holders of Securities 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
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Third: to the Company.
The Trustee may fix a record date and payment date for any payment to
Holders pursuant to this Section 6.11. 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 6.12. 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 Guarantors, 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 6.13. 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 2.9, 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 6.14. Waiver of Usury, Stay or Extension Laws. Each of the
---------------------------------------
Company and the Guarantors 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 each of the Company and the
Guarantors (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 6.15. 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 attorneys' 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.
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ARTICLE VII
Trustee
-------
SECTION 7.1. 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, its 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 6.8
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 7.2. 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 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
47
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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
7.2;
(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 7.3. 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, 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 7.4. 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
48
<PAGE>
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 7.5. 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 7.6. 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 its board of directors, its 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
- - -------
6.1(c) 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 7.7. Reports by Trustee to Holders. Within 60 days after
-----------------------------
each May 15 of each year commencing with the first May 15 after Closing Date,
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.
The Trustee shall also comply with Section 313(b) of the Trust Indenture Act, if
applicable. A copy of each such report required pursuant to Section 313(a) or
313(b) of the Trust Indenture Act 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 7.8. 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.
SECTION 7.9. 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
49
<PAGE>
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 6.1(e) or Section 6.1(f), the
expenses (including the reasonable charges and expenses of its counsel) and the
compensation for the services are intended to constitute expenses of
administration under any applicable Federal or state bankruptcy, insolvency or
other similar law.
The provisions of this Section shall survive the termination of this
Indenture.
SECTION 7.10. 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 7.11.
(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:
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(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 7.12 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 7.11 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 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 7.11. 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 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 7.11, 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 7.11, 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.
51
<PAGE>
SECTION 7.11. 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.
(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.
52
<PAGE>
(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 11.2. 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 7.12. 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 7.13. 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 7.14. Appointment of Authenticating Agent. The Trustee may
-----------------------------------
appoint an Authenticating Agent 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 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
53
<PAGE>
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 11.2. 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:
54
<PAGE>
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 VIII
Discharge of Indenture; Defeasance
----------------------------------
SECTION 8.1. Termination of Company's and Guarantors' Obligations
----------------------------------------------------
Under this Indenture. This Indenture shall upon a Company Request cease to be
- - --------------------
of further effect with respect to the Securities of or within any series (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 when
(1) either
(A) all such Securities previously authenticated and delivered (other
than (i) such Securities which have been destroyed, lost or stolen and
which have been replaced or paid, as provided in Section 2.9, and (ii) such
Securities 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 3.3) have been
delivered to the Trustee for cancellation; or
(B) all Securities of such series 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
55
<PAGE>
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 in which the Securities of such series are payable,
sufficient to pay and discharge the entire indebtedness on such
Securities 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 of Securities 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 7.9, the
obligations of the Company to any Authenticating Agent under Section 7.14 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 8.2 and
the last paragraph of Section 3.3 shall survive.
SECTION 8.2. Application of Trust Funds. Subject to the provisions
--------------------------
of the last paragraph of Section 3.3, all money deposited with the Trustee
pursuant to Section 8.1 shall be held in trust and applied by it, in accordance
with the provisions of the Securities 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 8.3. Company's Option to Effect Defeasance or Covenant
-------------------------------------------------
Defeasance. The Company may at its option by or pursuant to Board Resolution,
- - ----------
at any time, elect to have Section 8.4 or Section 8.5 be applied to such
Outstanding Securities of any series upon compliance with the conditions set
forth below in this Article.
SECTION 8.4. Defeasance and Discharge. Upon the Company's exercise
------------------------
of the option specified in Section 8.3 applicable to this Section with respect
to the Securities of or within a series, the Company and the Guarantors shall be
deemed to have been discharged from its obligations with respect to such
Securities on and after the date the conditions set forth in Section 8.6 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 which shall thereafter be deemed to
be "Outstanding" only for the purposes of Section 8.7 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 this Indenture insofar as
such
56
<PAGE>
Securities 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 to receive, solely from
the trust funds described in Section 8.6(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 when such payments are due; (ii) the Company's and
the Guarantors' obligations with respect to such Securities under Sections 2.3,
2.6, 2.9, 3.2 and 3.3; (iii) the rights, powers, trusts, duties and immunities
of the Trustee hereunder and (iv) this Article VIII. Subject to compliance with
this Article VIII, the Company may exercise its option under this Section
notwithstanding the prior exercise of its option under Section 8.5 with respect
to such Securities. Following a defeasance, payment of such Securities may not
be accelerated because of an Event of Default.
SECTION 8.5. Covenant Defeasance. Upon the Company's exercise of
-------------------
the option specified in Section 8.3 applicable to this Section with respect to
any Securities of or within a series, the Company shall be released from its
obligations under Sections 4.1, 3.4, 3.7, 3.8 and 3.9 (and with respect to
Section 3.6, shall be required to certify only with respect to those covenants
not defeased pursuant to this Section 8.5) with respect to such Securities on
and after the date the conditions set forth in Section 8.6 are satisfied
(hereinafter, "covenant defeasance"), and such Securities 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 4.1, 3.4, 3.7, 3.8 and 3.9, 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, 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 6.1(c) or otherwise, but, except as specified above,
the remainder of this Indenture and such Securities shall be unaffected thereby.
SECTION 8.6. Conditions to Defeasance or Covenant Defeasance. The
-----------------------------------------------
following shall be the conditions to the application of Section 8.4 or Section
8.5 to any Securities of or within a series:
(a) The Company shall have deposited or caused to be deposited irrevocably
with the Trustee (or another trustee satisfying the requirements of Section 7.12
who shall agree to comply with, and shall be entitled to the benefits of, the
provisions of Sections 8.3 through 8.9 inclusive and the last paragraph of
Section 3.3 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 8.6(a), specifically pledged
as security for, and dedicated solely to, the benefit of the Holders of such
Securities, with instructions to the Trustee as to the application thereof, (A)
money in an amount, or (B) Government Obligations which through the payment of
interest, if any, and principal in respect thereof in accordance with their
terms will provide, not
57
<PAGE>
later than one day before the due date of any payment referred to in clause (x)
or (y) of this Section 8.6(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 discharge the principal of, premium, if any,
and interest, if any, on such Securities on the Maturity of such principal or
installment of principal or interest, if any. 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 V 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 8.6(a).
(c) In the case of an election under Section 8.4, 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 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 8.5, the Company shall have
delivered to the Trustee an Opinion of Counsel to the effect that the Holders of
such Securities 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 8.4 or the covenant defeasance under
Section 8.5 (as the case may be) have been complied with.
(f) No Default or Event of Default under Section 6.1(e) or 6.1(f) with
respect to such Securities 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.
58
<PAGE>
SECTION 8.7. Deposited Money and Government Obligations to Be Held in
--------------------------------------------------------
Trust. Subject to the provisions of the last paragraph of Section 3.3, all
- - -----
money and Government Obligations (including the proceeds thereof) deposited with
the Trustee pursuant to Section 8.6 in respect of any Securities of any series
shall be held in trust and applied by the Trustee, in accordance with the
provisions of such Securities 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 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.
SECTION 8.8. 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 8.6(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 8.6(a) exceeding those
necessary for the purposes of Section 8.6(a). The Trustee shall not take the
actions described in subsections (a) and (b) of this Section 8.8 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 8.6(a)
will be sufficient for purposes of Section 8.6(a).
SECTION 8.9. 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 IX
Supplemental Indentures
-----------------------
SECTION 9.1. Supplemental Indentures Without Consent of Holders.
--------------------------------------------------
Without the consent of any Holders, the Company, when authorized by or pursuant
to a Board Resolution, the Guarantors and the Trustee at any time and from time
to time, may enter into indentures
59
<PAGE>
supplemental hereto, in form reasonably satisfactory to the Trustee, for any of
the following purposes:
(a) 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
(b) to add to the covenants of the Company or the Guarantors 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 or
the Guarantors; 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
(c) 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
(d) to secure the Securities; or
(e) to establish the form or terms of Securities of any series as
permitted by Section 2.1; or
(f) 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 7.11; or
(g) 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 affected thereby; or
(h) 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
(i) to add a Guarantor pursuant to Section 10.6 or remove a Guarantor in
respect of any series which, in accordance with the terms of this Indenture,
ceases to be liable in respect of its Guarantee.
SECTION 9.2. Supplemental Indentures with Consent of Holders. With
-----------------------------------------------
the written consent of the Holders of a majority of the aggregate principal
amount of the Outstanding
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Securities of each series adversely affected by such supplemental indenture
(with each such series voting as a class), 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:
(a) 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 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);
(b) 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;
(c) waive a default in the payment of principal of, premium, if any, or
interest, if any, on, any Security of such series;
(d) change any obligation of the Company to maintain an office or agency
in the places and for the purposes specified in Section 3.2; or
(e) make any change in Section 6.7 or this Section 9.2 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 9.2 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.
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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 9.3. Compliance with Trust Indenture Act. Every amendment to
-----------------------------------
this Indenture or the Securities of each series shall be set forth in a
supplemental indenture that complies with the Trust Indenture Act as then in
effect.
SECTION 9.4. 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 9.5. 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 9.6. Reference in Securities to Supplemental Indentures.
--------------------------------------------------
ARTICLE X
Guarantees
----------
SECTION 10.1. Guarantees. (a) Subject to the provisions of this
----------
Article X, each Guarantor, jointly and severally, hereby irrevocably and
unconditionally guarantees to each Holder of Securities and to the Trustee on
behalf of the Holders (i) the due and punctual payment of principal of, premium,
if any, and interest in full on each Security when and as the same shall become
due and payable whether at Stated Maturity, by declaration of acceleration or
otherwise,
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(ii) the due and punctual payment of interest on the overdue principal of,
premium, if any, and interest in full on the Securities, to the extent permitted
by law, and (iii) the due and punctual performance of all other Obligations of
the Company and the other Guarantors to the Holders or the Trustee, including
without limitation the payment of fees, expenses, indemnification or other
amounts, all in accordance with the terms of the Securities and this Indenture.
In case of the failure of the Company punctually to make any such principal or
interest payment or the failure of the Company or any other Guarantor to perform
any such other Obligation, each Guarantor hereby agrees to cause any such
payment to be made punctually when and as the same shall become due and payable,
whether at Stated Maturity, by declaration of acceleration or otherwise, and as
if such payment were made by the Company and to perform any such other
Obligation of the Company immediately. Each Guarantor hereby further agrees to
pay any and all expenses (including reasonable counsel fees and expenses)
incurred by the Trustee or the Holders in enforcing any rights under these
Guarantees. The Guarantees under this Article X are guarantees of payment and
not of collection.
(b) Each of the Company and the Guarantors hereby waives diligence,
presentment, demand of payment, filing of claims with a court in the event of
merger, insolvency or bankruptcy of the Company or any other Guarantor, any
right to require a proceeding first against the Company or any other Guarantor,
protest or notice with respect to the Securities or the indebtedness evidenced
thereby and all demands whatsoever, and covenants that these Guarantees will not
be discharged except by complete performance of the Obligations contained in the
Securities and in this Indenture, or as otherwise specifically provided therein
and herein.
(c) Each Guarantor hereby waives and relinquishes:
(i) any right to require the Trustee, the Holders or the Company
(each, a "Benefited Party") to proceed against the Company, the
Subsidiaries of the Company or any other Person or to proceed against or
exhaust any security held by a Benefited Party at any time or to pursue any
other remedy in any secured party's power before proceeding against the
Guarantors;
(ii) any defense that may arise by reason of the incapacity, lack of
authority, death or disability of any other Person or Persons or the
failure of a Benefited Party to file or enforce a claim against the estate
(in administration, bankruptcy or any other proceeding) of any other Person
or Persons;
(iii) demand, protest and notice of any kind (except as expressly
required by this Indenture), including but not limited to notice of the
existence, creation or incurring of any new or additional indebtedness or
obligation or of any action or non-action on the part of the Guarantors,
the Company, the Subsidiaries of the Company, any Benefited Party, any
creditor of the Guarantors, the Company or the Subsidiaries of the Company
or on the part of any other Person whomsoever in connection with any
obligations the performance of which are hereby guaranteed;
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(iv) any defense based upon an election of remedies by a Benefited
Party, including but not limited to an election to proceed against the
Guarantors for reimbursement;
(v) any defense based upon any statute or rule of law which
provides that the obligation of a surety must be neither larger in amount
nor in other respects more burdensome than that of the principal;
(vi) any defense arising because of a Benefited Party's election, in
any proceeding instituted under the Bankruptcy Law, of the application of
Section 1111(b)(2) of the Bankruptcy Law; and
(vii) any defense based on any borrowing or grant of a security
interest under Section 364 of the Bankruptcy Law.
(d) Each Guarantor further agrees that, as between such Guarantor, on the
one hand, and Holders and the Trustee, on the other hand, (i) for purposes of
the relevant Guarantee, the maturity of the Obligations Guaranteed by such
Guarantee may be accelerated as provided in Article VI, notwithstanding any
stay, injunction or other prohibition preventing such acceleration in respect of
the Obligations guaranteed thereby, and (ii) in the event of any acceleration of
such Obligations (whether or not due and payable) such Obligations shall
forthwith become due and payable by such Guarantor for purposes of such
Guarantee.
(e) The Guarantees shall continue to be effective or shall be reinstated,
as the case may be, if at any time any payment, or any part thereof, of
principal of, premium, if any, or interest on any of the Securities is rescinded
or must otherwise be returned by the Holders or the Trustee upon the insolvency,
bankruptcy or reorganization of the Company or any of the Guarantors, all as
though such payment had not been made.
(f) Each Guarantor shall be subrogated to all rights of the Holders
against the Company in respect of any amounts paid by such Guarantor pursuant to
the provisions of the Guarantees or this Indenture; provided, however, that a
-------- -------
Guarantor shall not be entitled to enforce or to receive any payments until the
principal of, premium, if any, and interest on all Securities issued hereunder
shall have been paid in full.
SECTION 10.2 Obligations of Guarantors Unconditional. Each
---------------------------------------
Guarantor hereby agrees that its Obligations hereunder shall be Guarantees of
payment and shall be unconditional, irrespective of and unaffected by the
validity, regularity or enforceability of the Securities or this Indenture, or
of any amendment thereto or hereto, the absence of any action to enforce the
same, the waiver or consent by any Holder or by the Trustee with respect to any
provisions thereof or of this Indenture, the entry of any judgment against the
Company or any other Guarantor or any action to enforce the same or any other
circumstance which might otherwise constitute a legal or equitable discharge or
defense of a guarantor.
SECTION 10.3. Limitation on Guarantors' Liability. Each Guarantor
-----------------------------------
and by its acceptance hereof each Holder, hereby confirms that it is the
intention of all such parties that the
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<PAGE>
Guarantee by such Guarantor pursuant to its Guarantee not constitute a
fraudulent transfer or conveyance for purposes of the Bankruptcy Law, the
Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any
similar federal or state law. To effectuate the foregoing intention, the Holders
and such Guarantor hereby irrevocable agree that the Obligations of such
Guarantor under this Article X shall be limited to the maximum amount as will,
after giving effect to all other contingent and fixed liabilities of such
Guarantor and after giving effect to any collections from or payments made by or
on behalf of any other Guarantor in respect of the Obligations of such other
Guarantor under this Article X, result in the Obligations of such Guarantor
under its Guarantee not constituting a fraudulent transfer or conveyance under
applicable federal or state law.
SECTION 10.4. Releases of Guarantees. (a) If the Securities are
----------------------
defeased in accordance with the terms of Article VIII of this Indenture, then
each Guarantor shall be deemed to have been released from and discharged of its
obligations under its Guarantee as provided in Article VIII hereof, subject to
the conditions stated therein.
(b) In the event an entity that is a Guarantor ceases to be a guarantor
under the Credit Agreements, as amended (or any other credit agreement renewing,
refunding, replacing, restating, refinancing or extending the Credit
Agreements), such entity shall also cease to be a Guarantor, whether or not a
Default or an Event of Default is then outstanding.
(c) Any Guarantor not released from its obligations under its Guarantee
shall remain liable for the full amount of principal of, premium, if any, and
interest on the Securities and for the other obligations of the Company, such
Guarantor and any other Guarantor under this Indenture as provided in this
Article X.
SECTION 10.5. Application of Certain Terms and Provisions to
----------------------------------------------
Guarantors. (a) For purposes of any provision of this Indenture which
- - ----------
provides for the delivery by any Guarantor of an Officers' Certificate or an
Opinion of Counsel or both, the definitions of such terms in Section 1.1 shall
apply to such Guarantor as if references therein to the Company were references
to such Guarantor.
(b) Any request, direction, order or demand which by any provision of this
Indenture is to be made by any Guarantor shall be sufficient if evidenced by a
Company Order; provided that the definition of such term in Section 1.1 hereof
--------
shall apply to such Guarantor as if references therein to the Company were
references to such Guarantor.
(c) Any notice or demand which by any provision of this Indenture is
required or permitted to be given or served by the Trustee or by the Holders of
Securities to or on any Guarantor may be given or served as described in Section
11.2 hereof.
(d) Upon any demand, request or application by any Guarantor to the
Trustee to take any action under this Indenture, such Guarantor shall furnish to
the Trustee such certificates and opinions as are required in Section 7.2 hereof
as if all references therein to the Company were references to such Guarantor.
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SECTION 10.6. Additional Guarantors. The Company shall cause each
---------------------
subsidiary of the Company that becomes a guarantor under the Credit Agreements,
as amended (or any other credit agreement renewing, refunding, replacing,
restating, refinancing or extending the Credit Agreements), after the Date of
this Indenture, to execute and deliver to the Trustee, promptly upon any such
formation or acquisition (a) a supplemental indenture in form and substance
satisfactory to the Trustee which subjects such subsidiary to the provisions of
this Indenture as a Guarantor, and (b) an Opinion of Counsel to the effect that
such supplemental indenture has been duly authorized and executed by such
subsidiary and constitutes the legal, valid, binding and enforceable obligation
of such subsidiary (subject to such customary exceptions concerning fraudulent
conveyance laws, creditors' rights and equitable principles as may be acceptable
to the Trustee in its discretion).
ARTICLE XI
Miscellaneous
-------------
SECTION 11.1. Trust Indenture Act Controls. If any provision of
----------------------------
this Indenture limits, qualifies or conflicts with another provision which is
required to be included in this Indenture by the TIA, the provision required by
the TIA shall control. Each Guarantor in addition to performing its obligations
under its Guarantee shall perform such other obligations as may be imposed upon
it with respect to this Indenture under the TIA.
SECTION 11.2. Notices. Any notice or communication shall be in
-------
writing, in the English language and delivered in person or mailed by first-
class mail addressed as follows:
if to the Company or any Guarantor:
Federal-Mogul Corporation
26555 Northwestern Highway
Southfield, Michigan 48034
Attention: General Counsel
if to the Trustee:
The Bank of New York
101 Barclay Street
New York, New York 10286
Attention: Corporate Trust Administration
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Where this Indenture provides for notice to Securityholders of any
event, such notice shall be sufficiently given (unless otherwise herein
expressly provided) if (i) in writing and mailed, first-class postage prepaid,
to each Securityholder affected by such event, at his
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address as it appears in the Note Register, not later than the latest date (if
any), and not earlier than the earliest date (if any), prescribed for the giving
of such notice and (ii) published at least twice, in an Authorized Newspaper in
Luxembourg, which is expected to be the Luxemburger Wort, so long as the
Securities are listed on the Luxembourg Stock Exchange and the rules of the
Luxembourg Stock Exchange so require or, if not practicable, elsewhere in
Western Europe, on a Business Day the first such publication to be not earlier
than the earliest date and the second such publication to be not later than the
latest date herein prescribed for the giving of such notice.
In any case where notice to Securityholders is given by mail, neither
the failure to mail a notice or communication to a Securityholder nor any defect
in any notice so mailed shall affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it. 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.
SECTION 11.3. Communication by Holders with other Holders.
-------------------------------------------
Securityholders may communicate pursuant to TIA (S) 3l2(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and anyone else shall have
the protection of TIA (S) 312(c).
SECTION 11.4. Certificate and Opinion as to Conditions Precedent.
--------------------------------------------------
Upon any request or application by the Company to the Trustee to take or refrain
from taking any action under this Indenture, the Company shall furnish to the
Trustee:
(a) an Officers' Certificate in form and substance reasonably satisfactory
to the Trustee stating that, in the opinion of the signers, all conditions
precedent, if any, provided for in this Indenture relating to the proposed
action have been complied with; and
(b) an Opinion of Counsel in form and substance reasonably satisfactory to
the Trustee stating that, in the opinion of such counsel, all such conditions
precedent 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.
SECTION 11.5. Statements Required in Certificate or Opinion. Each
---------------------------------------------
certificate or opinion with respect to compliance with a covenant or condition
provided for in this Indenture shall include:
(a) a statement that the individual making such certificate or opinion has
read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
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(c) a statement that, in the opinion of 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 covenant or condition has been
complied with; and
(d) a statement as to whether or not, in the opinion of such individual,
such covenant or condition has been complied with.
In giving such Opinion of Counsel, counsel may rely as to factual
matters on an Officers' Certificate or on certificates of public officials.
SECTION 11.6. When Securities Disregarded. In determining whether
---------------------------
the Holders of the required principal amount of Securities have concurred in any
direction, waiver or consent, Securities owned by the Company or by any Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with the Company shall be disregarded and deemed not to be
Outstanding, except that, for the purpose of determining whether the Trustee
shall be protected in relying on any such direction, waiver or consent, only
Securities which the Trustee knows are so owned shall be so disregarded. Also,
subject to the foregoing, only Securities Outstanding at the time shall be
considered in any such determination.
SECTION 11.7. Rules by Trustee, Paying Agent and Registrar. The
--------------------------------------------
Trustee may make reasonable rules for action by, or a meeting of,
Securityholders. The Registrar and the Paying Agent may make reasonable rules
for their functions.
SECTION 11.8. Legal Holidays. In any case where any interest
--------------
payment date, Redemption Date, Stated Maturity or Maturity of any Security shall
not be a Business Day, then (notwithstanding any other provision of this
Indenture or of any Security) payment of principal, premium, if any, or
interest, if any, need not be made on such date, but may be made on the next
succeeding Business Day 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, Stated Maturity or
Maturity, as the case may be.
SECTION 11.9. GOVERNING LAW. THIS INDENTURE, THE SECURITIES AND
-------------
THE GUARANTEES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF NEW YORK.
SECTION 11.10. No Recourse Against Others. An incorporator,
--------------------------
director, officer, employee, stockholder or controlling person, as such, of each
of the Company or any Guarantors shall not have any liability for any
obligations of the Company under the Securities, this Indenture or the
Guarantees or for any claim based on, in respect of or by reason of such
obligations or their creation. By accepting a Security, each Securityholder
shall waive and release all such liability. The waiver and release shall be
part of the consideration for the issue of the Securities.
SECTION 11.11. Successors. All agreements of the Company and the
----------
Guarantors in this Indenture and the Securities shall bind their respective
successors. All agreements of the Trustee in this Indenture shall bind its
successors.
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SECTION 11.12. Multiple Originals. The parties may sign any number
------------------
of copies of this Indenture. Each signed copy shall be an original, but all of
them together represent the same agreement. One signed copy is enough to prove
this Indenture.
SECTION 11.13. Variable Provisions. The Company initially appoints
-------------------
the Trustee as Paying Agent and Registrar and custodian with respect to any
Global Securities.
SECTION 11.14. Qualification of Indenture. The Company shall
--------------------------
qualify this Indenture under the TIA in accordance with the terms and conditions
of the Registration Rights Agreement and shall pay all reasonable costs and
expenses (including attorneys' fees and expenses for the Company, the Trustee
and the Holders) incurred in connection therewith, including, but not limited
to, costs and expenses of qualification of this Indenture and the Securities and
printing this Indenture and the Securities. The Trustee shall be entitled to
receive from the Company any such Officers' Certificates, Opinions of Counsel or
other documentation as it may reasonably request in connection with any such
qualification of this Indenture under the TIA.
SECTION 11.15. Table of Contents; Headings. The table of contents,
---------------------------
cross-reference sheet and headings of the Articles and Sections of this
Indenture have been inserted for convenience of reference only, are not intended
to be considered a part hereof and shall not modify or restrict any of the terms
or provisions hereof.
SECTION 11.16. Separability. In case any provision of this
------------
Indenture or the Securities or the Guarantees 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 11.17. Benefits of Indenture. Nothing in this Indenture or
---------------------
in the Securities or the Guarantees, 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.
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:
FEDERAL-MOGUL DUTCH HOLDINGS INC.
by: _______________________________
Name:
Title:
FEDERAL-MOGUL GLOBAL INC.
by: _______________________________
Name:
Title:
FEDERAL-MOGUL U.K. HOLDINGS INC.
by: _______________________________
Name:
Title:
F-M U.K. HOLDINGS LIMITED
by: _______________________________
Name:
Title:
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CARTER AUTOMOTIVE COMPANY, INC.
by: ________________________________
Name:
Title:
FEDERAL MOGUL VENTURE CORPORATION
by: _______________________________
Name:
Title:
FEDERAL-MOGUL WORLD WIDE, INC.
by: _______________________________
Name:
Title:
FEDERAL-MOGUL GLOBAL PROPERTIES, INC.
by: _______________________________
Name:
Title:
FELT PRODUCTS MFG. CO.
by: _______________________________
Name:
Title:
FEL-PRO MANAGEMENT CO.
by: _______________________________
Name:
Title:
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FEDERAL-MOGUL IGNITION COMPANY
by: _______________________________
Name:
Title:
FEDERAL-MOGUL PRODUCTS, INC.
by: _______________________________
Name:
Title:
FEDERAL-MOGUL AVIATION, INC.
by: _______________________________
Name:
Title:
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THE BANK OF NEW YORK, as Trustee
by: _______________________________
Name:
Title:
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EXHIBIT 10.13
================================================================================
FEDERAL-MOGUL CORPORATION
THE FOREIGN SUBSIDIARY BORROWERS
__________________________
$1,750,000,000
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
DATED AS OF FEBRUARY 24, 1999
_______________________________
THE CHASE MANHATTAN BANK,
as Lead Arranger, Book Manager and
Administrative Agent
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TABLE OF CONTENTS
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ARTICLE I. DEFINITIONS.............................................................................................. 1
SECTION 1.01 Defined Terms..................................................................................... 1
SECTION 1.02 Other Definitional Provisions..................................................................... 28
ARTICLE II. AMOUNT AND TERMS OF REVOLVING CREDIT COMMITMENTS AND SWING LINE COMMITMENT.............................. 29
SECTION 2.01 US$ Revolving Credit Commitments.................................................................. 29
SECTION 2.02 Repayment of US$ Revolving Credit Loans; Evidence of Debt......................................... 29
SECTION 2.03 Procedure for US$ Revolving Credit Borrowing...................................................... 30
SECTION 2.04 Termination or Reduction of US$ Revolving Credit Commitments...................................... 31
SECTION 2.05 Swing Line Commitments............................................................................ 31
SECTION 2.06 Procedure for Swing Line Borrowings; Interest Rate................................................ 31
SECTION 2.07 Repayment of Swing Line Loans; Evidence of Debt................................................... 31
SECTION 2.08 Refunding of Swing Line Borrowings................................................................ 32
SECTION 2.09 Participating Interests........................................................................... 33
ARTICLE III. AMOUNT AND TERMS OF TERM LOAN COMMITMENTS.............................................................. 33
SECTION 3.01 Term Loan Commitments............................................................................. 33
SECTION 3.02 Repayment of Term Loans; Evidence of Debt......................................................... 34
SECTION 3.03 Procedure for Term Loan Borrowing................................................................. 36
ARTICLE IV. AMOUNT AND TERMS OF MULTICURRENCY REVOLVING CREDIT COMMITMENTS.......................................... 36
SECTION 4.01 Multicurrency Revolving Credit Commitments........................................................ 36
SECTION 4.02 Procedure for Multicurrency Revolving Credit Borrowing............................................ 37
SECTION 4.03 Spot Exchange Rate Calculations................................................................... 37
SECTION 4.04 Commitment Reallocations........................................................................... 37
SECTION 4.05 Redenomination and Alternative Currencies......................................................... 39
ARTICLE V. GENERAL PROVISIONS APPLICABLE TO THE LOANS............................................................... 39
SECTION 5.01 Interest Rates and Payment Dates.................................................................. 39
SECTION 5.02 Conversion and Continuation Options............................................................... 39
SECTION 5.03 Minimum Amounts of Tranches....................................................................... 40
SECTION 5.04 Optional and Mandatory Prepayments................................................................ 41
SECTION 5.05 Facility Fees; Other Fees......................................................................... 42
SECTION 5.06 Computation of Interest and Fees.................................................................. 43
SECTION 5.07 Inability to Determine Interest Rate.............................................................. 44
SECTION 5.08 Pro Rata Treatment and Payments................................................................... 44
SECTION 5.09 Illegality........................................................................................ 48
SECTION 5.10 Requirements of Law............................................................................... 48
SECTION 5.11 Taxes............................................................................................. 49
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SECTION 5.12 Indemnity......................................................................................... 52
SECTION 5.13 Use of Proceeds................................................................................... 53
SECTION 5.14 Change of Lending Office; Replacement of Lenders.................................................. 53
ARTICLE VI. REPRESENTATIONS AND WARRANTIES.......................................................................... 54
SECTION 6.01 Financial Condition............................................................................... 54
SECTION 6.02 No Change......................................................................................... 55
SECTION 6.03 Corporate Existence; Compliance with Law.......................................................... 55
SECTION 6.04 Corporate Power; Authorization; Enforceable Obligations........................................... 55
SECTION 6.05 No Legal Bar...................................................................................... 56
SECTION 6.06 No Material Litigation............................................................................ 56
SECTION 6.07 No Default........................................................................................ 56
SECTION 6.08 Ownership of Property; Liens...................................................................... 56
SECTION 6.09 Intellectual Property............................................................................. 56
SECTION 6.10 No Burdensome Restrictions........................................................................ 56
SECTION 6.11 Taxes............................................................................................. 56
SECTION 6.12 Federal Regulations............................................................................... 57
SECTION 6.13 ERISA............................................................................................. 57
SECTION 6.14 Investment Company Act; Other Regulations......................................................... 57
SECTION 6.15 Subsidiaries...................................................................................... 58
SECTION 6.16 Environmental Matters............................................................................. 58
SECTION 6.17 Accuracy and Completeness of Information.......................................................... 59
SECTION 6.18 Other Unsubordinated Indebtedness................................................................. 59
SECTION 6.19 Foreign Subsidiary Borrowers...................................................................... 59
SECTION 6.20 Security Documents................................................................................ 60
SECTION 6.21 Solvency.......................................................................................... 60
SECTION 6.22 Year 2000 Matters................................................................................. 60
ARTICLE VII. CONDITIONS PRECEDENT................................................................................... 60
SECTION 7.01 Conditions to Initial Extensions of Credit........................................................ 60
SECTION 7.02 Conditions to Each Extension of Credit............................................................ 62
ARTICLE VIII. AFFIRMATIVE COVENANTS................................................................................. 63
SECTION 8.01 Financial Statements.............................................................................. 64
SECTION 8.02 Certificates; Other Information................................................................... 64
SECTION 8.03 Accrual of Liabilities; Payment of Obligations.................................................... 65
SECTION 8.04 Maintenance of Corporate Existence; Maintenance of Properties..................................... 65
SECTION 8.05 Insurance......................................................................................... 65
SECTION 8.06 Notices........................................................................................... 65
SECTION 8.07 Compliance with Contractual Obligations and Laws.................................................. 66
SECTION 8.08 Access to Books and Inspection.................................................................... 66
SECTION 8.09 Use of Proceeds................................................................................... 66
SECTION 8.10 Environmental Laws................................................................................ 66
SECTION 8.11 Additional Collateral and Guaranties.............................................................. 67
SECTION 8.12 Foreign Collateral Matters........................................................................ 68
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ARTICLE IX. NEGATIVE COVENANTS...................................................................................... 69
SECTION 9.01 Cash Flow Coverage................................................................................ 69
SECTION 9.02 Consolidated Leverage Ratio....................................................................... 69
SECTION 9.03 Maintenance of Consolidated Net Worth............................................................. 69
SECTION 9.04 Limitation on Liens............................................................................... 69
SECTION 9.05 Limitation on Indebtedness........................................................................ 71
SECTION 9.06 Limitation on Guaranties.......................................................................... 72
SECTION 9.07 Limitation on Fundamental Changes................................................................. 73
SECTION 9.08 Limitation on Sale of Assets...................................................................... 74
SECTION 9.09 Limitation on Restricted Payments................................................................. 74
SECTION 9.10 Restrictions on Special Purpose Subsidiaries...................................................... 75
SECTION 9.11 Limitation on Investments, Loans and Advances..................................................... 75
SECTION 9.12 Limitation on Optional Payments and Modifications of Debt Instruments, Certain Derivative
Transactions, etc.......................................................................................... 77
SECTION 9.13 Limitation on Sales and Leasebacks................................................................ 77
SECTION 9.14 Limitation on Restrictions on Subsidiary Distributions............................................ 77
SECTION 9.15 Multiemployer Plans............................................................................... 78
SECTION 9.16 Limitation on More Restrictive Covenants.......................................................... 78
SECTION 9.17 Affiliates........................................................................................ 78
ARTICLE X. GUARANTEE................................................................................................ 78
SECTION 10.01 Guarantee........................................................................................ 78
SECTION 10.02 Right of Set-off................................................................................. 79
SECTION 10.03 No Subrogation................................................................................... 79
SECTION 10.04 Amendments, etc. with respect to the Obligations; Waiver of Rights............................... 80
SECTION 10.05 Guarantee Absolute and Unconditional............................................................. 80
SECTION 10.06 Reinstatement.................................................................................... 81
SECTION 10.07 Payments......................................................................................... 82
ARTICLE XI. EVENTS OF DEFAULT....................................................................................... 82
ARTICLE XII. THE ADMINISTRATIVE AGENT............................................................................... 84
SECTION 12.01 Appointment...................................................................................... 84
SECTION 12.02 Delegation of Duties............................................................................. 85
SECTION 12.03 Exculpatory Provisions........................................................................... 85
SECTION 12.04 Reliance by Administrative Agent................................................................. 85
SECTION 12.05 Notice of Default................................................................................ 86
SECTION 12.06 Non-Reliance on Agents and Other Lenders......................................................... 86
SECTION 12.07 Indemnification.................................................................................. 86
SECTION 12.08 Administrative Agent in Its Individual Capacity.................................................. 87
SECTION 12.09 Successor Administrative Agent................................................................... 87
SECTION 12.10 Authorization to Release Liens................................................................... 87
ARTICLE XIII. MISCELLANEOUS......................................................................................... 88
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SECTION 13.01 Amendments and Waivers........................................................................ 88
SECTION 13.02 Notices....................................................................................... 90
SECTION 13.03 No Waiver; Cumulative Remedies................................................................ 91
SECTION 13.04 Survival of Representations and Warranties.................................................... 91
SECTION 13.05 Payment of Expenses and Taxes................................................................. 91
SECTION 13.06 Successors and Assigns; Participations and Assignments........................................ 92
SECTION 13.07 Adjustments; Set-Off.......................................................................... 95
SECTION 13.08 Counterparts.................................................................................. 95
SECTION 13.09 Severability.................................................................................. 96
SECTION 13.10 Integration................................................................................... 96
SECTION 13.11 GOVERNING LAW................................................................................. 96
SECTION 13.12 Submission To Jurisdiction; Waivers........................................................... 96
SECTION 13.13 Acknowledgements.............................................................................. 97
SECTION 13.14 WAIVERS OF JURY TRIAL......................................................................... 97
SECTION 13.15 Power of Attorney............................................................................. 97
SECTION 13.16 Release of Collateral......................................................................... 97
SECTION 13.17 Judgment...................................................................................... 98
SECTION 13.18 Confidentiality............................................................................... 98
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ANNEXES:
Annex A Pricing Grid
SCHEDULES:
I Commitments; Addresses
II Subsidiaries; Foreign Subsidiary Borrowers;
Insignificant Subsidiaries
III Existing Liens
IV Existing Indebtedness and Existing Guaranties
V Pledge Agreements
VI Excluded Foreign Subsidiaries
6.20 Perfection Actions
9.05(c) Indebtedness of Special Purpose Subsidiaries
9.08 Excluded Assets
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EXHIBITS:
A-1 Form of US$ Revolving Credit Note
A-2 Form of Term Note
B Form of Domestic Subsidiary Guarantee
C Form of Domestic Pledge Agreement
D-1 Form of Trust Agreement (First Union)
D-2 Form of Trust Agreement (ABN AMRO)
E Form of Joinder Agreement
F Form of Responsible Officer's Certificate
G Form of Assignment and Acceptance
H-1 Form of Opinion of David M. Sherbin, Esq., Associate General Counsel
of the Company
H-2 Form of Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
I Matters to be Covered by Foreign Subsidiary Opinion
J Form of Reallocation Notice
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THIRD AMENDED AND RESTATED CREDIT AGREEMENT, dated as of February 24,
1999, among FEDERAL-MOGUL CORPORATION, a Michigan corporation (the "Company"),
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each FOREIGN SUBSIDIARY BORROWER (as hereinafter defined) (together with the
Company, the "Borrowers"), the several banks and other financial institutions
---------
from time to time parties hereto (the "Lenders") and THE CHASE MANHATTAN BANK, a
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New York banking corporation ("Chase"), as administrative agent for the Lenders
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hereunder.
W I T N E S S E T H:
-------------------
WHEREAS, the Company is party to (i) the Second Amended and Restated
Credit Agreement, dated as of December 18, 1997 (the "Existing Multicurrency
----------------------
Agreement"), among the Company, the foreign subsidiary borrowers parties
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thereto, the lenders parties thereto and Chase, as administrative agent, (ii)
the $1,950,000,000 Loan Agreement, dated as of September 30, 1998 (the "Existing
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Loan Agreement"), among the Company, the lenders parties thereto and Chase, as
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administrative agent and (iii) the $200,000,000 364-Day Revolving Credit
Agreement, dated as of September 30, 1998 (the "Existing 364-Day Agreement" and
--------------------------
collectively with the Existing Multicurrency Agreement and the Existing Loan
Agreement, the "Existing Credit Agreements"), among the Company, the lenders
--------------------------
parties thereto and Chase, as administrative agent;
WHEREAS, in order to restate and refinance the Existing Credit
Agreements (the "Refinancing"), to provide for additional working capital
-----------
financing for the Company and its Subsidiaries and to pay fees and expenses in
connection with the Refinancing, the Company is entering into this Agreement;
and
WHEREAS, the Company, the Lenders and the Administrative Agent desire
to amend and restate the Existing Credit Agreements upon and subject to the
terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein, the parties hereto agree that on the Closing Date
the Existing Credit Agreements shall be further amended and restated in their
entirety as follows:
ARTICLE I. DEFINITIONS
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SECTION I.1 Defined Terms. As used in this Agreement, the following
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terms shall have the following meanings:
"Accumulated Funding Deficiency": any accumulated funding deficiency
------------------------------
within the meaning of Section 412 of the Code or Section 302 of ERISA.
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"Additional US$ Revolving Credit Commitments": as defined in Section
-------------------------------------------
4.04.
"Additional US$ Revolving Credit Facility": as defined in the
----------------------------------------
definition of "Facility".
"Additional US$ Revolving Credit Loans": any revolving credit loans
-------------------------------------
made to the Company under the Additional US$ Revolving Commitments. Each
Additional US$ Revolving Credit Loan shall be a Eurodollar Loan or a Base
Rate Loan.
"Additional US$ Revolving Credit Percentage": as to any Multicurrency
------------------------------------------
Revolving Credit Lender at any time, the percentage which such Lender's
Additional US$ Revolving Credit Commitment then constitutes of the
aggregate Additional US$ Revolving Credit Commitments (or, at any time
after the Additional US$ Revolving Credit Commitments shall have expired or
terminated, the percentage which the aggregate principal amount of such
Lender's Additional US$ Revolving Credit Loans then outstanding constitutes
of the aggregate principal amount of the Additional US$ Revolving Credit
Loans then outstanding).
"Adjustment Date": as defined in the Pricing Grid.
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"Administrative Agent": Chase, together with its affiliates, as
--------------------
arranger of the Commitments and as administrative agent for the Lenders
under this Agreement or any successor thereto appointed pursuant to Section
12.09.
"Affiliate": of any Person, shall mean any Person that, directly or
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indirectly, controls or is controlled by or is under common control with
such Person, or in the case of any Lender which is an investment fund, (i)
the investment advisor thereof and (ii) any other investment fund having
the same investment advisor. For the purposes of this definition,
"control" (including, with correlative meanings, the terms "controlled by"
and "under common control with"), as used with respect to any Person, shall
mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such Person, whether
through the ownership of voting securities or by contract or otherwise.
"Aggregate Multicurrency Revolving Credit Exposure": the aggregate
-------------------------------------------------
amount of the Multicurrency Revolving Credit Exposure of all Lenders.
"Agreement": this Third Amended and Restated Credit Agreement, as the
---------
same may be amended, supplemented or otherwise modified from time to time.
"Agreement Currency": as defined in Section 13.17(b).
------------------
"Applicable Margin": for each Type and Class of Loan, the rate per
-----------------
annum set forth under the relevant column heading below:
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Base Eurodollar Loans/
Rate Loans Multicurrency Revolving
---------- -----------------------
Credit Loans
-----------------------
Revolving Credit Loans .375% 1.375%
Multicurrency Revolving Credit Loans .375% 1.375%
Tranche A Term Loans .75% 1.75%
Tranche B Term Loans 1.00% 2.00%
; provided, that on and after the first Adjustment Date occurring after the
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Closing Date, the Applicable Margin with respect to Revolving Credit Loans,
Multicurrency Revolving Credit Loans and Tranche A Term Loans will be
determined pursuant to the Pricing Grid.
"Assigned Dollar Value": in respect of any Multicurrency Revolving
---------------------
Credit Borrowing, the amount thereof expressed in Dollars in the initial
borrowing request with respect thereto. Thereafter, Assigned Dollar Value
shall mean, in respect of any Multicurrency Revolving Credit Borrowing, the
Dollar Equivalent of the principal amount of the Loans relating to such
Multicurrency Revolving Credit Borrowing as determined on the most recent
Reset Date based on the Spot Exchange Rate.
"Assignee": as defined in Section 13.06(c).
--------
"Available Additional US$ Revolving Credit Commitment": as to any
----------------------------------------------------
Multicurrency Revolving Credit Lender at any time, an amount equal to (a)
such Lender's Additional US$ Revolving Credit Commitments minus (b) such
-----
Lender's outstanding Additional US$ Revolving Credit Loans.
"Available Foreign Currencies": Pounds Sterling, Swiss Francs,
----------------------------
Australian Dollars, Swedish Kroner, euro units and any other available and
freely-convertible non-Dollar currency selected by the Company and approved
by the Administrative Agent and the Majority Multicurrency Revolving
Credit Facility Lenders (including such approval with respect to the
Currency Sublimit applicable to such currency).
"Available Multicurrency Revolving Credit Commitment": as to any
---------------------------------------------------
Multicurrency Revolving Credit Lender at any time, an amount equal to (a)
such Lender's Multicurrency Revolving Credit Commitment minus (b) such
-----
Lender's Multicurrency Revolving Credit Exposure.
"Available US$ Revolving Credit Commitment": as to any US$ Revolving
-----------------------------------------
Credit Lender at any time, an amount equal to (a) such Lender's US$
Revolving Credit Commitment minus (b) such Lender's US$ Revolving
-----
Extensions of Credit.
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"Base Rate": for any day, a rate per annum (rounded upwards, if
---------
necessary, to the next 1/16 of 1%) equal to the greater of (a) the Prime
Rate in effect on such day and (b) the Federal Funds Effective Rate in
effect on such day plus 1/2 of 1%. If for any reason the Administrative
Agent shall have determined (which determination shall be conclusive absent
manifest error) that it is unable to ascertain the Federal Funds Effective
Rate for any reason, including the inability or failure of the
Administrative Agent to obtain sufficient quotations in accordance with the
terms thereof, the Base Rate shall be determined without regard to clause
(b) of the first sentence of this definition until the circumstances giving
rise to such inability no longer exist. Any change in the Base Rate due to
a change in the Prime Rate or the Federal Funds Effective Rate shall be
effective on the effective day of such change in the Prime Rate or the
Federal Funds Effective Rate, respectively.
"Base Rate Loans": Loans the rate of interest applicable to which is
---------------
based upon the Base Rate.
"Benefitted Lender": as defined in Section 13.07.
-----------------
"Board": the Board of Governors of the Federal Reserve System (or any
-----
successor thereto).
"Bond Offering": the offering by the Company from time to time of its
-------------
debt securities.
"Borrowers": as defined in the preamble hereto.
---------
"Borrowing Date": any Business Day specified in a notice pursuant to
--------------
Section 2.03, 2.07, 3.03 or 4.02 as a date on which a Borrower requests the
Lenders to make Loans hereunder.
"Business": as defined in Section 6.16.
--------
"Business Day": (a) when such term is used in respect of any amount
------------
denominated or to be denominated in (i) any Available Foreign Currency or
Dollars under the Multicurrency Revolving Credit Commitments, a London
Banking Day which is also a day other than a Saturday or Sunday on which
banks are open for general banking business in (x) the city which is the
principal financial center of the country of issuance of such Available
Foreign Currency (or, in the case of Pounds Sterling, Paris), (y) in the
case of euro only, Frankfurt am Main, Germany (or such other principal
financial center as the Administrative Agent may from time to time nominate
for this purpose) and (z) New York City and (ii) Dollars under the US$
Revolving Credit Commitments or the Additional US$ Revolving Credit
Commitments, a London Banking Day which is also a day other than a Saturday
or Sunday on which banks are open for general banking business in New York
City and (b) when such term is used for the
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purpose of determining the date on which the Eurocurrency Base Rate is
determined under this Agreement for any Loan denominated in euro for any
Interest Period therefor and for purposes of determining the first and last
day of any Interest Period, references in this Agreement to Business Days
shall be deemed to be references to Target Operating Days.
"Calculation Date": (a) the last Business Day of each March, June,
----------------
September and December and (b) at any time when the Aggregate Multicurrency
Revolving Credit Exposure exceeds 85% of the Total Multicurrency Revolving
Credit Commitments or at any time when a Default or Event of Default shall
have occurred and be continuing, any other date which the Administrative
Agent may determine in its discretion to be a Calculation Date.
"Capital Expenditures": all expenditures of the Company and its
--------------------
Subsidiaries on a consolidated basis for any fixed assets or improvements,
or for replacements, substitutions or additions thereto, which have a
useful life of more than one year, including, but not limited to, the
direct or indirect acquisition of such assets by way of increased product
or service charges, offset items or otherwise, including all expenditures
under capital leases, all determined in accordance with GAAP.
"Capital Stock": any and all shares, interests, participations or
-------------
other equivalents (however designated) of capital stock of a corporation,
any and all equivalent ownership interests in a Person other than a
corporation and any and all warrants or options to purchase any of the
foregoing. For all purposes of this Agreement, "Capital Stock" shall
include the 11,500,000 7% Trust Convertible Preferred Securities
(Liquidation Amount $50 Per Convertible Preferred Security) issued by
Federal-Mogul Financing Trust and guaranteed by the Company upon terms
described in the Offering Memorandum issued November 24, 1997 and any other
substantially equivalent securities hereafter issued by a financing vehicle
for the benefit of the Company, and such Trust Convertible Securities and
substantially equivalent securities will be treated as preferred stock of
the Company and the Company shall not be deemed to have issued any
Indebtedness or Guarantee in connection therewith.
"Cash Equivalents": (a) securities with maturities of one year or
----------------
less from the date of acquisition issued or fully guaranteed or insured by
the United States Government or any agency thereof, (b) certificates of
deposit and eurodollar time deposits with maturities of one year or less
from the date of acquisition and overnight bank deposits of any Lender or
of any commercial bank having capital and surplus in excess of
$500,000,000, (c) repurchase obligations of any Lender or of any commercial
bank satisfying the requirements of clause (b) of this definition, having a
term of not more than 30 days with respect to securities issued or fully
guaranteed or insured by the United States Government, (d) commercial paper
of a domestic issuer rated at least A-2 by S&P or P-2 by Moody's, (e)
securities with maturities of one year or less from the date of acquisition
issued or fully guaranteed by any state, commonwealth or territory of the
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United States, by any political subdivision or taxing authority of any such
state, commonwealth or territory or by any foreign government, the
securities of which state, commonwealth, territory, political subdivision,
taxing authority or foreign government (as the case may be) are rated at
least A by S&P or A by Moody's (or an equivalent rating for such foreign
securities), (f) securities with maturities of one year or less from the
date of acquisition backed by standby letters of credit issued by any
Lender or any commercial bank satisfying the requirements of clause (b) of
this definition or (g) shares of money market mutual or similar funds which
invest exclusively in assets satisfying the requirements of clauses (a)
through (f) of this definition, provided that, in the case of any
--------
investment by a Foreign Subsidiary, "Cash Equivalents" shall also include:
(i) direct obligations of the sovereign nation (or any agency thereof) in
which such Foreign Subsidiary is organized and is conducting business or in
obligations fully and unconditionally guaranteed by such sovereign nation
(or any agency thereof), (ii) investments of the type and maturity
described in clauses (a) through (f) above of foreign obligors, which
Investments or obligors (or the parents of such obligors) have ratings
described in such clauses or equivalent ratings from comparable foreign
rating agencies and (iii) shares of money market mutual or similar funds
which invest exclusively in assets otherwise satisfying the requirements of
this definition (including this proviso).
"Cash Flow Coverage": for any period, the ratio of (a) Consolidated
------------------
EBITDA less Capital Expenditures, divided by (b) (i) Interest Expenses plus
(ii) dividends paid on any class of the Company's Capital Stock in each
case determined for such period.
"Change of Control": (a) any "person" or "group" within the meaning
-----------------
of Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as
amended, shall become the "beneficial owner" (as defined in Rule 13d-3
under the Securities Exchange Act of 1934, as amended) of more than 50% of
the then outstanding voting stock of the Company other than in a
transaction having the approval of the board of directors of the Company at
least a majority of which members are Continuing Directors or (b)
Continuing Directors shall cease to constitute at least a majority of the
directors constituting the board of directors of the Company.
"Chase": The Chase Manhattan Bank, a New York banking corporation.
-----
"Class": the collective reference to Loans outstanding under a single
-----
Facility.
"Closing Date": the date, on or before March 31, 1999, on which the
------------
conditions precedent set forth in Section 7.01 are satisfied or waived in
accordance with this Agreement.
"Code": the Internal Revenue Code of 1986, as amended from time to
----
time.
"Collateral": all Property of the Loan Parties, now owned or
----------
hereafter acquired, upon which a Lien is purported to be created by any
Security Document.
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"Collateral Release Date": the date of receipt by the Administrative
-----------------------
Agent of a written request by the Company to release the Collateral
following either (i) the date on which there is in effect either (A) an S&P
Bond Rating of at least BBB- or its equivalent or (B) a Moody's Bond
Rating of at least Baa3 or its equivalent or (ii) the date on which the
Consolidated Leverage Ratio is less than or equal to 2.0 to 1.0.
"Commitment": as to any Lender, the sum of the Tranche A Term Loan
----------
Commitment, the Tranche B Term Loan Commitment, the US$ Revolving Credit
Commitment, the Multicurrency Revolving Credit Commitment and, without
duplication, the Additional US$ Revolving Credit Commitment of such Lender.
"Commonly Controlled Entity": an entity, whether or not incorporated,
--------------------------
which is under common control with the Company within the meaning of
Section 4001 of ERISA or is part of a group which includes the Company and
which is treated as a single employer under Section 414 of the Code.
"Company": as defined in the preamble hereto.
-------
"Company Guaranty": the guarantee contained in Article X.
----------------
"Consolidated Current Assets": at any date, all amounts (other than
---------------------------
cash and Cash Equivalents) which would, in conformity with GAAP, be set
forth opposite the caption "total current assets" (or any like caption) on
a consolidated balance sheet of the Company and its Subsidiaries at such
date.
"Consolidated Current Liabilities": at any date, all amounts which
--------------------------------
would, in conformity with GAAP, be set forth opposite the caption "total
current liabilities" (or any like caption) on a consolidated balance sheet
of the Company and its Subsidiaries at such date, but excluding (a) the
current portion of any Funded Debt of the Company and its Subsidiaries and
(b) without duplication of clause (a) above and to the extent otherwise
included therein, all Indebtedness consisting of Revolving Credit Loans and
Multicurrency Revolving Credit Loans.
"Consolidated EBITDA": for any period, the sum of (a) the
-------------------
consolidated net income (or loss) of the Company and its Subsidiaries for
such period before deduction of income and franchise taxes and
depreciation, determined in conformity with GAAP, but excluding the income
of any Person (other than Subsidiaries of the Company) in which the Company
or any of its Subsidiaries has an ownership interest, until such income has
been received by the Company or a Subsidiary in a cash distribution, plus
----
(b) any Interest Expenses reported during such period, plus (c)
----
amortization of Intangible Assets deducted in determining net income for
such period, plus (d) with respect to the calculation of Consolidated
----
EBITDA for any period which includes any fiscal quarter of the 1998 fiscal
year of the Company only, any integration, restructuring and research and
development
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charges taken in any such quarter, provided that the aggregate amount of
--------
such integration, restructuring and research and development charges added
to Consolidated EBITDA pursuant to this clause (d) shall not exceed
$84,000,000, plus (e) without duplication of any of the foregoing
----
amounts, with respect to the calculation of Consolidated EBITDA for any
period which includes the third or fourth quarters of the 1998 fiscal year
of the Company or any fiscal quarter during the 1999 fiscal year of the
Company only, any integration and restructuring charges taken in any such
quarter relating to the Cooper Automotive Acquisition, provided that the
--------
aggregate amount of such integration and restructuring charges added to
Consolidated EBITDA pursuant to this clause (e) shall not exceed
$126,000,000 plus (f) any non-cash charges deducted in determining net
----
income for such period; provided, that if in any later period such non-cash
--------
charges become a cash expenditure, the amount of such cash expenditure
shall be deducted in determining Consolidated EBITDA for such later period.
"Consolidated Leverage Ratio": as at the last day of any period of
---------------------------
four consecutive fiscal quarters, the ratio of (a) Consolidated Total Debt
on such day to (b) Consolidated EBITDA for such period; provided, that for
--------
purposes of calculating Consolidated EBITDA for any period of four
consecutive fiscal quarters, the Consolidated EBITDA of any Person acquired
by the Company or its Subsidiaries during such period shall be included on
a pro forma basis for such period (assuming the consummation of each such
---------
acquisition and the incurrence or assumption of any Indebtedness in
connection therewith occurred on the first day of such period) if the
consolidated balance sheet of such acquired Person and its consolidated
Subsidiaries as at the end of the period preceding the acquisition of such
Person and the related consolidated statements of income and stockholders'
equity and of cash flows for the period in respect of which Consolidated
EBITDA is to be calculated (i) have been provided to the Administrative
Agent and the Lenders and (ii) either (A) have been reported on without a
qualification arising out of the scope of the audit (other than a "going
concern" or like qualification or exception) by independent certified
public accountants of nationally recognized standing or (B) have been found
acceptable by the Administrative Agent.
"Consolidated Net Income": for any period, the consolidated net
-----------------------
income (or loss) of the Company and its Subsidiaries for such period,
determined in conformity with GAAP, but excluding the income of any Person
(other than Subsidiaries of the Company) in which the Company or any of its
Subsidiaries has an ownership interest, until such income has been received
by the Company or a Subsidiary in a cash distribution.
"Consolidated Net Worth": at any date, shareholders equity
----------------------
(including, but not limited to, Capital Stock, additional paid-in capital
and retained earnings after deducting treasury stock and unearned
compensation) of the Company and its Subsidiaries on a consolidated basis
as at such date determined in accordance with GAAP; provided, that
--------
Consolidated Net Worth shall not reflect any additions or deductions
resulting from foreign currency translation gains or losses.
-8-
<PAGE>
"Consolidated Total Debt": all Indebtedness of the Company and its
-----------------------
Subsidiaries, determined on a consolidated basis.
"Consolidated Working Capital": at any date, the excess of
----------------------------
Consolidated Current Assets on such date over Consolidated Current
Liabilities on such date.
"Continuing Directors": the collective reference to (a) all members
--------------------
of the board of directors of the Company who have held office continually
since September 26, 1997, and (b) all members of the board of directors of
the Company who were elected as directors after September 26, 1997 and
whose nomination for election by the Company's shareholders was approved by
a vote of at least 50% of the Continuing Directors.
"Contractual Obligation": as to any Person, any provision of any
----------------------
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Cooper Automotive Acquisition": the acquisition by the Company of
-----------------------------
Cooper Industries' Automotive Division, consisting of the common stock of
Champion Spark Plug Company, Cooper Automotive Company, Moog Automotive
Company, Champion Aviation and the common stock of the Related Companies
and certain assets and liabilities of the Canadian Division, all as
described in the Cooper Automotive Acquisition Agreement.
"Cooper Automotive Acquisition Agreement": the Purchase and Sale
---------------------------------------
Agreement, dated as of August 17, 1998, between Cooper Industries, Inc. and
the Company and certain of the Subsidiaries of the Company.
"Currency Sublimit": with respect to any Available Foreign Currency,
-----------------
the amount from time to time equal to the amount of Dollars set forth under
the heading "Currency Sublimit" opposite such Available Foreign Currency on
Schedule I or, with respect to any Available Foreign Currency approved
after the date hereof, the amount of Dollars approved by the
Administrative Agent and the Majority Multicurrency Revolving Credit
Facility Lenders as the "Currency Sublimit" applicable to such Available
Foreign Currency .
"Default": any of the events specified in Article XI whether or not
-------
any requirement for the giving of notice, the lapse of time, or both, or
any other condition has been satisfied.
"Disposition": with respect to any Property, any sale, lease, sale
-----------
and leaseback, assignment, conveyance, transfer or other disposition
thereof; and the terms "Dispose" and "Disposed of" shall have correlative
meanings.
-9-
<PAGE>
"Dollar Equivalent": with respect to an amount of any Available
-----------------
Foreign Currency on any date, the amount of Dollars that may be purchased
with such amount of Available Foreign Currency at the Spot Exchange Rate on
such date.
"Dollars": dollars in lawful currency of the United States of
-------
America.
"$": dollars in lawful currency of the United States of America.
-
"Domestic Pledge Agreement": the Amended and Restated Domestic Pledge
-------------------------
Agreement, substantially in the form of Exhibit C, to be executed by the
Company and certain of its Domestic Subsidiaries.
"Domestic Reference Lenders": Chase, Bank of America and Bank One.
--------------------------
"Domestic Subsidiary": any Subsidiary of the Company organized under
-------------------
the laws of any jurisdiction within the United States, other than any
Subsidiary which is a Subsidiary of an Excluded Foreign Subsidiary.
"Domestic Subsidiary Guarantee": the Amended and Restated Domestic
-----------------------------
Subsidiary Guarantee, substantially in the form of Exhibit B, to be
executed and delivered by each Domestic Subsidiary, as the same may from
time to time be amended, supplemented or otherwise modified.
"EMU": Economic and Monetary Union as contemplated in the Treaty on
---
European Union.
"EMU Legislation": legislative measures of the European Union for the
---------------
introduction of, changeover to or operation of the euro in one or more
member states.
"Environmental Laws": any and all foreign, Federal, state, local or
------------------
municipal, laws, rules, orders, regulations, statutes, ordinances, codes,
decrees, requirements of any Governmental Authority or other Requirements
of Law (including common law) regulating, relating to or imposing liability
or standards of conduct concerning protection of human health or the
environment, as now or may at any time hereafter be in effect.
"ERISA": the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time.
"ESOP Guaranty": the Guaranty, dated as of June 30, 1995, as amended,
-------------
made by the Company in favor of Bank of America National Trust and Savings
Association, as agent under the ESOP Loan Agreement.
-10-
<PAGE>
"ESOP Loan Agreement": the Loan Agreement, dated as of June 30, 1995,
-------------------
as amended, among the Federal-Mogul Corporation Salaried Employees' Stock
Ownership Trust, as borrower, various financial institutions, as lenders,
and Bank of America National Trust and Savings Association, as agent.
"euro": the single currency of the European Union as constituted by
----
the Treaty on European Union and as referred to in EMU Legislation.
"euro unit": the currency unit of the euro as defined in the EMU
---------
Legislation.
"Eurocurrency Base Rate": (a) with respect to each Interest Period
----------------------
pertaining to a Multicurrency Revolving Credit Loan denominated in any
currency other than Pounds Sterling, the rate per annum determined by the
Administrative Agent to be the offered rate for deposits in such currency
with a term comparable to such Interest Period that appears on the
applicable Dow Jones Markets Page at approximately 11:00 A.M., London time,
two Business Days prior to the beginning of such Interest Period; provided,
--------
however, that if at any time for any reason such offered rate for any such
-------
currency does not appear on a Dow Jones Markets Page, "Eurocurrency Base
Rate" shall mean, with respect to each day during each Interest Period
pertaining to a Multicurrency Revolving Credit Loan denominated in such
currency, the rate per annum equal to the average (rounded upward to the
nearest 1/16th of 1%) of the respective rates notified to the
Administrative Agent by each of the Multicurrency Reference Lenders as the
rate at which such Multicurrency Reference Lender is offered deposits in
such currency at or about 11:00 A.M., London time, two Business Days prior
to the beginning of such Interest Period in the London interbank market for
delivery on the first day of such Interest Period for the number of days
comprised therein; and (b) with respect to each day during each Interest
Period pertaining to a Multicurrency Revolving Credit Loan denominated in
Pounds Sterling, the rate per annum equal to the average (rounded upward to
the nearest 1/16th of 1%) of the respective rates notified to the
Administrative Agent by each of the Multicurrency Reference Lenders as the
rate at which such Multicurrency Reference Lender is offered deposits in
Pounds Sterling at or about 11:00 A.M., London time, two Business Days
prior to the beginning of such Interest Period in the Paris interbank
market for delivery on the first day of such Interest Period for the number
of days comprised therein.
"Eurocurrency Rate": with respect to each day during each Interest
-----------------
Period pertaining to a Multicurrency Revolving Credit Loan, a rate per
annum determined for such day in accordance with the following formula
(rounded upward to the nearest 1/100th of 1%):
Eurocurrency Base Rate
-------------------------------------------
1.00 - Eurocurrency Reserve Requirements
-11-
<PAGE>
"Eurocurrency Reserve Requirements": for any day as applied to a
---------------------------------
Eurodollar Loan or a Multicurrency Revolving Credit Loan, the aggregate
(without duplication) of the rates (expressed as a decimal fraction) of
reserve requirements in effect on such day (including, without limitation,
basic, supplemental, marginal and emergency reserves) under any regulations
of the Board of Governors of the Federal Reserve System or other
Governmental Authority having jurisdiction with respect thereto dealing
with reserve requirements prescribed for eurocurrency funding (currently
referred to as "Eurocurrency Liabilities" in Regulation D of such Board)
maintained by a member bank of such System.
"Eurodollar Base Rate": with respect to each day during each Interest
--------------------
Period pertaining to a Eurodollar Loan, the rate per annum determined by
the Administrative Agent to be the offered rate for Dollar deposits with a
term comparable to such Interest Period that appears on the applicable Dow
Jones Markets Page at approximately 11:00 A.M., London time, two Business
Days prior to the beginning of such Interest Period.
"Eurodollar Loans": Loans the rate of interest applicable to which is
----------------
based upon the Eurodollar Rate.
"Eurodollar Rate": with respect to each day during each Interest
---------------
Period pertaining to a Eurodollar Loan, a rate per annum determined for
such day in accordance with the following formula (rounded upward to the
nearest 1/100th of 1%):
Eurodollar Base Rate
------------------------------------------
1.00 - Eurocurrency Reserve Requirements
"Event of Default": any of the events specified in Article XI,
----------------
provided that all requirements for the giving of notice, the lapse of time,
--------
or both, or any other condition, have been satisfied.
"Excluded Foreign Subsidiary": collectively, (i) any Foreign
---------------------------
Subsidiary which is not a Significant Subsidiary, (ii) any Foreign
Subsidiary listed under the heading "Excluded Foreign Subsidiaries on the
Closing Date" in Schedule VI, (iii) any Foreign Subsidiary (and any
Domestic Subsidiary which is a Subsidiary of an Excluded Foreign
Subsidiary) if the pledge of more than 65% of the Capital Stock of such
Foreign Subsidiary (or Domestic Subsidiary, as the case may be) or the
execution by such Foreign Subsidiary (or Domestic Subsidiary, as the case
may be) of a Subsidiary Guarantee would, in the good faith judgment of the
Company, result in adverse tax consequences to the Company or would be
unlawful for such Foreign Subsidiary (or Domestic Subsidiary, as the case
may be) and (iv) any other Foreign Subsidiary, if the Administrative Agent
has determined that the value of the security afforded by a pledge of the
stock thereof would be disproportionate to the expense or difficulty of
obtaining such security interest.
-12-
<PAGE>
"Existing Accounts Receivable Financing Program": the collective
----------------------------------------------
reference to (i) the Receivable Interest Purchase Agreement dated as of
November 20, 1998, among the Receivables Subsidiary, as Seller, the
Company, as servicer, Falcon Asset Securitization Corporation as a
purchaser, the financial institutions from time to time party thereto as
investors and The First National Bank of Chicago, as agent, (ii) the
Receivables Sale and Contribution Agreement dated as of November 20, 1998,
between the Company, Carter Automotive Company, Inc. and Federal-Mogul
Canada Limited as the originators and the Receivables Subsidiary as the
buyer, and (iii) all other documents entered into in connection with any of
the foregoing, as each of the foregoing are amended, restated,
supplemented, renewed, refinanced or otherwise modified from time to time.
"Existing Credit Agreements": as defined in the recitals hereto.
--------------------------
"Existing Plan": any Plan existing on the date of this Agreement
-------------
without giving effect to any amendment thereof made after the date of this
Agreement.
"Facility": each of (a) the Tranche A Term Loan Commitments and the
--------
Tranche A Term Loans made thereunder (the "Tranche A Term Loan Facility"),
(b) the Tranche B Term Loan Commitments and the Tranche B Term Loans made
thereunder (the "Tranche B Term Loan Facility"), (c) the US$ Revolving
Credit Commitments and the extensions of credit (including the Swing Line
Loans) made thereunder (the "US$ Revolving Credit Facility"), (d) the
Multicurrency Revolving Credit Commitments and the Multicurrency Revolving
Credit Loans made thereunder (the "Multicurrency Revolving Credit
Facility") and (e) the Additional US$ Revolving Credit Commitments and the
Additional US$ Revolving Credit Loans made thereunder (the "Additional US$
Revolving Credit Facility").
"Facility Fee Rate": 0.375% per annum; provided, that on and after
----------------- --------
the first Adjustment Date occurring after the Closing Date, the Facility
Fee Rate will be determined pursuant to the Pricing Grid.
"Federal Funds Effective Rate": for any day, the weighted average of
----------------------------
the rates per annum on overnight federal funds transactions with members of
the Federal Reserve System arranged by federal funds brokers, as published
on the next succeeding Business Day by the Federal Reserve Bank of New
York, or, if such rate is not so published for any day which is a Business
Day, the average of the quotations for the day of such transactions
received by the Administrative Agent from three federal funds brokers of
recognized standing selected by it, in each case rounded up to the nearest
1/100th of 1%.
"Fel-Pro Acquisition": the acquisition of Fel-Pro Master General
-------------------
Partnership and related entities and assets.
-13-
<PAGE>
"Foreign Subsidiary": any Subsidiary of the Company other than a
------------------
Domestic Subsidiary.
"Foreign Subsidiary Borrower": each Foreign Subsidiary listed as a
---------------------------
Foreign Subsidiary Borrower in Schedule II as amended from time to time in
accordance with Section 13.01(b).
"Foreign Subsidiary Opinion": with respect to any Foreign Subsidiary
--------------------------
Borrower, a legal opinion of counsel to such Foreign Subsidiary Borrower
addressed to the Administrative Agent and the Lenders concluding that such
Foreign Subsidiary Borrower and the Loan Documents to which it is a party
substantially comply with the matters listed on Exhibit I, with such
assumptions, qualifications and deviations therefrom as the Administrative
Agent shall approve (such approval not to be unreasonably withheld).
"Funded Debt": all Indebtedness of the Company and its Subsidiaries
-----------
on a consolidated basis maturing one year or more after incurrence thereof
or that matures within one year from the date on which it was created, but
is renewable or extendible under terms such that under GAAP such
Indebtedness would be treated as long-term indebtedness.
"GAAP": generally accepted accounting principles in the United States
----
of America in effect from time to time; provided, that if at any time after
--------
the date hereof there shall occur any change in respect of such generally
accepted accounting principles from those used in the preparation of the
audited financial statements of the Company for the fiscal year ended
December 31, 1997 in a manner which would have a material effect on any
matter which is material to Article IX, the Company and the Administrative
Agent will, within five Business Days of a notice from the Administrative
Agent or the Company, as the case may be, to that effect, commence, and
continue in good faith, negotiations with a view towards making appropriate
amendments to the provisions hereof acceptable to the Required Lenders, to
reflect as nearly as possible the effect of the provisions of Article IX as
in effect on the date hereof.
"Governmental Authority": any nation or government, any state, or
----------------------
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Guaranty": any guaranty by any Person of Indebtedness or other
--------
obligations of any other Person that is not a consolidated subsidiary of
such Person or any assurance with respect to the financial condition of any
other Person that is not a consolidated subsidiary of such Person
(including, without limitation, any purchase or repurchase agreement, any
indemnity or any keep-well, take-or-pay, through-put or other arrangement
having the effect of assuring or holding harmless any third Person against
loss with respect to any Indebtedness or other obligation of such other
Person) except endorsements of negotiable instruments for collection in the
ordinary course of business.
-14-
<PAGE>
"Indebtedness": with respect to any Person, (a) all indebtedness for
------------
borrowed money of such Person which in accordance with GAAP would be shown
as a liability on the balance sheet of such Person, (b) obligations of
such Person under leases which, in accordance with GAAP, are to be recorded
as capital leases, (c) all unreimbursed amounts owing by such Person in
respect of letters of credit and (d) all indebtedness of such Person
evidenced by bonds, debentures, notes or similar instruments; provided,
--------
however, that the term "Indebtedness" shall not include short-term
-------
obligations payable to suppliers incurred in the ordinary course of
business or indebtedness incurred by a special purpose, Wholly Owned
Subsidiary of the Company that purchases accounts receivable from the
Company and its other Subsidiaries to the extent that such indebtedness is
nonrecourse to the Company and each such other Subsidiary and is not
required under GAAP to be reflected on the consolidated balance sheet of
the Company.
"Indentures": (i) the Indenture, dated as of August 12, 1994, between
----------
the Company and First Trust National Association (as successor to
Continental Bank), as trustee, (ii) the Indenture, dated as of June 29,
1998, between the Company and The Bank of New York, as trustee and (iii)
the Indenture, dated as of January 20, 1999, among the Company, the
guarantors and The Bank of New York, as trustee, each as subsequently
amended in accordance with the terms hereof and thereof .
"Insignificant Subsidiary": any Subsidiary designated as such by
------------------------
written notice from the Company to the Administrative Agent; provided, that
--------
(i) no Subsidiary may be designated as an Insignificant Subsidiary unless
(A) as at the end of the fiscal quarter most recently ended prior to such
designation the aggregate book value of the assets of such Subsidiary
(including stock of Subsidiaries of such Subsidiary) constitutes not more
than 5% of the book value of the consolidated assets of the Company and its
Subsidiaries taken as a whole and (B) during the period of four consecutive
fiscal quarters most recently ended prior to the date of such designation
the contribution of such Subsidiary to Consolidated EBITDA was not more
than 5% and (ii) no Subsidiary may be designated as an Insignificant
Subsidiary if, after giving effect thereto, (A) the total book value of all
assets of all Insignificant Subsidiaries (including stock of Subsidiaries
of such Subsidiary) as of the end of the fiscal quarter most recently ended
constituted more than 15% of the book value of the consolidated assets of
the Company and its Subsidiaries taken as a whole and (B) the total
contribution of all Insignificant Subsidiares to Consolidated EBITDA for
the four consecutive fiscal quarters most recently ended was more than 15%.
"Insolvency": with respect to any Multiemployer Plan, the condition
----------
that such Plan is insolvent within the meaning of Section 4245 of ERISA.
"Insolvent": pertaining to a condition of Insolvency.
---------
-15-
<PAGE>
"Intangible Assets": assets having no physical existence and that, in
-----------------
conformity with GAAP, should be classified as intangible assets, including,
without limitation, patents, patent rights, trademarks, trade names,
copyrights, franchises, licenses, customer lists, organizational expenses
and goodwill.
"Intellectual Property": as defined in Section 6.09.
---------------------
"Interest Expenses": with respect to any period, the aggregate of all
-----------------
interest expense reported by the Company and its Subsidiaries in accordance
with GAAP during such period. As used in this definition, the term
"interest" shall include, without limitation, all interest, fees and costs
payable with respect to the obligations under this Agreement (other than
fees and costs which may be capitalized as transaction costs in accordance
with GAAP), any discount in respect of sales of accounts receivable and/or
related contract rights and the interest portion of capitalized lease
payments during such period, all as determined in accordance with GAAP.
"Interest Payment Date": (a) as to any Base Rate Loan, the last day
---------------------
of each March, June, September and December to occur while such Loan is
outstanding, (b) as to any Eurodollar Loan or Multicurrency Revolving
Credit Loan having an Interest Period of three months or less, the last day
of such Interest Period and (c) as to any Eurodollar Loan or Multicurrency
Revolving Credit Loan having an Interest Period longer than three months,
(i) each day which is three months, or a whole multiple thereof, after the
first day of such Interest Period and (ii) the last day of such Interest
Period.
"Interest Period": with respect to any Eurodollar Loan or
---------------
Multicurrency Revolving Credit Loan:
(a) initially, the period commencing on the borrowing or conversion
date, as the case may be, with respect to such Eurodollar Loan or
Multicurrency Revolving Credit Loan and ending one, two, three, or six or
(if available) twelve months thereafter, as selected by the relevant
Borrower in its notice of borrowing or notice of conversion, as the case
may be, given with respect thereto; and
(b) thereafter, each period commencing on the last day of the next
preceding Interest Period applicable to such Eurodollar Loan or
Multicurrency Revolving Credit Loan and ending one, two, three, six or (if
available) twelve months thereafter, as selected by the relevant Borrower
by irrevocable notice to the Administrative Agent not less than three
Business Days prior to the last day of the then current Interest Period
with respect thereto;
provided that, all of the foregoing provisions relating to Interest Periods
--------
are subject to the following:
-16-
<PAGE>
(i) if any Interest Period pertaining to a Eurodollar Loan
or Multicurrency Revolving Credit Loan would otherwise end on a day
that is not a Business Day, such Interest Period shall be extended to
the next succeeding Business Day unless the result of such extension
would be to carry such Interest Period into another calendar month in
which event such Interest Period shall end on the immediately
preceding Business Day;
(ii) any Interest Period applicable to a Eurodollar Loan or
Multicurrency Revolving Credit Loan that would otherwise extend beyond
the Revolving Credit Termination Date shall end on the Revolving
Credit Termination Date;
(iii) any Interest Period pertaining to a Eurodollar Loan or
Multicurrency Revolving Credit Loan that begins on the last Business
Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Business Day of a calendar month; and
(iv) each Borrower shall use reasonable efforts to select
Interest Periods which permit the required installments to be made on
the Term Loans so as not to require a payment or prepayment of any
Eurodollar Loan during an Interest Period for such Eurodollar Loan.
"Investments": as defined in Section 9.11.
-----------
"Joinder Agreement": the Joinder Agreement to be entered into by each
-----------------
Foreign Subsidiary Borrower subsequent to the date hereof pursuant to
Section 13.01(b)(i), substantially in the form of Exhibit E.
"Judgment Currency": as defined in Section 13.17(b).
-----------------
"Lenders": as defined in the preamble hereto.
-------
"Lien": (i) any judgment lien or execution, attachment, levy,
----
distraint or similar legal process and (ii) any mortgage, pledge,
hypothecation, assignment, lien, charge, encumbrance or other security
interest of any kind or nature whatsoever (including, without limitation,
the interest of the lessor under any capital lease and the interest of the
seller under any conditional sale or other title retention agreement),
which secures or purports to secure any Indebtedness or other indebtedness
or obligations.
"Loan Documents": this Agreement, any Notes, the Security Documents,
--------------
the Subsidiary Guarantees and the Trust Agreement.
"Loan Parties": the Company and each Subsidiary of the Company which
------------
is a party to a Loan Document.
-17-
<PAGE>
"Loans": the collective reference to the US$ Revolving Credit Loans,
-----
the Swing Line Loans, the Term Loans, the Multicurrency Revolving Credit
Loans and the Additional US$ Revolving Credit Loans.
"London Banking Day": any day on which banks in London are open for
------------------
general banking business, including dealings in foreign currency and
exchange.
"Majority Additional US$ Revolving Credit Facility Lenders": the
---------------------------------------------------------
Majority Facility Lenders in respect of the Additional US$ Revolving Credit
Facility.
"Majority Aggregate Revolving Credit Facility Lenders": the holders
----------------------------------------------------
of more than 50% of the aggregate unpaid principal amount of the total US$
Revolving Extensions of Credit, the Aggregate Multicurrency Revolving
Credit Exposure and the Additional US$ Revolving Credit Loans (or, prior to
any termination of the US$ Revolving Credit Commitments, the Multicurrency
Revolving Credit Commitments or the Additional US$ Revolving Credit
Commitments, the holders of more than 50% of the aggregate US$ Revolving
Credit Commitments, the Multicurrency Revolving Credit Commitments and the
Additional US$ Revolving Credit Commitments).
"Majority Facility Lenders": with respect to any Facility, the
-------------------------
holders of more than 50% of the aggregate unpaid principal amount of the
Term Loans, the total US$ Revolving Extensions of Credit, the Aggregate
Multicurrency Revolving Credit Exposure or the Additional US$ Revolving
Credit Loans, as the case may be, outstanding under such Facility (or, in
the case of (a) the US$ Revolving Credit Facility, prior to any termination
of the US$ Revolving Credit Commitments, the holders of more than 50% of
the aggregate US$ Revolving Credit Commitments, (b) the Multicurrency
Revolving Credit Facility, prior to any termination of the Multicurrency
Revolving Credit Commitments, the holders of more than 50% of the aggregate
Multicurrency Revolving Credit Commitments or (c) the Additional US$
Revolving Credit Facility, prior to any termination of the Additional US$
Revolving Credit Commitments, the holders of more than 50% of the aggregate
Additional US$ Revolving Credit Commitments).
"Majority Multicurrency Revolving Credit Facility Lenders": the
--------------------------------------------------------
Majority Facility Lenders in respect of the Multicurrency Revolving Credit
Facility.
"Majority US$ Revolving Credit Facility Lenders": the Majority
----------------------------------------------
Facility Lenders in respect of the US$ Revolving Credit Facility.
"Material Adverse Effect": a material adverse effect on (a) the
-----------------------
business, operations, property, condition (financial or otherwise) or
prospects of the Company and its Subsidiaries taken as a whole, (b) the
ability of any Borrower to perform its obligations under this Agreement or
any of the Notes or any of the other Loan Documents to which it is a party
or (c) the validity or enforceability of this Agreement or any of the
-18-
<PAGE>
Notes or any of the other Loan Documents or the rights or remedies of the
Administrative Agent or the Lenders hereunder or thereunder.
"Materials of Environmental Concern": any gasoline or petroleum
----------------------------------
(including crude oil or any fraction thereof) or petroleum products or any
hazardous or toxic substances, materials or wastes, defined or regulated as
such in or under any Environmental Law, including, without limitation,
asbestos, polychlorinated biphenyls and urea-formaldehyde insulation.
"Minority Interest": the minority interest of Persons other than the
-----------------
Company and its Subsidiaries in the Company's Subsidiaries as shown from
time to time in the most recent consolidated balance sheet of the Company
and its Subsidiaries.
"Moody's Bond Rating": for any day, the rating of the Company's
-------------------
senior long-term unsecured debt by Moody's Investor Service, Inc.
("Moody's") in effect at 11:00 A.M., New York City time, on such day.
"Multicurrency Reference Lenders": Chase, Fleet National Bank N.A.
-------------------------------
and Credit Lyonnais Chicago Branch.
"Multicurrency Revolving Credit Borrowing": a borrowing comprised of
----------------------------------------
Multicurrency Revolving Credit Loans.
"Multicurrency Revolving Credit Commitment": with respect to any
-----------------------------------------
Lender at any time, the commitment (if any) of such Lender to make Loans
pursuant to Section 4.01. The amount of each Lender's Multicurrency
Revolving Credit Commitment is the amount set forth opposite such Lender's
name in Schedule I under the caption "Multicurrency Revolving Credit
Commitment", as such amount may be changed from time to time pursuant to
this Agreement. The Multicurrency Revolving Credit Commitment of each
Lender shall always be expressed in Dollars.
"Multicurrency Revolving Credit Exposure": with respect to any
---------------------------------------
Multicurrency Revolving Credit Lender at any time, the Assigned Dollar
Value at such time of all outstanding Multicurrency Revolving Credit Loans
of such Lender.
"Multicurrency Revolving Credit Facility": as defined in the
---------------------------------------
definition of "Facility".
"Multicurrency Revolving Credit Lender": a Lender with a
-------------------------------------
Multicurrency Revolving Credit Commitment or holding Multicurrency
Revolving Credit Loans.
"Multicurrency Revolving Credit Loan": any Loan made by a Lender
-----------------------------------
pursuant to its Multicurrency Revolving Credit Commitment.
-19-
<PAGE>
"Multicurrency Revolving Credit Percentage": as to any Multicurrency
-----------------------------------------
Revolving Credit Lender at any time, the percentage which such Lender's
Multicurrency Revolving Credit Commitment then constitutes of the Total
Multicurrency Revolving Credit Commitments (or, at any time after the
Multicurrency Revolving Credit Commitments shall have expired or
terminated, the percentage which the aggregate principal amount of such
Lender's Multicurrency Revolving Credit Loans then outstanding constitutes
of the aggregate principal amount of the Multicurrency Revolving Credit
Loans then outstanding).
"Multiemployer Plan": a Plan which is a multiemployer plan as defined
------------------
in Section 4001(a)(3) of ERISA or any successor statute.
"National Currency Unit": the unit of currency (other than a euro
----------------------
unit) of a Participating Member State.
"Netherlands BV I": Federal-Mogul Holdings B.V., a Netherlands
----------------
corporation.
"Netherlands BV II": Federal-Mogul Global B.V., a Netherlands
-----------------
corporation.
"Netherlands BV III": Federal-Mogul Investments B.V., a Netherlands
------------------
corporation.
"Netherlands BV IV": Federal-Mogul Growth B.V., a Netherlands
-----------------
corporation.
"Non-Excluded Taxes": as defined in Section 5.11(a).
------------------
"Notes": the collective reference to the Revolving Credit Notes and
-----
the Term Notes.
"Obligations": collectively, the unpaid principal of and interest on
-----------
the Loans and all other obligations and liabilities of each Foreign
Subsidiary Borrower under this Agreement and the other Loan Documents
(including, without limitation, interest accruing at the then applicable
rate provided in this Agreement or any other applicable Loan Document after
the maturity of the Loans and interest accruing at the then applicable rate
provided in this Agreement or any other applicable Loan Document after the
filing of any petition in bankruptcy, or the commencement of any
insolvency, reorganization or like proceeding, relating to the Company or
any Foreign Subsidiary Borrower, whether or not a claim for post-filing or
post-petition interest is allowed in such proceeding), whether direct or
indirect, absolute or contingent, due or to become due, or now existing or
hereafter incurred, which may arise under, out of, or in connection with,
this Agreement, the Notes, the other Loan Documents or any other document
made, delivered or given in connection therewith, in each case whether on
account of principal, interest, reimbursement obligations, fees,
indemnities, costs, expenses or otherwise (including, without limitation,
all fees and disbursements of counsel to the Administrative
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<PAGE>
Agent or to the Lenders that are required to be paid by any Borrower
pursuant to the terms of this Agreement or any other Loan Document).
"Other Permitted Obligations": the sum, without duplication of, (i)
---------------------------
the aggregate outstanding principal amount of Indebtedness permitted by
Section 9.05(h), (ii) the aggregate outstanding principal amount of all
obligations guaranteed pursuant to Section 9.06(i), (iii) the aggregate
attributable debt (determined in accordance with GAAP) of all sale and
leaseback transactions consummated pursuant to clause (ii) of the proviso
to Section 9.13 and (iv) the aggregate amount of all Secured Reimbursement
Obligations.
"Participating Member State": any member state which has the euro as
--------------------------
its lawful currency.
"Participants": as defined in Section 13.06(b).
------------
"PBGC": the Pension Benefit Guaranty Corporation established pursuant
----
to Subtitle A of Title IV of ERISA or any successor corporation.
"Permitted Acquisition": any acquisition by the Company or any of its
---------------------
Subsidiaries of all of the Capital Stock or all or substantially all of the
assets of any Person or of a business unit of any Person, so long as (i)
such Person or business unit is engaged in the same line of business as
engaged in by the Company and its Subsidiaries on the Closing Date, or in a
directly related line of business; (ii) no Default or Event of Default
shall have occurred and be continuing at the time of consummation of such
acquisition or, if earlier, at the time of the execution of definitive
documentation for such acquisition; (iii) the Company shall be in pro forma
compliance with the financial covenants contained in Sections 9.01, 9.02
and 9.03 after giving pro forma effect to such acquisition and the
--- -----
incurrence of any Indebtedness in connection therewith as if such
transaction has occurred on the first day of the period of four consecutive
fiscal quarters most recently ended prior to such acquisition; (iv) the
Consolidated Leverage Ratio shall in any event be less than 4.0 to 1.0
after giving pro forma effect to such acquisition and the incurrence of any
--- -----
Indebtedness in connection therewith; (v) such acquisition and the
incurrence of any Indebtedness in connection therewith shall not result in
any violation of Regulations U, T or X of the Board; and (vi) such
acquisition shall have been approved by the board of directors or analogous
governing body of such Person.
"Permitted Acquisition Debt": Indebtedness of the Company which is
--------------------------
incurred to finance a Permitted Acquisition and which may be secured by the
Collateral and guaranteed pursuant to the Subsidiary Guarantees so long as
(i) the terms of such Indebtedness shall be satisfactory to the
Administrative Agent and (ii) to the extent any such Indebtedness is
secured by any assets of the Company or any of its Subsidiaries (including
any Subsidiary acquired in such Permitted Acquisition) or guaranteed by the
Company or any of such Subsidiaries, the Loans shall be secured and
guaranteed on an equal and ratable basis with any such Indebtedness, except
to the extent the
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<PAGE>
Administrative Agent determines that the granting of such security
interests and guarantees would be prohibited by applicable law or
contractual provisions, would cause material adverse tax consequences to
the Company or any of its Subsidiaries or would cause the Company or any of
its Subsidiaries to incur costs which are excessive in relation to the
value of the security to be afforded thereby.
"Permitted Bridge Acquisition Debt": Permitted Acquisition Debt
---------------------------------
having an original tenor of eighteen months or less.
"Permitted Other Acquisition Debt": all Permitted Acquisition Debt
--------------------------------
other than Permitted Bridge Acquisition Debt.
"Person": an individual, partnership, corporation, business trust,
------
joint stock company, trust, unincorporated association, joint venture,
Governmental Authority or other entity of whatever nature.
"Plan": at a particular time, any employee benefit plan which is
----
covered by ERISA and in respect of which the Company or a Commonly
Controlled Entity is (or, if such plan were terminated at such time, would
under Section 4069 of ERISA be deemed to be) an "employer" as defined in
Section 3(5) of ERISA.
"Pledge Agreements": the collective reference to (i) the Domestic
-----------------
Pledge Agreement, (ii) the Pledge Agreements described on Schedule V and
(iii) other pledge agreements in form and substance reasonably satisfactory
to the Administrative Agent pursuant to which shares of Subsidiaries may be
pledged from time to time, in each case, as the same may be amended,
supplemented or otherwise modified.
"Pledged Stock": the Capital Stock pledged pursuant to a Pledge
-------------
Agreement.
"Pricing Grid": the pricing grid attached hereto as Annex A.
------------
"Prime Rate": the rate of interest per annum publicly announced from
----------
time to time by Chase as its prime rate in effect at its principal office
in New York City (each change in the Prime Rate to be effective on the date
such change is publicly announced). The Prime Rate is not intended to be
the lowest rate of interest charged by Chase in connection with extensions
of credit to debtors.
"Prohibited Transaction": any "prohibited transaction" as defined in
----------------------
Section 406 of ERISA or Section 4975 of the Code.
"Properties": as defined in Section 6.16(a).
----------
"Property": any right or interest in or to property of any kind
--------
whatsoever, whether real, personal or mixed and whether tangible or
intangible, including without limitation, Capital Stock.
-22-
<PAGE>
"Receivables Subsidiary": Federal-Mogul Funding Corporation, a
----------------------
Michigan corporation.
"Reference Lenders": the collective reference to the Domestic
-----------------
Reference Lenders and the Multicurrency Reference Lenders.
"Register": as defined in Section 13.06(d).
--------
"Reorganization": with respect to any Multiemployer Plan, the
--------------
condition that such plan is in reorganization within the meaning of Section
4241 of ERISA.
"Replacement Lender": a bank or financial institution (other than a
------------------
Subsidiary of the Company) acceptable to the Administrative Agent and the
Company.
"Reportable Event": any of the events set forth in Section 4043(b) of
----------------
ERISA or the regulations thereunder.
"Required Lenders": the holders of more than 50% of the sum of (a)
----------------
the aggregate unpaid principal amount of the Term Loans, Additional US$
Revolving Credit Loans, Multicurrency Revolving Credit Loans and US$
Revolving Extensions of Credit and (b) the unutilized Additional US$
Revolving Credit Commitments, Multicurrency Revolving Credit Commitments
and US$ Revolving Credit Commitments.
"Requirement of Law": as to any Person, the certificate of
------------------
incorporation and by-laws or other organizational or governing documents of
such Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case
applicable to or binding upon such Person or any of its property or to
which such Person or any of its property is subject.
"Reset Date": as defined in Section 4.03(b).
----------
"Responsible Officer": (i) as to the Company, the chief executive
-------------------
officer, the president, the chief financial officer, the treasurer, any
assistant treasurer or the controller of the Company and (ii) as to any
other Borrower, those of its officers or representatives whose signatures
and incumbency shall have been certified to the Administrative Agent and
the Lenders pursuant to Section 7.01(c) or 7.02(e).
"Revolving Credit Commitments": the collective reference to the US$
----------------------------
Revolving Credit Commitments, the Additional US$ Revolving Credit
Commitments and the Multicurrency Revolving Credit Commitments. The
original aggregate amount of the Revolving Credit Commitments, as of the
Closing Date, is $1,000,000,000.
-23-
<PAGE>
"Revolving Credit Commitment Period": the period from and including
----------------------------------
the Closing Date to but not including the Revolving Credit Termination
Date, or such earlier date on which the Revolving Credit Loans shall
terminate as provided herein.
"Revolving Credit Facility": the collective reference to the US$
-------------------------
Revolving Credit Facility, Multicurrency Revolving Credit Facility and
Additional US$ Revolving Credit Facility.
"Revolving Credit Lender": each Lender which has a Revolving Credit
-----------------------
Commitment or which has made Revolving Credit Loans.
"Revolving Credit Loan": the collective reference to US$ Revolving
---------------------
Credit Loans, Multicurrency Revolving Credit Loans and Additional US$
Revolving Credit Loans.
"Revolving Credit Termination Date": the date which is five years
---------------------------------
after the Closing Date.
"Secured Obligations": as defined in each Security Document, as
-------------------
applicable.
"Secured Reimbursement Obligations": at any time, the aggregate
---------------------------------
undrawn face amount of, plus the aggregate unreimbursed amount of all
drawings under, all letters of credit issued by any Lender for the account
of any Borrower, other than any such letter of credit in respect of which
the issuing Lender shall have delivered a written acknowledgement to the
Administrative Agent to the effect that the obligations of the account
party in respect of such letter of credit shall not be secured pursuant to
the Security Documents or guaranteed pursuant to a Subsidiary Guarantee.
"Security Documents": the collective reference to the Pledge
------------------
Agreements, the Trust Agreement, and all other security documents hereafter
delivered to the Administrative Agent (or the Trustee, as the case may be)
granting a Lien on any Property of any Person to secure the obligations and
liabilities of any Loan Party under any Loan Document.
"Significant Subsidiary": any Subsidiary other than an Insignificant
----------------------
Subsidiary.
"Single Employer Plan": any Plan which is covered by Title IV of
--------------------
ERISA, but which is not a Multiemployer Plan.
"Solvent": when used with respect to any Person, means that, as of
-------
any date of determination, (a) the amount of the "present fair saleable
value" of the assets of such Person will, as of such date, exceed the
amount of all "liabilities of such Person, contingent or otherwise", as of
such date, as such quoted terms are determined in accordance with
applicable federal and state laws governing determinations of the
-24-
<PAGE>
insolvency of debtors, (b) the present fair saleable value of the assets of
such Person will, as of such date, be greater than the amount that will be
required to pay the liability of such Person on its debts as such debts
become absolute and matured, (c) such Person will not have, as of such
date, an unreasonably small amount of capital with which to conduct its
business, and (d) such Person will be able to pay its debts as they mature.
For purposes of this definition, (i) "debt" means liability on a "claim",
and (ii) "claim" means any (x) right to payment, whether or not such a
right is reduced to judgment, liquidated, unliquidated, fixed, contingent,
matured, unmatured, disputed, undisputed, legal, equitable, secured or
unsecured or (y) right to an equitable remedy for breach of performance if
such breach gives rise to a right to payment, whether or not such right to
an equitable remedy is reduced to judgment, fixed, contingent, matured or
unmatured, disputed, undisputed, secured or unsecured.
"Special Purpose Subsidiaries": the collective reference to U.S.
----------------------------
Finance Subsidiary I, U.S. Finance Subsidiary II, U.S. Finance Subsidiary
III, Netherlands BV I, Netherlands BV II, Netherlands BV III, Netherlands
BV IV, U.K. Acquisition I and U.K. Acquisition II.
"Spot Exchange Rate": with respect to any Available Foreign Currency,
------------------
at any date of determination thereof, the spot rate of exchange in London
that appears on the display page applicable to such Available Foreign
Currency on the Reuters System (or such other page as may replace such page
on such service for the purpose of displaying the spot rate of exchange in
London) for the conversion of such Available Foreign Currency into Dollars;
provided that if there shall at any time no longer exist such a page on
--------
such service, the spot rate of exchange shall be determined by reference to
another similar rate publishing service selected by the Administrative
Agent and if no such similar rate publishing service is available, by
reference to the published rate of the Administrative Agent in effect at
such date for similar commercial transactions.
"S&P Bond Rating": for any day, the rating of the Company's senior
---------------
long-term unsecured debt by Standard & Poor's Ratings Service ("S&P") in
effect at 11:00 A.M., New York City time, on such day.
"Subordinated Debt": unsecured Indebtedness of the Company having a
-----------------
final maturity date at least 91 days after the final maturity date of the
Tranche B Term Loans and a weighted average life at least as long as the
weighted average life of the Tranche B Term Loans, and having subordination
terms acceptable to the Administrative Agent, acting reasonably.
"Subsequent Participant": any member state that adopts the euro as
----------------------
its lawful currency after January 1, 1999.
"Subsidiary": at any particular time, any Person which could be
----------
included as a consolidated subsidiary of the Company in the financial
statements prepared and filed
-25-
<PAGE>
with the Company's annual reports on Form 10-K under the Securities
Exchange Act of 1934, as amended, if such financial statements were
prepared at, and as of, such time. Unless otherwise qualified, all
references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall
refer to a Subsidiary or Subsidiaries of the Company.
"Subsidiary Guarantees": the collective reference to the Amended and
---------------------
Restated Domestic Subsidiary Guarantee and the U.K. Acquisition I
Guarantee, and any other guarantee by a Subsidiary of the Indebtedness and
obligations of the Borrowers hereunder that may be executed and delivered
to the Administrative Agent hereunder.
"Swing Line Commitment": as to the Swing Line Lender, in its capacity
---------------------
as a Swing Line Lender, its obligation to make Swing Line Loans to the
Company in an aggregate principal amount not to exceed, at any one time
outstanding $50,000,000.
"Swing Line Lender": Chase, in its capacity as provider of the Swing
-----------------
Line Loans.
"Swing Line Loan": as defined in Section 2.05.
---------------
"Swing Line Loans": as defined in Section 2.05.
----------------
"Target Operating Day": any day that is not (a) a Saturday or Sunday,
--------------------
(b) Christmas Day or New Year's Day or (c) any other day on which the
Trans-European Real-time Gross Settlement Operating System (or any
successor settlement system) is not operating (as determined by the
Administrative Agent).
"T & N Acquisition": the acquisition by the Company, through an
-----------------
indirect Wholly Owned Subsidiary, of T & N plc.
"T & N Industries": T & N Industries, Inc., a Delaware corporation.
----------------
"T & N plc": T & N plc, a company organized under the laws of
---------
England.
"Term Loan Commitments": the collective reference to the Tranche A
---------------------
Term Loan Commitments and the Tranche B Term Loan Commitments.
"Term Loan Lenders": the collective reference to the Tranche A Term
-----------------
Loan Lenders and the Tranche B Term Loan Lenders.
"Term Loans": the collective reference to the Tranche A Term Loans
----------
and the Tranche B Term Loans.
"Total Multicurrency Revolving Credit Commitments": at any time, the
------------------------------------------------
aggregate amount of the Multicurrency Revolving Credit Commitments, as in
effect at such time. The Total Multicurrency Revolving Credit Commitments
on the Closing Date is $125,000,000.
-26-
<PAGE>
"Total US$ Revolving Credit Commitments": at any time, the aggregate
--------------------------------------
amount of the US$ Revolving Credit Commitments, as in effect at such time.
The Total US$ Revolving Credit Commitments on the Closing Date is
$875,000,000.
"Tranche": the collective reference to Eurodollar Loans or
-------
Multicurrency Revolving Credit Loans of any Class the then current Interest
Periods with respect to all of which begin on the same date and end on the
same later date (whether or not such Loans shall originally have been made
on the same day).
"Tranche A Term Loans": as defined in Section 3.01.
--------------------
"Tranche A Term Loan Commitment": as to any Lender, the obligation of
------------------------------
such Lender, if any, to make a Tranche A Term Loan to the Company hereunder
in a principal amount not to exceed the amount set forth under the heading
"Tranche A Term Loan Commitment" opposite such Lender's name on Schedule I.
"Tranche A Term Loan Exposure": as to any Tranche A Term Loan Lender
----------------------------
at any time, the aggregate outstanding principal amount of the Tranche A
Term Loans of such Tranche A Term Loan Lender at such time.
"Tranche A Term Loan Lender": each Lender which has a Tranche A Term
--------------------------
Loan Commitment or which has made a Tranche A Term Loan.
"Tranche A Term Loan Percentage": as to any Tranche A Term Loan
------------------------------
Lender at any time, the percentage which such Lender's Tranche A Term Loan
Exposure then constitutes of the aggregate Tranche A Term Loan Exposures.
"Tranche B Term Loans": as defined in Section 3.01.
--------------------
"Tranche B Term Loan Commitment": as to Tranche B Term Loan Lender,
------------------------------
the obligation of such Lender, if any, to make a Tranche B Term Loan to the
Company hereunder in a principal amount not to exceed the amount set forth
under the heading "Tranche B Term Loan Commitment" opposite such Lender's
name on Schedule I.
"Tranche B Term Loan Exposure": as to any Tranche B Term Loan Lender
----------------------------
at any time, the aggregate outstanding principal amount of the Tranche B
Term Loans of such Tranche B Term Loan Lender at such time.
"Tranche B Term Loan Lender": each Lender which has a Tranche B Term
--------------------------
Loan Commitment or which has made a Tranche B Term Loan.
-27-
<PAGE>
"Tranche B Term Loan Percentage": as to any Tranche B Term Loan
------------------------------
Lender at any time, the percentage which such Lender's Tranche B Term Loan
Exposure then constitutes of the aggregate Tranche B Term Loan Exposures.
"Transferee": as defined in Section 13.06(f).
----------
"Treaty on European Union": the Treaty of Rome of March 25, 1957, as
------------------------
amended by the Single European Act 1986 and the Maastricht Treaty (which
was signed at Maastricht on February 7, 1992, and came into force on
November 1, 1993), as amended from time to time.
"Trust Agreement": each of (or, where the context requires, both of)
---------------
(i) the Amended and Restated Trust Agreement, dated as of February 24,1999,
among the Company, certain Subsidiaries of the Company and First Union
National Bank, substantially in the form of Exhibit D-2 and (ii) the
Amended and Restated Trust Agreement, dated as of February 24, 1999, among
the Company, certain Subsidiaries of the Company, and ABN AMRO Trust
Company (Jersey) Limited, substantially in the form of Exhibit D-1, in each
case as amended, amended and restated, supplemented or otherwise modified
from time to time.
"Trustee": each of (or, where the context requires, both of) (i) ABN
-------
AMRO Trust Company (Jersey) Limited and (ii) First Union National Bank, in
its respective capacity as Trustee under a Trust Agreement.
"Type": as to any Revolving Credit Loan or Term Loan, its nature as a
----
Base Rate Loan or a Eurodollar Loan.
"U.K. Acquisition I": F-M UK Holding Limited, a company organized
------------------
under the laws of England.
"U.K. Acquisition I Guarantee": the Guarantee to be made on or prior
----------------------------
to the date which is 120 days following the Closing Date by U.K.
Acquisition I in favor of Chase, as amended, amended and restated,
supplemented or otherwise modified from time to time.
"U.K. Acquisition II": Federal-Mogul Global Growth Limited, a company
-------------------
organized under the laws of England.
"US$ Revolving Credit Borrowing": a borrowing comprised of US$
------------------------------
Revolving Credit Loans.
"US$ Revolving Credit Commitment": with respect to any Lender, the
-------------------------------
commitment (if any) of such Lender to make US$ Revolving Credit Loans
pursuant to Section 2.01, and to acquire participations in Swing Line Loans
pursuant to Section 2.09. The amount of each Lender's US$ Revolving Credit
Commitment is the amount set forth
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<PAGE>
opposite such Lender's name in Schedule I under the caption "US$ Revolving
Credit Commitment", as such amount may be changed from time to time
pursuant to this Agreement.
"US$ Revolving Credit Facility": as defined in the definition of
-----------------------------
"Facility".
"US$ Revolving Credit Lender": a Lender with a US$ Revolving Credit
---------------------------
Commitment or holding US$ Revolving Credit Loans or participating interests
in Swing Line Loans.
"US$ Revolving Credit Loan": as defined in Section 2.01(a).
-------------------------
"US$ Revolving Credit Note": as defined in Section 2.02(e).
-------------------------
"US$ Revolving Credit Percentage": as to any US$ Revolving Credit
-------------------------------
Lender at any time, the percentage which such Lender's US$ Revolving Credit
Commitment then constitutes of the Total US$ Revolving Credit Commitments
(or, at any time after the US$ Revolving Credit Commitments shall have
expired or terminated, the percentage which the aggregate principal amount
of such Lender's US$ Revolving Credit Loans then outstanding constitutes of
the aggregate principal amount of the US$ Revolving Credit Loans then
outstanding).
"US$ Revolving Extensions of Credit": as to any US$ Revolving Credit
----------------------------------
Lender at any time, an amount equal to the sum of (a) the aggregate
principal amount of all US$ Revolving Credit Loans made by such Lender then
outstanding and (c) such Lender's US$ Revolving Credit Percentage of the
aggregate principal amount of Swing Line Loans then outstanding.
"U.S. Finance Subsidiary I": Federal-Mogul Dutch Holdings Inc., a
-------------------------
Delaware corporation.
"U.S. Finance Subsidiary II": Federal-Mogul Global Inc., a Delaware
--------------------------
corporation.
"U.S. Finance Subsidiary III": Federal-Mogul U.K. Holdings Inc., a
---------------------------
Delaware corporation.
"Wholly Owned Subsidiary": as to any Person, any other Person all of
-----------------------
the Capital Stock of which (other than directors' qualifying shares
required by law) is owned by such Person directly and/or through other
Wholly Owned Subsidiaries.
SECTION I.2 Other Definitional Provisions. (a) Unless otherwise
-----------------------------
specified therein, all terms defined in this Agreement shall have the defined
meanings when used in the
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<PAGE>
Notes, the other Loan Documents or any certificate or other document made or
delivered pursuant hereto.
(b As used herein and in the Notes and any other Loan Document, and
any certificate or other document made or delivered pursuant hereto or thereto,
accounting terms relating to the Company and its Subsidiaries not defined in
Section 1.01 and accounting terms partly defined in Section 1.01, to the extent
not defined, shall have the respective meanings given to them under GAAP.
(c The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Section, subsection,
Schedule and Exhibit references are to this Agreement unless otherwise
specified.
(d The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
ARTICLE II. AMOUNT AND TERMS OF REVOLVING CREDIT COMMITMENTS AND SWING LINE
---------------------------------------------------------------
COMMITMENT
----------
SECTION II.1 US$ Revolving Credit Commitments. (a) Subject to the
--------------------------------
terms and conditions hereof, each US$ Revolving Credit Lender severally agrees
to make revolving credit loans in Dollars ("US$ Revolving Credit Loans") to the
--------------------------
Company from time to time during the Revolving Credit Commitment Period in an
aggregate principal amount at any one time outstanding which, when added to such
Lender's US$ Revolving Credit Percentage of the aggregate principal amount of
the Swing Line Loans then outstanding (after giving effect to the use of
proceeds of such US$ Revolving Credit Loans), does not exceed the amount of such
Lender's US$ Revolving Credit Commitment. During the Revolving Credit
Commitment Period the Company may use the US$ Revolving Credit Commitments by
borrowing, prepaying the US$ Revolving Credit Loans in whole or in part, and
reborrowing, all in accordance with the terms and conditions hereof.
(b The US$ Revolving Credit Loans may from time to time be (i)
Eurodollar Loans, (ii) Base Rate Loans or (iii) a combination thereof, as
determined by the Company and notified to the Administrative Agent in accordance
with Sections 2.03 and 5.02, provided that no US$ Revolving Credit Loan shall be
--------
made as a Eurodollar Loan after the day that is one month prior to the Revolving
Credit Termination Date.
SECTION II.2 Repayment of US$ Revolving Credit Loans; Evidence of
----------------------------------------------------
Debt. (a) The Company hereby unconditionally promises to pay to the
- - ----
Administrative Agent for the account of each US$ Revolving Credit Lender the
then unpaid principal amount of each US$ Revolving Credit Loan of such US$
Revolving Credit Lender on the Revolving Credit Termination Date and on such
other dates and in such other amounts as may be required from
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<PAGE>
time to time pursuant to this Agreement. The Company hereby further agrees to
pay interest on the unpaid principal amount of the US$ Revolving Credit Loans
from time to time outstanding until payment thereof in full at the rates per
annum, and on the dates, set forth in Section 5.01.
(b) Each US$ Revolving Credit Lender shall maintain in accordance
with its usual practice an account or accounts evidencing indebtedness of the
Company to such US$ Revolving Credit Lender resulting from each US$ Revolving
Credit Loan of such US$ Revolving Credit Lender from time to time, including the
amounts of principal and interest payable thereon and paid to such US$ Revolving
Credit Lender from time to time under this Agreement.
(c) The Administrative Agent shall maintain the Register pursuant to
Section 13.06(d), and a subaccount therein for each US$ Revolving Credit Lender,
in which Register and subaccounts shall be recorded (i) the amount of each US$
Revolving Credit Loan made hereunder, the Type thereof and each Interest Period
applicable thereto, (ii) the amount of any principal or interest due and payable
or to become due and payable from the Company to each US$ Revolving Credit
Lender hereunder in respect of the US$ Revolving Credit Loans and (iii) both the
amount of any sum received by the Administrative Agent hereunder from the
Company in respect of the US$ Revolving Credit Loans and each US$ Revolving
Credit Lender's share thereof.
(d) The entries made in the Register and the accounts of each US$
Revolving Credit Lender maintained pursuant to Section 2.02(b) shall, to the
extent permitted by applicable law, be prima facie evidence of the existence and
----- -----
amounts of the obligations of the Company therein recorded; provided, however,
-------- -------
that the failure of any US$ Revolving Credit Lender or the Administrative Agent
to maintain the Register or any such account, or any error therein, shall not in
any manner affect the obligation of the Company to repay (with applicable
interest) the US$ Revolving Credit Loans made to the Company by such US$
Revolving Credit Lender in accordance with the terms of this Agreement.
(e) The Company agrees that, upon the request to the Administrative
Agent by any US$ Revolving Credit Lender, the Company will execute and deliver
to such US$ Revolving Credit Lender a promissory note of the Company evidencing
the US$ Revolving Credit Loans of such US$ Revolving Credit Lender,
substantially in the form of Exhibit A-1 with appropriate insertions as to date
and principal amount (each, a "US$ Revolving Credit Note"); provided, that the
--------
delivery of such US$ Revolving Credit Notes shall not be a condition precedent
to the Closing Date.
SECTION II.3 Procedure for US$ Revolving Credit Borrowing. The
--------------------------------------------
Company may borrow under the US$ Revolving Credit Commitments during the
Revolving Credit Commitment Period on any Business Day, provided that the
--------
Company shall give the Administrative Agent irrevocable notice (which notice
must be received by the Administrative Agent prior to 10:00 A.M., New York City
time and must be promptly confirmed in writing by the Company, (a) three
Business Days prior to the requested Borrowing Date, if all or any part of
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the requested US$ Revolving Credit Loans are to be initially Eurodollar Loans,
or (b) on the requested Borrowing Date, otherwise), specifying in each case (i)
the amount to be borrowed, (ii) the requested Borrowing Date, (iii) whether the
borrowing is to be of Eurodollar Loans, Base Rate Loans or a combination thereof
and (iv) if the borrowing is to be entirely or partly of Eurodollar Loans, the
amount of such Type of Loan and the length of the initial Interest Periods
therefor. Each borrowing under the US$ Revolving Credit Commitments shall be in
an amount equal to (A) in the case of Base Rate Loans, $1,000,000 or a whole
multiple of $1,000,000 in excess thereof (or, if the then aggregate Available
US$ Revolving Credit Commitments are less than $1,000,000, such lesser amount)
and (B) in the case of Eurodollar Loans, $10,000,000 or a whole multiple of
$1,000,000 in excess thereof. Upon receipt of any such notice from the Company,
the Administrative Agent shall promptly notify each US$ Revolving Credit Lender
thereof. Not later than 11:00 A.M., New York City time, on each requested
Borrowing Date each US$ Revolving Credit Lender shall make an amount equal to
its US$ Revolving Credit Percentage of the principal amount of the US$ Revolving
Credit Loans requested to be made on such Borrowing Date available to the
Administrative Agent at its New York office specified in Section 13.02 in
Dollars and in immediately available funds. The Administrative Agent shall on
such date credit the account of the Company on the books of such office with the
aggregate of the amounts made available to the Administrative Agent by the US$
Revolving Credit Lenders and in like funds as received by the Administrative
Agent.
SECTION II.4 Termination or Reduction of US$ Revolving Credit
------------------------------------------------
Commitments. The relevant Borrower shall have the right, upon not less than
- - -----------
three Business Days' notice to the Administrative Agent, to terminate the US$
Revolving Credit Commitments or, from time to time, to reduce the amount of the
US$ Revolving Credit Commitments or the Multicurrency Revolving Credit
Commitments; provided that no such termination or reduction of such Revolving
--------
Credit Commitments shall be permitted if, after giving effect thereto and to any
prepayments of the Loans made on the effective date thereof, (i) the aggregate
US$ Revolving Extensions of Credit would exceed the Total US$ Revolving Credit
Commitments then in effect or (ii) the Aggregate Multicurrency Revolving Credit
Exposure would exceed the Total Multicurrency Revolving Credit Commitments then
in effect. Any such reduction shall be in an amount equal to $10,000,000 or a
whole multiple of $1,000,000 in excess thereof and shall reduce permanently the
relevant Revolving Credit Commitments then in effect.
SECTION II.5 Swing Line Commitments. Subject to the terms and
----------------------
conditions hereof, the Swing Line Lender agrees to make swing line loans
(individually, a "Swing Line Loan"; collectively, the "Swing Line Loans") in
Dollars to the Company under the US$ Revolving Credit Commitments from time to
time during the Revolving Credit Commitment Period in an aggregate principal
amount at any one time outstanding not to exceed the amount of the Swing Line
Commitment, so long as after giving effect thereto the aggregate amount of the
Available US$ Revolving Credit Commitments is greater than or equal to zero.
Amounts borrowed by the Company under this Section 2.05 may be repaid and,
during the Revolving Credit Commitment Period, reborrowed.
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SECTION II.6 Procedure for Swing Line Borrowings; Interest Rate. (a)
--------------------------------------------------
The Company shall give the Swing Line Lender irrevocable notice (which notice
must be received by the Swing Line Lender prior to 10:00 A.M., New York City
time on the requested Borrowing Date and must be promptly confirmed in writing
by the Company) specifying the amount of the requested Swing Line Loan, which
shall be in an aggregate principal amount of not less than $5,000,000 or a whole
multiple of $100,000 in excess thereof. The proceeds of the requested Swing
Line Loan will be made available by the Swing Line Lender to the Company at the
office of the Swing Line Lender by crediting the account of the Company at such
office with such proceeds in Dollars.
(b All Swing Line Loans shall be either (i) Base Rate Loans bearing
interest at the same rate as Revolving Credit Loans which are Base Rate Loans or
(ii) bear interest at such rate as shall be agreed from time to time by the
Company and the Swing Line Lender. No Swing Line Loan may be converted into a
Eurodollar Loan.
SECTION II.7 Repayment of Swing Line Loans; Evidence of Debt. (a)
------------------------------------------------
The Company hereby unconditionally promises to pay to the Swing Line Lender the
then unpaid principal amount of the Swing Line Loans on the Revolving Credit
Termination Date and on such other dates and in such other amounts as may be
required from time to time pursuant to this Agreement. The Company hereby
further agrees to pay interest on the unpaid principal amount of the Swing Line
Loans from time to time outstanding until payment thereof in full at the rates
per annum, and on the dates, set forth in Section 5.01.
(b The Swing Line Lender shall maintain in accordance with its usual
practice an account or accounts evidencing indebtedness of the Company resulting
from each Swing Line Loan made by it from time to time, including the amounts of
principal and interest payable thereon and paid from time to time under this
Agreement.
(c The Administrative Agent shall maintain the Register pursuant to
Section 13.06(d), and a subaccount therein for the Swing Line Lender, in which
shall be recorded (i) the date and amount of each Swing Line Loan made
hereunder, (ii) the amount of each US$ Revolving Credit Lender's participating
interest in such Swing Line Loans, (iii) the date and amount of any principal or
interest due and payable or to become due and payable from the Company hereunder
in respect of the Swing Line Loans and (iv) both the date and amount of any sum
received by the Administrative Agent hereunder from the Company in respect of
the Swing Line Loans, each US$ Revolving Credit Lender's participating interest
therein (if any) and the amount thereof payable to the Swing Line Lender.
(d The entries made in the Register and the accounts of the Swing
Line Lender maintained pursuant to this Section 2.07 shall, to the extent
permitted by applicable law, be prima facie evidence of the existence and
----- -----
amounts of the obligations of the Company therein recorded; provided, however,
-------- -------
that the failure of the Swing Line Lender or the Administrative Agent to
maintain the Register or any such account, or any error therein, shall not in
any manner
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affect the obligation of the Company to repay (with applicable interest) the
Swing Line Loans made to the Company by the Swing Line Lender in accordance with
the terms of this Agreement.
SECTION II.8 Refunding of Swing Line Borrowings. (a) The Swing Line
----------------------------------
Lender, at any time in its sole and absolute discretion may, on behalf of the
Company (which hereby irrevocably directs and authorizes the Swing Line Lender
to act on its behalf), request each US$ Revolving Credit Lender, including
Chase, to make a US$ Revolving Credit Loan (which shall be a Base Rate Loan) in
an amount equal to such US$ Revolving Credit Lender's US$ Revolving Credit
Percentage of the principal amount of the Swing Line Loans (the "Refunded Swing
Line Loans") outstanding on the date such notice is given; provided that the
--------
provisions of this Section shall not affect the Company's obligations to repay
Swing Line Loans in accordance with the provisions of Sections 2.07 and 5.04(c)
and (h). Unless the US$ Revolving Credit Commitments shall have expired or
terminated (in which event the procedures of Section 2.09 shall apply), each US$
Revolving Credit Lender will make the proceeds of the US$ Revolving Credit Loan
made by it pursuant to the immediately preceding sentence available to the
Administrative Agent at the office of the Administrative Agent specified in
Section 13.02 prior to 10:00 A.M., New York City time, in funds immediately
available on the Business Day next succeeding the date such notice is given.
The proceeds of such US$ Revolving Credit Loans shall be immediately made
available by the Administrative Agent to the Swing Line Lender for application
to the payment in full of the Refunded Swing Line Loans. Upon any request by
the Swing Line Lender to the US$ Revolving Credit Lenders pursuant to this
Section 2.08, the Administrative Agent shall promptly give notice to the Company
of such request.
SECTION II.9 Participating Interests. (a) If the US$ Revolving
-----------------------
Credit Commitments shall expire or terminate at any time while Swing Line Loans
are outstanding, at the request of the Swing Line Lender in its sole discretion,
either (i) each US$ Revolving Credit Lender (including Chase) shall,
notwithstanding the expiration or termination of the US$ Revolving Credit
Commitments, make a US$ Revolving Credit Loan (which shall be a Base Rate Loan)
or (ii) each US$ Revolving Credit Lender (other than Chase) shall purchase an
undivided participating interest in the Swing Line Loans of the Swing Line
Lender, in either case in an amount equal to such US$ Revolving Credit Lender's
US$ Revolving Credit Percentage (determined on the date of, and immediately
prior to, expiration or termination of the US$ Revolving Credit Commitments) of
the aggregate principal amount of such Swing Line Loans. Each US$ Revolving
Credit Lender will make the proceeds of any US$ Revolving Credit Loan made by it
pursuant to the immediately preceding sentence available to the Administrative
Agent for the account of the Swing Line Lender at the office of the
Administrative Agent specified in Section 13.02 prior to 10:00 A.M., New York
City time, in funds immediately available on the Business Day next succeeding
the date of the request by the Swing Line Lender. The proceeds of such US$
Revolving Credit Loans shall be immediately applied to repay the Swing Line
Loans outstanding on the date of termination or expiration of the US$ Revolving
Credit Commitments. In the event that any of the US$ Revolving Credit Lenders
purchase undivided participating interests pursuant to the first sentence of
this Section 2.09(a), each Revolving Credit Lender shall immediately transfer to
the Swing Line Lender, in immediately available funds, the amount of its
participation in the Swing Line Loans of the Swing Line Lender and upon receipt
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<PAGE>
thereof the Swing Line Lender will deliver to any such US$ Revolving Credit
Lender that so requests a confirmation of such US$ Revolving Credit Lender's
undivided participating interest in the Swing Line Loans of the Swing Line
Lender dated the date of receipt of such funds and in such amount.
(b Whenever, at any time after the Swing Line Lender has received
payment from any US$ Revolving Credit Lender in respect of such US$ Revolving
Credit Lender's participating interest in a Swing Line Loan of the Swing Line
Lender, the Swing Line Lender receives any payment on account thereof, the Swing
Line Lender will distribute to such US$ Revolving Credit Lender its
participating interest in such amount (appropriately adjusted, in the case of
interest payments, to reflect the period of time during which such US$ Revolving
Credit Lender's participating interest was outstanding and funded); provided,
--------
however, that in the event that any such payment received by the Swing Line
- - -------
Lender is required to be returned, such US$ Revolving Credit Lender will return
to the Swing Line Lender any portion thereof previously distributed by the Swing
Line Lender to it.
ARTICLE III. AMOUNT AND TERMS OF TERM LOAN COMMITMENTS
-----------------------------------------
SECTION III.1 Term Loan Commitments. Subject to the terms and
---------------------
conditions hereof, (a) each Tranche A Term Loan Lender severally agrees to make
term loans ("Tranche A Term Loans") to the Company in an aggregate principal
amount not to exceed the amount of the Tranche A Term Loan Commitment of such
Lender and (b) each Tranche B Term Loan Lender severally agrees to make term
loans ("Tranche B Term Loans") to the Company in an aggregate principal amount
not to exceed the amount of the Tranche B Term Loan Commitment of such Lender.
The Term Loans shall be made in a single drawing on the Closing Date. The Term
Loans may from time to time be Eurodollar Loans or Base Rate Loans, as
determined by the Company and notified to the Administrative Agent in accordance
with Sections 3.03 and 5.02.
SECTION III.2 Repayment of Term Loans; Evidence of Debt. (a) The
-----------------------------------------
Tranche A Term Loan of each Tranche A Lender shall mature in 17 consecutive
quarterly installments, commencing on February 24, 2000, each of which shall be
in an amount equal to such Lender's Tranche A Term Loan Percentage multiplied by
the amount set forth below opposite such installment:
Installment Principal Amount
----------- ----------------
February 24, 2000 $10,000,000
May 24, 2000 $10,000,000
August 24, 2000 $10,000,000
November 24, 2000 $10,000,000
February 24, 2001 $10,000,000
May 24, 2001 $25,000,000
August 24, 2001 $25,000,000
November 24, 2001 $25,000,000
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<PAGE>
February 24, 2002 $25,000,000
May 24, 2002 $25,000,000
August 24, 2002 $25,000,000
November 24, 2002 $25,000,000
February 24, 2003 $25,000,000
May 24, 2003 $35,000,000
August 24, 2003 $35,000,000
November 24, 2003 $35,000,000
February 24, 2004 $45,000,000
(b The Tranche B Term Loan of each Tranche B Lender shall mature in
21 consecutive quarterly installments, commencing on February 24, 2000, each of
which shall be in an amount equal to such Lender's Tranche B Term Loan
Percentage multiplied by the amount set forth below opposite such installment:
Installment Principal Amount
----------- ----------------
February 24, 2000 $ 1,000,000
May 24, 2000 $ 1,000,000
August 24, 2000 $ 1,000,000
November 24, 2000 $ 1,000,000
February 24, 2001 $ 1,000,000
May 24, 2001 $ 1,000,000
August 24, 2001 $ 1,000,000
November 24, 2001 $ 1,000,000
February 24, 2002 $ 1,000,000
May 24, 2002 $ 1,000,000
August 24, 2002 0
November 24, 2002 $ 1,000,000
February 24, 2003 $ 1,000,000
May 24, 2003 $ 1,000,000
August 24, 2003 $ 1,000,000
November 24, 2003 $ 1,000,000
February 24, 2004 $ 1,000,000
May 24, 2004 $ 50,000,000
August 24, 2004 $ 50,000,000
November 24, 2004 $ 50,000,000
February 24, 2005 $183,000,000
(c The Company hereby unconditionally promises to pay to the
Administrative Agent for the account of the appropriate Term Loan Lender the
principal amount of each Term
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<PAGE>
Loan of such Term Loan Lender in installments according to the amortization
schedule set forth in paragraphs (a) or (b) above, as applicable (or on such
earlier date on which the Loans become due and payable pursuant to Article XI).
The Company hereby further agrees to pay interest on the unpaid principal amount
of the Term Loans from time to time outstanding from the date hereof until
payment in full thereof at the rates per annum, and on the dates, set forth in
Section 5.01.
(d Each Lender shall maintain in accordance with its usual practice
an account or accounts evidencing indebtedness of the Company to such Lender
resulting from each Term Loan of such Lender from time to time, including the
amounts of principal and interest payable and paid to such Lender from time to
time in respect of such Term Loans under this Agreement.
(e The Administrative Agent, on behalf of the Company, shall
maintain the Register pursuant to Section 13.06(d), and a subaccount therein for
each Lender, in which shall be recorded (i) the amount of each Term Loan made
hereunder and any Note evidencing such Term Loan, the Type thereof and each
Interest Period applicable thereto, (ii) the amount of any principal or interest
due and payable or to become due and payable from the Company to each Lender
hereunder and (iii) both the amount of any sum received by the Administrative
Agent hereunder from the Company and each Lender's share thereof.
(f The entries made in the Register and the accounts of each Lender
maintained pursuant to Section 3.02(d) shall, to the extent permitted by
applicable law, be prima facie evidence of the existence and amounts of the
----- -----
obligations of the Company therein recorded; provided, however, that the failure
-------- -------
of any Lender or the Administrative Agent to maintain the Register or any such
account, or any error therein, shall not in any manner affect the obligation of
the Company to repay (with applicable interest) the Term Loans by such Lender in
accordance with the terms of this Agreement.
(g The Company agrees that, upon the request to the Administrative
Agent by any Lender, the Company will execute and deliver to such Lender a
promissory note of the Company evidencing any Term Loans of such Lender,
substantially in the form of Exhibit A-2, with appropriate insertions as to date
and principal amount.
SECTION III.3 Procedure for Term Loan Borrowing. The Company may
---------------------------------
borrow the Term Loans on the Closing Date, provided that the Company shall give
--------
the Administrative Agent irrevocable notice (which notice must be received by
the Administrative Agent prior to 10:00 A.M., New York City time, (a) three
Business Days prior to the Closing Date, if all or any part of the requested
Term Loans are to be initially Eurodollar Loans, or (b) one Business Day prior
to the requested Closing Date, otherwise), specifying in each case (i) the
amount to be borrowed, (ii) the requested Closing Date, (iii) whether the
borrowing is to be of Eurodollar Loans, Base Rate Loans or a combination thereof
and (iv) if the borrowing is to be entirely or partly of Eurodollar Loans, the
amount of such Type of Loan and the length of the initial Interest Periods
therefor. Upon receipt of any such notice from the Company, the Administrative
Agent shall promptly notify each Term Loan Lender thereof. Not later than 11:00
A.M., New York
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<PAGE>
City time, on the Closing Date each Term Loan Lender shall make the amount of
the Term Loans to be made by it on such Borrowing Date available to the
Administrative Agent at its New York office specified in Section 13.02 in
Dollars and in immediately available funds. The Administrative Agent shall on
such date credit the account of the Company on the books of such office with the
aggregate of the amounts made available to the Administrative Agent by the Term
Loan Lenders and in like funds as received by the Administrative Agent.
ARTICLE IV. AMOUNT AND TERMS OF MULTICURRENCY REVOLVING CREDIT COMMITMENTS
--------------------------------------------------------------
SECTION IV.1 Multicurrency Revolving Credit Commitments. (a) Subject
------------------------------------------
to the terms and conditions hereof, each Multicurrency Revolving Credit Lender
severally agrees to make Multicurrency Revolving Credit Loans to any Borrower,
at any time and from time to time on and after the date hereof and until the
earlier of the Revolving Credit Termination Date and the termination of the
Multicurrency Revolving Credit Commitment of such Lender in accordance with the
terms hereof, in Dollars and any Available Foreign Currency in an aggregate
principal amount at any time outstanding that will not result in (i) such
Lender's Multicurrency Revolving Credit Exposure at such time exceeding its
Multicurrency Revolving Credit Commitment or (ii) the amount of Multicurrency
Revolving Credit Loans denominated in any such Available Foreign Currency
exceeding the Currency Sublimit applicable to such Available Foreign Currency.
(b Each Multicurrency Revolving Credit Lender shall make each
Multicurrency Revolving Credit Loan to be made by it hereunder on the proposed
date thereof by wire transfer to such account as the Administrative Agent may
designate in immediately available funds not later than 11:00 a.m., London time,
and the Administrative Agent shall credit the amounts so received to an account
designated by the relevant Borrower in the applicable borrowing request.
(c The Administrative Agent shall notify the Company and the
Multicurrency Revolving Credit Lenders of the amount of the Aggregate
Multicurrency Revolving Credit Exposure, promptly following each Calculation
Date.
(d Each Borrower which has borrowed Multicurrency Revolving Credit
Loans shall repay all such Loans made to it in the currency in which such Loans
were made on the Revolving Credit Termination Date.
SECTION IV.2 Procedure for Multicurrency Revolving Credit Borrowing.
------------------------------------------------------
(a) In order to request a Multicurrency Revolving Credit Loan, the relevant
Borrower shall hand deliver or telecopy to the Administrative Agent a duly
completed borrowing request, not later than 12:00 (noon), London time, three
Business Days (or, in the case of a borrowing denominated in Australian Dollars,
four Business Days) before such proposed borrowing. Each borrowing request
shall be irrevocable. The Administrative Agent shall promptly advise the
applicable Lenders of any notice given pursuant to this Section 4.02 and of each
Lender's portion of the requested borrowing and the Spot Exchange Rate utilized.
Each borrowing under the
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<PAGE>
Multicurrency Revolving Credit Commitments shall be in a minimum amount in
Dollars equal to, or an amount in an Available Foreign Currency of which the
Dollar Equivalent is $10,000,000 or a whole multiple of $1,000,000 in excess
thereof (or, if the Dollar Equivalent of the then aggregate Available
Multicurrency Revolving Credit Commitments is less than $10,000,000, such lesser
amount) as rounded upwards to the nearest 100,000 units in the relevant
Available Foreign Currency.
SECTION IV.3 Spot Exchange Rate Calculations. (a) Not later than
-------------------------------
2:00 p.m., London time, on each Calculation Date, the Administrative Agent shall
(A) determine the Spot Exchange Rate as of such Calculation Date with respect to
each of the Available Foreign Currencies in which Multicurrency Revolving Credit
Loans are then outstanding and (B) give notice thereof to the Company and the
Multicurrency Revolving Credit Lenders.
(b The Spot Exchange Rates determined pursuant to Section 4.03(a)
shall become effective on the second Business Day immediately following the
relevant Calculation Date (a "Reset Date") and shall remain effective until the
next succeeding Reset Date.
(c Not later than 2:00 p.m., London time, on the Business Day
immediately following the delivery of any notice in connection with the
repayment of Multicurrency Revolving Credit Loans, the Administrative Agent
shall (A) determine as of such date the Assigned Dollar Value, based on the Spot
Exchange Rate then in effect, of each Multicurrency Revolving Credit Loan then
outstanding (after giving effect to any Multicurrency Revolving Credit Loan
repaid in connection therewith) and (B) notify the Company and the Multicurrency
Revolving Credit Lenders of the results of such determination.
SECTION IV.4 Commitment Reallocations. (a) The Borrowers may, from
------------------------
time to time, but not more than once per calendar quarter (unless otherwise
agreed by each Multicurrency Revolving Credit Lender), from and after the
Closing Date until the earlier of the Revolving Credit Termination Date and the
termination of the Multicurrency Revolving Credit Commitments, upon giving an
irrevocable joint written notice substantially in the form of Exhibit J (each, a
"Reallocation Notice") to the Administrative Agent at least ten Business Days
-------------------
prior to the beginning of the next following calendar quarter, temporarily
reduce, in whole or in part, or increase, the Multicurrency Revolving Credit
Commitments. Any reductions or increases in the Multicurrency Revolving Credit
Commitments or the Additional US$ Revolving Credit Commitments (as defined
below) shall take effect on the first day of the next following calendar
quarter. Each reduction or increase in the Multicurrency Revolving Credit
Commitments shall result in an automatic corresponding increase or reduction in
the Additional US$ Revolving Credit Commitments; provided that the Total
--------
Multicurrency Revolving Credit Commitments shall not, at any time, (i) be
reduced to an amount that is less than the Dollar Equivalent of the aggregate
Multicurrency Revolving Credit Loans outstanding at such time or (ii) exceed
$125,000,000. The Revolving Credit Commitments from time to time resulting from
a reallocation of Multicurrency Revolving Credit Commitments pursuant to this
Section 4.04 at any time are the "Additional US$ Revolving Credit Commitments".
Any amount of the Multicurrency Revolving Credit Commitments reallocated under
this Section 4.04 as Additional
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<PAGE>
US$ Revolving Credit Commitments will only be available to the Company until and
only if such amounts are reallocated back to the Multicurrency Revolving Credit
Commitments in accordance with the terms and conditions of this Section 4.04.
The ability of the Borrowers to reallocate the relevant Revolving
Credit Commitments in accordance with this Section 4.04 shall be subject to the
conditions that (A) the representations and warranties set forth in each Loan
Document shall be true and correct in all material respects on and as of the
date of such reallocation with the same effect as though made on and as of such
date, except to the extent that such representations and warranties expressly
relate to an earlier date and (B) at the time of and immediately following such
reallocation, no Event of Default or Default shall have occurred and be
continuing. Each Reallocation Notice shall specify the amount (expressed in
Dollars) of any reduction or increase in the Multicurrency Revolving Credit
Commitments and the corresponding increase or reduction in the Additional US$
Revolving Credit Commitments. Each reallocation requested under this Section
4.04 shall be in a minimum aggregate principal amount of $50,000,000 (or, if
less, the remaining amount of the relevant Revolving Credit Commitments) and in
integral multiples of $5,000,000 in excess thereof. Each reduction or increase
in the Multicurrency Revolving Credit Commitments under this Section 4.04 shall
be made ratably among the Multicurrency Revolving Credit Lenders based on their
respective Multicurrency Revolving Credit Commitments. Each reduction or
increase in the Additional US$ Revolving Credit Commitments under this Section
4.04 shall be made ratably among the Multicurrency Revolving Credit Lenders
based on their respective Multicurrency Revolving Credit Commitments. The
Administrative Agent shall promptly after receiving a Reallocation Notice notify
each Multicurrency Revolving Credit Lender of the amount of its Multicurrency
Revolving Credit Commitment or Additional US$ Revolving Credit Commitment, as
the case may be, to be reallocated and the date of such reallocation.
(b) The Additional US$ Revolving Credit Commitments shall be
available to the Company on the same terms (except as provided in this paragraph
(b)), mutatis mutandis, as the US$ Revolving Credit Commitments. Without
------- --------
limiting the generality of the foregoing, (i) the Company may borrow for its
account under the Additional US$ Revolving Credit Commitments to the same extent
as it may utilize the US$ Revolving Credit Commitments (subject to the same
interest rate options, minimum borrowing and repayment amounts and maturities),
provided that the aggregate principal amount of Additional US$ Revolving Credit
- - --------
Loans shall not exceed the aggregate Additional US$ Revolving Credit
Commitments, (ii) Swing Line Loans are not available under the Additional US$
Revolving Credit Commitments, and (iii) the Multicurrency Revolving Credit
Lenders shall be entitled to the same rights (including acceleration rights) and
subject to the same obligations with respect to the Additional US$ Revolving
Credit Commitments as are the US$ Revolving Credit Lenders with respect to the
US$ Revolving Credit Commitments.
SECTION 4.05 Redenomination and Alternative Currencies. Each
-----------------------------------------
obligation under this Agreement of a party to this Agreement which has been
denominated in the national currency unit of a Subsequent Participant state
shall be redenominated into the euro unit in
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<PAGE>
accordance with EMU legislation immediately upon such Subsequent Participant
becoming a Participating Member State (but otherwise in accordance with EMU
Legislation).
ARTICLE V. GENERAL PROVISIONS APPLICABLE TO THE LOANS
------------------------------------------
SECTION V.1 Interest Rates and Payment Dates. (a) Each Eurodollar
--------------------------------
Loan of each Class shall bear interest for each day during each Interest Period
with respect thereto at a rate per annum equal to the Eurodollar Rate determined
for such Interest Period plus the Applicable Margin for such Class of Loans in
effect for such day.
(b) Each Base Rate Loan of each Class shall bear interest for each
day that it is outstanding at a rate per annum equal to the Base Rate for such
day plus the Applicable Margin for such Class of Loans in effect for such day.
(c) Each Multicurrency Revolving Credit Loan shall bear interest for
each day during each Interest Period with respect thereto at a rate per annum
equal to the applicable Eurocurrency Rate determined for such Interest Period
plus the Applicable Margin for such Class of Loans in effect for such day.
(d) If all or a portion of (i) the principal amount of any Loan, (ii)
any interest payable thereon or (iii) any fee or other amount payable hereunder
shall not be paid when due (whether at the stated maturity, by acceleration or
otherwise), such overdue amount shall bear interest at a rate per annum equal to
the rate that would otherwise be applicable thereto pursuant to the foregoing
provisions of this Section plus 2% or, if higher, in the case of amounts
required to be paid in Dollars, the rate described in paragraph (b) of this
Section plus 2%.
(e) Interest shall be payable in arrears on each Interest Payment
Date, provided that interest accruing pursuant to paragraph (d) of this Section
--------
shall be payable from time to time on demand.
SECTION V.2 Conversion and Continuation Options. (a) The Company
-----------------------------------
may elect from time to time to convert outstanding Eurodollar Loans of any Class
(in whole or in part) to Base Rate Loans of the same Class by giving the
Administrative Agent at least two Business Days' prior irrevocable notice of
such election, provided that any such conversion of Eurodollar Loans may only be
--------
made on the last day of an Interest Period with respect thereto. The Company
may elect from time to time to convert outstanding Base Rate Loans (other than
Swing Line Loans) of any Class (in whole or in part) to Eurodollar Loans of the
same Class by giving the Administrative Agent at least three Business Days'
prior irrevocable notice of such election. Any such notice of conversion to
Eurodollar Loans shall specify the length of the initial Interest Period or
Interest Periods therefor. Upon receipt of any such notice the Administrative
Agent shall promptly notify each Lender thereof. All or any part of outstanding
Eurodollar Loans and Base Rate Loans under a particular Facility may be
converted as provided herein, provided that (i) no Base Rate Loan may be
--------
converted into a Eurodollar Loan when any Default
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<PAGE>
or Event of Default has occurred and is continuing and the Administrative Agent
or the Majority Facility Lenders in respect of such Facility have determined
that such conversion is not appropriate, (ii) any such conversion may only be
made if, after giving effect thereto, Section 5.03 shall not have been violated,
(iii) no Base Rate Loan of any Class may be converted into a Eurodollar Loan
after the date that is one month prior to the Revolving Credit Termination Date
(in the case of Revolving Credit Loans) or the date of final maturity of the
Loans of such Class (in the case of Term Loans) and (iv) Swing Line Loans may
not be converted to Eurodollar Loans.
(b) Any Eurodollar Loans may be continued as such upon the expiration
of the then current Interest Period with respect thereto by the Company giving
notice to the Administrative Agent of the length of the next Interest Period to
be applicable to such Loans in accordance with the applicable provisions of the
term "Interest Period" set forth in Section 1.01, provided that no Eurodollar
--------
Loan under a particular Facility may be continued as such (i) when any Default
or Event of Default has occurred and is continuing and the Administrative Agent
or the Majority Facility Lenders in respect of such Facility have determined
that such continuation is not appropriate, (ii) if, after giving effect thereto,
Section 5.03 would be contravened or (iii) after the date that is one month
prior to the Revolving Credit Termination Date, and provided, further, that if
-------- -------
the Company shall fail to give such notice or if such continuation is not
permitted pursuant to the preceding proviso such Eurodollar Loans shall be
automatically converted to Base Rate Loans on the last day of such then expiring
Interest Period.
(c) Any Multicurrency Revolving Credit Loans may be continued as such
upon the expiration of the then current Interest Period with respect thereto by
the relevant Borrower giving the Administrative Agent at least three Business
Days' prior irrevocable notice of such election, provided, that if the relevant
--------
Borrower shall fail to give such notice or if any Default or Event of Default
has occurred and is continuing and the Administrative Agent or the Required
Lenders have determined that such continuation would not be appropriate, such
Multicurrency Revolving Credit Loans shall automatically be continued for an
Interest Period of one month.
(d) Any such notice required in paragraphs (a) through (c) above
shall be made no later than 10:00 A.M., New York City time, in the case of Term
Loans, US$ Revolving Credit Loans and Additional US$ Revolving Credit Loans, and
no later than 11:00 A.M., London time, in the case of Multicurrency Revolving
Credit Loans, in each such case, on the day prescribed for such notice by such
paragraph.
SECTION V.3 Minimum Amounts of Tranches. All borrowings, conversions
---------------------------
and continuations of Loans hereunder and all selections of Interest Periods
hereunder shall be in such amounts and be made pursuant to such elections so
that, immediately after giving effect thereto, (a) the aggregate principal
amount of the Eurodollar Loans comprising each Tranche shall be equal to
$10,000,000 or a whole multiple of $1,000,000 in excess thereof, (b) the
aggregate principal amount of the Multicurrency Revolving Credit Loans
comprising each Tranche shall be in an amount which is, or of which the Dollar
Equivalent is, at least $10,000,000 and (c) there shall not be more than 25
Tranches at any one time outstanding.
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SECTION V.4 Optional and Mandatory Prepayments. (a) The Company may
----------------------------------
at any time and from time to time prepay US$ Revolving Credit Loans, Swing Line
Loans and/or Term Loans, in whole or in part, upon at least three Business Days'
irrevocable notice to the Administrative Agent (in the case of Eurodollar Loans)
and at least one Business Day's irrevocable notice to the Administrative Agent
(in the case of Base Rate Loans), specifying the date and amount of prepayment,
which Class of Loans will be prepaid, and whether the prepayment is of
Eurodollar Loans, Base Rate Loans or a combination thereof, and, if a
combination thereof, the amount allocable to each; provided, the Swing Line
--------
Loans may be prepaid without prior notice. Upon the receipt of any such notice
the Administrative Agent shall promptly notify each Lender thereof. If any such
notice is given, the amount specified in such notice shall be due and payable on
the date specified therein, together with any amounts payable pursuant to
Section 5.12. Partial prepayments of US$ Revolving Credit Loans or Term Loans
of any Class shall be in an aggregate principal amount of $10,000,000 or a whole
multiple of $1,000,000 in excess thereof. Partial prepayments of the Swing Line
Loans shall be in aggregate principal amount of $1,000,000 or a whole multiple
of $100,000 in excess thereof.
(b) The Borrowers may at any time and from time to time prepay,
without premium or penalty, the Multicurrency Revolving Credit Loans, in whole
or in part, upon at least three Business Days' (or, in the case of a prepayment
with respect to Multicurrency Revolving Credit Loans denominated in Australian
Dollars, four Business Days) irrevocable notice to the Administrative Agent
specifying the date and amount of prepayment. Upon the receipt of any such
notice, the Administrative Agent shall promptly notify each Multicurrency
Revolving Credit Lender thereof. If any such notice is given, the amount
specified in such notice shall be due and payable on the date specified therein.
Partial prepayments of Multicurrency Revolving Credit Loans shall be in an
aggregate principal amount in Dollars equal to, or an amount in an Available
Foreign Currency of which the Dollar Equivalent is at least $5,000,000, as
rounded upwards to the nearest 100,000 units in the relevant Available Foreign
Currency.
(c) If, on any Reset Date, the Aggregate Multicurrency Revolving
Credit Exposure (expressed in Dollars) exceeds an amount equal to 105% of the
Total Multicurrency Revolving Credit Commitment, then (i) the Administrative
Agent shall give notice thereof to each Multicurrency Revolving Credit Lender
and the Company and (ii) the Company shall, or shall cause the relevant Borrower
to, on the next succeeding Business Day, prepay outstanding Multicurrency
Revolving Credit Loans in an amount so that after giving effect to any such
prepayments, the Aggregate Multicurrency Revolving Credit Exposure (expressed in
Dollars) does not exceed the Total Multicurrency Revolving Credit Commitment.
If, on any Reset Date, the Aggregate Multicurrency Revolving Credit Exposure
with respect to a particular Available Foreign Currency (expressed in Dollars)
exceeds an amount equal to 105% of the Currency Sublimit applicable to such
Available Foreign Currency, then (i) the Administrative Agent shall give notice
thereof to each Multicurrency Revolving Credit Lender and the Company and (ii)
the Company shall, or shall cause the relevant Borrower to, on the next
succeeding Business Day, prepay outstanding Multicurrency Revolving Credit Loans
in such Available Foreign Currency in an amount so that after giving effect to
any such prepayments, the Aggregate Multicurrency
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Revolving Credit Exposure with respect to such Available Foreign Currency
(expressed in Dollars) does not exceed the Currency Sublimit with respect to
such Available Foreign Currency.
(d) If at any time any mandatory prepayment (other than the type
referred to in paragraph (c) above) is required to be made in respect of any
Permitted Other Acquisition Debt, such mandatory prepayment shall be applied
toward the prepayment of the Term Loans and such Permitted Other Acquisition
Debt ratably based on the outstanding principal amounts thereof.
(e) Each prepayment of Loans pursuant to this Section 5.04 shall be
accompanied by accrued and unpaid interest on the amount prepaid to the date of
prepayment and any amounts payable under Section 5.12 in connection with such
prepayment.
(f) Prepayments of any Class of Loans pursuant to this Section 5.04
shall be applied as follows: (i) in the case of prepayments made by the
Company, first, to prepay Base Rate Loans of such Class then outstanding and
-----
second, to prepay Eurodollar Loans of such Class then outstanding and (ii) in
- - ------
case of prepayments of Multicurrency Revolving Credit Loans made by a Borrower,
to prepay Multicurrency Revolving Credit Loans borrowed by such Borrower.
Optional prepayments of the Tranche A Term Loans or the Tranche B Term Loans
shall be applied ratably and to the installments thereof in the direct order of
scheduled maturity or in the inverse order of scheduled maturity at the option
of the Company. Mandatory prepayments of the Tranche A Term Loans or the
Tranche B Term Loans shall be applied ratably and to the installments thereof
ratably in accordance with the then outstanding amounts thereof or in the
inverse order of scheduled maturity at the option of the Company.
(g) The Company shall, unless otherwise agreed to by the Swing Line
Lender, prepay all Swing Line Loans then outstanding simultaneously with each
borrowing of US$ Revolving Credit Loans.
SECTION V.5 Facility Fees; Other Fees. (a) The Company agrees to
-------------------------
pay to the Administrative Agent for the account of each Revolving Credit Lender,
a facility fee for the period from and including the Closing Date to but
excluding the Revolving Credit Termination Date (or such earlier date on which
the Revolving Credit Commitments shall terminate as provided herein), computed
at the Facility Fee Rate on the daily average amount of such Lender's aggregate
Revolving Credit Commitment (drawn and undrawn). Such facility fees shall be
payable quarterly in arrears on the last day of each March, June, September and
December and on the Revolving Credit Termination Date or such earlier date on
which the Revolving Credit Commitments shall terminate as provided herein,
commencing on the first of such dates to occur after the date hereof.
(b) The Company shall pay (without duplication of any other fee
payable under this Section 5.05) to Chase, for its own account, fees in the
amounts and on the dates separately agreed to by the Company and Chase.
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(c) The Company shall (without duplication of any other fee payable
under this Section 5.05) pay to the Administrative Agent, for its own amount,
fees in the amounts and on the dates separately agreed to by the Company and the
Administrative Agent.
SECTION V.6 Computation of Interest and Fees. (a) Interest based on
--------------------------------
the Eurodollar Rate, the Eurocurrency Rate (other than with respect to amounts
denominated in Pounds Sterling) or (when it is based on the Federal Funds
Effective Rate) the Base Rate shall be calculated on the basis of a 360-day year
for the actual days elapsed; and facility fees and interest (other than as
specified above) shall be calculated on the basis of a 365- (or 366-, as the
case may be) day year for the actual days elapsed. The Administrative Agent
shall as soon as practicable notify the Company and the Lenders of each
determination of a Eurodollar Rate or a Eurocurrency Rate. Any change in the
interest rate on a Loan resulting from a change in the Base Rate or a change in
the Prime Rate shall become effective as of the opening of business on the day
on which such change becomes effective provided that such change becomes
effective prior to 5:00 p.m., New York City time, on such day. The
Administrative Agent shall as soon as practicable notify the Company and the
Lenders of the Closing Date and the amount of each such change in the Base Rate.
(b) Each determination of an interest rate by the Administrative
Agent pursuant to any provision of this Agreement shall be conclusive and
binding on the Borrowers and the Lenders in the absence of manifest error. The
Administrative Agent shall, at the request of a Borrower or any Lender, deliver
to such Borrower or such Lender a statement showing in reasonable detail the
quotations and calculations used by the Administrative Agent in determining any
interest rate pursuant to Section 5.01(a) or (c).
(c) (i) If any Domestic Reference Lender shall for any reason no
longer have a US$ Revolving Credit Commitment or an Additional US$ Revolving
Credit Commitment or any US$ Revolving Credit Loans or any Additional US$
Revolving Credit Loans, such Domestic Reference Lender shall thereupon cease to
be a Domestic Reference Lender, and if, as a result, there shall only be one
Domestic Reference Lender remaining, the Administrative Agent (after
consultation with the Company and the Lenders) shall, by notice to the Company
and the Lenders, designate another Lender as a Domestic Reference Lender so that
there shall at all times be at least two Domestic Reference Lenders.
(ii) If any Multicurrency Reference Lender shall for any reason no
longer have a Multicurrency Revolving Credit Commitment or any Multicurrency
Revolving Credit Loans, such Multicurrency Reference Lender shall thereupon
cease to be a Multicurrency Reference Lender, and if, as a result, there shall
only be one Multicurrency Reference Lender remaining, the Administrative Agent
(after consultation with the Company and the Lenders) shall, by notice to the
Company and the Lenders, designate another Multicurrency Revolving Credit Lender
as a Multicurrency Reference Lender so that there shall at all times be at least
two Multicurrency Reference Lenders.
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(d) Each Reference Lender shall use its best efforts to furnish
quotations of rates to the Administrative Agent as contemplated hereby. If any
of the Reference Lenders shall be unable or shall otherwise fail to supply such
rates to the Administrative Agent upon its request, the rate of interest shall,
subject to the provisions of Section 5.07, be determined on the basis of the
quotations of the remaining applicable Reference Lenders or Reference Lender, as
applicable.
SECTION V.7 Inability to Determine Interest Rate. If prior to the
------------------------------------
first day of any Interest Period:
(a) the Administrative Agent shall have determined (which
determination shall be conclusive and binding upon the Borrowers) that, by
reason of circumstances affecting the relevant market generally, adequate
and reasonable means do not exist for ascertaining the Eurodollar Rate or
the Eurocurrency Rate with respect to the currency in which a Loan or a
requested Loan is denominated (the "Affected Currency"), as the case may
be, for such Interest Period, or
(b) the Administrative Agent has received notice from the
Majority Facility Lenders in respect of the relevant Facility that the
Eurodollar Rate or Eurocurrency Rate, as the case may be, determined or to
be determined with respect to the Affected Currency for such Interest
Period will not adequately and fairly reflect the cost to such Lenders (as
certified by such Lenders) of making or maintaining their Eurodollar Loans
or Multicurrency Revolving Credit Loans, as the case may be, during such
Interest Period,
the Administrative Agent shall give telecopy or telephonic notice thereof to the
Company and the Lenders as soon as practicable thereafter. If such notice is
given (i) any Eurodollar Loans or Multicurrency Revolving Credit Loans, as the
case may be, requested to be made on the first day of such Interest Period shall
be made as Base Rate Loans in Dollars, (ii) any US$ Revolving Credit Loans,
Additional US$ Revolving Credit Loans or Multicurrency Revolving Credit Loans
denominated in Dollars that were to have been converted on the first day of such
Interest Period to or continued as Eurodollar Loans shall be converted to or
continued as Base Rate Loans, (iii) any outstanding Eurodollar Loans shall be
converted on the first day of such Interest Period to Base Rate Loans and (iv)
any Multicurrency Revolving Credit Loans denominated in any Available Foreign
Currency to which such Interest Period relates shall be repaid on the first day
of such Interest Period. Until such notice has been withdrawn by the
Administrative Agent, no further Eurodollar Loans or Multicurrency Revolving
Credit Loans shall be made or continued as such, nor shall the Company have the
right to convert Base Rate Loans to Eurodollar Loans, as the case may be,
provided that Loans may continue to be made, converted or continued, as the case
- - --------
may be, in Dollars or Available Foreign Currencies other than the Affected
Currency.
SECTION V.8 Pro Rata Treatment and Payments. (a) (i) Each borrowing
-------------------------------
of US$ Revolving Credit Loans, the Additional US$ Revolving Credit Loans or the
Multicurrency Revolving Credit Loans shall be made pro rata according to the
--- ----
respective US$ Revolving Credit Percentages, Additional US$ Revolving Credit
Percentages or Multicurrency Revolving Credit
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Percentages, as the case may be, of the relevant Lenders in effect on the date
of such borrowing. Each payment by the Company on account of any facility fee
hereunder shall be allocated by the Administrative Agent among the Lenders in
accordance with the respective amounts which such Lenders are entitled to
receive pursuant to Section 5.05(a). Any reduction of the US$ Revolving Credit
Commitments, Additional US$ Revolving Credit Commitments or Multicurrency
Revolving Credit Commitments shall be allocated by the Administrative Agent
among the Lenders pro rata according to the US$ Revolving Credit Percentages,
--- ----
the Additional US$ Revolving Credit Percentages or the Multicurrency Revolving
Credit Percentages, as the case may be, of the relevant Lenders. Each payment
(including each prepayment) on account of principal of and interest on the US$
Revolving Credit Loans shall be made pro rata according to the respective
--- ----
outstanding principal amounts of the US$ Revolving Credit Loans then held by the
US$ Revolving Credit Lenders. Each payment (including each prepayment) by a
Borrower on account of principal of and interest on Additional US$ Revolving
Credit Loans shall be allocated by the Administrative Agent pro rata according
--- ----
to the respective principal amounts of the Additional US$ Revolving Credit Loans
then due and owing by such Borrower to each Additional US$ Revolving Credit
Lender. Each payment (including each prepayment) by a Borrower on account of
principal of and interest on Multicurrency Revolving Credit Loans shall be
allocated by the Administrative Agent pro rata according to the respective
--- ----
principal amounts of the Multicurrency Revolving Credit Loans then due and owing
by such Borrower to each Multicurrency Revolving Credit Lender.
(ii) Each borrowing by the Company of Term Loans hereunder shall be
made pro rata according to the respective Tranche A Term Loan Percentages or
--- ----
Tranche B Term Loan Percentages, as the case may be, of the relevant Lenders.
Each payment (including each prepayment) by the Company on account of principal
of and interest on the Term Loans shall be made pro rata according to the
--- ----
respective outstanding principal amounts of the Term Loans then held by the Term
Loan Lenders. The amount of each principal prepayment (other than optional
prepayments) of the Tranche A Term Loans and the Tranche B Term Loans shall be
applied to reduce the installments thereof pro rata based upon the then
--- ----
remaining principal amount thereof. Amounts prepaid on account of the Term
Loans may not be reborrowed.
(iii) All payments (including prepayments) to be made by the Company
hereunder in respect of amounts denominated in Dollars, whether on account of
principal, interest, fees or otherwise, shall be made without set-off or
counterclaim and shall be made prior to 12:00 Noon, New York City time, in the
case of US$ Revolving Credit Loans or Additional US$ Revolving Credit Loans, and
11:00 A.M., London time, in the case of Multicurrency Revolving Credit Loans, on
the due date thereof to the Administrative Agent, for the account of the
Lenders, at the Administrative Agent's office specified in Section 13.02, in
Dollars and in immediately available funds. The Administrative Agent shall
distribute such payments to the Lenders entitled to receive the same promptly
upon receipt in like funds as received.
(iv) All payments (including prepayments) to be made by a Borrower on
account of Multicurrency Revolving Credit Loans denominated in any Available
Foreign Currency, whether on account of principal, interest, fees or otherwise,
shall be made without set-off or
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counterclaim and shall be made prior to 12:00 Noon, London time (or, in the case
of payments in euro units, prior to 12:00 Noon, Frankfurt time), on the due date
thereof to the Administrative Agent, for the account of the Multicurrency
Revolving Credit Lenders, at the payment office for the currency of such
Multicurrency Revolving Credit Loans specified from time to time by the
Administrative Agent by notice to the Borrowers, in the currency of such
Multicurrency Revolving Credit Loans and in immediately available funds. The
Administrative Agent shall distribute such payments to the Multicurrency
Revolving Credit Lenders entitled to receive the same promptly upon receipt. In
relation to the payment of any amount of euro, such amount shall be made
available to the Administrative Agent in immediately available, freely
transferable, cleared funds to such account with such bank in Frankfurt am Main,
Germany (or such other principal financial center in such Participating Member
State as the Administrative Agent may from time to time nominate for this
purpose) as the Administrative Agent shall from time to time nominate for this
purpose.
(v) If any payment hereunder (other than payments on the Eurodollar
Loans or the Multicurrency Revolving Credit Loans) becomes due and payable on a
day other than a Business Day, the maturity of such payment shall be extended to
the next succeeding Business Day, and, with respect to payments of principal,
interest thereon shall be payable at the then applicable rate during such
extension. If any payment on a Eurodollar Loan or a Multicurrency Revolving
Credit Loan becomes due and payable on a day other than a Business Day, the
maturity of such payment shall be extended to the next succeeding Business Day
(and, with respect to payments of principal, interest thereon shall be payable
at the then applicable rate during such extension) unless the result of such
extension would be to extend such payment into another calendar month, in which
event such payment shall be made on the immediately preceding Business Day.
(b) A payment shall be deemed to have been made by the Administrative
Agent on the date on which it is required to be made under this Agreement if the
Administrative Agent has, on or before that date, taken all relevant steps to
make that payment. With respect to the payment of any amount denominated in
euro, the Administrative Agent shall not be liable to any Borrower or any of the
Lenders in any way whatsoever for any delay, or the consequences of any delay,
in the crediting to any account of any amount required by this Agreement to be
paid by the Administrative Agent if the Administrative Agent shall have taken
all relevant steps to achieve, on the date required by this Agreement, the
payment of such amount in immediately available, freely transferable, cleared
funds in the euro unit to the account with the bank in the principal financial
center in the Participating Member State which the relevant Borrower or, as the
case may be, any Lender shall have specified for such purpose. In this
paragraph (b), "all relevant steps" means all such steps as may be prescribed
from time to time by the regulations or operating procedures of such clearing or
settlement system as the Administrative Agent may from time to time determine
for the purpose of clearing or settling payments of euro.
(c) Unless the Administrative Agent shall have been notified in
writing by any Lender prior to a Borrowing Date that such Lender will not make
the amount that would constitute its share of such borrowing available to the
Administrative Agent, the Administrative
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Agent may assume that such Lender is making such amount available to the
Administrative Agent, and the Administrative Agent may, in reliance upon such
assumption, make available to the applicable Borrower a corresponding amount. If
such amount is not made available to the Administrative Agent by the required
time on the Borrowing Date therefor, such Lender shall pay to the Administrative
Agent, on demand, such amount with interest thereon at a rate per annum equal to
(i) the daily average Federal Funds Effective Rate (in the case of a borrowing
of US$ Revolving Credit Loans, Additional US$ Revolving Credit Loans or Term
Loans) and (ii) the Administrative Agent's reasonable estimate of its average
daily cost of funds (in the case of a borrowing of Multicurrency Revolving
Credit Loans), in each case for the period until such Lender makes such amount
immediately available to the Administrative Agent. A certificate of the
Administrative Agent submitted to any Lender with respect to any amounts owing
under this Section shall be conclusive in the absence of manifest error. If such
Lender's share of such borrowing is not made available to the Administrative
Agent by such Lender within three Business Days of such Borrowing Date, the
applicable Borrower shall repay such Lender's share of such borrowing (together
with interest thereon from the date such amount was made available to such
Borrower (i) at the rate per annum applicable to Base Rate Loans hereunder (in
the case of a borrowing of US$ Revolving Credit Loans or Additional US$
Revolving Credit Loans or Term Loans) or (ii) the Administrative Agent's
reasonable estimate of its average daily cost of funds plus the Applicable
----
Margin applicable to Multicurrency Revolving Credit Loans (in the case of a
borrowing of Multicurrency Revolving Credit Loans)) to the Administrative Agent
not later than three Business Days after receipt of written notice from the
Administrative Agent specifying such Lender's share of such borrowing that was
not made available to the Administrative Agent.
(d) Any amount payable by the Administrative Agent to the Lenders
under this Agreement in the currency of a Participating Member State shall be
paid in the euro unit.
(e) If, in relation to the currency of any Subsequent Participant,
the basis of accrual of interest or fees expressed in this Agreement with
respect to such currency shall be inconsistent with any convention or practice
in the London Interbank Market or, as the case may be, the Paris Interbank
Market for the basis of accrual of interest or fees in respect of the euro, such
convention or practice shall replace such expressed basis effective as of and
from the date on which such Subsequent Participant becomes a Participating
Member State; provided, that if any Loan in the currency of such Subsequent
--------
Participant is outstanding immediately prior to such date, such replacement
shall take effect, with respect to such Loan, at the end of the then current
Interest Period.
(f) Rounding and Other Consequential Changes. Without prejudice and
----------------------------------------
in addition to any method of conversion or rounding prescribed by any EMU
legislation and (i) without prejudice to the respective liabilities for
indebtedness of the Borrowers to the Lenders and the Lenders to the Borrowers
under or pursuant to this Agreement and (ii) without increasing the Available
Multicurrency Revolving Credit Commitment of any Lender:
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(i) the Multicurrency Revolving Credit Facility and each
reference in this Agreement to a minimum amount (or an integral
multiple thereof) in a national currency denomination of a Subsequent
Participant to be paid to or by the Administrative Agent shall,
immediately upon such Subsequent Participant becoming a Participating
Member State, be replaced by a reference to such reasonably comparable
and convenient amount (or an integral multiple thereof) in the euro
unit as the Administrative Agent may from time to time specify; and
(ii) except as expressly provided in this Section 5.08, each
provision of this Agreement shall be subject to such reasonable
changes of construction as the Administrative Agent may from time to
time specify to be necessary or appropriate to reflect the adoption of
the euro in any Participating Member State and any relevant market
conventions or practices relating to the euro.
SECTION V.9 Illegality. Notwithstanding any other provision herein,
----------
if the adoption of or any change in any Requirement of Law or in the
interpretation or application thereof shall make it unlawful for any Lender to
make or maintain Eurodollar Loans or Multicurrency Revolving Credit Loans, as
the case may be, as contemplated by this Agreement, (a) such Lender shall
immediately notify the Company and the Administrative Agent, (b) the commitment
of such Lender hereunder to make Eurodollar Loans or Multicurrency Revolving
Credit Loans, as the case may be, continue Eurodollar Loans or Multicurrency
Revolving Credit Loans, as the case may be, as such and convert Base Rate Loans
to Eurodollar Loans shall forthwith be suspended until such time as it shall no
longer be unlawful for such Lender to make or maintain the affected Loans, (c)
as applicable, such Lender's Loans then outstanding as Eurodollar Loans, if any,
shall be converted automatically to Base Rate Loans on the respective last days
of the then current Interest Periods with respect to such Eurodollar Loans or
within such earlier period as may be required by law and (d) as applicable, such
Lender's Multicurrency Revolving Credit Loans shall be prepaid on the last day
of the then current Interest Period with respect thereto. If any such
conversion of a Eurodollar Loan or a Multicurrency Revolving Credit Loan, as the
case may be, occurs on a day which is not the last day of the then current
Interest Period with respect thereto, the Company shall pay to such Lender such
amounts, if any, as may be required pursuant to Section 5.12.
SECTION V.10 Requirements of Law. (a) If the adoption of or any
-------------------
change in any Requirement of Law or in the interpretation or application thereof
or compliance by any Lender with any request or directive (whether or not having
the force of law) from any central bank or other Governmental Authority, made
subsequent to the date hereof:
(i) shall subject such Lender to any tax of any kind whatsoever
with respect to this Agreement, any Note, any Eurodollar Loan made by it or
any Multicurrency Revolving Credit Loan made by it or its obligation to
make any Eurodollar Loan or Multicurrency Revolving Credit Loan or change
the basis of taxation of payments to such Lender in respect thereof (except
for taxes covered by Section 5.11 and changes in rate of tax on the overall
net income of such Lender);
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(ii) shall impose, modify or hold applicable any reserve,
special deposit, compulsory loan or similar requirement against assets held
by, deposits or other liabilities in or for the account of, advances, loans
or other extensions of credit by, or any other acquisition of funds by, any
office of such Lender which is not otherwise included in the determination
of the Eurodollar Rate or the Eurocurrency Rate hereunder, including,
without limitation, the imposition of any reserves with respect to
Eurocurrency Liabilities under Regulation D of the Board; or
(iii) shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such Lender,
by an amount which such Lender deems to be material, of making, converting into,
continuing or maintaining Eurodollar Loans or Multicurrency Revolving Credit
Loans or to reduce any amount receivable hereunder in respect thereof, then, in
any such case, the applicable Borrower shall promptly pay such Lender, upon its
demand, any additional amount or amounts as will compensate such Lender for such
increased cost or reduced amount receivable. If any Lender becomes entitled to
claim any additional amounts pursuant to this Section, it shall promptly notify
the Company (with a copy to the Administrative Agent) of the event by reason of
which it becomes so entitled. A certificate as to any additional amounts
payable pursuant to this Section submitted by such Lender to the Company (with a
copy to the Administrative Agent) shall be conclusive in the absence of manifest
error. This covenant shall survive the termination of this Agreement and the
payment of the Loans and all other amounts payable hereunder.
(b) If any Lender shall have determined that the adoption of or any
change in any Requirement of Law regarding capital adequacy or in the
interpretation or application thereof or compliance by such Lender or any
corporation controlling such Lender with any request or directive regarding
capital adequacy (whether or not having the force of law) from any Governmental
Authority made subsequent to the date hereof shall have the effect of reducing
the rate of return on such Lender's or such corporation's capital as a
consequence of its obligations hereunder to a level below that which such Lender
or such corporation could have achieved but for such adoption, change or
compliance (taking into consideration such Lender's or such corporation's
policies with respect to capital adequacy) by an amount deemed by such Lender to
be material, then from time to time, after submission by such Lender to the
Company (with a copy to the Administrative Agent) of a prompt written request
therefor, the Company shall promptly pay to such Lender such additional amount
or amounts as will compensate such Lender for such reduction.
(c) No Lender shall be entitled to compensation under this Section
5.10 for any costs incurred or reductions suffered with respect to any date that
it has such costs unless it shall have notified the Company that it will demand
compensation for such costs or reductions under paragraph (a) or (b) above, not
more than 120 days after the later of (i) such date and (ii) the date on which
it shall have become aware of such costs or reductions; provided that the
foregoing shall in no way operate in derogation of the undertaking contained in
the penultimate sentence of
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this paragraph (c). Notwithstanding any other provision of this Section 5.10, no
Lender shall demand compensation for any increased cost or reduction referred to
above if it shall not at the time be the general policy or practice of such
Lender to demand such compensation in similar circumstances under comparable
provisions of other credit agreements. In the event that any Lender determines
that any event or circumstances that will lead to a claim under this Section
5.10 has occurred or will occur, such Lender will use its best efforts to so
notify the Company; provided, that any failure to provide such notice shall in
--------
no way impair the rights of any Lender to demand and receive compensation under
this Section 5.10, but without prejudice to any claims of the Company for
compensation for actual damages sustained as a result of any failure to observe
this undertaking. The agreements of this Section shall survive the termination
of this Agreement and the payment of the Loans and all other amounts payable
hereunder.
SECTION V.11 Taxes. (a) All payments of principal and interest made
-----
by the Borrowers under this Agreement and any Note shall be made free and clear
of, and without deduction or withholding for or on account of, any present or
future income, stamp or other taxes, levies, imposts, duties, charges, fees,
deductions or withholdings, now or hereafter imposed, levied, collected,
withheld or assessed by any Governmental Authority, excluding income taxes and
franchise taxes (imposed in lieu of income taxes) imposed on the Administrative
Agent or any Lender as a result of a present or former connection between the
Administrative Agent or such Lender and the jurisdiction of the Governmental
Authority imposing such tax or any political subdivision or taxing authority
thereof or therein (other than any such connection arising solely from the
Administrative Agent or such Lender having executed, delivered or performed its
obligations or received a payment under, or enforced, this Agreement, any Note
or any other Loan Document). If any such non-excluded taxes, levies, imposts,
duties, charges, fees, deductions or withholdings ("Non-Excluded Taxes") are
required to be withheld from any amounts payable to the Administrative Agent or
any Lender hereunder or under any Note, the amounts so payable to the
Administrative Agent or such Lender shall be increased to the extent necessary
to yield to the Administrative Agent or such Lender (after payment of all Non-
Excluded Taxes) interest or any such other amounts payable hereunder at the
rates and in the amounts specified in this Agreement, provided, however, that
-------- -------
(i) the Company shall not be required to increase any such amounts payable to
any Lender that is not organized under the laws of the United States of America
or a state thereof if such Lender fails to comply with the requirements of
paragraph (b) of this Section, and (ii) a Foreign Subsidiary Borrower shall not
be required to increase any such amounts payable to any Lender if such Lender
fails to comply with the requirements of paragraph (c) of this Section.
Whenever any Non-Excluded Taxes are payable by a Borrower, as promptly as
possible thereafter such Borrower shall send to the Administrative Agent for its
own account or for the account of such Lender, as the case may be, a certified
copy of an original official receipt received by such Borrower showing payment
thereof. If a Borrower fails to pay any Non-Excluded Taxes when due to the
appropriate taxing authority or fails to remit to the Administrative Agent the
required receipts or other required documentary evidence, such Borrower shall
indemnify the Administrative Agent and the Lenders for any incremental taxes,
interest or penalties that may become payable by the Administrative Agent or any
Lender as a result of any such failure. The agreements in this Section shall
survive
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the termination of this Agreement and the payment of the Loans and all other
amounts payable hereunder.
(b) Each Lender that is not incorporated or organized under the laws
of the United States of America or a state thereof shall:
(i) in the case of a Lender other than a Lender described in Section
5.11(b)(ii);
(A) at least five Business Days before the date of the initial
payment to be made by the Company under this Agreement to such Lender,
deliver to the Company and the Administrative Agent two duly completed
copies of United States Internal Revenue Service Form 1001 or 4224, or
successor applicable form, as the case may be, certifying that it is
entitled to receive payments under this Agreement without deduction or
withholding of any United States federal income taxes; and
(B) deliver to the Company and the Administrative Agent two
further copies of any such form or certification at least five
Business Days before the date that any such form or certification
expires or becomes obsolete and after the occurrence of any event
requiring a change in the most recent form previously delivered by it
to the Administrative Agent and the Company; and
(C) obtain such extensions of time for filing and complete such
forms or certifications as may reasonably be requested by the Company
or the Administrative Agent; and
(D) file amendments to such forms as and when required; and
(ii) in the case of a Lender that is not a "bank" under Section
881(c)(3)(A) of the Code and that is legally unable to comply with the
requirements of Section 5.11(b)(i);
(A) at least five Business Days before the date of the initial
payment to be made by the Company under this Agreement to such Lender,
deliver to the Company and the Administrative Agent (I) a statement
that such Lender (x) is not a "bank" under Section 881(c)(3)(A) of the
Code, is not subject to regulatory or other legal requirements as a
bank in any jurisdiction, and has not been treated as a bank for
purposes of any tax, securities law or other filing or submission made
to any Governmental Authority, any application made to a rating agency
or qualification for any exemption from tax, securities law or other
legal requirements, (y) is not a 10-percent shareholder within the
meaning of Section 881(c)(3)(B) of the Code and (z) is not a
controlled foreign corporation receiving interest from a related
person within the meaning of Section 881(c)(3)(C) of the Code and (II)
a properly completed and duly executed Internal Revenue Service Form
W-8 or applicable successor form; and
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(B) deliver to the Company and the Administrative Agent two
further properly completed and duly executed copies of said Form W-8,
or any successor applicable form at least five Business Days on or
before the date that any such Form W-8 expires or becomes obsolete or
after the occurrence of any event requiring a change in the most
recent form previously delivered by it to the Company or upon the
request of the Company or the Administrative Agent; and
(C) obtain such extensions of time for filing and completing
such forms or certifications as may be reasonably requested by the
Company and the Administrative Agent; and
(D) file amendments to such forms as and when required;
unless an event (including, without limitation, any change in treaty, law or
regulation) has occurred after the date such Person becomes a Lender hereunder
which renders all such forms inapplicable or which would prevent such Lender
from duly completing and delivering any such form with respect to it and such
Lender so advises the Company and the Administrative Agent; provided, however,
--------
that the Company may rely upon such forms provided to the Company for all
periods prior to the occurrence of such event. Each Person that shall become a
Lender or a Participant pursuant to Section 13.06 shall, upon the effectiveness
of the related transfer, be required to provide all of the forms, certifications
and statements required pursuant to this Section, provided that in the case of
--------
such Participant, the obligations of such Participant pursuant to this Section
5.11(b) shall be determined as if such Participant were a Lender, except that
such Participant shall furnish all such required forms, certifications and
statements to the Lender from which the related participation shall have been
purchased.
(c) Each Lender that is not incorporated or organized under the laws
of the jurisdiction under which a Foreign Subsidiary Borrower is incorporated or
organized shall, upon request by such Foreign Subsidiary Borrower, within a
reasonable period of time after such request, deliver to such Foreign Subsidiary
Borrower or the applicable governmental or taxing authority, as the case may be,
any form or certificate required in order that any payment by such Foreign
Subsidiary Borrower under this Agreement or any Notes to such Lender may be made
free and clear of, and without deduction or withholding for or on account of any
Non-Excluded Tax (or to allow any such deduction or withholding to be at a
reduced rate) imposed on such payment under the laws of the jurisdiction under
which such Foreign Subsidiary Borrower is incorporated or organized, provided
--------
that such Lender is legally entitled to complete, execute and deliver such form
or certificate and such completion, execution or submission would not materially
prejudice the legal position of such Lender.
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(d) No Lender shall be entitled to payment under this Section 5.11
unless it shall have notified the applicable Borrower that it will demand such
payment not more than 120 days after the date on which it shall become aware
that it was entitled to such payment, provided that such notice requirement
--------
shall in no way operate in derogation of the undertaking contained in the second
following sentence of this Section 5.11(d). Notwithstanding any other provision
of this Section 5.11, no Lender shall demand any payment under this Section 5.11
if it shall not at the time be the general policy or practice of such Lender to
demand such compensation in similar circumstances under comparable provisions of
other credit agreements. In the event that any Lender determines that any event
or circumstance that will lead to a claim by it under this Section 5.11 has
occurred or will occur, such Lender will use its best efforts to so notify the
Company provided that any failure to provide such notice shall in no way impair
--------
the rights of any Lender to demand and receive compensation under this Section
5.11, but without prejudice to any claims of the Company for failure to observe
this undertaking.
SECTION V.12 Indemnity. Each Borrower agrees to indemnify each
---------
Lender and to hold each Lender harmless from any loss or expense which such
Lender may sustain or incur as a consequence of (a) default by such Borrower in
payment when due of the principal amount of or interest on any Eurodollar Loan
or Multicurrency Revolving Credit Loan, (b) default by such Borrower in making a
borrowing of, conversion into or continuation of Eurodollar Loans or
Multicurrency Revolving Credit Loans after such Borrower has given a notice
requesting the same in accordance with the provisions of this Agreement, (c)
default by such Borrower in making any prepayment after such Borrower has given
a notice thereof in accordance with the provisions of this Agreement or (d) the
making by such Borrower of a prepayment of Eurodollar Loans or Multicurrency
Revolving Credit Loans on a day which is not the last day of an Interest Period
with respect thereto, including, without limitation, in each case, any such loss
or expense arising from the reemployment of funds obtained by it or from fees
payable to terminate the deposits from which such funds were obtained. Such
indemnification may include an amount equal to the excess, if any, of (i) the
amount of interest which would have accrued on the amount so prepaid, or not so
borrowed, converted or continued, for the period from the date of such
prepayment or of such failure to borrow, convert or continue to the last day of
such Interest Period (or, in the case of a failure to borrow, convert or
continue, the Interest Period that would have commenced on the date of such
failure) in each case at the applicable rate of interest for such Loans provided
for herein (excluding, however, the Applicable Margin included therein, if any)
over (ii) the amount of interest (as reasonably determined by such Lender) which
would have accrued to such Lender on such amount by placing such amount on
deposit for a comparable period with leading banks in the interbank eurodollar
market. All payments required to be made by any Borrower to any Lender under
this Section 5.12 shall be made no later than 30 days after receipt by such
Borrower of a written notice from such Lender setting forth in reasonable detail
the basis upon which such Lender is entitled to receive such payments. This
covenant shall survive the termination of this Agreement and the payment of the
Loans and all other amounts payable hereunder.
SECTION V.13 Use of Proceeds. The proceeds of the Revolving Credit
---------------
Loans and Multicurrency Revolving Credit Loans shall be used (a) to refinance
the Existing Credit
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Agreements, (b) to pay fees and expenses incurred by the Borrowers in connection
therewith and (c) for working capital and other general corporate purposes of
the Borrowers and their Subsidiaries, including investments and acquisitions.
The proceeds of the Term Loans shall be used (a) to refinance the Existing
Credit Agreements and (b) to pay fees and expenses incurred in connection
therewith.
SECTION V.14 Change of Lending Office; Replacement of Lenders. (a)
------------------------------------------------
Each Lender agrees that if it makes any demand for payment under Section 5.10 or
5.11, or if any adoption or change of the type described in Section 5.09 shall
occur with respect to it, it shall use reasonable efforts (consistent with its
internal policy and legal and regulatory restrictions and so long as such
efforts would not be disadvantageous to it, as determined in its sole
discretion) to designate a different lending office if the making of such a
designation would reduce or obviate the need for the Borrowers to make payments
under Section 5.10 or 5.11, or would eliminate or reduce the effect of any
adoption or change described in Section 5.09.
(b) If at any time any Lender makes any demand for payment under
Section 5.10 or 5.11 as a result of any condition described in any such Section,
then the Borrowers may, if such condition continues to exist after such Lender
shall have used or failed to use reasonable efforts pursuant to paragraph (a) of
this Section 5.14 and on 10 Business Days' prior written notice to the
Administrative Agent and such Lender, replace such Lender by causing such Lender
to (and such Lender shall) assign pursuant to Section 13.06(c) all of its rights
and obligations under this Agreement to another Lender or other bank or
financial institution selected by the Company and acceptable to the
Administrative Agent for a purchase price equal to the outstanding principal
amount of all Loans, accrued interest, fees and other amounts owing to such
Lender; provided that (i) the Borrowers shall have no right to replace the
--------
Administrative Agent, (ii) neither the Administrative Agent nor any Lender shall
have any obligation to the Borrowers to find a replacement Lender or other bank
or financial institution, (iii) such replacement must take place no later than
180 days after such Lender shall have made any such demand for payment, (iv) in
no event shall any Lender hereby replaced be required to pay or surrender to
such replacement Lender or other bank or financial institution any of the fees
received by such Lender pursuant to this Agreement, (v) the Borrowers shall pay
such amounts demanded under Section 5.10 or 5.11 to such Lender, together with
any amounts as may be required pursuant to Section 5.12, prior to such Lender
being replaced and the payment of such amounts shall be a condition to the
replacement of such Lender and (vi) such Lender shall not be required to pay any
fees required by Section 13.06(e) in connection with such replacement, which
fees shall be paid by the Company.
ARTICLE VI. REPRESENTATIONS AND WARRANTIES
------------------------------
Each of the Company and the Foreign Subsidiary Borrowers (insofar as
the representations and warranties set forth below relate respectively to such
Foreign Subsidiary Borrower) represents and warrants to the Administrative Agent
and each Lender that:
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SECTION VI.1 Financial Condition. The consolidated balance sheets of
-------------------
the Company and its consolidated Subsidiaries as at December 31, 1996 and
December 31, 1997, respectively, and the related consolidated statements of
earnings, cash flows and shareholders' equity for the fiscal years ended on such
dates, reported on by Ernst & Young LLP, copies of which have heretofore been
furnished to each Lender, are complete and correct in all material respects and
present fairly the consolidated financial condition of the Company and its
consolidated Subsidiaries as at such dates, and the consolidated results of
their operations and their consolidated cash flows for the fiscal years then
ended. The unaudited consolidated balance sheet of the Company and its
consolidated Subsidiaries as at September 30, 1998 and the related unaudited
consolidated statements of earnings and of cash flows for the nine-month period
ended on such date, certified by a Responsible Officer, copies of which have
heretofore been furnished to each Lender, are complete and correct and present
fairly the consolidated financial condition of the Company and its consolidated
Subsidiaries as at such date, and the consolidated results of their operations
and their consolidated cash flows for the nine-month period then ended (subject
to normal year-end audit adjustments). All such financial statements, including
the related schedules and notes thereto, have been prepared in accordance with
GAAP applied consistently throughout the periods involved (except as approved by
such accountants or Responsible Officer, as the case may be, and as disclosed
therein). Neither the Company nor any of its consolidated Subsidiaries (taken
as a whole) had, at the date of the most recent balance sheet referred to above,
any material Guaranty, contingent liability or liability for taxes, or any long-
term lease or unusual forward or long-term commitment, including, without
limitation, any interest rate or foreign currency swap or exchange transaction,
which is not reflected in the foregoing statements or in the notes thereto.
Except as disclosed in filings with the Securities and Exchange Commission made
by the Company on or prior to February 24, 1999, during the period from December
31, 1997 to and including the date hereof there has been no sale, transfer or
other disposition by the Company or any of its consolidated Subsidiaries of any
material part of its business or property and no purchase or other acquisition
of any business or property (including any capital stock of any other Person)
material in relation to the consolidated financial condition of the Company and
its consolidated Subsidiaries at December 31, 1997, other than any such sale,
transfer or other disposition or purchase or acquisition that would have been
permitted by this Agreement if this Agreement had been in effect at all times
during such period.
SECTION VI.2 No Change. Since December 31, 1997, there has been no
---------
development or event which has had or could reasonably be expected to have a
Material Adverse Effect.
SECTION VI.3 Corporate Existence; Compliance with Law. Each of the
----------------------------------------
Company and its Subsidiaries (a) is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization except to the
extent that, with respect to those Subsidiaries that are not Borrowers
hereunder, the lack of such organization, existence or good standing could not,
in the aggregate, reasonably be expected to have a Material Adverse Effect, (b)
has the corporate or other power and authority, and the legal right, to own and
operate its property, to lease the property it operates as lessee and to conduct
the business in which it is currently engaged except to the extent that, with
respect to those Subsidiaries that are not
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Borrowers hereunder, the lack of such power, authority or legal right could not,
in the aggregate, reasonably be expected to have a Material Adverse Effect, (c)
is duly qualified as a foreign corporation or other entity and in good standing
under the laws of each jurisdiction where its ownership, lease or operation of
property or the conduct of its business requires such qualification except to
the extent that the failure to qualify or be in good standing could not, in the
aggregate, reasonably be expected to have a Material Adverse Effect and (d) is
in compliance with all Requirements of Law except to the extent that the failure
to comply therewith could not, in the aggregate, reasonably be expected to have
a Material Adverse Effect.
SECTION VI.4 Corporate Power; Authorization; Enforceable Obligations.
-------------------------------------------------------
Each Loan Party has the corporate or other power and authority, and the legal
right, to execute, deliver and perform the Loan Documents to which it is a party
and, in the case of each Borrower, to borrow hereunder and has taken all
necessary corporate or other action to authorize the borrowings on the terms and
conditions of this Agreement and the Notes to which it is a party and to
authorize the execution, delivery and performance of the Loan Documents to which
it is a party. No consent or authorization of, filing with, notice to or other
act by or in respect of, any Governmental Authority or any other Person is
required with respect to the Company or any of its Subsidiaries in connection
with the borrowings hereunder of the consummation of the Refinancing or, with
the execution, delivery, performance, validity or enforceability of the Loan
Documents to which it is a party, except for consents, filings, authorizations
or approvals which have been obtained and are in full force and effect, and
except for approvals the failure to obtain which could not reasonably be
expected to have a Material Adverse Effect. This Agreement has been, and each
other Loan Document has been or when executed pursuant hereto will be, duly
executed and delivered on behalf of each of the applicable Loan Parties. This
Agreement and each other Loan Document to which a Loan Party is a party
constitutes a legal, valid and binding obligation of such Person enforceable
against such Person in accordance with its terms, except as enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors' rights generally and by
general equitable principles (whether enforcement is sought by proceedings in
equity or at law) and by an implied covenant of good faith and fair dealing.
SECTION VI.5 No Legal Bar. The execution, delivery and performance
------------
of the Loan Documents, the borrowings hereunder, the use of the proceeds thereof
and the consummation of the Refinancing will not violate any Requirement of Law
or Contractual Obligation of the Company or of any of its Subsidiaries, other
than any such violation which could not reasonably be expected to have a
Material Adverse Effect, and will not result in, or require, the creation or
imposition of any Lien on any of its or their respective properties or revenues
pursuant to any such Requirement of Law or Contractual Obligation, except Liens
created pursuant to the Loan Documents and any Lien which could not reasonably
be expected to have a Material Adverse Effect.
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SECTION VI.6 No Material Litigation. No litigation, investigation or
----------------------
proceeding of or before any arbitrator or Governmental Authority is pending or,
to the knowledge of the Company, threatened by or against the Company or any of
its Subsidiaries or against any of its or their respective properties or
revenues (a) with respect to any of the Loan Documents, the Refinancing or any
of the transactions contemplated hereby, or (b) which could reasonably be
expected to have a Material Adverse Effect.
SECTION VI.7 No Default. Neither the Company nor any of its
----------
Subsidiaries is in default under or with respect to any of its Contractual
Obligations in any respect which could reasonably be expected to have a Material
Adverse Effect. No Default or Event of Default has occurred and is continuing.
SECTION VI.8 Ownership of Property; Liens. Each of the Company and
----------------------------
its Significant Subsidiaries has good record and marketable title in fee simple
to, or a valid leasehold interest in, all its material real property, and good
title to, or a valid leasehold interest in, all its other material property, and
none of such property is subject to any Lien except as permitted by Section
9.04.
SECTION VI.9 Intellectual Property. Each of the Company and its
---------------------
Significant Subsidiaries owns, or is licensed to use, all trademarks,
tradenames, copyrights, technology, know-how and processes necessary for the
conduct of its business as currently conducted except for those the failure to
own or license which could not reasonably be expected to have a Material Adverse
Effect (the "Intellectual Property"). No claim has been asserted and is pending
by any Person challenging or questioning the use of any such Intellectual
Property or the validity or effectiveness of any such Intellectual Property, nor
does the Company know of any valid basis for any such claim which, in the
aggregate, could reasonably be expected to have a Material Adverse Effect. The
use of such Intellectual Property by the Company and its Subsidiaries does not
infringe on the rights of any Person, except for such claims and infringements
that, in the aggregate, could not reasonably be expected to have a Material
Adverse Effect.
SECTION VI.10 No Burdensome Restrictions. No Requirement of Law or
--------------------------
Contractual Obligation of the Company or any of its Subsidiaries could
reasonably be expected to have a Material Adverse Effect.
SECTION VI.11 Taxes. Each of the Company and its Subsidiaries has
-----
filed or caused to be filed all U.S. tax returns and all other material tax
returns which, to the knowledge of the Borrowers, are required to be filed and
has paid all taxes shown to be due and payable on said returns or on any
assessments made against it or any of its property and all other taxes, fees or
other charges imposed on it or any of its property by any Governmental Authority
(other than any (i) with respect to which the failure to pay, in the aggregate,
would not reasonably be expected to have a Material Adverse Effect or (ii) the
amount or validity of which is currently being contested in good faith by
appropriate proceedings and with respect to which reserves in conformity with
GAAP have been provided on the books of the Company or its Subsidiaries, as
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the case may be); no tax Lien has been filed, and, to the knowledge of the
Company, no claim is being asserted, with respect to any such tax, fee or other
charge.
SECTION VI.12 Federal Regulations. No part of the proceeds of any
-------------------
Loans will be used for "purchasing" or "carrying" any "margin stock" within the
respective meanings of each of the quoted terms under Regulation U of the Board
of Governors of the United States Federal Reserve System as now and from time to
time hereafter in effect that would cause the Loans to be in violation of the
provisions of the Regulations of such Board of Governors (including but not
limited to the provisions of Regulation U and Regulation X) or any similar rule
of any other Governmental Authority. If any Borrower is requested by any Lender
or the Administrative Agent, such Borrower will furnish to the Administrative
Agent and each Lender a statement to the foregoing effect in conformity with the
requirements of Form FR U-1 or FR G-3 referred to in said Regulation U.
SECTION VI.13 ERISA. Neither a Reportable Event nor an Accumulated
-----
Funding Deficiency has occurred during the five-year period prior to the date on
which this representation is made or deemed made with respect to any Plan, and
each Plan has complied in all material respects with the applicable provisions
of ERISA and the Code. No termination of a Single Employer Plan has occurred,
and no Lien in favor of PBGC or a Plan has arisen, during such five-year period.
The present value of all accrued benefits under each Single Employer Plan (based
on those assumptions used to fund such Plans) did not, as of the last annual
valuation date prior to the date on which this representation is made or deemed
made, exceed the value of the assets of such Plan allocable to such accrued
benefits by an amount which could reasonably be expected to have a Material
Adverse Effect, either individually or in the aggregate with all other Single
Employer Plans under which such accrued benefits exceed such assets. Neither
the Company nor any Commonly Controlled Entity has had a complete or partial
withdrawal from any Multiemployer Plan during the five-year period prior to the
date on which this representation is made or deemed made which could, in the
aggregate with other such withdrawals during such period, reasonably be expected
to have a Material Adverse Effect, and neither the Company nor any Commonly
Controlled Entity would become subject to any liability under ERISA if the
Company or any such Commonly Controlled Entity were to withdraw completely from
all Multiemployer Plans as of the valuation date most closely preceding the date
on which this representation is made or deemed made. No such Multiemployer Plan
is in Reorganization or is Insolvent.
SECTION VI.14 Investment Company Act; Other Regulations. No Borrower
-----------------------------------------
is an "investment company", or a company "controlled" by an "investment
company", within the meaning of the Investment Company Act of 1940, as amended.
No Borrower is subject to any law or regulation which limits its ability to
incur the Indebtedness to be incurred by it under the Loan Documents.
SECTION VI.15 Subsidiaries. As of the date hereof, the Company has
------------
no Subsidiaries except those Subsidiaries identified on Schedule II to this
Agreement. Schedule II also specifies which Subsidiaries are Insignificant
Subsidiaries on the date of this Agreement.
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Schedule VI lists, under the heading "Foreign Subsidiaries of which 65% of the
Capital Stock is to be Pledged", all Excluded Foreign Subsidiaries on the
Closing Date other than Excluded Foreign Subsidiaries of the type described in
clauses (i) and (iv) of the definition of Excluded Foreign Subsidiary in Section
1.01. Schedule VI lists, under the heading "Foreign Subsidiaries of which 100%
of the Capital Stock is to be Pledged", all Foreign Subsidiaries on the Closing
Date other than Excluded Foreign Subsidiaries.
SECTION VI.16 Environmental Matters. (a) The facilities and
---------------------
properties owned, leased or operated by the Company and/or any of its
Subsidiaries (the "Properties") do not contain, and have not previously
contained, any Materials of Environmental Concern in amounts or concentrations
which (i) constitute or constituted a violation of, or (ii) could reasonably be
expected to give rise to liability under, any Environmental Law except in either
case insofar as such violation or liability, or any aggregation thereof, is not
reasonably likely to result in a Material Adverse Effect.
(b) The Properties and all operations at the Properties are in
compliance, and have in the last five years been in compliance, in all material
respects with all applicable Environmental Laws, and there is no contamination
at, under or about the Properties or violation of any Environmental Law with
respect to the Properties or the business operated by the Company or any of its
Subsidiaries (the "Business") which could materially interfere with the
continued operation of the Properties or materially impair the aggregate fair
saleable value of the Properties.
(c) Neither the Company nor any of its Subsidiaries has received any
notice of violation, alleged violation, non-compliance, liability or potential
liability regarding environmental matters or compliance with Environmental Laws
with regard to any of the Properties or the Business, nor does the Company or
any of its Subsidiaries have knowledge or reason to believe that any such notice
will be received or is being threatened except insofar as such notice or
threatened notice, or any aggregation thereof, does not involve a matter or
matters that is or are reasonably likely to result in a Material Adverse Effect.
(d) Materials of Environmental Concern have not been transported or
disposed of from the Properties in violation of, or in a manner or to a location
which could reasonably be expected to give rise to liability under, any
Environmental Law, nor have any Materials of Environmental Concern been
generated, treated, stored or disposed of at, on or under any of the Properties
in violation of, or in a manner that could reasonably be expected to give rise
to liability on the part of the Company or any Subsidiary under, any applicable
Environmental Law except insofar as any such violation or liability referred to
in this paragraph, or any aggregation thereof, is not reasonably likely to
result in a Material Adverse Effect.
(e) No judicial proceeding or governmental or administrative action
is pending or, to the knowledge of the Company, threatened, under any
Environmental Law to which the Company or any Subsidiary is or will be named as
a party with respect to the Properties or the Business, nor are there any
consent decrees or other decrees, consent orders, administrative
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orders or other orders, or other administrative or judicial requirements
outstanding under any Environmental Law with respect to the Properties or the
Business except insofar as such proceeding, action, decree, order or other
requirement, or any aggregation thereof, is not reasonably likely to result in a
Material Adverse Effect.
(f) There has been no release or threat of release of Materials of
Environmental Concern at or from the Properties, or arising from or related to
the operations of the Company or any Subsidiary in connection with the
Properties or otherwise in connection with the Business, in violation of or in
amounts or in a manner that could reasonably give rise to liability under
Environmental Laws except insofar as any such violation or liability referred to
in this paragraph, or any aggregation thereof, is not reasonably likely to
result in a Material Adverse Effect.
SECTION VI.17 Accuracy and Completeness of Information. All written
----------------------------------------
information heretofore furnished by each Loan Party to the Lenders for purposes
of or in connection with this Agreement, taken as a whole, does not, and all
such information hereafter furnished by such Loan Party to any Lender for
purposes of this Agreement will not, contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
made or to be made, in the light of the circumstances under which they were or
will be made, not misleading. Prior to the date hereof, the Company has
disclosed to the Lenders in writing any and all facts which materially and
adversely affect (to the extent the Company can as of the date hereof reasonably
foresee), the business, operations or financial condition of the Company and its
Subsidiaries, taken as a whole, or the ability of any Loan Party to perform its
obligations under the Loan Documents. It is understood that no representation
or warranty is made concerning the forecasts, estimates, pro forma information,
projections and statements as to anticipated future performance or conditions,
and the assumptions on which they were based, contained in any such information,
reports, financial statements, exhibits or schedules, except that as of the date
such forecasts, estimates, pro forma information, projections and statements
were generated, (a) such forecasts, estimates, pro forma information,
projections and statements were based on the good faith assumptions of the
management of the Company and (b) such assumptions were believed by such
management to be reasonable.
SECTION VI.18 Other Unsubordinated Indebtedness. The obligations of
---------------------------------
each of the Borrowers under this Agreement and the Notes and the other Loan
Documents rank at least pari passu in right of payment with all other
unsubordinated Indebtedness of such Borrowers.
SECTION VI.19 Foreign Subsidiary Borrowers. (a) Each Foreign
----------------------------
Subsidiary Borrower will be a direct or indirect, Wholly Owned Subsidiary of the
Company (or, with the consent of the Majority Multicurrency Revolving Credit
Facility Lenders, which consent shall not be unreasonably withheld, a direct or
indirect, majority-owned Subsidiary of the Company).
(b) Each Foreign Subsidiary Borrower will have, upon becoming a party
hereto, full right and authority to enter into this Agreement and each other
Loan Document to which it is a party, and to perform all of its obligations
under this and each other Loan Document to which it is a party; all of the
foregoing actions will have been, prior to any request for Loans by such
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Borrower, duly authorized by all necessary action on the part of such Borrower;
and when such Foreign Subsidiary Borrower becomes a party hereto, this Agreement
and each other Loan Document to which it is a party will constitute valid and
binding obligations of such Borrower enforceable in accordance with their
respective terms except as such terms may be limited by the application of
bankruptcy, moratorium, insolvency and similar laws affecting the rights of
creditors generally and by equitable principles affecting the availability of
specific performance and other remedies.
SECTION VI.20 Security Documents. Each Security Document, when
------------------
executed and delivered by the Loan Party which is a party thereto, will be
effective to create in favor of the Administrative Agent (or the Trustee, as the
case may be), for the benefit of the Lenders (and, as the case may be, the other
creditors which are secured thereby), a legal, valid and enforceable security
interest in the Collateral described therein and proceeds thereof. When the
actions described in Schedule 6.20 in respect of each Security Document have
been taken, the Security Documents shall constitute fully perfected Liens on,
and security interests in, all right, title and interest of the Loan Parties in
such Collateral and the proceeds thereof, as security for the Secured
Obligations, in each case prior and superior in right to any other Person.
SECTION VI.21 Solvency. Each Loan Party is, and after giving effect
--------
to the incurrence of all Indebtedness and obligations being incurred in
connection herewith and therewith will be and will continue to be, Solvent.
SECTION VI.22 Year 2000 Matters. Any reprogramming required to
-----------------
permit the proper functioning, in and following the year 2000, of (i) the
Company's computer systems and (ii) equipment containing embedded microchips
(including systems and equipment supplied by others or with which Company's
systems interface) and the testing of all such systems and equipment, as so
reprogrammed, will be completed within such period of time as is required to
avoid the occurrence of a Material Adverse Effect as a result of the failure to
complete such reprogramming. The cost to the Company of such reprogramming and
testing and of the reasonably foreseeable consequences of year 2000 to the
Company (including, without limitation, reprogramming errors and the failure of
others' systems or equipment) will not result in a Material Adverse Effect.
ARTICLE VII. CONDITIONS PRECEDENT
--------------------
SECTION VII.1 Conditions to Initial Extensions of Credit. The
------------------------------------------
obligation of each Lender to make its initial extension of credit is subject to
the satisfaction of the following conditions precedent on or before the Closing
Date. The Agreement shall become effective on the date of the satisfaction of
the conditions precedent set forth in this Section 7.01:
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(a) Credit Agreement. The Administrative Agent shall have received
----------------
this Agreement, executed and delivered by a duly authorized officer (or a
duly authorized representative) of the Company and each Foreign Subsidiary
Borrower that is a party hereto on the Closing Date.
(b) Corporate Proceedings. The Administrative Agent shall have
---------------------
received a copy of the resolutions, in form and substance satisfactory to
the Administrative Agent, of the Board of Directors of the Company and each
other Borrower that is a party hereto on the Closing Date, authorizing (i)
the execution, delivery and performance by it of this Agreement and the
Loan Documents to which it is a party and (ii) the borrowings by it
contemplated hereunder, certified by the Secretary or an Assistant
Secretary of the Company or such other Borrower, as the case may be, as of
the Closing Date, which certificate shall be in form and substance
satisfactory to the Administrative Agent and shall state that the
resolutions thereby certified have not been amended, modified, revoked or
rescinded.
(c) Incumbency Certificate. The Administrative Agent shall have
----------------------
received a certificate of the Company, dated the Closing Date, as to the
incumbency and signature of the officers or representatives of each
Borrower executing any Loan Document on the Closing Date, satisfactory in
form and substance to the Administrative Agent, executed by any of the
Chief Executive Officer, the President, the Chief Financial Officer, the
Treasurer or the Controller of the Company and the Secretary or any
Assistant Secretary (or a duly authorized representative, if such
representative is also a duly authorized officer of the Company or
otherwise authorized by the Company) of the Company.
(d) Corporate Documents. The Administrative Agent shall have
-------------------
received true and complete copies of the certificate of incorporation and
by-laws of the Company and each other Borrower that is a party hereto on
the Closing Date, certified as of the Closing Date as complete and correct
copies thereof by the Secretary or an Assistant Secretary or a duly
authorized representative of the Company or such other Borrower, as the
case may be.
(e) Approvals. All governmental and third party approvals necessary
---------
in connection with the transactions contemplated hereby shall have been
obtained and be in full force and effect (other than approvals the failure
to obtain which could not reasonably be expected to have a Material Adverse
Effect). The Administrative Agent shall have received a certificate of a
Responsible Officer of the Company to the foregoing effect, to which shall
be attached copies of any such approvals theretofore obtained.
(f) Fees. The Administrative Agent shall have received all fees to
-----
be received by the Administrative Agent or Chase on or prior to the Closing
Date in connection with this Agreement.
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(g) Legal Opinions. The Administrative Agent shall have received the
--------------
executed legal opinions of (i) David M. Sherbin, Esq., Associate General
Counsel of the Company and (ii) Skadden, Arps, Slate, Meagher & Flom LLP,
special counsel to the Company, each given upon the express instructions of
the Company, substantially in the forms of Exhibits H-1 and H-2,
respectively. Subject to Section 8.12, the Administrative Agent shall also
have received such legal opinions from Netherlands, English, Canadian and
German counsel as it shall reasonably request in respect of Security
Documents or Guarantees governed by the laws of such jurisdictions.
(h) Perfection Actions; Other Actions. Subject to Section 8.12, all
---------------------------------
actions required to cause the effectiveness of the Security Documents and
the Trust Agreements and to perfect the security interests created by each
of the Security Documents shall have been completed.
(i) Security Documents and Subsidiary Guarantees; Trust Agreements.
--------------------------------------------------------------
Subject to Section 8.12, the Administrative Agent shall have received (i)
the Domestic Subsidiary Guarantee and the U.K. Acquisition I Guarantee,
executed and delivered by a duly authorized officer of each guarantor party
thereto, (ii) each of the Security Documents, executed and delivered by a
duly authorized officer of each party thereto and (iii) each of the Trust
Agreements, executed and delivered by a duly authorized officer of each
party thereto.
(j) Existing Credit Agreements. All loans, accrued interest, fees
--------------------------
and any other amounts owing to the respective lenders and agents under the
Existing Credit Agreements shall have been paid in full contemporaneous
with the Loans made on the Closing Date, and the commitments to make loans
thereunder shall have been replaced and restated pursuant to this
Agreement.
SECTION VII.2 Conditions to Each Extension of Credit. The agreement
--------------------------------------
of each Lender to make any extension of credit requested to be made by it on any
date (including, without limitation, its extensions of credit on the Closing
Date) is subject to the satisfaction of the following conditions precedent:
(a) Representations and Warranties. Each of the representations and
------------------------------
warranties made by any Loan Party in or pursuant to the Loan Documents
shall be true and correct in all material respects on and as of such date
as if made on and as of such date, except if such representation or
warranty relates to an earlier date or refers to Schedules, in which case
such representation and warranty shall be true and correct in all material
respects on such earlier date and after giving effect to any amendments of
such Schedules.
(b) No Default. No Default or Event of Default shall have occurred
----------
and be continuing on such date or after giving effect to the extension of
credit requested to be made on such date.
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(c) Foreign Subsidiary Opinion. If such Loan is the initial Loan to
--------------------------
a Foreign Subsidiary Borrower, the Administrative Agent shall have received
a Foreign Subsidiary Opinion in respect of such Foreign Subsidiary
Borrower.
(d) Corporate Proceedings. If such Loan is the initial Loan to a
---------------------
Foreign Subsidiary Borrower, the Administrative Agent shall have received a
copy of the resolutions, in form and substance satisfactory to the
Administrative Agent, of the Board of Directors of such Borrower,
authorizing (i) the execution, delivery and performance by it of this
Agreement and the Loan Documents to which it is a party and (ii) the
borrowings by it contemplated hereunder, certified by the Secretary or an
Assistant Secretary of such Borrower as of the date on which such Loan is
requested to be made, which certificate shall be in form and substance
satisfactory to the Administrative Agent and shall state that the
resolutions thereby certified have not been amended, modified, revoked or
rescinded.
(e) Incumbency Certificate. If such Loan is the initial Loan to a
----------------------
Foreign Subsidiary Borrower, the Administrative Agent shall have received a
certificate of such Borrower dated the date on which such Loan is requested
to be made, as to the incumbency and signature of the officers or
representatives of such Borrower executing any Loan Document, satisfactory
in form and substance to the Administrative Agent, executed by any
Responsible Officer of such Borrower and the Secretary or any Assistant
Secretary (or a duly authorized representative, if such representative is
also a duly authorized officer of such Borrower or otherwise authorized by
such Borrower).
(f) Corporate Documents. If such Loan is the initial Loan to a
-------------------
Foreign Subsidiary Borrower, the Administrative Agent shall have received
true and complete copies of the organic documents of such Borrower,
certified as of the date on which such Loan is required to be made as
complete and correct copies thereof by the Secretary or an Assistant
Secretary or a duly authorized representative of such Borrower.
(g) Additional Matters. All corporate and other proceedings, and all
------------------
documents, instruments and other legal matters in connection with the
transactions contemplated by this Agreement and the other Loan Documents
shall be satisfactory in form and substance to the Administrative Agent,
and the Administrative Agent shall have received such other documents and
legal opinions in respect of any aspect or consequence of the transactions
contemplated hereby or thereby as it shall reasonably request.
Each borrowing of Loans by a Borrower hereunder shall constitute a
representation and warranty by the Company and such Borrower as of the date of
such Loan that the conditions contained in this Section 7.02 have been
satisfied.
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ARTICLE VIII. AFFIRMATIVE COVENANTS
---------------------
From and after the Closing Date, each of the Company and, to the
extent the covenants set forth below relate thereto, each Foreign Subsidiary
Borrower, hereby covenants and agrees that so long as any of the Commitments
remain in effect, any Loan remains outstanding and unpaid or any other amount is
owing to any Lender or the Administrative Agent hereunder, the Company or such
Foreign Subsidiary Borrower, as applicable, will comply with the covenants set
forth below in this Article VIII:
SECTION VIII.1 Financial Statements. The Company will furnish to
--------------------
each Lender:
(a) as soon as available, but in any event within 120 days after the
end of each fiscal year of the Company, a copy of the consolidated balance sheet
of the Company and its Subsidiaries as at the end of such year and the related
consolidated statements of income and cash flows for such year, setting forth in
each case in comparative form the figures for the previous year, certified
without qualification or exception by independent public accountants of
nationally recognized standing selected by the Company, it being understood and
agreed that the delivery of the Company's Annual Report on Form 10-K for such
fiscal year signed by a Responsible Officer will satisfy the requirement set
forth in this clause; and
(b) as soon as available, but in any event within 60 days after the
end of each of the first three quarterly periods of each fiscal year of the
Company, a copy of the unaudited consolidated condensed balance sheet of the
Company and its Subsidiaries as at the end of each such quarter and the related
unaudited consolidated condensed statements of income and cash flows of the
Company and its Subsidiaries for the portion of the fiscal year through such
date, setting forth in each case in comparative form such figures for the
previous year, certified by a Responsible Officer, it being understood and
agreed that the delivery of the Company's Quarterly Report on Form 10-Q for the
relevant fiscal quarter signed by a Responsible Officer will satisfy the
requirement set forth in this clause;
all such financial statements to be complete and correct in all material
respects and prepared in reasonable detail and in accordance with GAAP applied
consistently throughout the periods reflected therein (except for such changes
in accounting principles as may be approved by such Responsible Officer and
concurred in by the Company's independent public accountants and disclosed
therein).
SECTION VIII.2 Certificates; Other Information. The Company will
-------------------------------
furnish to each Lender:
(a) concurrently with each delivery of the financial statements
referred to in Sections 8.01(a) and (b), a certificate of a Responsible Officer
in the form of Exhibit F (i) stating that such officer has no knowledge of any
Default or Event of Default except as specified in such certificate and (ii)
showing in reasonable detail the calculations supporting such statement in
respect of Sections 9.01, 9.02 and 9.03;
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(b) on or prior to February 28 of each year, a copy of the
projections by the Company of the operating budget and cash flow budget of the
Company and its Subsidiaries for the succeeding fiscal year, such projections to
be accompanied by a certificate of a Responsible Officer to the effect that such
projections have been prepared on a reasonable basis and in good faith, it being
understood that no representation or warranty shall be deemed to be made
concerning the projections and budgets and the assumptions on which they were
based, except that as of the date on which such projections and budgets were
generated, (a) they were based on the good faith assumptions of the management
of the Company and (b) such assumptions were believed by such management to be
reasonable (it being understood that the requirements of this paragraph (b) have
been satisfied for fiscal year 1999);
(c) if requested by the Administrative Agent or by any Lender through
the Administrative Agent, promptly after the same is furnished to PBGC, copies
of all information furnished by the Company, any Subsidiary or any Commonly
Controlled Entity to PBGC, except, in each case, information furnished as to
ordinary operational aspects of the business of the Company or any Subsidiary
and not relating to any deviation by the Company or any Subsidiary from rules
and regulations of PBGC; and
(d) promptly, such additional financial and other information as any
Lender may from time to time reasonably request.
SECTION VIII.3 Accrual of Liabilities; Payment of Obligations. The
----------------------------------------------
Company will maintain, and cause each of its Subsidiaries to maintain, in
accordance with GAAP, appropriate reserves for the accrual of taxes and all
other obligations, liabilities and claims and pay, discharge or otherwise
satisfy, and cause each of its Subsidiaries to pay, discharge or otherwise
satisfy, at or before their maturity or before they become delinquent, as the
case may be, all obligations except (a) where the same are being contested in
good faith by appropriate proceedings diligently pursued or (b) where the
failure so to pay, discharge or otherwise satisfy obligations would not, in the
aggregate, reasonably be expected to have a Material Adverse Effect.
SECTION VIII.4 Maintenance of Corporate Existence; Maintenance of
--------------------------------------------------
Properties. The Company will (a) maintain its corporate existence, rights and
- - ----------
franchises necessary to continue its business and the corporate existence,
rights and franchises necessary to continue the business of each of its
Significant Subsidiaries, provided that the foregoing shall not be a limitation
--------
(i) on the right of the Company to discontinue any operations if in the opinion
of the Company such discontinuance is in the best interest of the Company and
would not materially affect the ability of the Company to pay its debts as they
become due, (ii) on asset sales permitted under Section 9.08 and (iii) on the
right of any Significant Subsidiary of the Company to merge with or be
liquidated into the Company or another Significant Subsidiary of the Company if
a Default does not then exist and would not result therefrom; and (b) maintain,
and cause each Significant Subsidiary to maintain, the properties which are used
or useful in its respective operations in good working order and condition.
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SECTION VIII.5 Insurance. The Company will maintain, and cause each
---------
of its Significant Subsidiaries to maintain, insurance with financially sound
and reputable companies in such form and upon such terms and in such amounts and
against such risks (including liability for bodily injury and property damage)
and subject to such deductibles or retentions as in the reasonable opinion of
the Company is available on commercially reasonable terms and will provide sound
and reasonable protection for the Company's or such Significant Subsidiary's
assets and operations. At the Administrative Agent's request, the Company will
furnish to the Administrative Agent (with copies for each Lender) certificates
of insurance or other evidence that such insurance is being maintained.
SECTION VIII.6 Notices. The Company will (a) promptly give notice in
-------
writing to the Administrative Agent (which shall promptly notify each Lender) of
the occurrence of any Default or Event of Default under this Agreement, or of
the commencement of (i) any material litigation or proceedings affecting the
Company or any Subsidiary or (ii) any dispute between the Company or any
Subsidiary and any Governmental Authority or any other party if such litigation,
proceedings or dispute could reasonably be expected to result in a Material
Adverse Effect; and (b) as soon as possible and in any event within 45 days
after the Company knows or has reason to know that any Reportable Event (other
than a Reportable Event not subject to the provision for 30-day notice to PBGC
pursuant to the regulations issued under ERISA) has occurred with respect to any
Single Employer Plan or that PBGC or any Borrower or any Commonly Controlled
Entity has instituted or will institute proceedings under Title IV of ERISA to
terminate any Single Employer Plan, deliver to the Administrative Agent (which
shall promptly notify each Lender) a certificate of a Responsible Officer of the
Company setting forth details as to such Reportable Event and the action that
the Company proposes to take with respect thereto, together with a copy of any
notice of such Reportable Event that may be required to be filed with PBGC, or
any notice delivered by PBGC evidencing its intent to institute such proceedings
or any notice to PBGC that such Plan is to be terminated, as the case may be.
For all purposes of clause (b) of this Section 8.06, the Company shall be deemed
to have all knowledge or knowledge of all facts attributable to the
administrator of a Single Employer Plan.
SECTION VIII.7 Compliance with Contractual Obligations and Laws. The
------------------------------------------------
Company will, and will cause each of its Subsidiaries to, comply with all
provisions of any Contractual Obligation, applicable law, rule, regulation,
order, writ, judgment, injunction, decree, award or ordinance to which it is
subject, except to the extent that the failure to comply therewith could not, in
the aggregate, reasonably be expected to have a Material Adverse Effect.
SECTION VIII.8 Access to Books and Inspection. The Company shall
------------------------------
keep proper books of record and account in which full, true and correct entries
in conformity with GAAP and all Requirements of Law shall be made of all
dealings and transactions in relation to its business and activities; and give
the Administrative Agent and any reasonable number of representatives of the
Lenders access, at the Company's principal office, upon reasonable notice during
normal business hours to, and permit any such representatives to examine, copy
or make excerpts from, any and all books, records and documents in the
possession of the Company relating to its affairs and the affairs of the
Subsidiaries, and to inspect any of the properties of the
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Company or the Subsidiaries. Notwithstanding any provision in this Section, the
Company (i) shall be given a reasonable opportunity upon reasonable notice to
have an officer or officers of the Company accompany any such representative
during any such visit, and (ii) shall not be responsible for any expenses
incurred by any such representative.
SECTION VIII.9 Use of Proceeds. The Borrowers shall use the proceeds
---------------
of the Loans for the purposes specified in Section 5.13.
SECTION VIII.10 Environmental Laws. The Company will, and will cause
------------------
each Subsidiary to, (a) comply with, and ensure compliance by all tenants and
subtenants, if any, with, all applicable Environmental Laws and obtain and
comply in all material respects with and maintain, and ensure that all tenants
and subtenants obtain and comply in all material respects with and maintain, any
and all licenses, approvals, notifications, registrations or permits required by
applicable Environmental Laws except to the extent that the failure to do so, or
any aggregation thereof, is not reasonably likely to result in a Material
Adverse Effect, (b) conduct and complete all investigations, studies, sampling
and testing, and all remedial, removal and other actions required under
Environmental Laws and promptly comply in all material respects with all lawful
orders and directives of all Governmental Authorities regarding Environmental
Laws except to the extent that the same are being contested in good faith by
appropriate proceedings and the pendency of such proceedings is not reasonably
likely to result in a Material Adverse Effect and (c) defend, indemnify and hold
harmless the Administrative Agent and the Lenders, and their respective
employees, agents, officers and directors, from and against any and all claims,
demands, penalties, fines, liabilities, settlements, damages, costs and expenses
of whatever kind or nature known or unknown, contingent or otherwise, arising
out of, or in any way relating to the violation of, noncompliance with or
liability under, any Environmental Law applicable to the operations of the
Company, any of its Subsidiaries or the Properties, or any orders, requirements
or demands of Governmental Authorities related thereto, including, without
limitation, investigation and laboratory fees, response costs, court costs,
litigation expenses and reasonable attorneys' and consultants' fees, except to
the extent that any of the foregoing arise out of the gross negligence or
willful misconduct of the party seeking indemnification therefor. The
agreements in clause (c) of this Section shall survive repayment of the Notes
and all other amounts payable hereunder.
SECTION VIII.11 Additional Collateral and Guaranties.
------------------------------------
(a) With respect to any new Subsidiary (other than an Excluded
Foreign Subsidiary) created or acquired after the Closing Date by the Company or
any Domestic Subsidiary (which new Subsidiary, for the purposes of this
paragraph (a), shall include any existing Significant Subsidiary that ceases to
be an Excluded Foreign Subsidiary and, at the request of the Administrative
Agent, shall also include any Foreign Subsidiary (other than any Excluded
Foreign Subsidiary) of the Company or any Domestic Subsidiary which is in
existence on the Closing Date but does not execute a Subsidiary Guarantee on the
Closing Date), the Company or its Subsidiaries, as applicable, shall promptly
(i) execute and deliver to the Trustee such amendments to the applicable Pledge
Agreement, or such additional Pledge Agreement, as
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the Administrative Agent deems necessary or advisable in order to grant to the
Trustee, as security for the Secured Obligations secured under such Pledge
Agreement, a perfected first priority security interest in the Capital Stock of
such new Subsidiary which is owned by the Company or any of its Subsidiaries
(other than an Excluded Foreign Subsidiary), (ii) deliver to the Trustee the
certificates representing such Capital Stock, together with undated stock
powers, in blank, executed and delivered by a duly authorized officer of the
Company or such pledgor Subsidiary, as the case may be, or take such other
perfection actions in respect of such Capital Stock as shall be reasonably
requested by the Administrative Agent to perfect its security interest therein,
(iii) cause such new Subsidiary to become a party to a Subsidiary Guarantee and
(iv) if reasonably requested by the Administrative Agent, deliver to the
Administrative Agent legal opinions relating to the matters described above,
which opinions shall be in form and substance, and from counsel, reasonably
satisfactory to the Administrative Agent.
(b) With respect to any new Excluded Foreign Subsidiary (other than
any such Subsidiary which is of the type described in clause (i) or (iv) of the
definition of Excluded Foreign Subsidiary in Section 1.01) created or acquired
after the Closing Date by the Company or any of its Domestic Subsidiaries, the
Company or such Domestic Subsidiary, as applicable, shall promptly (i) execute
and deliver to the Administrative Agent such amendments or supplements to the
Pledge Agreement, or such other security documents, as the Administrative Agent
deems necessary or advisable in order to grant to the Trustee, as security for
the Secured Obligations secured under the Pledge Agreement, a perfected first
priority security interest in the Capital Stock of such new Subsidiary which is
owned by the Company or any of its Domestic Subsidiaries (provided that in no
event shall more than 65% of the total outstanding Capital Stock of any such new
Excluded Foreign Subsidiary be required to be so pledged), (ii) deliver to the
Trustee the certificates representing such Capital Stock, together with undated
stock powers, in blank, executed and delivered by a duly authorized officer of
the Company or such Subsidiary, as the case may be and (iii) if requested by the
Administrative Agent, deliver to the Administrative Agent legal opinions
relating to the matters described above, which opinions shall be in form and
substance, and from counsel, reasonably satisfactory to the Administrative
Agent.
(c) Notwithstanding anything in this Section 8.11 to the contrary,
(i) shares of the Capital Stock of Netherlands BV II and Netherlands BV IV shall
not be required to be pledged hereunder, and shares of Capital Stock of any
other Foreign Subsidiary shall not be required to be pledged hereunder to the
extent that, in the good faith judgment of the Company, the pledging of such
Capital Stock would result in adverse tax consequences to the Company or would
be unlawful and (ii) so long as the Existing Accounts Receivable Financing
Program or any similar program is in effect, the Receivables Subsidiary or any
Subsidiary created under a subsequent receivables financing program shall not be
required to become a party to a Subsidiary Guarantee or to create a security
interest in any of its assets.
SECTION VIII.12 Foreign Collateral Matters. Notwithstanding the
--------------------------
provisions of Section 7.01 (g), (h) and (i) and Section 8.11 (but subject to
Section 8.11(c)):
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(a) with respect to any Foreign Subsidiary listed under the heading
"Foreign Subsidiaries of which 65% of the Capital Stock is to be Pledged"
in Schedule VI, the Company shall take the actions required by Section 7.01
(h) and (i) to pledge 65% of the Capital Stock of each such Foreign
Subsidiary, and shall cause the applicable legal opinions required by
Section 7.01 (g) to be delivered, as promptly as practicable, and in any
event within 120 days after the Closing Date; and with respect to any
Foreign Subsidiary listed under the heading "Foreign Subsidiaries of which
100% of the Capital Stock is to be Pledged" in Schedule VI, the Company
shall take the actions required by Section 7.01(h) and (i) to pledge 100%
of the Capital Stock of each such Foreign Subsidiary, and shall cause the
applicable legal opinions required by Section 7.01(g) to be delivered, as
promptly as practicable, and in any event within 120 days after the Closing
Date;
(b) the Company may satisfy the requirements of Sections 7.01 (g),
(h) and (i) and Section 8.11 with respect to any Excluded Foreign
Subsidiary by transferring all of the Capital Stock of such Excluded
Foreign Subsidiary to F-M International Group Inc.; and
(c) the Company shall cause to be delivered, as promptly as
practicable, and in any event within 120 days after the Closing Date, the
UK Acquisition I Guarantee, the legal opinion of U.K. counsel in connection
therewith and all other documents delivered in connection with the
guarantee of U.K. Acquisition I under the Existing Multicurrency Agreement.
ARTICLE IX. NEGATIVE COVENANTS
------------------
From and after the Closing Date, the Company hereby covenants and
agrees that so long as any of the Commitments remain in effect, any Loan remains
outstanding and unpaid or any other amount is owing to any Lender or the
Administrative Agent hereunder, the Company will comply with the covenants set
forth below in this Article IX:
SECTION IX.1 Cash Flow Coverage. The Company will not permit the
------------------
Cash Flow Coverage for any period of four consecutive fiscal quarters to be less
than 1.50 to 1.0.
SECTION IX.2 Consolidated Leverage Ratio. The Company will not
---------------------------
permit the Consolidated Leverage Ratio at the last day of any fiscal quarter
ending during any period set forth below to be greater than the ratio set forth
below for such period:
Period Consolidated Leverage Ratio
------ ---------------------------
Closing Date - December 30, 1999 4.50 to 1.0
December 31, 1999 - 4.00 to 1.0
December 30, 2000
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December 31, 2000 and 3.50 to 1.0
thereafter
SECTION IX.3 Maintenance of Consolidated Net Worth. The Company will
-------------------------------------
not permit Consolidated Net Worth at any time to be less than $2,000,000,000.
SECTION IX.4 Limitation on Liens. The Company will not, nor will it
-------------------
permit any of its Subsidiaries to, create, assume or incur or suffer to be
created, assumed or incurred or to exist any Lien on any of its properties or
assets, whether now owned or hereafter acquired, provided, however, that the
-------- -------
foregoing restriction shall not apply to the following:
(a) Liens existing on the date of this Agreement and described on
Schedule III;
(b) [Reserved];
(c) Liens in favor of the Company or any Wholly Owned Subsidiary;
(d) Liens in favor of any Governmental Authority to secure progress,
advance or other payments pursuant to any contract or provision of any
statute;
(e) any extension, renewal or replacement (or successive extensions,
renewals or replacements), as a whole or in part, of any Lien referred to
in the clauses (a) through (d), and (m) and (n), inclusive of this Section
9.04; provided that (i) no such extension, renewal or replacement shall
--------
result in an increase in the liabilities secured thereby and (ii) such
extension, renewal or replacement Lien shall be limited to all or a part of
the same property that secured the Lien so extended, renewed or replaced
(plus additions, accessions, replacements and improvements to such
property);
(f) Liens for taxes not yet due or which are being contested in good
faith and by appropriate proceedings diligently pursued if adequate
reserves with respect thereto are maintained on the books of the Company or
such Subsidiary, as the case may be, in accordance with GAAP or in the case
of a Subsidiary located outside the United States, general accounting
principles in effect from time to time in their respective jurisdictions of
incorporation;
(g) carriers', warehousemen's, mechanics', landlords', materialmen's,
repairmen's or other like Liens arising in the ordinary course of business
(A) which are not overdue for a period of more than 60 days or (B) which
are being contested in good faith and by appropriate proceedings diligently
pursued if adequate reserves with respect thereto are maintained on the
books of the Company or such Subsidiary, as the case may be, in accordance
with GAAP;
(h) easements, rights-of-way, zoning and similar restrictions and
other similar encumbrances or title defects incurred in the ordinary course
of business which, in the
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aggregate, are not greater than $15,000,000 (to the extent the dollar
values of such encumbrances are calculable) and which do not in any case
materially detract from the value of the property subject thereto or
interfere with the ordinary conduct of the business of the Company or its
Subsidiaries;
(i) any attachment or judgment lien, unless the judgment it secures
shall not, within 30 days after the entry thereof, have been discharged or
execution thereof stayed pending appeal, or shall not have been discharged
within 30 days after the expiration of any such stay;
(j) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social legislation and deposits securing
liability to insurance carriers under insurance or self-insurance
arrangements;
(k) deposits to secure the performance of bids, trade contracts
(other than for borrowed money), leases, statutory obligations, surety and
appeal bonds, performance bonds and other obligations of a like nature
incurred in the ordinary course of business;
(l) Liens created pursuant to the Security Documents;
(m) other Liens incidental to the conduct of the Company's or any
Subsidiary's business or the ownership of its property and assets,
including, without limitation, (i) Liens that were incurred in connection
with the borrowing of money or the obtaining of advances or credit or
capital leases and (ii) Liens on property or assets existing at the time of
the acquisition thereof (including acquisition through merger or
consolidation) or to secure the payment of all or any part of the purchase
price or construction cost thereof or to secure any Indebtedness incurred
prior to, at the time of, or within six months after, the acquisition or
completion of such property or assets for the purpose of financing all or
any part of the purchase price or construction cost thereof; provided,
--------
however, that the Indebtedness secured by all of the foregoing Liens
-------
referred to in clauses (i) and (ii) above, plus the aggregate amount of all
Other Permitted Obligations, does not at any time exceed in the aggregate
for the Company and all Subsidiaries of the Company an amount equal to the
sum of (A) $250,000,000; plus (B) an amount equal to forty percent (40%) of
Consolidated Net Worth (determined as of the most recent fiscal quarter of
the Company);
(n) Liens granted by a special-purpose, Wholly Owned Subsidiary of
the Company that purchases accounts receivable from the Company and its
Subsidiaries to the extent such Liens are granted on such accounts
receivable and (related assets customarily pledged in connection with
similar transactions, such as promissory notes evidencing such receivables
and software and records relating to such receivables) to secure the
payment of indebtedness of such Wholly Owned Subsidiary; and
(o) Liens granted to secure any Permitted Acquisition Debt.
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SECTION IX.5 Limitation on Indebtedness. The Company will not, and
--------------------------
will not permit any of its Subsidiaries to, create, incur, assume or suffer to
exist any Indebtedness, except:
(a) Indebtedness of any Loan Party pursuant to any Loan Document;
(b) Indebtedness of the Company to any Subsidiary and of any
Subsidiary which is a party to a Subsidiary Guarantee to the Company or any
other Subsidiary;
(c) (i) Indebtedness of the Special Purpose Subsidiaries described in
Schedule 9.05(c), (ii) Indebtedness of any Subsidiary which is not a party
to a Subsidiary Guarantee owing to any other Subsidiary which is not a
party to a Subsidiary Guarantee and (iii) Indebtedness in the form of any
investment permitted by Section 9.11;
(d) Indebtedness of the Company (i) having a final maturity after the
Revolving Credit Termination Date, and (ii) the proceeds of which are used
to prepay the Term Loans and any Permitted Acquisition Debt in accordance
with its terms;
(e) Subordinated Debt;
(f) Indebtedness outstanding on the date hereof and listed on
Schedule IV and any refinancings, refundings, renewals or extensions
thereof (without any increase in the principal amount thereof);
(g) Permitted Acquisition Debt; and
(h) additional Indebtedness of the Company and its Subsidiaries
(including, without limitation, (i) Indebtedness of Foreign Subsidiaries to
the Company, any other Subsidiary or any other Person, (ii) capital lease
obligations and (iii) Indebtedness of any Person which becomes a Subsidiary
or is merged with or into the Company after the date of this Agreement,
provided that in the case of Indebtedness described by the foregoing clause
--------
(iii), (A) such Indebtedness was in existence on the date such Person
became a Subsidiary or merged with or into the Company, (B) such
Indebtedness was not created in contemplation of such Person becoming a
Subsidiary or merging with or into the Company and (C) immediately after
giving effect to the acquisition of such Person by the Company no Default
or Event of Default shall have occurred and be continuing), provided, that
--------
the aggregate amount of Other Permitted Obligations, plus the aggregate
amount of all obligations secured by Liens permitted pursuant to Section
9.04(m), shall not at any time exceed in the aggregate for the Company and
its Subsidiaries the sum of (x) $250,000,000 plus (y) an amount equal to
forty percent (40%) of Consolidated Net Worth (determined as of the most
recent fiscal quarter of the Company).
SECTION IX.6 Limitation on Guaranties. The Company will not, and
------------------------
will not permit any of its Subsidiaries to, create, incur, assume or suffer to
exist any Guaranty except:
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(a) Guaranties in existence on the date hereof and listed on Schedule
IV and Guaranties of any refinancings, refundings, renewals or extensions
of the Indebtedness or obligations guaranteed thereby, provided that the
--------
amount of such Indebtedness or obligations are not increased;
(b) the Subsidiary Guarantees;
(c) Guaranties of Indebtedness permitted under clauses (a) through
(d) and clauses (g) and (h) of Section 9.05;
(d) additional Guaranties in respect of Indebtedness and other
obligations not exceeding $50,000,000 at any time outstanding;
(e) [reserved];
(f) Guaranties of the Loan Parties in respect of Subordinated Debt,
which Guaranties shall have subordination terms acceptable to the
Administrative Agent, acting reasonably;
(g) Guaranties by any Subsidiary which is a party to a Subsidiary
Guarantee in respect of the obligations of the Company under the ESOP
Guaranty or the obligations of Federal-Mogul Corporation Salaried
Employees' Stock Ownership Trust under the ESOP Loan Agreement, provided
--------
that each such Guaranty shall provide that when any Subsidiary Guarantor
party to such Guaranty is released from its obligations under the
Subsidiary Guarantee to which it is a party, such Subsidiary Guarantor
shall be released from its obligations under such Guaranty;
(h) Guaranties by any Subsidiary which is a party to a Subsidiary
Guarantee of Indebtedness incurred by the Company in connection with a Bond
Offering or under the Indentures; provided, that if any such Guaranty is in
--------
connection with a Bond Offering in respect of Subordinated Debt, the
Guaranties in respect thereof shall have subordination terms acceptable to
the Administrative Agent, acting reasonably; and
(i) Guaranties of any Person which becomes a Subsidiary of the
Company or is merged with or into the Company after the date of this
Agreement; provided that (i) such Guaranty was in existence on the date
--------
such Person became a Subsidiary or was merged with or into the Company,
(ii) such Guaranty was not created in contemplation of such Person becoming
a Subsidiary or merging with or into the Company, (iii) immediately after
giving effect to the acquisition of such Person by the Company, no Default
or Event of Default shall have occurred and be continuing and (iv) the
aggregate amount of Other Permitted Obligations, plus the aggregate amount
of all obligations secured by Liens permitted pursuant to Section 9.04(m),
shall not at any time exceed in the aggregate for the Company and its
Subsidiaries the sum of (A) $250,000,000 plus (B) an amount equal
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to forty percent (40%) of Consolidated Net Worth (determined as of the most
recent fiscal quarter of the Company).
SECTION IX.7 Limitation on Fundamental Changes. The Company will
---------------------------------
not, and will not permit any of its Subsidiaries to, enter into any merger,
consolidation or amalgamation, or liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution), or Dispose of all or substantially all
of its Property or business, or make any material change in its present method
of conducting business, except:
(a) any Subsidiary of the Company may be merged or consolidated with
or into the Company (provided that the Company shall be the continuing or
--------
surviving corporation) or with or into any Subsidiary which is a party to a
Subsidiary Guarantee (provided that such Subsidiary which is a party to a
--------
Subsidiary Guarantee shall be the continuing or surviving corporation) or
with or into any Person (provided that the surviving corporation of such
merger or consolidation continues to be a Subsidiary and such merger or
consolidation is permitted by Section 9.11) and any Subsidiary of the
Company which is not a party to a Subsidiary Guarantee may be merged or
consolidated with or into any other Subsidiary which is not a party to a
Subsidiary Guarantee;
(b) any Subsidiary of the Company may Dispose of any or all of its
assets (upon voluntary liquidation or otherwise) to the Company or any
Subsidiary which is a party to a Subsidiary Guarantee, and any Subsidiary
of the Company which is not a party to a Subsidiary Guarantee may Dispose
of assets to any other Subsidiary which is not a party to a Subsidiary
Guarantee; and
(c) Dispositions permitted by Sections 9.08(a), (d), (e), (f), (g),
(i) and (j).
SECTION IX.8 Limitation on Sale of Assets. The Company will not, and
----------------------------
will not permit any of its Significant Subsidiaries to, Dispose of any of its
Property or business (including, without limitation, receivables and leasehold
interests), whether now owned or hereafter acquired, or, in the case of any
Subsidiary, issue or sell any shares of such Subsidiary's Capital Stock to any
Person, except:
(a) the Disposition of obsolete or worn out property in the ordinary
course of business;
(b) the sale of inventory in the ordinary course of business;
(c) Dispositions permitted by Sections 9.07(a) and (b) or Section
9.11;
(d) the sale or issuance of the Capital Stock of any Subsidiary which
is a party to a Subsidiary Guarantee to the Company or any Subsidiary, or
the sale or issuance of Capital Stock of any Foreign Subsidiary to any
other Foreign Subsidiary;
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(e) sales of receivables under the Company's Existing Accounts
Receivable Financing Program (as amended from time to time) or any
replacement program; provided that the principal amount of the Company's
--------
existing accounts receivable financing program may not be increased to an
aggregate principal amount greater than $500,000,000;
(f) Dispositions of assets required to comply with anti-trust laws;
(g) Dispositions of assets listed in Schedule 9.08;
(h) Dispositions pursuant to sale and leaseback transactions
permitted pursuant to Section 9.13;
(i) the transactions described in Section 9.10 may be consummated;
and
(j) any other sales of assets (including Capital Stock of
Subsidiaries), other than the assets set forth on Schedule 9.08, having a
book value which, when added to the book value of all other assets sold
pursuant to this clause (j) during such fiscal year, does not exceed 5% of
the gross book value of the assets of the Company and its consolidated
Subsidiaries, determined in accordance with GAAP, as of the last day of the
fiscal quarter ended immediately prior to the date of such sale.
SECTION IX.9 Limitation on Restricted Payments. The Company will
---------------------------------
not, and will not permit any of its Subsidiaries to, declare or pay any dividend
(other than dividends payable solely in common stock of the Person making such
dividend) on, or make any payment on account of, or set apart assets for a
sinking or other analogous fund for, the purchase, redemption, defeasance,
retirement or other acquisition of, any shares of any class of Capital Stock of
the Company or any Subsidiary or any warrants or options to purchase any such
Capital Stock, whether now or hereafter outstanding, or make any other
distribution in respect thereof (other than payments solely in common stock of
the Company, or, in the case of such payments made by a Subsidiary to the
Company or another Wholly Owned Subsidiary, stock of the Person making such
payments), either directly or indirectly, whether in cash or property or in
obligations of the Company or any Subsidiary (collectively, "Restricted
Payments"), except that:
(a) any Subsidiary may make Restricted Payments to the Company or any
Subsidiary which is a party to a Subsidiary Guarantee, and any Foreign
Subsidiary may make Restricted Payments to any Foreign Subsidiary;
(b) so long as no Default or Event of Default shall have occurred and
be continuing, the Company may pay dividends in respect of its preferred
stock at the stated rate, and dividends in respect of its common stock at a
rate not exceeding $.48 per share per year, as adjusted for stock splits
and similar events;
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(c) the Company may issue common stock upon conversion of any of its
convertible preferred stock, or the preferred stock of an Affiliate
described in the second sentence of the definition of "Capital Stock"; and
(d) payments by Federal-Mogul Financing Trust in respect of the 7%
Trust Convertible Preferred Securities of Federal-Mogul Financing Trust.
SECTION IX.10 Restrictions on Special Purpose Subsidiaries. The
--------------------------------------------
Company will not permit any Special Purpose Subsidiary to (a) create, assume,
incur or suffer to exist any Lien, any Indebtedness (other than Indebtedness
owing to other Special Purpose Subsidiaries or Subsidiaries that are guarantors
under a Subsidiary Guarantee), any Guaranty or any other liabilities, direct or
contingent or (b) conduct, transact or otherwise engage in any business or other
operations other than owning the stock of its Subsidiaries and activities
directly related thereto, except that, notwithstanding the foregoing :
(i) the Special Purpose Subsidiaries may execute and deliver the
Loan Documents to which they are parties, incur and perform their
obligations thereunder and create and suffer to exist the Liens created
thereby and may execute and deliver the Guaranties permitted by Section
9.06 and perform their obligations thereunder; and
(ii) the Special Purpose Subsidiaries may perform obligations
under the Investments permitted above and under their respective organic
documents and other Requirements of Law, may incur obligations to
Governmental Authorities in the ordinary course of business, such as income
and franchise tax liabilities and other incidental liabilities, and may
incur other immaterial liabilities directly related and incidental to the
permitted activities enumerated above.
SECTION IX.11 Limitation on Investments, Loans and Advances. The
---------------------------------------------
Company will not, and will not permit any of its Subsidiaries to, make any
advance, loan, extension of credit (by way of guaranty of obligations of such
Person or otherwise) or capital contribution to, or purchase any stock, bonds,
notes, debentures or other securities of or any assets constituting all or a
material part of a business unit of, or make any other investment in, any Person
("Investments"), except:
(a) extensions of trade credit in the ordinary course of business;
(b) Investments in Cash Equivalents;
(c) Guaranties permitted by Section 9.06;
(d) loans and advances to employees of the Company or its
Subsidiaries in the ordinary course of business (including, without
limitation, for travel, entertainment and relocation expenses);
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(e) Permitted Acquisitions;
(f) Investments (x) by any Subsidiary in the Company or (y) by the
Company or any of its Subsidiaries in any Person that, prior to such
investment, is a Subsidiary and which, prior to or simultaneously with such
investment, is or becomes a party to a Subsidiary Guarantee or (z) by the
Company or any of its Subsidiaries in the Receivables Subsidiary or any
other Subsidiary created pursuant to a receivables financing program
permitted hereunder;
(g) the Investments described in Section 9.10;
(h) Investments (x) by the Company or any of its Subsidiaries in any
entity which at the time of such Investment is an Excluded Foreign
Subsidiary and which was not acquired or created in anticipation of the
making of such Investment in an aggregate amount outstanding not exceeding
$200,000,000 for all Excluded Foreign Subsidiaries, and (y) investments by
a Subsidiary which is not a party to a Subsidiary Guarantee in any other
Subsidiary which is not a party to a Subsidiary Guarantee;
(i) Investments to the extent that the consideration paid by the
Company and its Subsidiaries is Capital Stock of the Company (provided that
--------
if such Investment is the acquisition of, in a single transaction or in a
series of related transactions, all or substantially all of the equity
interests of any Person, such acquisition is approved by the board of
directors or analogous governing body of such Person);
(j) in addition to Investments otherwise expressly permitted by this
Section 9.11, Investments by the Company or any of its Subsidiaries in an
aggregate amount (valued at cost) not to exceed at any time outstanding
$300,000,000 while this Agreement is outstanding (provided that if such
--------
Investment is the acquisition of, in a single transaction or in a series of
related transactions, all or substantially all of the equity interests of
any Person, such acquisition is approved by the board of directors or
analogous governing body of such Person); and
(k) Investments permitted by Sections 9.07(a) and (b).
SECTION IX.12 Limitation on Optional Payments and Modifications of
----------------------------------------------------
Debt Instruments, Certain Derivative Transactions, etc. The Company will not,
- - -------------------------------------------------------
and will not permit any of its Subsidiaries to, (a) make or offer to make any
payment, prepayment, repurchase or redemption of or otherwise defease or
segregate funds with respect to the Subordinated Debt (other than scheduled
interest payments required to be made in cash and in connection with a
refinancing otherwise permitted hereunder), (b) enter into any derivative
transaction or similar transaction obligating the Company or any of its
Subsidiaries to make payments to any other Person as a result of a change in
market value of Subordinated Debt or Capital Stock of the Company or (c) amend,
modify, waive or otherwise change, or consent or agree to any amendment,
modification, waiver or other change to, any of the terms of the Subordinated
Debt (other than any such amendment, modification, waiver or other change which
would extend the
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maturity or reduce the amount of any payment of principal thereof or which would
reduce the rate or extend the date for payment of interest thereon or which
would otherwise not materially impair the interests of the Lenders).
SECTION IX.13 Limitation on Sales and Leasebacks. Enter into any
----------------------------------
arrangement with any Person providing for the leasing by the Company or any
Subsidiary of real or personal property which has been or is to be sold or
transferred by the Company or such Subsidiary to such Person or to any other
Person to whom funds have been or are to be advanced by such Person on the
security of such property or rental obligations of the Company or such
Subsidiary; provided, that (i) the Company and its Subsidiaries may consummate
--------
sale and leaseback transactions in which the transferee is the Company or a
Subsidiary which is a party to a Subsidiary Guarantee and any Subsidiary which
is not a party to a Subsidiary Guarantee may consummate sale and leaseback
transactions in which the transferor is another Subsidiary which is not a party
to a Subsidiary Guarantee and (ii) the Company may consummate other sale and
leaseback transactions so long as after giving effect thereto the amount of
Other Permitted Obligations, plus the aggregate amount of obligations secured by
Liens permitted by Section 9.04(m), does not at any time exceed in the aggregate
for the Company and its Subsidiaries the sum of (A) $250,000,000 plus (B) an
amount equal to forty percent (40%) of Consolidated Net Worth (determined as of
the most recent fiscal quarter of the Company).
SECTION IX.14 Limitation on Restrictions on Subsidiary Distributions.
------------------------------------------------------
The Company will not, and will not permit any Significant Subsidiary to, enter
into or suffer to exist or become effective any consensual encumbrance or
restriction on the ability of any Significant Subsidiary of the Company to (a)
pay dividends or make any other distributions in respect of any Capital Stock of
such Significant Subsidiary held by, or pay any Indebtedness owed to, the
Company or any other Subsidiary of the Company, (b) make loans or advances to
the Company or any other Subsidiary of the Company or (c) transfer any of its
assets to the Company or any other Subsidiary of the Company, except for such
encumbrances or restrictions existing under or by reason of (i) any restrictions
existing under the Loan Documents, (ii) any restrictions with respect to a
Subsidiary imposed pursuant to an agreement which has been entered into in
connection with the Disposition of all or substantially all of the Capital Stock
or assets of such Subsidiary, (iii) any restrictions with respect to assets
encumbered by a Lien permitted by Section 9.04 so long as such restriction
applies only to the asset encumbered by such permitted Lien, (iv) any
restrictions with respect to T & N plc and its Subsidiaries, or any of the
entities acquired in the Cooper Automotive Acquisition, existing on the date of
consummation of the Company's acquisition thereof, (v) any restrictions in
respect of Subsidiaries which must be disposed of after the Company's
acquisition of T & N plc agreed to between the Company and a Governmental
Authority having jurisdiction over antitrust or competition issues as a
condition to such Governmental Authority's approval of such acquisition, (vi)
any restrictions contained in any Permitted Acquisition Debt and (vii) any
restrictions contained in Indebtedness permitted to be incurred under Section
9.05(h).
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SECTION IX.15 Multiemployer Plans. The Company will not, as of any
-------------------
date, permit any liability to occur to which the Company or any Commonly
Controlled Entity would become subject under ERISA if the Company or any such
Commonly Controlled Entity were to withdraw completely from all Multiemployer
Plans as of the valuation date most closely preceding such date.
SECTION IX.16 Limitation on More Restrictive Covenants. The Company
----------------------------------------
shall not enter into any new debt agreement that would contain, nor enter into
any amendment, supplement or other modification to any indenture, instrument or
other agreement concerning the Funded Debt or any refinancing thereof, if such
indenture, instrument or other agreement at the time entered into or after
giving effect to any such amendment, supplement or other modification thereto,
would contain (a) any covenant or event of default that is more restrictive on
any Borrower than those set forth in this Agreement, (b) with respect to the
Company, any covenant with respect to financial performance the scope of which
is materially different from the covenants respecting such matters set forth in
Sections 9.01, 9.02 or 9.03, (c) any covenant which would prohibit the granting
of liens on its assets by any Borrower or its Subsidiaries in favor of the
Lenders, other than, in the case of this clause (c), Indebtedness incurred
pursuant to Section 9.05(g), and in the case of clauses (a) and (c),
Indebtedness incurred pursuant to Section 9.05(h) constituting a refinancing,
refunding, extension or renewal of existing Indebtedness and having terms no
more restrictive than the Indebtedness refinanced, refunded, extended or renewed
thereby.
SECTION IX.17 Affiliates. The Company, will not, nor will it permit
----------
any of its Significant Subsidiaries to, enter into any transaction (including,
without limitation, the purchase or sale of any property or service) with, or
make any payment or transfer to, any Affiliate (other than the Company or any of
its Significant Subsidiaries) except in the ordinary course of business and
pursuant to the reasonable requirements of the Company's or such Subsidiary's
business and upon fair and reasonable terms no less favorable to the Company or
such Subsidiary than the Company or such Subsidiary would obtain in a comparable
arms-length transaction.
ARTICLE X. GUARANTEE
---------
SECTION X.1 Guarantee. (a) The Company hereby unconditionally and
---------
irrevocably guarantees to the Administrative Agent, for the ratable benefit of
the Administrative Agent and the Lenders and their respective successors,
indorsees, transferees and assigns, the prompt and complete payment and
performance by the Foreign Subsidiary Borrowers (whether at the stated maturity,
by acceleration or otherwise) of the Obligations.
(b) The Company further agrees to pay any and all expenses
(including, without limitation, all reasonable fees and disbursements of
counsel) which may be paid or incurred by the Administrative Agent, or any
Lender in enforcing, or obtaining advice of counsel in respect of, any
rights with respect to, or collecting, any or all of the Obligations and/or
enforcing any rights with respect to, or collecting against, the
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Company under this Section. This Section shall remain in full force and
effect until the Obligations are paid in full and the Commitments are
terminated, notwithstanding that from time to time prior thereto the
Borrowers may be free from any Obligations.
(c) No payment or payments made by any Borrower or any other Person
or received or collected by the Administrative Agent or any Lender from any
Borrower or any other Person by virtue of any action or proceeding or any
set-off or appropriation or application, at any time or from time to time,
in reduction of or in payment of the Obligations shall be deemed to modify,
reduce, release or otherwise affect the liability of the Company hereunder
which shall, notwithstanding any such payment or payments, remain liable
hereunder for the Obligations until the Obligations are paid in full and
the Commitments are terminated.
(d) The Company agrees that whenever, at any time, or from time to
time, it shall make any payment to the Administrative Agent or any Lender
on account of its liability under this Section, it will notify the
Administrative Agent and such Lender in writing that such payment is made
under this Section for such purpose.
SECTION X.2 Right of Set-off. The Administrative Agent and each
----------------
Lender is hereby irrevocably authorized at any time and from time to time
without notice to the Company, any such notice being expressly waived by the
Company, to set off and appropriate and apply any and all deposits (general or
special, time or demand, provisional or final), in any currency, and any other
credits, indebtedness or claims, in any currency, in each case whether direct or
indirect, absolute or contingent, matured or unmatured, at any time held or
owing by the Administrative Agent or such Lender (or any Affiliate of such
Lender) to or for the credit or the account of the Company, or any part thereof
in such amounts as the Administrative Agent or such Lender may elect, against or
on account of the obligations and liabilities of the Company to the
Administrative Agent or such Lender hereunder which are then due and payable and
claims of every nature and description of the Administrative Agent or such
Lender against the Company, in any currency, whether arising hereunder, under
any other Loan Document or otherwise in connection therewith, as the
Administrative Agent or such Lender may elect, whether or not the Administrative
Agent or such Lender has made any demand for payment. The Administrative Agent
and each Lender shall notify the Company promptly of any such set-off and the
application made by the Administrative Agent or such Lender, as the case may be,
of the proceeds thereof; provided that the failure to give such notice shall not
--------
affect the validity of such set-off and application. The rights of the
Administrative Agent and each Lender under this Section are in addition to other
rights and remedies (including, without limitation, other rights of set-off)
which the Administrative Agent or such Lender may have.
SECTION X.3 No Subrogation. Notwithstanding any payment or payments
--------------
made by the Company hereunder, or any set-off or application of funds of the
Company by the Administrative Agent or any Lender, the Company shall not be
entitled to be subrogated to any of the rights of the Administrative Agent or
any Lender against the Foreign Subsidiary Borrowers or against any collateral
security or guarantee or right of offset held by the
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Administrative Agent or any Lender for the payment of the Obligations, nor shall
the Company seek or be entitled to seek any contribution or reimbursement from
such Borrowers in respect of payments made by the Company hereunder, until all
amounts owing to the Administrative Agent and the Lenders by such Borrowers on
account of the Obligations are paid in full and the Commitments are terminated.
If any amount shall be paid to the Company on account of such subrogation rights
at any time when all of the Obligations shall not have been paid in full, such
amount shall be held by the Company in trust for the Administrative Agent and
the Lenders, segregated from other funds of the Company, and shall, forthwith
upon receipt by the Company, be turned over to the Administrative Agent in the
exact form received by the Company (duly indorsed by the Company to the
Administrative Agent, if required), to be applied against the Obligations,
whether matured or unmatured, in such order as Administrative Agent may
determine. The provisions of this Section shall survive the termination of this
Agreement and the payment in full of the Obligations and the termination of the
Commitments.
SECTION X.4 Amendments, etc. with respect to the Obligations; Waiver
--------------------------------------------------------
of Rights. The Company shall remain obligated hereunder notwithstanding that,
- - ---------
without any reservation of rights against the Company, and without notice to or
further assent by the Company, any demand for payment of any of the Obligations
made by the Administrative Agent or any Lender may be rescinded by the
Administrative Agent or such Lender, and any of the Obligations continued, and
the Obligations, or the liability of any other party upon or for any part
thereof, or any collateral security or guarantee therefor or right of offset
with respect thereto, may, from time to time, in whole or in part, be renewed,
extended, amended, modified, accelerated, compromised, waived, surrendered or
released by the Administrative Agent or any Lender, and any Loan Documents and
any other documents executed and delivered in connection therewith may be
amended, modified, supplemented or terminated, in whole or in part, in
accordance with the provisions thereof as the Administrative Agent (or the
requisite Lenders, as the case may be) may deem advisable from time to time, and
any collateral security, guarantee or right of offset at any time held by the
Administrative Agent or any Lender for the payment of the Obligations may be
sold, exchanged, waived, surrendered or released. None of the Administrative
Agent or any Lender shall have any obligation to protect, secure, perfect or
insure any Lien at any time held by it as security for the Obligations or for
this Agreement or any property subject thereto. When making any demand
hereunder against the Company, the Administrative Agent or any Lender may, but
shall be under no obligation to, make a similar demand on any Borrower or any
other guarantor, and any failure by the Administrative Agent or any Lender to
make any such demand or to collect any payments from any Foreign Subsidiary
Borrower or any such other guarantor or any release of any Foreign Subsidiary
Borrower or such other guarantor shall not relieve the Company of its
obligations or liabilities hereunder, and shall not impair or affect the rights
and remedies, express or implied, or as a matter of law, of the Administrative
Agent or any Lender against the Company. For the purposes hereof "demand" shall
include the commencement and continuance of any legal proceedings.
SECTION X.5 Guarantee Absolute and Unconditional. The Company waives
------------------------------------
any and all notice of the creation, renewal, extension or accrual of any of the
Obligations and notice of or proof of reliance by the Administrative Agent or
any Lender upon this Agreement or
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acceptance of this Agreement; the Obligations, and any of them, shall
conclusively be deemed to have been created, contracted or incurred, or renewed,
extended, amended or waived, in reliance upon this Agreement; and all dealings
between the Foreign Subsidiary Borrower and the Company, on the one hand, and
the Administrative Agent and the Lenders, on the other, shall likewise be
conclusively presumed to have been had or consummated in reliance upon this
Agreement. The Company waives diligence, presentment, protest, demand for
payment and notice of default or nonpayment to or upon the Foreign Subsidiary
Borrowers and the Company with respect to the Obligations. This Article X shall
be construed as a continuing, absolute and unconditional guarantee of payment
without regard to (a) the validity, regularity or enforceability of this
Agreement, any other Loan Document, any of the Obligations or any other
collateral security therefor or guarantee or right of offset with respect
thereto at any time or from time to time held by the Administrative Agent or any
Lender, (b) any defense, set-off or counterclaim (other than a defense of
payment or performance) which may at any time be available to or be asserted by
the Foreign Subsidiary Borrowers against the Administrative Agent or any Lender,
or (c) any other circumstance whatsoever (with or without notice to or knowledge
of the Foreign Subsidiary Borrowers or the Company) which constitutes, or might
be construed to constitute, an equitable or legal discharge of the Foreign
Subsidiary Borrowers for the Obligations, or of the Company under this Article
X, in bankruptcy or in any other instance. When pursuing its rights and remedies
hereunder against the Company, the Administrative Agent and any Lender may, but
shall be under no obligation to, pursue such rights and remedies as it may have
against the Foreign Subsidiary Borrowers or any other Person or against any
collateral security or guarantee for the Obligations or any right of offset with
respect thereto, and any failure by the Administrative Agent or any Lender to
pursue such other rights or remedies or to collect any payments from the Foreign
Subsidiary Borrowers or any such other Person or to realize upon any such
collateral security or guarantee or to exercise any such right of offset, or any
release of the Foreign Subsidiary Borrowers or any such other Person or of any
such collateral security, guarantee or right of offset, shall not relieve the
Company of any liability hereunder, and shall not impair or affect the rights
and remedies, whether express, implied or available as a matter of law, of the
Administrative Agent or any Lender against the Company. This Article X shall
remain in full force and effect and be binding in accordance with and to the
extent of its terms upon the Company and its successors and assigns, and shall
inure to the benefit of the Administrative Agent and the Lenders, and their
respective successors, indorsees, transferees and assigns, until all the
Obligations and the obligations of the Company under this Agreement shall have
been satisfied by payment in full and the Commitments shall be terminated,
notwithstanding that from time to time during the term of this Agreement the
Foreign Subsidiary Borrowers may be free from any Obligations.
SECTION X.6 Reinstatement. This Article X shall continue to be
-------------
effective, or be reinstated, as the case may be, if at any time payment, or any
part thereof, of any of the Obligations is rescinded or must otherwise be
restored or returned by the Administrative Agent or any Lender upon the
insolvency, bankruptcy, dissolution, liquidation or reorganization of any
Foreign Subsidiary Borrower or upon or as a result of the appointment of a
receiver, intervenor or conservator of, or trustee or similar officer for, any
Foreign Subsidiary Borrower or any substantial part of its property, or
otherwise, all as though such payments had not been made.
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SECTION X.7 Payments. The Company hereby agrees that all payments
--------
required to be made by it hereunder will be made to the Administrative Agent
without set-off or counterclaim in accordance with the terms of the Obligations,
including, without limitation, in the currency in which payment is due.
ARTICLE XI. EVENTS OF DEFAULT
-----------------
If any of the following events shall occur and be continuing:
(a) Any Borrower shall fail to pay any principal of any Loan made to
it when due in accordance with the terms hereof; or any Borrower shall fail
to pay any interest, or any other amount payable by it hereunder, within
five days after any such interest or other amount becomes due in accordance
with the terms hereof; or
(b) Any representation or warranty made or deemed made by any
Borrower herein or which is contained in any certificate, document or
financial or other statement furnished at any time under or in connection
with this Agreement shall prove to have been incorrect in any material
respect on or as of the date made or deemed made; or
(c) Any Borrower shall default in the observance or performance of
any agreement contained in Sections 8.04(a) (with respect to the corporate
existence of the Company) , 8.06 (with respect to notices of Default and
Events of Default), 8.12 or Article IX; or
(d) Any Borrower shall default in the observance or performance of
any other agreement contained in this Agreement (other than as provided in
paragraphs (a) through (c) of this Article), and such default shall
continue unremedied for a period of 30 days after receipt by such Borrower
of notice of such default from the Administrative Agent or any Lender; or
(e) The Company or any of its Subsidiaries shall (i) default in any
payment or payments of principal or interest in an aggregate amount for the
Company and its Subsidiaries of more than $50,000,000 (or its equivalent in
another currency) at any one time on any Indebtedness (other than the
Loans) or in the payment of more than $50,000,000 in the aggregate under
any Guaranties (other than the Company Guaranty), beyond the period of
grace (not to exceed 30 days), if any, provided in the instrument or
agreement under which such Indebtedness or Guaranty was created; or (ii)
default in the observance or performance of any other agreement or
condition relating to any Indebtedness (other than the Loans) the principal
amount of which exceeds $50,000,000 in the aggregate for the Company and
its Subsidiaries or any Guaranty (other than the Company Guaranty)
guaranteeing Indebtedness the principal amount of which exceeds $50,000,000
in the aggregate for the Company and its Subsidiaries or contained in any
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instrument or agreement evidencing, securing or relating to any such
Indebtedness or Guaranty, beyond any applicable period of grace (not to
exceed 30 days), or any other event shall occur or condition exist, the
effect of which default or other event or condition is to cause, or to
permit the holder or holders of such Indebtedness or beneficiary or
beneficiaries of such Guaranty (or a trustee or agent on behalf of such
holder or holders or beneficiary or beneficiaries) to cause, with the
giving of notice if required, such Indebtedness to become due prior to its
stated maturity or such Guaranty to become payable; or
(f) (i) Any Borrower or any of its Significant Subsidiaries shall
commence any case, proceeding or other action (A) under any existing or
future law of any jurisdiction, domestic or foreign, relating to
bankruptcy, insolvency, reorganization or relief of debtors, seeking to
have an order for relief entered with respect to it, or seeking to
adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution, composition
or other relief with respect to it or its debts, or (B) seeking appointment
of a receiver, trustee, custodian, conservator or other similar official
for it or for all or any substantial part of its assets, or any Borrower or
any of its Significant Subsidiaries shall make a general assignment for the
benefit of its creditors; or (ii) there shall be commenced against any
Borrower or any of its Significant Subsidiaries any case, proceeding or
other action of a nature referred to in clause (i) above which (A) results
in the entry of an order for relief or any such adjudication or appointment
or (B) remains undismissed, undischarged or unbonded for a period of 60
days; or (iii) there shall be commenced against any Borrower or any of its
Significant Subsidiaries any case, proceeding or other action seeking
issuance of a warrant of attachment, execution, distraint or similar
process against all or any substantial part of its assets which results in
the entry of an order for any such relief which shall not have been
discharged, or stayed or bonded pending appeal within 60 days from the
entry thereof; or (iv) any Borrower or any of its Significant Subsidiaries
shall take any action in furtherance of, or indicating its consent to,
approval of, or acquiescence in, any of the acts set forth in clause (i),
(ii), or (iii) above; or (v) any Borrower or any of its Significant
Subsidiaries shall generally not, or shall be unable to, or shall admit in
writing its inability to, pay its debts as they become due; or
(g) (i) Any Person shall engage in any Prohibited Transaction
involving any Plan, (ii) any Accumulated Funding Deficiency, whether or not
waived, shall exist with respect to any Plan or any Lien in favor of the
PBGC or a Plan shall arise on the assets of any Borrower or any Commonly
Controlled Entity, (iii) a Reportable Event shall occur with respect to, or
proceedings shall commence to have a trustee appointed, or a trustee shall
be appointed, to administer or to terminate, any Single Employer Plan,
which Reportable Event or commencement of proceedings or appointment of a
trustee is, in the reasonable opinion of the Required Lenders, likely to
result in the termination of such Plan for purposes of Title IV of ERISA,
(iv) any Single Employer Plan shall terminate for purposes of Title IV of
ERISA, (v) any Borrower or any Commonly Controlled Entity shall, or in the
reasonable opinion of the Required Lenders is likely to, incur any
liability
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in connection with a withdrawal from, or the Insolvency or Reorganization
of, a Multiemployer Plan or (vi) any other event or condition shall occur
or exist with respect to a Plan; and in each case in clauses (i) through
(vi) above, such event or condition, together with all other such events or
conditions, if any, could reasonably be expected to have a Material Adverse
Effect; or
(h) One or more judgments or decrees shall be entered against the
Company or any of its Significant Subsidiaries involving in the aggregate a
liability (not paid or fully covered by insurance as to which the insurance
carrier has admitted liability) of $50,000,000 or more, and all such
judgments or decrees shall not have been vacated, discharged, stayed or
bonded pending appeal within 30 days from the entry thereof; or
(i) The validity or enforceability of this Agreement, any Loan
Document or any of the other documents required to be delivered in
connection herewith shall be challenged by the Company or any of its
Subsidiaries or shall fail to remain in full force and effect for any
reason other than in accordance with its express terms; or
(j) A Change of Control shall occur; or
(k) The subordination provisions of any Subordinated Debt shall
cease, for any reason, to be valid or any Loan Party shall so assert in
writing;
then, and in any such event, (A) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (f) above with respect to the Company,
automatically the Commitments shall immediately terminate and the Loans
hereunder (with accrued interest thereon) and all other amounts owing under this
Agreement and the Notes shall immediately become due and payable, and (B) if
such event is any other Event of Default, either or both of the following
actions may be taken (i) with the consent of the Majority Aggregate Revolving
Credit Facility Lenders, the Administrative Agent may, or upon the request of
the Majority Aggregate Revolving Credit Facility Lenders, the Administrative
Agent shall, by notice to the Company, declare the Multicurrency Revolving
Credit Commitments, the US$ Revolving Credit Commitments and the Additional US$
Revolving Credit Commitments to be terminated forthwith, whereupon such
Revolving Credit Commitments shall immediately terminate, and (ii) with the
consent of the Required Lenders, the Administrative Agent may, or upon the
request of the Required Lenders, the Administrative Agent shall, by notice to
the Company, declare the Loans hereunder (with accrued interest thereon) and all
other amounts owing under this Agreement and the Notes to be due and payable
forthwith, whereupon the same shall immediately become due and payable.
Except as expressly provided above in this Article, presentment, demand,
protest and all other notices of any kind are hereby expressly waived.
ARTICLE XII. THE ADMINISTRATIVE AGENT
------------------------
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SECTION XII.1 Appointment. Each Lender hereby irrevocably designates
-----------
and appoints Chase as the Administrative Agent of such Lender under this
Agreement and the other Loan Documents, and each Lender irrevocably authorizes
Chase to act as the Administrative Agent of such Lender, to take such action on
its behalf under the provisions of this Agreement and the other Loan Documents
and to exercise such powers and perform such duties as are expressly delegated
to the Administrative Agent by the terms of this Agreement and the other Loan
Documents, together with such other powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary elsewhere in this Agreement, the
Administrative Agent shall not have any duties or responsibilities, except those
expressly set forth herein, or any fiduciary relationship with any Lender, and
no implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or any other Loan Document or
otherwise exist against the Administrative Agent.
SECTION XII.2 Delegation of Duties. The Administrative Agent may
--------------------
execute any of its duties under this Agreement and the other Loan Documents by
or through agents or attorneys-in-fact and shall be entitled to advice of
counsel concerning all matters pertaining to such duties. The Administrative
Agent shall not be responsible for the negligence or misconduct of any agents or
attorneys-in-fact selected by it with reasonable care.
SECTION XII.3 Exculpatory Provisions. Neither the Administrative
----------------------
Agent nor any of its respective officers, directors, employees, agents,
attorneys-in-fact or affiliates shall be (i) liable for any action lawfully
taken or omitted to be taken by it or such Person under or in connection with
this Agreement or any other Loan Document (except for its or such Person's gross
negligence or willful misconduct) or (ii) responsible in any manner to any of
the Lenders for any recitals, statements, representations or warranties made by
any Borrower or any officer thereof contained in this Agreement or any other
Loan Document or in any certificate, report, statement or other document
referred to or provided for in, or received by the Administrative Agent under or
in connection with, this Agreement or any other Loan Document or for the value,
validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement or any other Loan Document or for any failure of a Borrower to perform
its obligations hereunder or thereunder. The Administrative Agent shall not be
under any obligation to any Lender to ascertain or to inquire as to the
observance or performance of any of the agreements contained in, or conditions
of, this Agreement or any other Loan Document or to inspect the properties,
books or records of the Borrowers.
SECTION XII.4 Reliance by Administrative Agent. The Administrative
--------------------------------
Agent shall be entitled to rely, and shall be fully protected in relying, upon
any Note, writing, resolution, notice, consent, certificate, affidavit, letter,
telecopy, telex or teletype message, statement, order or other document or
conversation believed by it to be genuine and correct and to have been signed,
sent or made by the proper Person or Persons and upon advice and statements of
legal counsel (including, without limitation, counsel to the Borrowers or any of
them), independent accountants and other experts selected by the Administrative
Agent. The Administrative Agent may deem and treat the payee of any Note as the
owner thereof for all purposes unless a written notice of assignment or transfer
thereof shall have been filed with the
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Administrative Agent. The Administrative Agent shall be fully justified in
failing or refusing to take any action under this Agreement or any other Loan
Document unless it shall first receive such advice or concurrence of the
Required Lenders as it deems appropriate or it shall first be indemnified to its
satisfaction by the Lenders against any and all liability and expense which may
be incurred by it by reason of taking or continuing to take any such action. The
Administrative Agent shall in all cases be fully protected in acting, or in
refraining from acting, under this Agreement and the other Loan Documents in
accordance with a request of the Required Lenders, and such request and any
action taken or failure to act pursuant thereto shall be binding upon all the
Lenders and all future holders of the Loans.
SECTION XII.5 Notice of Default. The Administrative Agent shall not
-----------------
be deemed to have knowledge or notice of the occurrence of any Default or Event
of Default hereunder unless the Administrative Agent has received notice from a
Lender or a Borrower referring to this Agreement, describing such Default or
Event of Default and stating that such notice is a "notice of default". In the
event that the Administrative Agent receives such a notice, the Administrative
Agent shall give notice thereof to the Lenders. The Administrative Agent shall
take such action with respect to such Default or Event of Default as shall be
reasonably directed by the Required Lenders; provided that unless and until the
--------
Administrative Agent shall have received such directions, the Administrative
Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Default or Event of Default as it shall
deem advisable in the best interests of the Lenders.
SECTION XII.6 Non-Reliance on Agents and Other Lenders-. Each Lender
-----------------------------------------
expressly acknowledges that neither the Administrative Agent nor any of its
officers, directors, employees, agents, attorneys-in-fact or affiliates have
made any representations or warranties to it and that no act by the
Administrative Agent hereafter taken, including any review of the affairs of a
Loan Party or any affiliate of a Loan Party, shall be deemed to constitute any
representation or warranty by the Administrative Agent to any Lender. Each
Lender represents to the Administrative Agent that it has, independently and
without reliance upon the Administrative Agent or any other Lender, and based on
such documents and information as it has deemed appropriate, made its own
appraisal of and investigation into the business, operations, property,
financial and other condition and creditworthiness of the Loan Parties and their
affiliates and made its own decision to make its Loans hereunder and enter into
this Agreement. Each Lender also represents that it will, independently and
without reliance upon the Administrative Agent or any other Lender, and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit analysis, appraisals and decisions in taking or
not taking action under this Agreement and the other Loan Documents, and to make
such investigation as it deems necessary to inform itself as to the business,
operations, property, financial and other condition and creditworthiness of the
Loan Parties and their affiliates. Except for notices, reports and other
documents expressly required to be furnished to the Lenders by the
Administrative Agent hereunder, the Administrative Agent shall have no duty or
responsibility to provide any Lender with any credit or other information
concerning the business, operations, property, condition (financial or
otherwise), prospects or creditworthiness of any Loan Party or
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any affiliate of a Loan Party which may come into the possession of the
Administrative Agent or any of its officers, directors, employees, agents,
attorneys-in-fact or affiliates.
SECTION XII.7 Indemnification. The Lenders agree to indemnify the
---------------
Administrative Agent in its capacity as such (to the extent not reimbursed by
the Borrowers and without limiting the obligation of the Borrowers to do so),
ratably according to their respective Revolving Credit Percentages, Tranche A
Term Loan Percentages and Tranche B Term Loan Percentages in effect on the date
on which indemnification is sought under this Section 12.07 (or, if
indemnification is sought after the date upon which the Commitments shall have
terminated and the Loans shall have been paid in full, ratably in accordance
with such Percentages immediately prior to such date), from and against any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind whatsoever which may at any
time (including, without limitation, at any time following the payment of the
Loans) be imposed on, incurred by or asserted against the Administrative Agent
in any way relating to or arising out of, the Commitments, this Agreement, any
of the other Loan Documents or any documents contemplated by or referred to
herein or therein or the transactions contemplated hereby or thereby or any
action taken or omitted by the Administrative Agent under or in connection with
any of the foregoing; provided that no Lender shall be liable for the payment of
--------
any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements which resulted from
the Administrative Agent's gross negligence or willful misconduct. The
agreements in this Section 12.07 shall survive the payment of the Loans and all
other amounts payable hereunder. The Administrative Agent shall have the right
to deduct any amount owed to it by any Lender under this Section from any
payment made by it to such Lender hereunder.
SECTION XII.8 Administrative Agent in Its Individual Capacity. The
-----------------------------------------------
Administrative Agent and its affiliates may make loans to, accept deposits from
and generally engage in any kind of business with any Loan Party as though the
Administrative Agent were not the Administrative Agent. With respect to its
Loans made or renewed by it the Administrative Agent shall have the same rights
and powers under this Agreement and the other Loan Documents as any Lender and
may exercise the same as though it were not the Administrative Agent, and the
terms "Lender" and "Lenders" shall include the Administrative Agent in its
individual capacity.
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SECTION XII.9 Successor Administrative Agent. The Administrative
------------------------------
Agent may resign as Administrative Agent upon 30 days' notice to the Lenders and
the Company. If the Administrative Agent shall resign as Administrative Agent
under this Agreement and the other Loan Documents, then the Required Lenders
shall appoint from among the Lenders a successors agent for the Lenders, which
successor agent shall (unless an Event of Default under paragraph (a) or (f) of
Article XI with respect to the Company shall have occurred and be continuing) be
approved by the Company (which approval shall not be unreasonably withheld or
delayed), whereupon such successor agent shall succeed to the rights, powers and
duties of the Administrative Agent, and the term "Administrative Agent" shall
mean such successor agent effective upon such appointment and approval, and the
former Administrative Agent's rights, powers and duties as Administrative Agent
shall be terminated, without any other or further act or deed on the part of
such former Administrative Agent or any of the parties to this Agreement or any
holders of the Loans. If no successor agent has accepted appointment as
Administrative Agent by the date that is 30 days following a retiring
Administrative Agent's notice of resignation, the retiring Administrative
Agent's resignation shall nevertheless thereupon become effective and the
Lenders shall assume and perform all of the duties of the Administrative Agent
hereunder until such time, if any, as the Required Lenders appoint a successor
agent as provided for above. After any retiring Administrative Agent's
resignation as Administrative Agent, the provisions of this Article XII shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Administrative Agent under this Agreement and the other Loan Documents.
SECTION XII.10 Authorization to Release Liens. The Administrative
------------------------------
Agent is hereby irrevocably authorized by each of the Lenders to release, or
direct the Trustee to release, any Lien created by any Security Document
covering any Property of the Company or any of its Subsidiaries that is the
subject of a Disposition which is permitted by this Agreement or which has been
consented to in accordance with Section 13.01. In addition, the Administrative
Agent is hereby authorized by each of the Lenders to release, and to direct the
Trustee to release, the Liens on the Collateral on the Collateral Release Date.
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ARTICLE XIII. MISCELLANEOUS
-------------
SECTION XIII.1 Amendments and Waivers. (a) Neither this Agreement
----------------------
or any other Loan Document, nor any terms hereof or thereof may be amended,
supplemented, waived or modified except in accordance with the provisions of
this Section 13.01. The Required Lenders may, or, with the written consent of
the Required Lenders, the Administrative Agent may, from time to time, (i) enter
into with the relevant Loan Parties written amendments, supplements or
modifications hereto and to the other Loan Documents for the purpose of adding
any provisions to this Agreement or the other Loan Documents or changing in any
manner the rights or obligations of the Lenders or of the Loans Parties
hereunder or thereunder or (ii) waive at the Loan Parties' request, on such
terms and conditions as the Required Lenders or the Administrative Agent, as the
case may be, may specify in such instrument, any of the requirements of this
Agreement or the other Loan Documents or any Default or Event of Default and its
consequences; provided, however, that no such waiver and no such amendment,
-------- -------
supplement or modification shall:
(A) reduce the amount or extend the scheduled date of maturity
of any Loan or any scheduled installment thereof, or reduce the stated rate
of any interest or fee payable hereunder or extend the scheduled date of
any payment thereof or increase the amount or extend the expiration date of
any Lender's Commitment, or change the pro rata provisions contained in
--- ----
Section 5.08, in each case without the consent of each Lender affected
thereby;
(B) amend, supplement, modify or waive any provision of this
Section 13.01 or reduce the percentages specified in the definition of
"Required Lenders" or consent to the assignment or transfer by any Borrower
of any of its rights and obligations under this Agreement and the other
Loan Documents or release the Company from its obligations under the
Company Guaranty, in each case without the consent of all the Lenders;
(C) release all or substantially all of the Collateral (except
as provided in Sections 12.10 and 13.16) or all or substantially all of the
guarantors under the Subsidiary Guarantees, in each case without the
consent of all the Lenders;
(D) amend, supplement, modify or waive any provision of Section
2.05, 2.06, 2.07, 2.08 or 2.09 or any other provision of this Agreement
governing the rights and obligations of the Swing Line Lender, or the
definitions used therein, without the consent of the Swing Line Lender;
(E) amend, modify or waive any provision of Section 5.04(d) or
5.04(f) providing for the application of any mandatory prepayments which
would reduce the amount or delay the application of any such prepayment to
be applied to any Facility without the written consent of the Majority
Facility Lenders in respect of such Facility;
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(F) increase the Currency Sublimit applicable to any Available
Foreign Currency without the written consent of the Majority Multicurrency
Revolving Credit Facility Lenders; or
(G) reduce the percentage specified in the definition of
"Majority Facility Lenders" without the written consent of all Lenders
under each affected Facility.
Notwithstanding the foregoing provisions of this Section 13.01, the
Company shall be permitted to amend this Agreement without the consent of any of
the Lenders to increase the Applicable Margin applicable to any of the Loans or
to increase the Facility Fee Rate.
Any such waiver and any amendment, supplement or modification pursuant
to this Section 13.01 shall apply to each of the Lenders and shall be binding
upon the Loan Parties, the Lenders, the Administrative Agent, and all future
holders of the Loans. In the case of any waiver, the Loan Parties, the Lenders
and the Administrative Agent shall be restored to their former positions and
rights hereunder and under the other Loan Documents, and any Default or Event of
Default waived shall be deemed to be cured and not continuing; but no such
waiver shall extend to any subsequent or other Default or Event of Default, or
impair any right consequent thereon.
(b) In addition to amendments effected pursuant to the foregoing
paragraph (a), Schedule II may be amended as follows:
(i) Schedule II will be amended to add Subsidiaries of the
Company as additional Foreign Subsidiary Borrowers upon (A) execution and
delivery by the Company, any such Foreign Subsidiary Borrower and the
Administrative Agent, of a Joinder Agreement providing for any such
Subsidiary to become a Foreign Subsidiary Borrower, and (B) delivery to the
Administrative Agent of (I) a Foreign Subsidiary Opinion in respect of such
additional Foreign Subsidiary Borrower and the documents required pursuant
to Section 7.01(g) and Sections 7.02(a) and (b) and (II) such other
documents with respect thereto as the Administrative Agent shall reasonably
request.
(ii) Schedule II will be amended to remove any Subsidiary as a
Foreign Subsidiary Borrower upon (A) written notice by the Company to the
Administrative Agent to such effect and (B) repayment in full of all
outstanding Loans of such Foreign Subsidiary Borrower.
(c) In addition to amendments effected pursuant to the foregoing
paragraphs (a) and (b), the Security Documents, Subsidiary Guarantees and Trust
Agreements may be amended, or amended and restated, by the Administrative Agent
and each Loan Party and Trustee which is a party to such documents, to provide,
in connection with the incurrence of Permitted Acquisition Debt, for such
Permitted Acquisition Debt to be secured equally and ratably pursuant to the
Security Documents by the Collateral securing the Loans, and guaranteed on a
pari passu basis with the Loans pursuant to the Subsidiary Guarantees. The
- - ---- -----
Administrative Agent may also
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enter into additional Security Documents and/or guarantees and/or amendments to
the Trust Agreements to provide for any additional Collateral or guarantees
relating to any Permitted Acquisition Debt to apply to the Loans on an equal and
ratable and pari passu basis. No such amendment, amendment and restatement,
---- -----
additional Security Document or guarantees shall require the consent of any
Lender.
(d) The Administrative Agent shall give prompt notice to each Lender
of any amendment effected pursuant to Section 13.01(b) or 13.01(c).
SECTION XIII.2 Notices. All notices, requests and demands to or upon
-------
the respective parties hereto to be effective shall be in writing (including by
facsimile transmission) and, unless otherwise expressly provided herein, shall
be deemed to have been duly given or made when delivered by hand, or three days
after being deposited in the mail, postage prepaid (or, if later, the first
Business Day after being so deposited), or, in the case of telecopy notice, when
received (or if received on a day that is not a Business Day or if received
after 5:00 p.m. local time at the place of reception on a Business Day, on the
next succeeding Business Day), addressed as follows in the case of the Borrowers
and the Administrative Agent, and as set forth in Schedule I in the case of the
other parties hereto, or to such other address as may be hereafter notified by
the respective parties hereto and any future holders of the Notes:
The Company: Federal-Mogul Corporation
World Headquarters
26555 Northwestern Highway
Southfield, Michigan 48034
Attention: James Keller
Telephone: 248-354-7700
Telecopy: 248-354-6746
The Foreign
Subsidiary Borrowers: c/o Federal-Mogul Corporation
World Headquarters
26555 Northwestern Highway
Southfield, Michigan 48034
Attention: James Keller
Telephone: 248-354-7700
Telecopy: 248-354-6746
The Administrative Agent
(New York Office): The Chase Manhattan Bank
One Chase Manhattan Plaza
8th Floor
New York, New York 10081
Attention: James Tabois
Telephone: 212-552-7952
Telecopy: 212-552-5650
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The Administrative Agent
(London Office): Chase Manhattan International Ltd.
9 Thomas Moore Street
London, E1 (YT)
Attention: Steven Hurford
Telephone: 011-44-171-777-2347
Telecopy: 011-44-171-777-2367
provided that any notice, request or demand to or upon (i) the Administrative
- - --------
Agent or the Lenders pursuant to Section 2.03, 3.03, 4.02, 5.02, 5.04, 5.07 or
5.11 or (ii) the Swing Line Lender pursuant to Sections 2.05, 2.06, 2.07, 2.08
or 2.09, shall not be effective until received. All notices to the
Administrative Agent in respect of Multicurrency Revolving Credit Loans shall be
delivered to the Administrative Agent's London Office specified above.
SECTION XIII.3 No Waiver; Cumulative Remedies. No failure to
------------------------------
exercise and no delay in exercising, on the part of any Borrower, the
Administrative Agent or any Lender, any right, remedy, power or privilege
hereunder or under the other Loan Documents shall operate as a waiver thereof;
nor shall any single or partial exercise of any right, remedy, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege. The rights, remedies,
powers and privileges herein provided are cumulative and not exclusive of any
rights, remedies, powers and privileges provided by law.
SECTION XIII.4 Survival of Representations and Warranties. All
------------------------------------------
representations and warranties made hereunder, in the other Loan Documents and
in any certificate delivered pursuant hereto or in connection herewith shall
survive the execution and delivery of this Agreement and the Notes and the
making of the Loans hereunder.
SECTION XIII.5 Payment of Expenses and Taxes. The Company agrees (a)
-----------------------------
to pay or reimburse the Administrative Agent for all of its reasonable out-of-
pocket costs and expenses incurred in connection with the development,
preparation, execution and delivery of, and any amendment, supplement or
modification to, this Agreement and the other Loan Documents and any other
documents prepared in connection herewith or therewith, and the consummation and
administration of the transactions contemplated hereby, including, without
limitation, the reasonable fees and disbursements of counsel (and any special or
local counsel retained by such counsel to assist it) to the Administrative
Agent, (b) to pay or reimburse each Lender and the Administrative Agent for all
its costs and expenses incurred in connection with the enforcement or
preservation of any rights under this Agreement, the other Loan Documents and
any such other documents, (c) to pay, indemnify, and hold each Lender and the
Administrative Agent harmless from, any and all recording and filing fees and
any and all liabilities with respect to, or resulting from any delay in paying,
stamp, excise and other similar taxes, if any, which may be payable or
determined to be payable in connection with the execution and delivery of, or
consummation or administration of any of the transactions contemplated by, or
any amendment, supplement or modification of, or any waiver or consent under or
in respect of, this Agreement, the other Loan Documents and any such other
documents, and (d) to pay,
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indemnify, and hold each Lender and the Administrative Agent (and their
respective directors, officers, employees, trustees, agents, affiliates and
successors) harmless from and against any and all other liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever with respect to the
execution, delivery, enforcement, performance and administration of this
Agreement, the other Loan Documents and any such other documents, including,
without limitation, any of the foregoing relating to the use of proceeds of the
Loans or the violation of, noncompliance with or liability under, any
Environmental Law applicable to the operations of the Company, any of its
Subsidiaries or any of the Properties (regardless of whether the Administrative
Agent or any Lender is a party to the litigation or other proceeding giving rise
thereto), (all the foregoing in this clause (d), collectively, the "indemnified
liabilities"), provided, that the Company shall have no obligation hereunder to
--------
the Administrative Agent or any Lender with respect to (i) indemnified
liabilities arising from the gross negligence or willful misconduct of the party
seeking indemnification or (ii) expenses incurred by the Administrative Agent or
any Lender in connection with the assignment of Loans to an assignee (except
pursuant to Section 5.14(b)(vi)) or the sale of any Loan to a Participant. The
agreements in this Section shall survive repayment of the Loans and all other
amounts payable hereunder.
SECTION XIII.6 Successors and Assigns; Participations and
------------------------------------------
Assignments. (a) This Agreement shall be binding upon and inure to the benefit
- - ------------
of the Borrowers, the Lenders, the Administrative Agent, all future holders of
the Loans and their respective successors and assigns, except that no Borrower
may assign or transfer any of its rights or obligations under this Agreement
without the prior written consent of each Lender.
(b) Any Lender may, in accordance with applicable law, at any time
sell to one or more banks or other entities ("Participants") participating
interests in any Loan owing to such Lender, any Commitment of such Lender or any
other interest of such Lender hereunder and under the other Loan Documents. In
the event of any such sale by a Lender of a participating interest to a
Participant, such Lender's obligations under this Agreement to the other parties
to this Agreement shall remain unchanged, such Lender shall remain solely
responsible for the performance thereof, such Lender shall remain the holder of
any such Loan for all purposes under this Agreement and the other Loan
Documents, and the Borrowers and the Administrative Agent shall continue to deal
solely and directly with such Lender in connection with such Lender's rights and
obligations under this Agreement and the other Loan Documents. No Lender shall
be entitled to create in favor of any Participant, in the participation
agreement pursuant to which the Participant's participating interest shall be
created or otherwise, any right to vote on, consent to or approve any matter
relating to this Agreement or any other Loan Document except for those specified
in clauses (A) and (B) of the proviso to Section 13.01(a). Each Borrower agrees
that if amounts outstanding under this Agreement are due or unpaid, or shall
have been declared or shall have become due and payable upon the occurrence of
an Event of Default, each Participant shall be deemed to have, to the maximum
extent permitted by law, the right of setoff in respect of its participating
interest in amounts owing under this Agreement to the same extent as if the
amount of its participating interest were owing directly to it as a Lender under
this Agreement; provided that, in purchasing such participating interest, such
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Participant shall be
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deemed to have agreed to share with the Lenders the proceeds thereof as provided
in Section 13.07(a) as fully as if it were a Lender hereunder. Each Borrower
agrees that each Participant shall be entitled to the benefits of Sections 5.09,
5.10, 5.11 and 5.12 with respect to its participation in the Commitments and the
Loans outstanding from time to time hereunder as if it was a Lender; provided
that, in the case of Section 5.11, such Participant shall have complied with the
requirements of said Section and provided, further, that no Participant shall be
-------- -------
entitled to receive any greater amount pursuant to any such Section than the
transferor Lender would have been entitled to receive in respect of the amount
of the participation transferred by such transferor Lender to such Participant
had no such transfer occurred.
(c) Any Lender may, in accordance with applicable law, at any time
and from time to time assign to any Lender or any Affiliate thereof or, with the
prior written consent of the Administrative Agent (such consent not to be
unreasonably withheld) and, prior to the occurrence and continuance of an Event
of Default, the Company (such consent not to be unreasonably withheld), to an
additional bank or financial institution or other entity that is regularly
engaged in making or purchasing loans (an "Assignee") all or any part of its
rights and obligations under this Agreement and the other Loan Documents
including, without limitation, its Commitments and Loans, pursuant to an
Assignment and Acceptance, substantially in the form of Exhibit G, executed by
such Assignee, such assigning Lender (and, in the case of an Assignee that is
not then a Lender or an Affiliate thereof, by the Administrative Agent and,
prior to the occurrence and continuance of an Event of Default, the Company) and
delivered to the Administrative Agent for their acceptance and recording in the
Register; provided that (i) if any Lender assigns a part of its rights and
--------
obligations in respect of Loans of a Class and/or Commitment to make Loans of
such Class under this Agreement to an Assignee, such Lender shall assign
proportionate interests in its respective Loans of such Class and Commitment to
make Loans of such Class and other related rights and obligations hereunder to
such Assignee, (ii) if any Lender assigns a part of its rights and obligations
under this Agreement in respect of its US$Revolving Credit Loans and/or US$
Revolving Credit Commitments to an Assignee, such Lender shall assign
proportionate interests in its participations in the Swing Line Loans and other
rights and obligations hereunder in respect of the Swing Line Loans to such
Assignee , (iii) if any Lender assigns a part of its rights and obligations
under this Agreement in respect of its Multicurrency Revolving Credit Loans
and/or Multicurrency Revolving Credit Commitments to an Assignee, such Lender
shall assign proportionate interests in its Additional US$ Revolving Credit
Loans and Additional US$ Revolving Credit Commitments, if any, and (iv) in the
case of any such assignment to an additional bank, financial institution or
other entity, the aggregate amount of any Commitment (or, if the Commitments
have terminated or expired, the aggregate principal amount of any Loans) being
assigned shall not be less than $5,000,000 (or (x) if less, the then outstanding
amount of such Commitments and/or Loans or (y) such lesser amount as may be
agreed by the Company and the Administrative Agent). Upon such execution,
delivery, acceptance and recording, from and after the Closing Date determined
pursuant to such Assignment and Acceptance, (I) the Assignee thereunder shall be
a party hereto and, to the extent provided in such Assignment and Acceptance,
have the rights and obligations of a Lender hereunder with Commitments and
rights in respect of Loans as set forth therein, and (II) the assigning Lender
thereunder shall be released from its obligations under this Agreement to the
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extent that such obligations shall have been expressly assumed by the Assignee
pursuant to such Assignment and Acceptance (and, in the case of an Assignment
and Acceptance covering all or the remaining portion of an assigning Lender's
rights and obligations under this Agreement, such assigning Lender shall cease
to be a party hereto).
(d) The Administrative Agent, on behalf of the Borrowers, shall
maintain at its address referred to in Section 13.02 a copy of each Assignment
and Acceptance delivered to it and a register (the "Register") for the
recordation of (i) the names and addresses of the Lenders and the Commitments
of, and principal amounts of the Loans owing to, each Lender from time to time
and (ii) the other information required from time to time pursuant to Section
2.05 in respect of Swing Line Loans. The entries in the Register shall
constitute prima facie evidence of the information recorded therein, and the
Borrowers, the Administrative Agent and the Lenders may (and, in the case of any
Loan or other obligation hereunder not evidenced by a Note, shall) treat each
Person whose name is recorded in the Register as the owner of a Loan or other
obligation hereunder as the owner thereof for all purposes of this Agreement and
the other Loan Documents, notwithstanding any notice to the contrary. Any
assignment of any Loan or other obligation hereunder whether or not evidenced by
a Note shall be effective only upon appropriate entries with respect thereto
being made in the Register. An assignment of a Note shall be registered in the
Register only upon surrender for registration of assignment of the Note,
accompanied by an Assignment and Acceptance duly executed by the Assignor
thereof, and thereupon one or more new Notes shall be issued to the designated
Assignee and the old Notes shall be returned by the Administrative Agent to the
Company marked "cancelled". The Register shall be available for inspection by
the Borrowers or any Lender at any reasonable time and from time to time upon
reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an Assignee (and, in the case of an Assignee that is not
then a Lender or an Affiliate thereof, executed by the Company and the
Administrative Agent), together with payment to the Administrative Agent by the
Lender or the Assignee of a registration and processing fee of $2,500, the
Administrative Agent shall (i) promptly accept such Assignment and Acceptance
and (ii) on the Closing Date determined pursuant thereto record the information
contained therein in the Register and give prompt notice of such acceptance and
recordation to the Lenders and the Borrowers.
(f) Subject to Section 13.18, each Borrower authorizes each Lender to
disclose to any Participant or Assignee (each, a "Transferee") and any
prospective Transferee any and all financial information in such Lender's
possession concerning such Borrower and its Affiliates which has been delivered
to such Lender by or on behalf of such Borrower pursuant to this Agreement or
which has been delivered to such Lender by or on behalf of such Borrower in
connection with such Lender's credit evaluation of such Borrower and its
Affiliates prior to becoming a party to this Agreement.
(g) For avoidance of doubt, the parties to this Agreement acknowledge
that the provisions of this Section concerning assignments of Loans and Notes
relate only to absolute
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assignments and that such provisions do not prohibit assignments creating
security interests, including, without limitation, any pledge or assignment by a
Lender of any Loan or Note to any Federal Reserve Bank in accordance with
applicable law.
(h) If, pursuant to this Section, any interest in this Agreement or
any Loan is transferred to any Transferee (which is not a Lender) which is
organized under the laws of any jurisdiction other than the United States or any
state thereof, the transferor Lender shall cause such Transferee, concurrently
with the effectiveness of such transfer, to agree (for the benefit of the
transferor Lender, the Administrative Agent and the Company) to provide the
transferor Lender (and, in the case of any Transferee registered in the
Register, the Administrative Agent and the Company) the tax forms and other
documents required to be delivered pursuant to Section 5.11(b) and to comply
from time to time with all applicable U.S. laws and regulations with regard to
such withholding tax exemption.
(i) If, pursuant to this Section, any interest in this Agreement or
any Loan is transferred to any Transferee, the transferor Lender shall cause
such Transferee, concurrently with the effectiveness of such transfer, to agree
(for the benefit of the transferor Lender, the Administrative Agent and the
Foreign Subsidiary Borrowers) to provide the transferor Lender, the
Administrative Agent and the Foreign Subsidiary Borrowers the tax forms and
other documents required to be delivered pursuant to Section 5.11(c) and to
comply from time to time with all applicable laws and regulations with regard to
such withholding tax exemption.
SECTION XIII.7 Adjustments; Set-Off-. (a) If any Lender (a
---------------------
"Benefitted Lender") shall at any time receive any payment of all or part of its
Loans then due and owing to it by any Borrower, or interest thereon, or receive
any collateral in respect thereof (whether voluntarily or involuntarily, by set-
off, pursuant to events or proceedings of the nature referred to in paragraph
(f) of Article XI, or otherwise), in a greater proportion than any such payment
to or collateral received by any other Lender, if any, in respect of such other
Lender's Loans then due and owing to it by such Borrower, or interest thereon,
such Benefitted Lender shall purchase for cash from the other Lenders a
participating interest in such portion of each such other Lender's Loans owing
to it by such Borrower, or shall provide such other Lenders with the benefits of
any such collateral, or the proceeds thereof, as shall be necessary to cause
such Benefitted Lender to share the excess payment or benefits of such
collateral or proceeds ratably with each of the Lenders; provided, however, that
-------- -------
if all or any portion of such excess payment or benefits is thereafter recovered
from such benefitted Lender, such purchase shall be rescinded, and the purchase
price and benefits returned, to the extent of such recovery, but without
interest.
(b) In addition to any rights and remedies of the Lenders provided by
law, each Lender shall have the right, without prior notice to any Borrower, any
such notice being expressly waived by the Borrowers to the extent permitted by
applicable law, upon any amount becoming due and payable hereunder (whether at
the stated maturity thereof, by acceleration or otherwise) to set-off and
appropriate and apply against such amount any and all deposits (general or
special, time or demand, provisional or final), in any currency, and any other
credits, indebtedness or claims, in any currency, in each case whether direct or
indirect, absolute or
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contingent, matured or unmatured, at any time held or owing by such Lender or
any branch, agency or Affiliate thereof to or for the credit or the account of
any Borrower. Each Lender agrees promptly to notify the Borrowers and the
Administrative Agent after any such set-off and application made by such Lender,
provided that the failure to give such notice shall not affect the validity of
- - --------
such set-off and application.
SECTION XIII.8 Counterparts. This Agreement may be executed by one
------------
or more of the parties to this Agreement on any number of separate counterparts
(including by facsimile transmission), and all of said counterparts taken
together shall be deemed to constitute one and the same instrument. A set of
the copies of this Agreement signed by all the parties shall be delivered to the
Borrowers and the Administrative Agent.
SECTION XIII.9 Severability. Any provision of this Agreement which
------------
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
SECTION XIII.10 Integration. This Agreement and the other Loan
-----------
Documents represent the agreement of the Borrowers, the Administrative Agent and
the Lenders with respect to the subject matter hereof, and there are no
promises, undertakings, representations or warranties by the Borrowers, the
Administrative Agent or any Lender relative to the subject matter hereof not
expressly set forth or referred to herein or in the other Loan Documents.
SECTION XIII.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
-------------
OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
SECTION XIII.12 Submission To Jurisdiction; Waivers. (a) The
-----------------------------------
Company and each Foreign Subsidiary Borrower hereby irrevocably and
unconditionally:
(i) submits for itself and its property in any legal action or
proceeding relating to this Agreement and the other Loan Documents to which
it is a party, or for recognition and enforcement of any judgment in
respect thereof, to the non-exclusive general jurisdiction of the Courts of
the State of New York, the courts of the United States of America for the
Southern District of New York, and appellate courts from any thereof;
(ii) consents that any such action or proceeding may be brought
in such courts and waives any objection that it may now or hereafter have
to the venue of any such action or proceeding in any such court or that
such action or proceeding was brought in an inconvenient court and agrees
not to plead or claim the same;
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(iii) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or
certified mail (or any substantially similar form of mail), postage
prepaid, to the Company or such Foreign Subsidiary Borrower, as the case
may be, at the address specified in Section 13.02, or at such other address
of which the Administrative Agent shall have been notified pursuant
thereto;
(iv) agrees that nothing herein shall affect the right to
effect service of process in any other manner permitted by law or shall
limit the right to sue in any other jurisdiction; and
(v) waives, to the maximum extent not prohibited by law, any
right it may have to claim or recover in any legal action or proceeding
referred to in this Section any special, exemplary, punitive or
consequential damages.
(b) Each Foreign Subsidiary Borrower hereby irrevocably appoints the
Company as its agent for service of process in any proceeding referred to in
Section 13.12(a) and agrees that service of process in any such proceeding may
be made by mailing or delivering a copy thereof to it care of Company at its
address for notices set forth in Section 13.02.
SECTION XIII.13 Acknowledgements. Each Borrower hereby acknowledges
----------------
that:
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement and the other Loan Documents;
(b) none of the Administrative Agent or any Lender has any fiduciary
relationship with or duty to such Borrower arising out of or in connection
with this Agreement or any of the other Loan Documents, and the
relationship between the Administrative Agents and the Lenders, on the one
hand, and the Borrowers, on the other hand, in connection herewith or
therewith is solely that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Loan Documents
or otherwise exists by virtue of the transactions contemplated hereby among
the Lenders or among the Borrowers and the Lenders.
SECTION XIII.14 WAIVERS OF JURY TRIAL. THE BORROWERS, THE
---------------------
ADMINISTRATIVE AGENT AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT
OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
SECTION XIII.15 Power of Attorney. Each Foreign Subsidiary
-------------------
Borrower hereby grants to the Company an irrevocable power of attorney to act as
its attorney-in-fact with regard to matters relating to this Agreement and each
other Loan Document, including, without
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limitation, execution and delivery of any amendments, supplements, waivers or
other modifications hereto or thereto, receipt of any notices hereunder or
thereunder and receipt of service of process in connection herewith or
therewith. Each Foreign Subsidiary Borrower hereby explicitly acknowledges that
each of the Administrative Agent and each Lender has executed and delivered this
Agreement and each other Loan Document to which it is a party, and has performed
its obligations under this Agreement and each other Loan Document to which it is
a party, in reliance upon the irrevocable grant of such power of attorney
pursuant to this Section. The power of attorney granted by each Foreign
Subsidiary Borrower hereunder is coupled with an interest.
SECTION XIII.16 Release of Collateral. As promptly as practicable
---------------------
after the Collateral Release Date, the Administrative Agent shall, and shall
instruct the Trustee to, take all necessary action to release the Liens created
by the Security Documents in all Collateral.
SECTION XIII.17 Judgment. (a) If for the purpose of obtaining
--------
judgment in any court it is necessary to convert a sum due hereunder in one
currency into another currency, the parties hereto agree, to the fullest extent
that they may effectively do so, that the rate of exchange used shall be that at
which in accordance with normal banking procedures the Administrative Agent
could purchase the first currency with such other currency in the city in which
it normally conducts its foreign exchange operation for the first currency on
the Business Day preceding the day on which final judgment is given.
(b) The obligation of each Borrower in respect of any sum due from it
to any Lender hereunder shall, notwithstanding any judgment in a currency (the
"Judgment Currency") other than that in which such sum is denominated in
- - ------------------
accordance with the applicable provisions of this Agreement (the "Agreement
---------
Currency"), be discharged only to the extent that on the Business Day following
- - --------
receipt by such Lender of any sum adjudged to be so due in the Judgment Currency
such Lender may in accordance with normal banking procedures purchase the
Agreement Currency with the Judgment Currency; if the amount of Agreement
Currency so purchased is less than the sum originally due to such Lender in the
Agreement Currency, such Borrower agrees notwithstanding any such judgment to
indemnify such Lender against such loss, and if the amount of the Agreement
Currency so purchased exceeds the sum originally due to any Lender, such Lender
agrees to remit to such Borrower such excess.
SECTION XIII.18 Confidentiality. Each Lender agrees to keep
---------------
confidential any written information (a) provided to it by or on behalf of the
Company or any of its Subsidiaries pursuant to or in connection with this
Agreement or (b) obtained by such Lender based on a review of the books and
records of the Company or any of its Subsidiaries; provided that nothing herein
shall prevent any Lender from disclosing any such information (i) to the
Administrative Agent or any other Lender, (ii) to any Transferee or prospective
Transferee which agrees to comply with the provisions of this Section, (iii) to
its employees, directors, agents, attorneys, accountants and other professional
advisors, or to any direct or indirect contractual counterparties in swap
agreements or such contractual counterparties' professional advisors provided
that such contractual counterparty or professional advisor to such contractual
agrees in writing to keep such information confidential to the same extent
required of the Lenders hereunder, (iv) upon the
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request or demand of any Governmental Authority (or the National Association of
Insurance Commissioners) having jurisdiction over such Lender or as shall be
required pursuant to any Requirement of Law, (v) in response to any order of any
court or other Governmental Authority (or the National Association of Insurance
Commissioners) or as may otherwise be required pursuant to any Requirement of
Law, (vi) in connection with any litigation to which such Lender is a party,
(vii) which has been publicly disclosed other than in breach of this Agreement,
or (viii) to the extent reasonably necessary, in connection with the exercise of
any remedy hereunder.
-104-
<PAGE>
ANNEX A
-------
PRICING GRID/1/
-
<TABLE>
<CAPTION>
Applicable Margin
for Multicurrency
Revolving Credit
Loans and Applicable Margin
Revolving Credit for Revolving Applicable Margin Applicable Margin
Consolidated Loans which are Credit Loans which for Tranche A Term for Tranche A Term
Leverage Eurodollar are Loans which are Loans which are Facility
Ratio Loans Base Rate Loans Eurodollar Loans Base Rate Loans Fee Rate
----- ----- --------------- ---------------- --------------- --------
<S> <C> <C> <C> <C> <C>
less than and equal to 4.0 to 1 137.5 37.5 175 75 37.5
- - ----------------------------------------------------------------------------------------------------------------------------------
greater than 4.0 to 1 117.5 17.5 150 50 32.5
- - ----------------------------------------------------------------------------------------------------------------------------------
greater than 3.5 to 1 95 0 125 25 30
- - ----------------------------------------------------------------------------------------------------------------------------------
greater than 3.0 to 1 75 0 100 0 25
- - ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Changes in the Applicable Margin and Facility Fee Rate resulting from changes in
the Consolidated Leverage Ratio shall become effective on the date (the
"Adjustment Date") on which financial statements are delivered to the Lenders
- - ----------------
pursuant to Section 8.01 (but in any event not later than the 60th day after the
end of each of the first three quarterly periods of each fiscal year or the
120th day after the end of each fiscal year, as the case may be) and shall
remain in effect until the next change to be effected pursuant to this
paragraph. Each determination of the Consolidated Leverage Ratio pursuant to
this definition shall be made with respect to the period of four consecutive
fiscal quarters of the Company ending at the end of the period covered by the
relevant financial statements.
_________________________
/1/ Applicable Margins and Facility Fee expressed in basis points.
<PAGE>
SCHEDULE I
----------
COMMITMENTS; ADDRESSES
Part A. Revolving Credit Commitment and Multicurrency Revolving Credit
Commitment Amounts (Dollars)
<TABLE>
<CAPTION>
==========================================================================================================
LENDER REVOLVING CREDIT COMMITMENT MULTICURRENCY REVOLVING CREDIT COMMITMENT
- - ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
The Chase Manhattan Bank $ $
- - ----------------------------------------------------------------------------------------------------------
TOTAL $1,000,000,000 $______________
==========================================================================================================
</TABLE>
PART B. TERM LOAN COMMITMENTS
<TABLE>
<CAPTION>
================================================================
LENDER TRANCHE A TRANCHE B
- - ----------------------------------------------------------------
<S> <C> <C>
The Chase Manhattan Bank $ $
- - ----------------------------------------------------------------
TOTAL $400,000,000 $350,000,0000
================================================================
</TABLE>
<PAGE>
SCHEDULE 6.20
-------------
PERFECTION ACTIONS
------------------
1. Capital Stock of Domestic Subsidiaries:
--------------------------------------
The certificates representing the shares of Capital Stock of issuers
organized under the laws of a State of the United States shall be delivered to
the Administrative Agent along with an undated stock power for each such
certificate executed in blank by a duly authorized officer of the pledgor
thereof.
2. Capital Stock of Foreign Subsidiaries:
-------------------------------------
The customary steps for perfection of a pledge of stock of an issuer
organized under the laws of a jurisdiction outside the United States, as advised
by counsel qualified in such jurisdiction, shall be taken.
3. Pledged Notes:
-------------
The promissory notes shall be delivered to the Administrative Agent
along with an undated note allonge for each such note executed in blank by a
duly authorized officer of the pledgor thereof.
<PAGE>
SCHEDULE 9.08
-------------
EXCLUDED ASSETS
---------------
Federal-Mogul World Trade Chile Ltda.
Federal-Mogul del Ecuador, S.A.
Federal-Mogul Panama S.A.
Federal-Mogul Puerto Rico Inc,
Federal-Mogul World Trade Inc.
Federal-Mogul de Venezuela C.A.
La Font Repuestos C.A.
Bertolotti Pietro c Figli, S.r.l,
The chemicals division of the businesses acquired in connection, with the Fel-
Pro Acquisition
<PAGE>
FEDER-MOGUL CORPORATION
By: /s/ David E. Bozynski
--------------------------
Title: Vice President & Treasurer
<PAGE>
THE CHASE MANHATTAN BANK,
as Administrative Agent and Lender
By: /s/ Andris G. Kalnins
-------------------------
Title: Vice President
<PAGE>
EXHIBIT 10.14
================================================================================
================================================================================
RECEIVABLES SALE AND CONTRIBUTION AGREEMENT
DATED AS OF NOVEMBER 20, 1998
BETWEEN
FEDERAL-MOGUL CORPORATION,
CARTER AUTOMOTIVE COMPANY, INC. AND
FEDERAL-MOGUL CANADA LIMITED
AS THE ORIGINATORS
AND
FEDERAL-MOGUL FUNDING CORPORATION,
AS THE BUYER
================================================================================
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I. AMOUNTS AND TERMS OF THE PURCHASES...............................................................2
Section 1.1. Purchases of Receivables.......................................................................2
Section 1.2. Payment for the Purchases......................................................................3
Section 1.3. Purchase Price Credit Adjustments..............................................................5
Section 1.4. Payments and Computations, Etc.................................................................5
Section 1.5. Transfer of Records............................................................................6
Section 1.6. Characterization...............................................................................6
ARTICLE II. REPRESENTATIONS AND WARRANTIES..................................................................7
Section 2.1. Originators' Representations and Warranties....................................................7
ARTICLE III. CONDITIONS OF PURCHASES.......................................................................10
Section 3.1. Conditions Precedent to Initial Purchase......................................................10
Section 3.2. Conditions Precedent to All Purchases.........................................................11
ARTICLE IV. COVENANTS......................................................................................11
Section 4.1. Affirmative Covenants of Originators..........................................................11
Section 4.2. Negative Covenants of Originators.............................................................16
ARTICLE V. ADMINISTRATION AND COLLECTION...................................................................17
Section 5.1. Designation of Sub-Servicer...................................................................17
ARTICLE VI. EVENTS OF PURCHASE AND SALE TERMINATION........................................................17
Section 6.1. Events of Purchase and Sale Termination.......................................................17
Section 6.2. Remedies......................................................................................19
ARTICLE VII. INDEMNIFICATION...............................................................................19
Section 7.1. Indemnities by the Originators................................................................19
Section 7.2. Other Costs and Expenses......................................................................21
ARTICLE VIII. MISCELLANEOUS................................................................................21
Section 8.1. Waivers and Amendments........................................................................21
Section 8.2. Notices.......................................................................................21
Section 8.3. Protection of Buyer's Interests...............................................................22
Section 8.4. Confidentiality...............................................................................22
Section 8.5. Bankruptcy Petition...........................................................................23
Section 8.6. Limitation of Liability.......................................................................23
SECTION 8.7. CHOICE OF LAW.................................................................................23
SECTION 8.8. CONSENT TO JURISDICTION.......................................................................24
SECTION 8.9. WAIVER OF JURY TRIAL..........................................................................24
Section 8.10. Binding Effect; Assignability................................................................24
Section 8.11. Subordination................................................................................25
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Section 8.12. Integration; Survival of Terms..............................................................25
Section 8.13. Counterparts; Severability..................................................................25
EXHIBIT I DEFINITIONS....................................................................................28
EXHIBIT II CHIEF EXECUTIVE OFFICE OF THE ORIGINATORS; LOCATIONS OF RECORDS; TRADE NAMES; FEDERAL
EMPLOYER IDENTIFICATION NUMBER...........................................................................36
EXHIBIT III COLLECTION ACCOUNTS..........................................................................37
EXHIBIT IV [RESERVED]....................................................................................38
EXHIBIT V FORM OF COLLECTION ACCOUNT AGREEMENT...........................................................39
EXHIBIT VI CREDIT POLICIES...............................................................................40
EXHIBIT VII [RESERVED]...................................................................................41
EXHIBIT VIII FORM OF SETTLEMENT STATEMENT................................................................42
EXHIBIT IX FORM OF SUBSCRIPTION AGREEMENT................................................................43
EXHIBIT X FORM OF SUBORDINATED NOTE......................................................................49
SCHEDULE A DOCUMENTS AND RELATED ITEMS TO BE DELIVERED ON OR PRIOR TO THE INITIAL PURCHASE...............54
</TABLE>
ii
<PAGE>
THIS RECEIVABLES SALE AND CONTRIBUTION AGREEMENT, dated as of November
20, 1998, is by and among FEDERAL-MOGUL CORPORATION, a Michigan corporation
("FEDERAL-MOGUL"), CARTER AUTOMOTIVE COMPANY, INC., a Delaware corporation
("CARTER"), and FEDERAL-MOGUL CANADA LIMITED, a Canadian corporation ("FEDERAL-
MOGUL CANADA", and each of Federal-Mogul, Carter and Federal-Mogul Canada an
"ORIGINATOR" and collectively, the "ORIGINATORS"), and FEDERAL-MOGUL FUNDING
CORPORATION, a Michigan corporation (the "BUYER"). Unless defined elsewhere
herein, capitalized terms used in this Agreement shall have the meanings
assigned to such terms in EXHIBIT I hereto.
PRELIMINARY STATEMENTS
The Originators now own, and from time to time hereafter will own,
Receivables. Each Originator wishes to sell and assign to the Buyer, and
the Buyer wishes to purchase from such Originator, all of such Originator's
right, title and interest in and to its Receivables now owned and existing
and hereafter arising.
Each Originator and the Buyer believe that it is in their mutual best
interests for such Originator to sell its Receivables to the Buyer and for
the Buyer to purchase such Receivables.
The Buyer shall, on each applicable Purchase Date, purchase all of
each Originator's right, title and interest in and to its Receivables
existing on such date and all Related Security and Collections associated
therewith.
Each Originator and the Buyers intend the transactions contemplated
hereby to be true sales of its Receivables from such Originator to the
Buyer, providing the Buyer with the full benefits of ownership of such
Receivables, and each Originator and the Buyer do not intend these
transactions to be, or for any purpose to be characterized as, loans from
the Buyer to such Originator.
Upon each purchase of Receivables from the Originators, the Buyer will
sell undivided interests therein and in the associated Related Security and
Collections pursuant to that certain Receivable Interest Purchase Agreement
dated as of November 20, 1998 (as the same may from time to time hereafter
be amended, supplemented, restated or otherwise modified, the "PURCHASE
AGREEMENT") among the Buyer, Federal-Mogul, as Servicer, Falcon Asset
Securitization Corporation ("FALCON"), the financial institutions from time
to time party thereto as "INVESTORS" and The First National Bank of Chicago
or any successor agent appointed under Article X of the Purchase Agreement,
as agent for Falcon and such Investors (in such capacity, the "AGENT").
<PAGE>
ARTICLE I.
AMOUNTS AND TERMS OF THE PURCHASES
Section 1.1. Purchases of Receivables.
------------------------
(a) Effective on the date of the initial Purchase hereunder, in
consideration for the Purchase Price and upon the terms and subject to the
conditions set forth herein, each Originator does hereby sell, assign, transfer,
set-over and otherwise convey to the Buyer, without recourse (except to the
extent expressly provided herein), and the Buyer does hereby purchase from each
Originator, all of such Originator's right, title and interest in and to all
Receivables existing as of the date of such initial Purchase and all Receivables
thereafter arising, together, in each case, with all Related Security relating
thereto and all Collections and other proceeds thereof; PROVIDED, HOWEVER, that
in no event shall the Buyer be obligated to purchase, or any Originator be
obligated to sell, any Receivable arising after the Termination Date; PROVIDED,
FURTHER, that in no event shall the Buyer be obligated to purchase from an
Originator (other than Federal-Mogul), or such Originator be obligated to sell
to the Buyer, any Receivable arising on or after the date that such Originator
ceases to be a wholly-owned subsidiary of Federal-Mogul. On the date of the
initial Purchase, the Buyer shall acquire all of each Originator's right, title
and interest in and to all Receivables existing as of the close of business on
the Business Day immediately prior to such Purchase, together with all Related
Security relating thereto and all Collections and other proceeds thereof. On
each Business Day thereafter through and including the Termination Date, the
Buyer shall acquire all of each Originator's right, title and interest in and to
all Receivables which were not previously purchased by the Buyer hereunder upon
the creation of such Receivables (together with all Related Security relating
thereto and all Collections and other proceeds thereof), PROVIDED THAT the
acquisition by the Buyer of such right, title and interest of any Originator in
connection with each Purchase hereunder is conditioned upon and subject to such
Originator's receipt of the Purchase Price therefor in accordance with SECTION
1.2 below. In connection with consummation of any Purchase hereunder, the Buyer
may request that an Originator deliver, and such Originator shall deliver, such
approvals, opinions, information, reports or documents as the Buyer and/or the
Agent (as the Buyer's assignee) may reasonably request.
(b) It is the intention of the parties hereto that each Purchase of
Receivables made hereunder shall constitute a "sale of accounts" (as such term
is used in Article 9 of the UCC), which sales are absolute and irrevocable and
provide the Buyer with the full benefits of ownership of the Receivables.
Except for the Purchase Price Credits owed pursuant to SECTION 1.3 hereof, each
sale of Receivables hereunder is made without recourse to any Originator;
PROVIDED, HOWEVER, that (i) an Originator shall be liable to the Buyer for all
representations, warranties and covenants made by such Originator individually,
and in the case of Federal-Mogul, as the Sub-Servicer, pursuant to the terms of
the Transaction Documents to which such Originator and the Sub-Servicer is a
party, and (ii) such sale does not constitute and is not intended to result in
an assumption by the Buyer or any assignee thereof of any obligation of any
Originator or any other Person arising in connection with the Receivables, the
related Contracts and/or other Related Security or any other obligations of any
Originator. In view of the intention
2
<PAGE>
of the parties hereto that the Purchases of Receivables made hereunder shall
constitute sales of such Receivables rather than loans secured thereby, each
Originator agrees on or prior to the date hereof to mark its master data
processing records relating to the Receivables with a legend acceptable to the
Buyer and to the Agent (as the Buyer's assignee), evidencing that the Buyer has
purchased such Receivables as provided in this Agreement and to note in its
financial statements that its Receivables have been assigned to the Buyer. Upon
the request of the Buyer or the Agent (as the Buyer's assignee), an Originator
will execute and file such financing or continuation statements, or amendments
thereto or assignments thereof, and such other instruments or notices, as may be
necessary or appropriate to perfect and maintain the perfection of the Buyer's
ownership interest in the Purchased Assets, or as the Buyer or the Agent (as the
Buyer's assignee) may reasonably request.
Section 1.2. Payment for the Purchases.
-------------------------
(a) The Purchase Price for the initial Purchase of Receivables shall
be payable in full by the Buyer to the applicable Originator on the date of such
initial Purchase, and shall be paid to such Originator in the following manner:
(i) by delivery of immediately available funds, to the extent of
funds made available to the Buyer in connection with its subsequent sale of
an interest in such Receivables to the Purchasers under the Purchase
Agreement; PROVIDED THAT, with respect to only Federal-Mogul, a portion of
such funds shall be offset by amounts owed by Federal-Mogul to the Buyer on
account of the issuance of equity in the manner contemplated in the
Subscription Agreement and having a total value of not less than
$4,500,000, and
(ii) the balance, with respect to Federal-Mogul and Carter, with the
proceeds of a Subordinated Loan.
The Purchase Price for each Purchase after the initial Purchase shall become due
and owing in full by the Buyer to an Originator or its designee on the date of
such Purchase (EXCEPT THAT the Buyer may, with respect to any such Purchase,
offset against such Purchase Price any amounts owed by such Originator to the
Buyer hereunder and which have become due but remain unpaid) and shall be paid
to such Originator in the manner provided in the following paragraphs (b), (c)
and (d).
(b) With respect to any Purchase after the initial Purchase
hereunder, on each Settlement Date, the Buyer shall pay to the Sub-Servicer the
Sub-Servicer Fee and to each Originator the Purchase Price for each Purchase
during the preceding Collection Period as follows:
FIRST, by delivery of immediately available funds, to the extent of
funds available to the Buyer from its subsequent sale of an interest in
such Receivables to the Agent for the benefit of the Purchasers under the
Purchase Agreement or otherwise; provided that Buyer shall make such
payments of such Sub-Servicer Fee and Purchase Price by
3
<PAGE>
delivery of immediately available funds, first, to Originators other than
Federal-Mogul and, second, to Federal-Mogul;
SECOND, by borrowing from such Originator a subordinated revolving
loan (each, a "SUBORDINATED LOAN") from such Originator (other than
Federal-Mogul Canada) in an amount not to exceed the lesser of (i) the
remaining unpaid portion of such Purchase Price and (ii) the maximum
Subordinated Loan that could be borrowed without rendering the Buyer's Net
Worth less than the Required Capital Amount; and
THIRD, with respect to only Federal-Mogul, unless Federal-Mogul has
declared the Termination Date to have occurred, by accepting a contribution
to its capital pursuant to the Subscription Agreement in an amount equal to
the remaining unpaid balance of its Purchase Price.
Subject to the limitations set forth in the preceding clause SECOND, each
Originator irrevocably agrees to advance each Subordinated Loan requested by the
Buyer on or prior to the Termination Date. The Subordinated Loans shall be
evidenced by, and shall be payable in accordance with the terms and provisions
of, the Subordinated Notes and shall be payable solely from funds which the
Buyer is not required under the Purchase Agreement to set aside for the benefit
of, or otherwise pay over to, the Purchasers.
(c) From and after the Termination Date, each Originator shall not be
obligated to (but may, at its option): (i) sell Receivables to the Buyer, or
(ii) with respect to only Federal-Mogul, contribute Receivables to the Buyer's
capital pursuant to clause THIRD in SECTION 1.2(B) unless Federal-Mogul
reasonably determines that the Purchase Price therefor will be satisfied with
funds available to the Buyer from sales of interests in the Receivables pursuant
to the Purchase Agreement, Collections, proceeds of Subordinated Loans or
otherwise.
(d) On each Business Day during a Collection Period after the date of
the initial Purchase, all Collections received shall be applied by each
Originator as payments toward the Purchase Price of Receivables sold or to be
sold by the Originator to the Buyer during such Collection Period. Although
amounts shall be paid directly to an Originator on a daily basis in accordance
with the first sentence of this paragraph, settlement of the Purchase Price
between the Buyer and an Originator shall be effected on a monthly basis on
Settlement Dates with respect to all Purchases within the same Collection Period
and based on the information contained in the Settlement Statement for the
Collection Period then most recently ended. In addition to such other
information as may be included therein, each Settlement Statement shall set
forth the following with respect to the related Collection Period: (i) the
aggregate Outstanding Balance of Receivables created and conveyed in Purchases
during such Collection Period, as well as the Net Receivables Balance (as
defined in the Purchase Agreement) included therein, (ii) the aggregate Purchase
Price payable to such Originator in respect of such Purchases, specifying the
Discount Factor in effect for such Collection Period and the aggregate Purchase
Price Credits deducted in calculating such aggregate Purchase Price, (iii) the
aggregate amount of funds received by such Originator during such Collection
Period which are to be applied toward the aggregate Purchase Price owing for
such Collection Period pursuant to the first sentence of this paragraph, (iv)
the
4
<PAGE>
increase or decrease in the amount outstanding under the applicable Subordinated
Note as of the end of such Collection Period after giving effect to the
application of funds toward the aggregate Purchase Price and the restrictions on
Subordinated Loans set forth in paragraph (b) above, and (v) with respect to
only Federal-Mogul, the amount of any capital contribution made by Federal-Mogul
to the Buyer as of the end of such Collection Period pursuant to paragraph (c)
above. Although settlement shall be effected on Settlement Dates, increases or
decreases in the amount owing under any Subordinated Note made pursuant to
paragraph (b) above and any contribution of capital by Federal-Mogul to the
Buyer made pursuant to paragraph (c) above shall be deemed to have occurred and
shall be effective as of the last Business Day of the Collection Period to which
such settlement relates.
Section 1.3. Purchase Price Credit Adjustments. If on any day the
---------------------------------
Outstanding Balance of a Receivable is:
(a) reduced as a result of any defective or damaged goods or
services, any cash discount or any adjustment by the applicable Originator
(whether individually or in its performance of its duties as Sub-Servicer),
(b) reduced or canceled as a result of a setoff in respect of any
claim by any Person (whether such claim arises out of the same or a related
transaction or an unrelated transaction and whether such claim relates to
an Originator or any Affiliate thereof), or
(c) is otherwise reduced as a result of any of the factors set forth
in the definition of "Dilutions,"
then, in such event, the Buyer shall be entitled to a credit (each, a "PURCHASE
PRICE CREDIT") against the Purchase Price otherwise payable hereunder equal to
the full amount of such reduction or cancellation. If such Purchase Price
Credit exceeds the Original Balance of the Receivables to be sold hereunder on
any Purchase Date, then the applicable Originator shall pay the remaining amount
of such Purchase Price Credit in cash within 5 Business Days thereafter;
PROVIDED THAT if the Termination Date has not occurred, the applicable
Originator shall be allowed to deduct the remaining amount of such Purchase
Price Credit from any indebtedness owed to it under the applicable Subordinated
Note.
Section 1.4. Payments and Computations, Etc. All amounts to be paid
------------------------------
or deposited by the Buyer hereunder shall be paid or deposited in accordance
with the terms hereof on the day when due in immediately available funds to the
account of the applicable Originator designated from time to time by such
Originator or as otherwise directed by such Originator. In the event that any
payment owed by any Person hereunder becomes due on a day which is not a
Business Day, then such payment shall be made on the next succeeding Business
Day. Any amount due hereunder which is not paid when due hereunder shall bear
interest at the Base Rate as in effect from time to time until paid in full;
PROVIDED, HOWEVER, that such interest rate shall not at any time exceed the
maximum rate permitted by applicable law. All computations of interest payable
hereunder shall be made on the basis of a year of 360 days for the actual number
of days (including the first but excluding the last day) elapsed; provided,
however, that all computations of interest payable hereunder with respect to
Federal-Mogul Canada shall be made
5
<PAGE>
on the basis of a year of 365 days for the actual number of days (including the
first but excluding the last day) elapsed.
Section 1.5. Transfer of Records.
-------------------
(a) In connection with the Purchases of Receivables hereunder, each
Originator hereby sells, transfers, assigns and otherwise conveys to the Buyer
all of its right and title to and interest in the Records relating to all of its
Receivables sold hereunder, without the need for any further documentation in
connection with any Purchase. In connection with such transfer, each Originator
hereby grants to each of the Buyer, the Agent and the Servicer an irrevocable,
non-exclusive license to use, without royalty or payment of any kind, all
software used by such Originator to account for its Receivables, to the extent
necessary to administer its Receivables, whether such software is owned by such
Originator or is owned by others and used by such Originator under license
agreements with respect thereto, PROVIDED THAT should the consent of any
licensor of such Originator to such grant of the license described herein be
required, such Originator hereby agrees that upon the request of the Buyer (or
the Agent as the Buyer's assignee), such Originator will use its reasonable
efforts to obtain the consent of such third-party licensor. The license granted
hereby shall be irrevocable, and shall terminate on the date this Agreement
terminates in accordance with its terms.
(b) Each Originator (i) shall take such action requested by the Buyer
and/or the Agent (as the Buyer's assignee), from time to time hereafter, that
may be necessary or appropriate to ensure that the Buyer and its assigns under
the Purchase Agreement have an enforceable ownership interest in the Records
relating to the Receivables purchased from such Originator hereunder, and (ii)
shall use its reasonable efforts to ensure that the Buyer, the Agent and the
Servicer each has an enforceable right (whether by license or sublicense or
otherwise) to use all of the computer software used to account for the
Receivables and/or to recreate such Records.
Section 1.6. Characterization. If, notwithstanding the intention of
----------------
the parties expressed in SECTION 1.1(B), any sale or contribution by an
Originator to the Buyer of Receivables hereunder shall be characterized as a
secured loan and not a sale, then this Agreement shall be deemed to constitute a
security agreement under the UCC and other applicable law. Without being in
derogation of the parties' intention that each sale of Receivables hereunder
shall constitute a true sale thereof, each Originator hereby grants to the Buyer
a duly perfected security interest in all of such Originator's right, title and
interest in, to and under the Purchased Assets, which security interest shall be
prior to all other Adverse Claims thereto. After an Event of Purchase and Sale
Termination, the Buyer and its assignees shall have, in addition to the rights
and remedies which they may have under this Agreement, all other rights and
remedies provided to a secured creditor after default under the UCC and other
applicable law, which rights and remedies shall be cumulative.
6
<PAGE>
ARTICLE II.
REPRESENTATIONS AND WARRANTIES
Section 2.1. Originators' Representations and Warranties. Each
-------------------------------------------
Originator hereby represents and warrants, individually and, in the case of
Federal-Mogul, in its capacity as the Sub-Servicer, to the Buyer and its assigns
that:
(a) Corporate Existence and Power. With respect to Federal-Mogul and
-----------------------------
Carter, such Originator is a corporation duly organized and validly existing and
in good standing under the laws of the State of its incorporation and, with
respect to Federal-Mogul Canada Limited, such Originator is a corporation duly
organized and validly existing and in good standing under the laws of the
Province of Ontario, and with respect to Federal-Mogul, Carter and Federal-Mogul
Canada, has, in all material respects, full corporate power, authority and legal
right to own its properties and conduct its business as such properties are
presently owned and such business is presently conducted, and to execute,
deliver and perform its obligations under the Transaction Documents to which it
is a party.
(b) Due Qualification. Such Originator is duly qualified to do
-----------------
business and, where necessary, is in good standing as a foreign corporation (or
is exempt from such requirement) and has obtained all necessary licenses and
approvals in each jurisdiction in which the conduct of its business requires
such qualification except where the failure to so qualify, be in good standing
or obtain licenses or approvals would not have a Material Adverse Effect.
(c) Due Authorization; No Conflict. The execution and delivery of the
------------------------------
Transaction Documents to which such Originator is a party, the performance of
the transactions contemplated thereby and the fulfillment of the terms thereof,
will not conflict with, result in any breach of any of the material terms and
provisions of, or constitute (with or without notice or lapse of time or both) a
material default under, any indenture, contract, agreement, mortgage, deed of
trust, or other instrument to which such Originator is a party or by which it or
its properties are bound. The execution and delivery of the Transaction
Documents to which such Originator is a party, the performance of the
transactions contemplated thereby and the fulfillment of the terms thereof which
are applicable to such Originator, will not conflict with or violate any
material Requirements of Law applicable to such Originator.
(d) No Consents. Other than the filing of the financing statements
-----------
required hereunder, no authorization or approval or other action by, and no
notice to or filing with, any Governmental Authority or regulatory body is
required for the due execution, delivery and performance by such Originator of
the Transaction Documents to which it is a party, other than authorizations,
approvals, actions, notices or filings the failure to obtain or perform would
not reasonably be expected to have a Material Adverse Effect.
(e) Binding Effect. The Transaction Documents to which such
--------------
Originator is a party have been duly executed and delivered by such Originator
and constitute the legal, valid and binding obligations of such Originator
enforceable against such Originator in accordance with their respective terms,
except as such enforcement may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws relating to or limiting creditors' rights
in general
7
<PAGE>
and except as such enforceability may be limited by general principles of equity
(whether considered in a suit at law or in equity).
(f) No Proceedings. There are no actions, suits or proceedings
--------------
pending, or to the best of such Originator's knowledge, threatened, against or
affecting the Buyer or any Originator, or any of the respective properties of
the Buyer or any Originator, in or before any court, arbitrator or other body,
which are reasonably likely to have a Material Adverse Effect. Such Originator
is not in default with respect to any order of any court, arbitrator or
Governmental Authority.
(g) Accuracy of Information. All information heretofore furnished by
-----------------------
such Originator or any of its Affiliates to the Buyer, the Agent or the
Purchasers for purposes of or in connection with this Agreement, any of the
other Transaction Documents or any transaction contemplated hereby or thereby
is, and all such information hereafter furnished by such Originator or any of
its Affiliates to the Buyer, the Agent and/or the Purchasers will be, true and
accurate in every material respect, on the date such information is stated or
certified and does not and will not contain any material misstatement of fact or
omit to state a material fact or any fact necessary to make the statements
contained therein not misleading.
(h) Use of Proceeds. No proceeds of any Purchase hereunder will be
---------------
used for "purchasing" or "carrying" any "margin stock" within the respective
meanings of each of the quoted terms under Regulation G and Regulation U of the
Board of Governors of the United States Federal Reserve System as now and from
time to time hereafter in effect or for any purpose which violates the
provisions of the Regulations of such Board of Governors (including but not
limited to the provisions of Regulation G, Regulation U and Regulation X) or any
similar rule of any other Governmental Authority.
(i) Good Title; Perfection. Immediately prior to each Purchase
----------------------
hereunder, such Originator shall be the legal and beneficial owner of the
Receivables and Related Security with respect thereto, free and clear of any
Adverse Claim, except as created by the Transaction Documents. This Agreement
is effective to, and shall, upon each Purchase hereunder, irrevocably transfer
to the Buyer all legal and equitable title to, with the legal right to sell and
encumber, such Receivable, its Collections and the Related Security, free and
clear of any Adverse Claim, except as created by the Transaction Documents.
Without limiting the foregoing, there has been duly filed all financing
statements or other similar instruments or documents necessary under the UCC of
all appropriate jurisdictions (or any comparable law) to provide the Buyer with
a first priority perfected ownership interest in such Receivables and the other
Purchased Assets.
(j) Places of Business. The principal places of business and chief
------------------
executive office of such Originator and the offices where such Originator keeps
all its Records are located at the address(es) listed on EXHIBIT II or such
other locations notified to the Buyer and the Agent (as the Buyer's assignee) in
accordance with SECTION 4.2(A) in jurisdictions where all action required by
SECTION 4.2(A) has been taken and completed. Such Originator's Federal Employer
Identification Number is correctly set forth on EXHIBIT II.
8
<PAGE>
(k) Collection Banks; etc. Except as otherwise notified to the Buyer
---------------------
and the Agent (as the Buyer's assignee) in accordance with SECTION 4.2(B):
(i) such Originator has instructed all Obligors to pay all
Collections directly to a segregated lock-box identified on EXHIBIT III
hereto,
(ii) in the case of all proceeds remitted to any such lock-box which
is now or hereafter established, such proceeds will be deposited directly
by the applicable Collection Bank into a concentration account or a
depository account listed on EXHIBIT III,
(iii) the names and addresses of all Collection Banks, together with
the account numbers of the Collection Accounts of the Originator at each
Collection Bank, are listed on EXHIBIT III, and
(iv) each lock-box and Collection Account to which Collections are
remitted shall be subject to a Collection Account Agreement that is then in
full force and effect.
In the case of lock-boxes and Collection Accounts identified on EXHIBIT III,
exclusive dominion and control thereof has been transferred to the Buyer. Such
Originator has not granted any Person, other than the Buyer as contemplated by
this Agreement, dominion and control of any lock-box or Collection Account, or
the right to take dominion and control of any lock-box or Collection Account at
a future time or upon the occurrence of a future event.
(l) Names. In the past five years, such Originator has not used any
-----
corporate names, trade names or assumed names other than the name or names set
forth on EXHIBIT II.
(m) Credit Policies. With respect to each Receivable, such Originator
---------------
and the Sub-Servicer has complied in all material respects with the Credit
Policies.
(n) Payments to Originator. With respect to each Receivable sold to
----------------------
the Buyer under this Agreement, the Buyer has given reasonably equivalent value
to such Originator in consideration for the transfer of such Receivable and the
Related Security with respect thereto under this Agreement and such transfer was
not made for or on account of an antecedent debt. No sale by such Originator to
the Buyer of any Receivable is or may be voidable under any section of the
Federal Bankruptcy Reform Act of 1978 (11 U.S.C. (S)(S) 101 et seq.), as
amended.
(o) Ownership of the Buyer. Federal-Mogul directly owns 100% of the
----------------------
issued and outstanding capital stock of the Buyer. Such capital stock is
validly issued, fully paid and nonassessable and there are no options, warrants
or other rights to acquire securities of the Buyer.
(p) Not an Investment Company. Such Originator is not an "investment
-------------------------
company" within the meaning of the Investment Company Act of 1940, as amended
from time to time, or any successor statute.
9
<PAGE>
(q) Purpose. Such Originator has determined that, from a business
-------
viewpoint, the sale of Receivables to the Buyer contemplated hereby is in the
best interest of such Originator.
(r) Financial Statements; Material Adverse Effect. The consolidated
---------------------------------------------
financial statements of the Originator and its consolidated Subsidiaries dated
June 30, 1998 furnished by such Originator to the Buyer and the Agent are
complete and correct in all material respects, and such financial statements
have been prepared in accordance with generally accepted accounting principles
consistently applied and fairly present the consolidated financial condition and
results of operations of the Originator and its consolidated Subsidiaries as of
such date and for the period ended on such date. Since June 30, 1998, no event
has occurred which would have a Material Adverse Effect.
(s) ERISA. No fact or circumstance, including but not limited to any
-----
Reportable Event, exists in connection with any Plan which would constitute
grounds for the termination of any Plan by the PBGC or for the appointment by
the appropriate United States District Court of a trustee to administer any such
Plan and which would result in the termination of a Plan and the incurrence of
material liability by the Originator or any ERISA Affiliate to the Plan, the
PBGC, participants, beneficiaries or a trustee. No Plan has an accumulated
funding deficiency as defined in Section 412(a) of the Code or Section 302(a) of
ERISA, and no lien exists with respect to any Plan for failure to make required
contributions as described under 412(n) of the Code or Section 302(f) of ERISA.
For the purposes of this representation and warranty, such Originator shall be
deemed to have knowledge of all facts attributable to the Plan administrator
designated pursuant to ERISA.
(t) Year 2000 Problem. Such Originator has reviewed its operations
-----------------
with a view to assessing whether its business will, in the receipt,
transmission, processing, manipulation, storage, retrieval, retransmission, or
other utilization of data be vulnerable to a Year 2000 Problem that could
reasonably be expected to have a Material Adverse Effect. Based on such review,
such Originator has no reason to believe that a Material Adverse Effect will
occur with respect to its business or operations resulting from a Year 2000
Problem.
ARTICLE III.
CONDITIONS OF PURCHASES
Section 3.1. Conditions Precedent to Initial Purchase. The initial
----------------------------------------
Purchase under this Agreement is subject to the conditions precedent that (i)
the Buyer shall have received on or before the date of such Purchase those
documents listed on SCHEDULE A hereto and (ii) all conditions precedent to the
initial purchase under the Purchase Agreement shall have been satisfied and/or
waived.
Section 3.2. Conditions Precedent to All Purchases. Each Purchase
-------------------------------------
shall be subject to the further conditions precedent that (a) on the date of
each such Purchase, the following statements shall be true both before and after
giving effect to such Purchase (and acceptance of the proceeds of such Purchase
shall be deemed a representation and warranty by the applicable Originator that
such statements are then true):
10
<PAGE>
(i) the representations and warranties set forth in ARTICLE II are
correct on and as of the date of such Purchase as though made on and as of
such date;
(ii) no event has occurred, or would result from such Purchase, that
will constitute an Event of Purchase and Sale Termination, and no event has
occurred and is continuing, or would result from such Purchase, that would
constitute a Potential Event of Purchase and Sale Termination; and
(iii) the Termination Date shall not have occurred;
and (b) the Buyer and/or the Agent (as the Buyer's assignee) shall have received
such other approvals, opinions or documents as it may reasonably request.
Notwithstanding the foregoing conditions precedent, upon payment of
the Purchase Price for any Purchase (whether by payment of cash, through an
increase in the amounts outstanding under the Subordinated Notes, by offset of
amounts owed to the Buyer and/or by offset of capital contributions to be made
under the Subscription Agreement), title to the Receivables and related assets
included in such Purchase shall vest in the Buyer, whether or not the conditions
precedent to such Purchase were in fact satisfied.
ARTICLE IV.
COVENANTS
Section 4.1. Affirmative Covenants of Originators. Until the date
------------------------------------
this Agreement shall terminate in accordance with its terms, each Originator
hereby covenants, individually and in its capacity as Sub-Servicer, that:
(a) Financial Reporting and other Information. Such Originator will
-----------------------------------------
maintain a system of accounting established and administered in accordance with
generally accepted accounting principles, and furnish to the Buyer and the Agent
(as assignee of the Buyer):
(i) Annual Reporting. As soon as available, but in any event within
----------------
120 days after the close of each fiscal year of such Originator, an audit
report not qualified for anything under the control of such Originator,
certified by independent public accountants acceptable to the Buyer and
Agent (which until the Buyer and/or the Agent (as the Buyer's assignee)
notifies such Originator in writing to the contrary may be Ernst & Young
LLP, public accountants), prepared in accordance with generally accepted
accounting principles on a consolidated basis for such Originator and its
Subsidiaries including consolidated balance sheets as of the end of such
period, and related profit and loss and reconciliation of the surplus
statements;
(ii) Quarterly Reporting. As soon as available, but in any event
-------------------
within 60 days after the close of the first three quarterly periods of each
fiscal year of such Originator, for such Originator and its Subsidiaries,
consolidated unaudited balance sheets as at the close of each such period
and consolidated profit and loss and
11
<PAGE>
reconciliation of surplus statements for the period beginning from the
beginning of such fiscal year to the end of such quarter; and
(iii) Securities and Exchange Commission Filings. Such Originator
------------------------------------------
shall provide the Buyer and the Agent (as the Buyer's Assignee), promptly
after the same are available, copies of all proxy statements, financial
statements and reports as such Originator shall send or make available
generally to any of its public security holders, and copies of all regular
and period reports and of all registration statements which such Originator
may file with the Securities and Exchange Commission or with any securities
exchange.
(iv) Notices under Transaction Documents. Forthwith upon its receipt
-----------------------------------
of any notice, request for consent, financial statements, certification,
report or other communication under or in connection with any Transaction
Document from any Person other than the Buyer, the Agent or any Purchaser,
copies of the same.
(v) Change in Credit Policies. At least 30 days prior to the
-------------------------
effectiveness of any material change in or amendment to the Credit
Policies, a copy of the Collection Policies then in effect and a notice
indicating such change or amendment.
(vi) Other Information. Such other information (including non-
-----------------
financial information) as the Buyer (or any of its assignees) may from time
to time reasonably request.
Notwithstanding the other provisions of this Section 4.1(a), (x) such
Originator shall not be required to provide the financial information set forth
in Sections 4.1(a)(i) and 4.1(a)(ii) if Federal-Mogul provides to the Buyer and
the Agent (as assignee of the Buyer) such financial information on a
consolidated basis and such Originator is included in the financial information
provided by Federal-Mogul, and (y) such Originator shall not be required to
provide to the Buyer and the Agent (as assignee of the Borrower) the documents
and/or other information set forth in Section 4.1(a)(iii) through (and
including) 4.1(a)(vi) if Federal Mogul provides to the Buyer and the Agent (as
assignee of Borrower) such documents and information.
(b) Notices. Such Originator will notify the Buyer and the Agent in
-------
writing of any of the following immediately upon learning of the occurrence
thereof, describing the same and, if applicable, the steps being taken with
respect thereto:
(i) Actual and Potential Events of Purchase and Sale Termination.
------------------------------------------------------------
The occurrence of each Event of Purchase and Sale Termination or Potential
Event of Purchase and Sale Termination of which the Originator becomes
aware.
(ii) Litigation. The institution of any litigation, arbitration
----------
proceeding or governmental proceeding against such Originator or any of its
Subsidiaries, or to which such Originator or any of its Subsidiaries
becomes party, in either case which (A) remains unsettled for a period of
90 days from the commencement thereof and involves claims for damages or
relief in an amount which could reasonably be expected to have a Material
12
<PAGE>
Adverse Effect, or (B) has resulted in a final judgment or judgments for
the payment of money in an amount which has a Material Adverse Effect.
(iii) ERISA. The occurrence of any Reportable Event under Section
-----
4043(c)(5), (6) or (9) of ERISA with respect to any Plan, any decision to
terminate or withdraw from a Plan, any finding made with respect to a Plan
under Section 4041(c) or (e) of ERISA, the commencement of any proceeding
with respect to a Plan under Section 4042 of ERISA, the failure to make any
required installment or other required payment under Section 41 2 of the
Code or Section 302 of ERISA on or before the date for such installment or
payment, or any material increase in the actuarial present value of
unfunded vested benefits under all Plans over the preceding year.
(iv) Downgrade. Any downgrade in the rating of any Indebtedness of
---------
Federal-Mogul by Standard & Poor's Ratings Group or by Moody's Investors
Service, Inc., setting forth the Indebtedness affected and the nature of
such change.
(v) Labor Strike, Walkout, Lockout or Slowdown. The commencement or
------------------------------------------
threat of any labor strike, walkout, lockout or concerted labor slowdown
which could reasonably be expected to have a Material Adverse Effect
(collectively, "LABOR ACTIONS").
(c) Compliance with Laws. Such Originator will comply in all
--------------------
material respects with all applicable laws, rules, regulations, orders, writs,
judgments, injunctions, decrees or awards to which it may be subject.
(d) Audits. Such Originator will furnish to the Buyer (and/or the
------
Agent on behalf of the Buyer) from time to time such information with respect to
it and the Receivables as the Buyer or the Agent may reasonably request. Such
Originator shall, from time to time during regular business hours as requested
by Buyer (or the Agent on its behalf) upon reasonable notice, permit the Buyer
or the Agent, or their respective agents or representatives, (i) to examine and
make copies of and abstracts from all Records in the possession or under the
control of such Originator relating to Receivables and the Related Security,
including, without limitation, the related Contracts, and (ii) to visit the
offices and properties of such Originator for the purpose of examining such
materials described in clause (i) above, and to discuss matters relating to such
Originator's financial condition or the Receivables and the Related Security or
such Originator's performance hereunder or such Originator's performance under
the Contracts with any of the officers or employees of such Originator having
knowledge of such matters.
(e) Keeping and Marking of Records and Books.
----------------------------------------
(i) Such Originator will maintain and implement administrative and
operating procedures (including, without limitation, an ability to recreate
records evidencing Receivables in the event of the destruction of the
originals thereof), and keep and maintain all documents, books, records and
other information reasonably necessary or advisable for the collection of
all Receivables (including, without limitation, records adequate to permit
the immediate identification of each new Receivable and all
13
<PAGE>
Collections of and adjustments to each existing Receivable). Such
Originator will give the Buyer and the Agent (as the Buyer's assignee)
notice of any material change in the administrative and operating
procedures referred to in the previous sentence.
(ii) Such Originator will (a) on or prior to the date hereof, mark its
master data processing records and other books and records relating to the
Receivables with a legend, acceptable to the Buyer and to the Agent (as the
Buyer's assignee), describing the ownership interest of the Buyer therein
and further describing the Receivable Interests sold by the Buyer to the
Purchasers pursuant to the Purchase Agreement and (b) upon the request of
the Buyer or the Agent (as the Buyer's assignee) following the occurrence
of an Event of Purchase and Sale Termination: (x) mark each Contract with a
legend describing Buyer's interest therein and further describing the
Receivable Interests of the Purchasers and (y) deliver to the Buyer or its
designee all Contracts (including, without limitation, all multiple
originals of any such Contract).
(f) Compliance with Contracts and Credit Policies. Such Originator
---------------------------------------------
will timely and fully, (i) perform and comply with all provisions, covenants and
other promises required to be observed by it under the Contracts related to the
Receivables, and (ii) comply in all material respects with the Credit Policies.
Such Originator will pay when due any taxes payable in connection with the
Receivables.
(g) Ownership Interest. Such Originator shall take all necessary
------------------
action to establish and maintain in favor of the Buyer a valid and perfected
first priority ownership interest in the Purchased Assets to the fullest extent
contemplated herein, including, without limitation, taking such action to
perfect, protect or more fully evidence the interest of the Buyer hereunder as
the Buyer or its assignees may reasonably request.
(h) Purchasers' Reliance. Such Originator acknowledges that the Agent
--------------------
and the Purchasers are entering into the transactions contemplated by the
Purchase Agreement in reliance upon the Buyer's identity as a separate legal
entity from such Originator. Therefore, from and after the date of execution and
delivery of this Agreement, such Originator shall take all reasonable steps,
including, without limitation, all steps that the Buyer or any assignee of the
Buyer may from time to time reasonably request, to maintain the Buyer's identity
as a separate legal entity and to make it manifest to third parties that the
Buyer is an entity with assets and liabilities distinct from those of such
Originator and any Affiliates thereof and not just a division of such
Originator. Without limiting the generality of the foregoing and in addition to
the other covenants set forth herein, such Originator (i) shall not hold itself
out to third parties as liable for the debts of the Buyer nor purport to own the
Receivables and other assets acquired by the Buyer, (ii) shall take all other
actions necessary on its part to ensure that the Buyer is at all times in
compliance with the "separateness" covenants set forth in SECTION 6.01(J) of the
Purchase Agreement and (iii) shall cause all tax liabilities arising in
connection with the transactions contemplated herein or otherwise to be
allocated between such Originator and the Buyer on an arm's-length basis and in
a manner consistent with the procedures set forth in U.S. Treasury Regulations
(S)(S) 1.1502-33(d) and 1.1552-1.
14
<PAGE>
(i) Collections. Such Originator shall instruct all Obligors to pay
-----------
all Collections directly to a segregated lock-box or other Collection Account
listed on EXHIBIT III, each of which is subject to a Collection Account
Agreement. In the case of payments remitted to any such lock-box, such
Originator shall cause all proceeds from such lock-box to be deposited directly
by a Collection Bank into a Collection Account on EXHIBIT III. Pursuant to
SECTION 5.3 hereof and the Collection Account Agreements, such Originator has
transferred and assigned to the Buyer all of its right, title and interest in
and to, and exclusive ownership, dominion and control (subject to the terms of
this Agreement) to each such lock-box, concentration account and depositary
account. In the case of any Collections received by such Originator, such
Originator shall remit such Collections to a Collection Account not later than
the Business Day immediately following the date of receipt of such Collections,
and, at all times prior to such remittance, such Originator shall itself hold
such Collections in trust, for the exclusive benefit of the Buyer and its
assigns. In the case of any remittances received by such Originator in any such
Collection Account that shall have been identified, to the satisfaction of the
Servicer, to not constitute Collections or other proceeds of the Receivables or
the Related Security, such Originator shall promptly remit such items to the
Person identified to it as being the owner of such remittances. From and after
the date the Agent delivers to any of the Collection Banks a Collection Notice
pursuant to SECTION 7.3 of the Purchase Agreement, the Agent, as assignee of the
Buyer, may request that such Originator, and such Originator thereupon promptly
shall, direct all Obligors on Receivables to remit all payments thereon to a new
depositary account (the "NEW CONCENTRATION ACCOUNT") specified by the Agent and,
at all times thereafter, such Originator shall not deposit or otherwise credit
to the New Concentration Account any cash or payment item other than
Collections. Alternatively, the Agent may request that such Originator, and
such Originator thereupon promptly shall, direct all Persons then making
remittances to any account listed on EXHIBIT III which remittances are not
payments on Receivables to deliver such remittances to a location other than an
account listed on EXHIBIT III.
(j) ERISA. Such Originator shall make all required installments or
-----
other required payments under Section 412 of the Code or Section 302 of ERISA on
or before the due date for such installment or other payment.
(k) Year 2000 Problems. Such Originator shall take all reasonable
------------------
actions to ensure that its computer-based system are able to effectively process
data, including dates on and after January 1, 2000, without any Year 2000
Problem which could reasonably be expected to have a Material Adverse Effect.
At the request of Agent, as the assignee of the Buyer, such Originator shall
provide Agent with substantiation reasonably acceptable to Agent as to such
Originator's capability to process data on and after, or otherwise with respect
to dates occurring on or after, January 1, 2000 without any Year 2000 Problem.
Section 4.2. Negative Covenants of Originators. Until the date this
---------------------------------
Agreement shall terminate in accordance with its terms, each Originator hereby
covenants, individually and in its capacity as Sub-Servicer, that:
(a) Name Change, Offices, Records and Books of Accounts. Such
---------------------------------------------------
Originator will not change its name, identity or corporate structure (within the
meaning of Section 9-402(7)
15
<PAGE>
of any applicable enactment of the UCC) or relocate its chief executive office
or any office where Records are kept unless it shall have: (i) given the Buyer
and the Agent at least 45 days prior notice thereof and (ii) delivered to the
Buyer all financing statements, instruments and other documents requested by the
Buyer (or the Agent on behalf of the Buyer) in connection with such change or
relocation.
(b) Change in Payment Instructions to Obligors. Such Originator will
------------------------------------------
not add or terminate any bank as a Collection Bank from those listed in EXHIBIT
III, or make any change in its instructions to Obligors regarding payments to be
made to such Originator or payments to be made to any lock-box, Collection
Account or Collection Bank, unless the Buyer and the Agent shall have received,
at least fifteen (15) Business Days before the proposed effective date therefor:
(i) written notice of such addition, termination or change, and
(ii) with respect to the addition of a lock-box, Collection Account or
Collection Bank, an executed account agreement and an executed Collection
Account Agreement from such Collection Bank relating thereto;
PROVIDED, HOWEVER, that such Originator may make changes in instructions to
Obligors regarding payments if such new instructions require such Obligor to
make payments to another existing lock-box or other Collection Account that is
subject to a Collection Agreement then in effect.
(c) Modifications to Contracts and Credit Policies. Such Originator
----------------------------------------------
will not make any material change in the character of its business or any change
to the Credit Policies which would be reasonably likely to, in either case,
adversely affect the collectibility of any material portion of the Receivables
or decrease the credit quality of any newly created Receivables. Except as
provided in SECTION 5.2(C), such Originator, acting as Sub-Servicer or
otherwise, will not extend, amend or otherwise modify the terms of any
Receivable or any Contract related thereto other than in accordance with the
Credit Policies.
(d) Sales, Liens, Etc. Such Originator shall not sell, assign (by
-----------------
operation of law or otherwise) or otherwise dispose of, or grant any option with
respect to, or create or suffer to exist any Adverse Claim upon (including,
without limitation, the filing of any financing statement) or with respect to,
any of the Purchased Assets or assign any right to receive income in respect
thereof (other than, in each case, the creation of the interests therein in
favor of the Buyer provided for herein and the Agent and the Purchasers provided
for in the Purchase Agreement), and such Originator shall defend the right,
title and interest of the Buyer in, to and under any of the foregoing property,
against all claims of third parties claiming through or under such Originator.
(e) Accounting for Purchases. Such Originator will not, and shall not
------------------------
permit any Affiliate to, account for or treat (whether in financial statements
or otherwise) the transactions contemplated hereby in any manner other than the
sale of the Receivables and Related Security by such Originator to the Buyer or
in any other respect account for or treat the transactions contemplated hereby
in any manner other than as a sale of the Receivables and
16
<PAGE>
Related Security by such Originator to the Buyer except to the extent that such
transactions are not recognized on account of consolidated financial reporting
in accordance with generally accepted accounting principles.
(f) Restricted Junior Payments. Such Originator shall not request or
--------------------------
require the Buyer to make any Restricted Junior Payment if an Amortization Event
or a Potential Amortization Event exists or would result therefrom.
ARTICLE V.
ADMINISTRATION AND COLLECTION
Section 5.1. Designation of Sub-Servicer. (a) The servicing,
---------------------------
administration and collection of the Receivables shall be conducted by the
Servicer so designated from time to time in accordance with SECTION 7.01 of the
Purchase Agreement. Federal-Mogul is hereby designated as, and hereby agrees to
act as, sub-servicer (the "SUB-SERVICER") for the Servicer. The Sub-Servicer
covenants and agrees to service the Receivables in accordance with the terms of
the Purchase Agreement.
(b) On or prior to the Report Date, the Sub-Servicer shall prepare and
forward to the Buyer and the Agent (as the Buyer's assignee) a Settlement
Statement for the related Collection Period.
ARTICLE VI.
EVENTS OF PURCHASE AND SALE TERMINATION
Section 6.1. Events of Purchase and Sale Termination. The occurrence
---------------------------------------
of any one or more of the following events shall constitute an "EVENT OF
PURCHASE AND SALE TERMINATION":
(a) An Insolvency Event shall occur with respect to an Originator or
the Sub-Servicer, and, in the case of an Involuntary Insolvency Event concerning
an Originator or the Sub-Servicer, shall have continued undischarged or unstayed
for a period of 60 days;
(b) Failure on the part of an Originator or the Sub-Servicer, as
applicable, to make any payment or deposit required by the terms of any of the
Transaction Documents;
(c) Failure on the part of the Sub-Servicer to deliver a Settlement
Statement within five Business Days of the day such item is due to be delivered
under any of the Transaction Documents;
(d) Failure on the part of an Originator or the Sub-Servicer, as
applicable, to duly observe or perform in any material respect any of their
other respective covenants or agreements set forth in the Transaction Documents,
which failure continues unremedied for a period of ten days after the earlier of
(i) the date on which such Originator or the Sub-Servicer, as applicable,
becomes aware of such failure and (ii) the date on which written notice of such
17
<PAGE>
failure, requiring the same to be remedied, shall have been received by the
Originator or Sub-Servicer, as applicable;
(e) Any representation or warranty made by an Originator or the Sub-
Servicer in any Transaction Document to which it is a party: (i) shall prove to
have been incorrect in any material respect when made, and shall continue to be
incorrect in any material respect for a period of 10 days after the earlier to
occur of (A) the date on which written notice of such failure, requiring the
same to be remedied, shall have been given to such Originator or such Sub-
Servicer by the Buyer or the Agent, or (B) the date on which such Originator or
such Sub-Servicer becomes aware of such failure, and (ii) as a result of such
incorrectness, a Material Adverse Effect occurs;
(f) One or more final judgments shall be entered against the
Originator or any of its Subsidiaries for the payment of money in the aggregate
amount of $30,000,000, or the equivalent thereof in another currency, or more on
claims not covered by insurance or as to which the insurance carrier has denied
its responsibility, and such judgment shall continue unsatisfied and in effect
for thirty (30) consecutive days without a stay of execution;
(g) Any Plan of any Originator or any of its Subsidiaries shall be
terminated within the meaning of Title IV of ERISA except as permitted by
Section 4044(d) of ERISA, or a trustee shall be appointed by the appropriate
U.S. District Court to administer any Plan of such Originator or any of its
Subsidiaries, or the PBGC shall institute proceedings to terminate any Plan of
such Originator or any of its Subsidiaries or to appoint a trustee to administer
any such Plan and each such event, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect;
(h) A Change of Control shall occur; and/or
(i) Failure of any Originator or any of its Subsidiaries to pay any
Indebtedness in excess of $10,000,000 in aggregate principal amount ("MATERIAL
DEBT") when due; or the default by any Originator or any of its Subsidiaries in
the performance of any term, provision or condition contained in any agreement
under which any Material Debt was created or is governed, the effect of which is
to cause, or to permit the holder or holders of such Material Debt to cause,
such Material Debt to become due prior to its stated maturity; or any Material
Debt of any Originator or any of its Subsidiaries shall be declared to be due
and payable or required to be prepaid (other than by a regularly scheduled
payment) prior to the date of maturity thereof.
Section 6.2. Remedies. Upon the occurrence and during the
--------
continuation of an Event of Purchase and Sale Termination, the Buyer may (i)
remove any Sub-Servicer as Sub-Servicer (to the extent such Event of Purchase
and Sale Termination was caused by, or arose as a result of the activities of,
such Sub-Servicer), and/or (ii) declare the Termination Date to have occurred,
whereupon the Termination Date shall forthwith occur, without demand, protest or
further notice of any kind, all of which are hereby expressly waived by each
Originator; PROVIDED, HOWEVER, that upon the occurrence of an Event of Purchase
and Sale Termination described in Section 6.1(a) above or of an actual or deemed
entry of an order for relief with
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respect to any Originator under the Federal Bankruptcy Code, the Termination
Date shall automatically occur, without demand, protest or any notice of any
kind, all of which are hereby expressly waived by each Originator. Upon the
occurrence of the Termination Date for any reason whatsoever, the Buyer and its
assigns shall have, in addition to all other rights and remedies under this
Agreement or otherwise, all other rights and remedies provided under the UCC,
which rights shall be cumulative.
ARTICLE VII.
INDEMNIFICATION
Section 7.1. Indemnities by the Originators. Without limiting any
------------------------------
other rights which the Buyer may have hereunder or under applicable law, each
Originator and each Sub-Servicer hereby agrees to indemnify the Buyer and its
assignees (including the Agent and each Purchaser) and their respective
officers, directors, agents and employees (each an "INDEMNIFIED PARTY") from and
against any and all damages, losses, claims, taxes, liabilities, costs and
expenses and for all other amounts payable, including reasonable attorneys' fees
(which attorneys may be employees of the Buyer, the Agent or such Purchaser) and
disbursements (all of the foregoing being collectively referred to as
"INDEMNIFIED AMOUNTS"), awarded against or incurred by any of them arising out
of any of the following:
(i) any representation or warranty made by such Originator or such
Sub-Servicer (or any officers of such Originator or such Sub-Servicer)
under or in connection with this Agreement, any other Transaction Document,
any Settlement Statement or any other information or report delivered by
such Originator or such Sub-Servicer pursuant hereto or thereto, which
shall have been false or incorrect when made or deemed made;
(ii) the failure by such Originator or such Sub-Servicer to comply
with any applicable law, rule or regulation with respect to any Receivable
or Contract sold by it to the Buyer or serviced by it hereunder, as
applicable, or the nonconformity of such Receivable or Contract with any
such applicable law, rule or regulation;
(iii) any failure of such Originator or such Sub-Servicer to perform
its duties or obligations in accordance with the provisions of this
Agreement or any other Transaction Document;
(iv) [RESERVED];
(v) any dispute, claim, offset or defense (other than discharge in
bankruptcy of the Obligor) of any Obligor to the payment of any Receivable
(including, without limitation, a defense based on such Receivable or the
related Contract not being a legal, valid and binding obligation of such
Obligor enforceable against it in accordance with its terms), or any other
claim resulting from the sale of the merchandise or service related to such
Receivable or the furnishing or failure to furnish such merchandise or
services;
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(vi) the commingling by such Originator or such Sub-Servicer of
Collections of Receivables sold by it to the Buyer or serviced by it
hereunder, as applicable, at any time with other funds;
(vii) any investigation, litigation or proceeding related to or
arising from this Agreement or any other Transaction Document, the
transactions contemplated hereby or thereby, the use of the proceeds of a
Purchase, the ownership of the Receivables or any other investigation,
litigation or proceeding relating to such Originator in which any
Indemnified Party becomes involved as a result of any of the transactions
contemplated hereby or thereby;
(viii) any inability to litigate any claim against any Obligor in
respect of any Receivable sold by such Originator to the Buyer as a result
of such Obligor being immune from civil and commercial law and suit on the
grounds of sovereignty or otherwise from any legal action, suit or
proceeding; or
(ix) the reference in any Settlement Statement to any Receivable
sold by such Originator or serviced by the Sub-Servicer hereunder, as
applicable, as an Eligible Receivable, which Receivable as of the date it
was sold by such Originator to the Buyer and as of the date of the
Settlement Statement is not an Eligible Receivable and such Eligible
Receivable is used in determining (x) the Net Receivables Balance and (y)
whether the Net Receivables Balance as of any date of determination equals
or exceeds the product of (A) 100% plus the Aggregate Reserve Percentage
----
multiplied by (B) the aggregate Capital outstanding.
----------
EXCLUDING, HOWEVER, the following:
(a) Indemnified Amounts to the extent final judgment of a court of
competent jurisdiction holds such Indemnified Amounts resulted from gross
negligence or willful misconduct on the part of the Indemnified Party seeking
indemnification;
(b) Indemnified Amounts to the extent the same includes losses in
respect of Receivables that prove to be uncollectible on account of the
insolvency, bankruptcy or lack of creditworthiness of the related Obligor; or
(c) taxes imposed by the jurisdiction in which such Indemnified
Party's principal executive office is located, on or measured by the overall net
income of such Indemnified Party to the extent that the computation of such
taxes is consistent with (i) the characterization of the Purchases as true sales
and (ii) the characterization of the transactions under the Purchase Agreement
as creating indebtedness of the Buyer for purposes of taxation.
Section 7.2. Other Costs and Expenses. Each Originator shall pay to
------------------------
the Buyer on demand any and all costs and expenses of the Buyer, if any,
including reasonable counsel fees and expenses in connection with the
enforcement of this Agreement and the other documents delivered hereunder and in
connection with any restructuring or workout of this Agreement or
20
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such documents, or the administration of this Agreement following an Event of
Purchase and Sale Termination.
ARTICLE VIII.
MISCELLANEOUS
Section 8.1. Waivers and Amendments.
----------------------
(a) No failure or delay on the part of the Buyer (or any of its
assignees) or any Originator in exercising any power, right or remedy under this
Agreement shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or remedy preclude any other further exercise
thereof or the exercise of any other power, right or remedy. The rights and
remedies herein provided shall be cumulative and nonexclusive of any rights or
remedies provided by law. Any waiver of this Agreement shall be effective only
in the specific instance and for the specific purpose for which given.
(b) No provision of this Agreement may be amended, supplemented,
modified or waived except in writing signed by the Originators and the Buyer
and, to the extent required under the Purchase Agreement, the Agent, the
Investors and/or the Required Investors.
Section 8.2. Notices.
-------
Except as otherwise expressly provided herein, all communications and
notices provided for hereunder shall be in writing (including bank wire,
telecopy or electronic facsimile transmission or similar writing) and shall be
given to the other party hereto at its respective address or telecopy number set
forth on the signature pages hereof. All such communications and notices shall,
when mailed, telecopied, telegraphed, telexed or cabled, be effective when
received through the mails, transmitted by telecopy, delivered to the telegraph
company, confirmed by telex answerback or delivered to the cable company,
respectively.
Section 8.3. Protection of Buyer's Interests.
-------------------------------
(a) Each Originator agrees that from time to time, at its expense, it
will promptly execute and deliver all instruments and documents, and take all
actions, that may be necessary or desirable, or that the Buyer (or its
assignees) may reasonably request, to perfect, protect or more fully evidence
the Buyer's ownership of the Receivables, or to enable the Buyer (or its
assignees) to exercise and enforce their rights and remedies hereunder. The
Buyer (or its assignees) may, or the Buyer (or its assignees,) may direct an
Originator to, notify the Obligors of Receivables, at any time following the
replacement of such Originator as Sub-Servicer and at such Originator's expense,
of the Buyer's (or its assignees') ownership of the Receivables and may also
direct that payments of all amounts due or that become due under any or all
Receivables be made directly to the Buyer or its designee.
(b) If an Originator or a Sub-Servicer fails to perform any of its
obligations hereunder, the Buyer (or any of its assignees) may (but shall not be
required to) perform, or cause the performance of, such obligation; and the
Buyer's (and any of its assignee's) costs and expenses incurred in connection
therewith shall be payable by such Originator or such Sub-
21
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Servicer, as applicable, on demand. Each Originator and each Sub-Servicer
irrevocably authorizes the Buyer at any time and from time to time in the sole
discretion of the Buyer, and appoints the Buyer as its attorney-in-fact, to act
on behalf of such Originator and such Sub-Servicer (i) to execute on behalf of
such Originator as seller/debtor and to file financing statements necessary or
desirable in the Buyer's sole discretion to perfect and to maintain the
perfection and priority of the Buyer's ownership interest in the Purchased
Assets and (ii) to file a carbon, photographic or other reproduction of this
Agreement or any financing statement with respect to the Receivables as a
financing statement in such offices as the Buyer in its sole discretion deems
necessary or desirable to perfect and to maintain the perfection and priority of
the Buyer's ownership interest in the Purchased Assets. This appointment is
coupled with an interest and is irrevocable.
Section 8.4. Confidentiality.
---------------
(a) Each Originator and each Sub-Servicer shall maintain and shall
cause each of its employees and officers to maintain the confidentiality of this
Agreement and the Purchase Agreement and the other confidential proprietary
information with respect to the Agent and Falcon and their respective businesses
obtained by it or them in connection with the structuring, negotiating and
execution of the transactions contemplated herein and therein, except that each
Originator, each Sub-Servicer and their respective officers and employees may
disclose such information to such Originator's or such Sub-Servicer's external
accountants and attorneys and as required by any applicable law or order of any
judicial or administrative proceeding. In addition, each Originator and each
Sub-Servicer may disclose any such nonpublic information pursuant to any law,
rule, regulation, direction, request or order of any judicial, administrative or
regulatory authority or proceedings (whether or not having the force or effect
of law).
(b) Anything herein to the contrary notwithstanding, each Originator
and each Sub-Servicer hereby consents to the disclosure of any nonpublic
information with respect to it (i) to the Buyer, the Agent, the Investors or
Falcon by each other, (ii) by the Buyer, the Agent or the Purchasers to any
prospective or actual assignee or participant of any of them or (iii) by the
Agent to any rating agency, commercial paper dealer or provider of a surety,
guaranty or credit or liquidity enhancement to Falcon or any entity organized
for the purpose of purchasing, or making loans secured by, financial assets for
which First Chicago acts as the administrative agent and to any officers,
directors, employees, outside accountants and attorneys of any of the foregoing,
provided each such Person is informed of the confidential nature of such
information in a manner consistent with the practice of the Agent for the making
of such disclosures generally to Persons of such types. In addition, the Buyer,
the Purchasers and the Agent may disclose any such nonpublic information
pursuant to any law, rule, regulation, direction, request or order of any
judicial, administrative or regulatory authority or proceedings (whether or not
having the force or effect of law).
Section 8.5. Bankruptcy Petition.
-------------------
(a) Each Originator and each Sub-Servicer hereby covenants and agrees
that, prior to the date which is one year and one day after the payment in full
of all outstanding senior
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indebtedness of Falcon, it will not institute against, or join any other Person
in instituting against, Falcon any bankruptcy, reorganization, arrangement,
insolvency or liquidation proceedings or other similar proceeding under the laws
of the United States or any state of the United States.
(b) Each Originator and each Sub-Servicer hereby covenants and agrees
that, prior to the date which is one year and one day after all Aggregate
Unpaids (under and as defined in the Purchase Agreement) have been paid, it will
not institute against, or join any other Person in instituting against, the
Buyer any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings or other similar proceeding under the laws of the United States or
any state of the United States.
Section 8.6. Limitation of Liability. Except with respect to any
-----------------------
claim arising out of the willful misconduct or gross negligence of Falcon, the
Agent or any Investor, no claim may be made by any Originator, the Sub-Servicer
or any other Person against Falcon, the Agent or any Investor or their
respective Affiliates, directors, officers, employees, attorneys or agents for
any special, indirect, consequential or punitive damages in respect of any claim
for breach of contract or any other theory of liability arising out of or
related to the transactions contemplated by this Agreement, or any act, omission
or event occurring in connection therewith; and each Originator hereby waives,
releases, and agrees not to sue upon any claim for any such damages, whether or
not accrued and whether or not known or suspected to exist in its favor.
SECTION 8.7. CHOICE OF LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
-------------
ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF
NEW YORK.
SECTION 8.8. CONSENT TO JURISDICTION. EACH ORIGINATOR HEREBY
-----------------------
IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES
FEDERAL OR NEW YORK STATE COURT SITTING IN NEW YORK, NEW YORK IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY DOCUMENT EXECUTED
BY SUCH ORIGINATOR PURSUANT TO THIS AGREEMENT AND SUCH ORIGINATOR HEREBY
IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY
BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION
IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM.
NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE BUYER (OR THE RIGHTS OF THE AGENT OR
ANY PURCHASER AS THE BUYER'S ASSIGNEES) TO BRING PROCEEDINGS AGAINST ANY
ORIGINATOR IN THE COURTS OF ANY OTHER JURISDICTION WHEREIN ANY ASSETS OF SUCH
ORIGINATOR MAY BE LOCATED. ANY JUDICIAL PROCEEDING BY ANY ORIGINATOR AGAINST THE
BUYER, THE AGENT OR ANY PURCHASER, ANY AFFILIATE OF THE AGENT OR A PURCHASER, OR
ANY OTHER OF THE BUYER'S ASSIGNEES INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER
IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS
23
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AGREEMENT OR ANY DOCUMENT EXECUTED BY THE ORIGINATOR PURSUANT TO THIS AGREEMENT
SHALL BE BROUGHT ONLY IN A COURT IN NEW YORK, NEW YORK.
SECTION 8.9. WAIVER OF JURY TRIAL. EACH ORIGINATOR AND THE BUYER
--------------------
HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR
INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY
WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT, ANY DOCUMENT
EXECUTED BY ANY ORIGINATOR PURSUANT TO THIS AGREEMENT OR THE RELATIONSHIP
ESTABLISHED HEREUNDER OR THEREUNDER.
Section 8.10. Binding Effect; Assignability. This Agreement shall be
-----------------------------
binding upon and inure to the benefit of the Originators, the Buyer and their
respective successors and permitted assigns (including any trustee in
bankruptcy). No Originator may assign any of its rights and obligations
hereunder or any interest herein without the prior written consent of the Buyer.
The Buyer may assign at any time its rights and obligations hereunder and
interests herein to any other Person without the consent of any Originator.
Without limiting the foregoing, each Originator acknowledges that the Buyer,
pursuant to the Purchase Agreement, shall assign to the Agent, for the benefit
of the Purchasers, its rights, remedies, powers and privileges hereunder and
that the Agent may further assign such rights, remedies, powers and privileges
to the extent permitted in the Purchase Agreement. Each Originator agrees that
the Agent, as the assignee of the Buyer, shall, subject to the terms of the
Purchase Agreement, have the right to enforce this Agreement and to exercise
directly all of the Buyer's rights and remedies under this Agreement (including,
without limitation, the right to give or withhold any consents or approvals of
the Buyer to be given or withheld hereunder) and each Originator agrees to
cooperate fully with the Agent and the Servicer in the exercise of such rights
and remedies. Each Originator further agrees to give to the Agent copies of all
notices it is required to give to the Buyer hereunder. This Agreement shall
create and constitute the continuing obligations of the parties hereto in
accordance with its terms and shall remain in full force and effect until such
time, after the Termination Date, as the Aggregate Unpaids shall be equal to
zero; PROVIDED, HOWEVER, that the rights and remedies with respect to (i) any
breach of any representation and warranty made by an Originator pursuant to
ARTICLE II, (ii) the indemnification and payment provisions of ARTICLE VII,
(iii) SECTION 8.4, and (iv) SECTION 8.5 shall be continuing and shall survive
any termination of this Agreement.
Section 8.11. Subordination. Each Originator agrees that any
-------------
indebtedness, obligation or claim it may from time to time hold or otherwise
have (other than any obligation or claim with respect to the fees payable by the
Buyer under SECTION 5.6) against the Buyer or any assets or properties of the
Buyer, whether arising hereunder or otherwise existing, shall be subordinate in
right of payment to the prior payment in full of any indebtedness or obligation
of the Buyer owing to the Agent or any Purchaser under the Purchase Agreement.
The subordination provision contained herein is for the direct benefit of, and
may be enforced by, the Agent and the Purchasers and/or any of their assignees
under the Purchase Agreement.
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Section 8.12. Integration; Survival of Terms. This Agreement, the
------------------------------
Subordinated Notes, the Subscription Agreement and the Collection Account
Agreements contain the final and complete integration of all prior expressions
by the parties hereto with respect to the subject matter hereof and shall
constitute the entire agreement among the parties hereto with respect to the
subject matter hereof superseding all prior oral or written understandings.
Section 8.13. Counterparts; Severability. This Agreement may be
--------------------------
executed in any number of counterparts and by each party hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute one and the same
Agreement. Any provisions of this Agreement which are prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
25
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EXHIBIT I
DEFINITIONS
AS USED IN THIS AGREEMENT, THE FOLLOWING TERMS SHALL HAVE THE
FOLLOWING MEANINGS (SUCH MEANINGS TO BE EQUALLY APPLICABLE TO BOTH THE SINGULAR
AND PLURAL FORMS OF THE TERMS DEFINED):
"ADVERSE CLAIM" means a lien, security interest, charge or
encumbrance, or other right or claim in, of or on any Person's assets or
properties in favor of any other Person.
"AFFILIATE" means, with respect to any Person, any other Person
directly or indirectly controlling (including but not limited to all directors
and officers of such Person), controlled by, or under direct or indirect common
control with such Person. A Person shall be deemed to control another Person if
the controlling Person owns 10% or more of any class of voting securities of the
controlled Person or possesses, directly or indirectly, the power to direct or
cause the direction of the management or policies of the other Person, whether
through ownership of voting securities, by contract or otherwise.
"AGENT" means First Chicago in its capacity as "Agent" under the
Purchase Agreement, and any successor Agent appointed under Article X of the
Purchase Agreement.
"AGGREGATE UNPAIDS" has the meaning set forth in the Purchase
Agreement.
"AGREEMENT" means this Receivables Sale and Contribution Agreement, as
it may be amended, restated or otherwise modified and in effect from time to
time.
"AMORTIZATION EVENT" shall have the meaning specified in the Purchase
Agreement.
"BASE RATE" means a rate per annum equal to the corporate base rate,
prime rate or base rate of interest, as applicable, announced by the Reference
Bank from time to time, changing when and as such rate changes; PROVIDED,
HOWEVER, that from and after the occurrence of an Event of Purchase and Sale
Termination, and during the continuation thereof, the "BASE RATE" shall equal
the sum of the corporate base rate, prime rate or base rate of interest, as
applicable, announced by the Reference Bank from time to time, plus 2% per
annum, changing when and as such rate changes.
"BUSINESS DAY" means any day on which banks are not authorized or
required to close in New York, New York, Detroit, Michigan or Chicago, Illinois
and The Depository Trust Company of New York is open for business.
"CAPITAL" shall have the meaning set forth in the Purchase Agreement.
"CHANGE OF CONTROL" shall have the meaning set forth in the Purchase
Agreement.
<PAGE>
"CODE" means the Internal Revenue Code of 1 986, as amended from time
to time.
"COLLECTION ACCOUNT" means each concentration account, depositary
account, lock-box account or similar account in which any Collections are
collected or deposited.
"COLLECTION ACCOUNT AGREEMENT" means, in the case of any actual or
proposed Collection Account, an agreement in substantially the form of EXHIBIT V
hereto.
"COLLECTION BANK" means, at any time, any of the banks or other
financial institutions holding one or more Collection Accounts.
"COLLECTION DATE" means that date following the Termination Date which
is one year and one day after the date which (i) the Outstanding Balance of all
Receivables sold hereunder has been reduced to zero and (ii) the Originator has
paid to the Buyer all indemnities, adjustments and other amounts which may be
owed hereunder in connection with the Purchases.
"COLLECTION PERIOD" shall have the meaning set forth in the Purchase
Agreement.
"COLLECTIONS" means, with respect to any Receivable, all cash
collections and other cash proceeds in respect of such Receivable, including,
without limitation, all cash proceeds of Related Security with respect to such
Receivable.
"CONTRACT" means, with respect to any Receivable, any and all Invoices
and other agreements pursuant to which goods or services are ordered from or
provided by an Originator.
"CREDIT POLICIES" means an Originator's credit and collection policies
and practices relating to Contracts and Receivables existing on the date hereof,
a copy of which is attached hereto as in EXHIBIT VI hereto, as modified from
time to time in accordance with this Agreement.
"DEFAULTED RECEIVABLE" means a Receivable: (i) as to which any
payment, or part thereof, remains unpaid for 90 days or more from the original
due date for such payment; (ii) an Insolvency Event has occurred with respect to
the Obligor thereof; (iii) as to which the Obligor thereof, if a natural person,
is deceased; or (iv) which has been identified by an Originator as
uncollectible.
"DILUTIONS" means, at any time, the aggregate amount of reductions in
the Outstanding Balances of the Receivables as a result of any setoff, discount,
adjustment or otherwise, other than (i) cash Collections on account of the
Receivables, and (ii) charge-offs.
"DISCOUNT FACTOR" means a percentage calculated to provide the Buyer
with a reasonable return on its investment in the Receivables after taking
account of (i) the time value of money based upon the anticipated dates of
collection of the Receivables and the cost to the Buyer of financing its
investment in the Receivables during such period, (ii) the risk of nonpayment by
the Obligors, and (iii) the costs of sub-servicing performed by an Originator.
Each Originator
<PAGE>
and the Buyer may agree from time to time to change the Discount Factor based on
changes in one or more of the items affecting the calculation thereof, PROVIDED
THAT any change to the Discount Factor shall take effect as of the commencement
of a Collection Period, shall apply only prospectively and shall not affect the
Purchase Price payment in respect of Purchases which occurred during any
Collection Period ending prior to the Collection Period during which such
Originator and the Buyer agree to make such change.
"ELIGIBLE RECEIVABLE" shall have the meaning specified in the Purchase
Agreement.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) that is treated as a single employer with an Originator under
Section 414 of the Code.
"EVENT OF PURCHASE AND SALE TERMINATION" has the meaning assigned to
that term in SECTION 6.1.
"FACILITY TERMINATION DATE" has the meaning set forth in the Purchase
Agreement.
"FALCON" shall have the meaning assigned to that term in the preamble
to this Agreement and includes such entity's successors and assigns (but does
not include the Investors as assignees under Section 3.01 of the Purchase
Agreement).
"FINANCE CHARGES" means, with respect to a Contract, any finance,
interest, late payment charges or similar charges owing by an Obligor pursuant
to such Contract.
"FIRST CHICAGO" means The First National Bank of Chicago in its
individual capacity and its successors.
"GOVERNMENTAL AUTHORITY" shall have the meaning specified in the
Purchase Agreement.
"INDEBTEDNESS" shall have the meaning specified in the Purchase
Agreement.
"INDEPENDENT DIRECTOR" means, with respect to Federal-Mogul, any
Person: (i) who is not an officer, an employee, a pensioner, or a beneficial
owner, directly or indirectly, of 10% or more of any equity interest in Federal-
Mogul or any Affiliate thereof, and who is not related by blood, marriage or
adoption to any of the foregoing Persons; (ii) who has not been an employee of
Federal-Mogul or any Affiliate in the last five years; (iii) who is not
affiliated with, or employed by, any Person providing services to, any of
Federal-Mogul's significant customers or suppliers; (iv) who is not affiliated
with any tax exempt or other organization that receives significant
contributions from Federal-Mogul or any of its Affiliates; and (v) who has not
provided and is not providing directly or indirectly, whether or not through any
related
<PAGE>
corporation, partnership, limited liability company, limited liability
partnership or other Person, legal, accounting or investment banking services
for Federal-Mogul or any Affiliate. In the case of an accountant, an accountant
will only be Independent for purposes hereof only where he or she also meets the
criteria of independence described in SEC Regulation S-X, Rule 2-01(B) and does
not otherwise provide any professional services directly or indirectly to
Federal-Mogul or its Affiliates and none of his or her professional affiliates
having managerial responsibilities participate in any such services.
"INSOLVENCY EVENT" shall have the meaning specified in the Purchase
Agreement.
"INVESTORS" has the meaning set forth in the Preliminary Statement of
this Agreement.
"INVOICE" means, collectively, with respect to any Receivable, any and
all instruments, bills of lading, invoices or other writings which evidence such
Receivable or the goods underlying such Receivable.
"INVOLUNTARY INSOLVENCY EVENT" shall have the meaning specified in the
Purchase Agreement.
"LABOR ACTIONS" has the meaning set forth in SECTION 4.1(B)(V).
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (i) the
financial condition, business or operations of an Originator, (ii) the ability
of an Originator to perform its obligations under any Transaction Document,
(iii) the legality, validity or enforceability of this Agreement, any
Transaction Document or any Collection Account Agreement relating to a
Collection Account into which a material portion of Collections are deposited,
(iv) the Originator's, the Buyer's, the Agent's or any Purchaser's interest in
the Receivables generally or in any significant portion of the Receivables, the
Related Security or the Collections with respect thereto, or (v) the
collectibility of the Receivables generally or of any material portion of the
Receivables.
"NET WORTH" means, as of the last Business Day of each Collection
Period preceding any date of determination, the excess, if any, of (a) the
aggregate Outstanding Balance of the Receivables owned by the Buyer at such
time, OVER (b) THE SUM OF (i) the aggregate Capital outstanding at such time,
PLUS (ii) the aggregate outstanding principal balance of the Subordinated Loans
(including any Subordinated Loan proposed to be made on the date of
determination).
"OBLIGOR" means a Person obligated to make payments pursuant to a
Contract.
"ORIGINAL BALANCE" means, with respect to any Receivable, the
Outstanding Balance of such Receivable on the date it was purchased by the
Buyer.
<PAGE>
"ORIGINATOR" means each of (a) Federal-Mogul, (b) Carter and (c)
Federal-Mogul Canada, and shall include any other wholly-owned Subsidiary of
Federal-Mogul which the Buyer, the Agent and the Purchasers unanimously approve.
"OUTSTANDING BALANCE" of any Receivable at any time means the then
outstanding principal balance thereof, and shall exclude any interest or finance
charges thereon, without regard to whether any of the same shall have been
capitalized.
"PBGC" means the Pension Benefit Guaranty Corporation created under
Section 4002(a) of ERISA or any successor thereto.
"PERSON" means an individual, partnership, corporation, limited
liability company, joint venture, association, trust, or any other entity or
organization, including a Governmental Authority or other government or
political subdivision or agent or instrumentality thereof.
"PLAN" means any defined benefit plan maintained or contributed to by
the Originator or any Subsidiary of the Originator or by any trade or business
(whether or not incorporated) under common control with the Originator or any
Subsidiary of the Originator as defined in Section 4001(b) of ERISA and insured
by the PBGC under Title IV of ERISA.
"POTENTIAL AMORTIZATION EVENT" shall have the meaning specified in the
Purchase Agreement.
"POTENTIAL EVENT OF PURCHASE AND SALE TERMINATION" means an event
which, with the passage of time or the giving of notice, or both, would
constitute an Event of Purchase and Sale Termination.
"PURCHASE" means a purchase by the Buyer of the Receivables and the
Related Security and all Collections and other proceeds thereof from the
Originator pursuant to SECTION 1.1 of this Agreement.
"PURCHASE AGREEMENT" has the meaning set forth in the Preliminary
Statement of this Agreement.
"PURCHASE DATE" means the date on which each Purchase occurs
hereunder.
"PURCHASE PRICE" means, with respect to any Purchase on any date, the
aggregate price to be paid to an Originator for such Purchase in accordance with
SECTION 1.2 of this Agreement for the Receivables and Related Security being
sold to the Buyer on such date, which price shall equal (i) the product of (x)
the Original Balance of such Receivables TIMES (y) one minus the Discount Factor
then in effect, MINUS (ii) any Purchase Price Credits to be credited against the
purchase price otherwise payable in accordance with SECTION 1.3 hereof.
"PURCHASE PRICE CREDIT" has the meaning set forth in SECTION 1.3.
<PAGE>
"PURCHASED ASSETS" means, collectively, all Receivables existing on
the date of the initial Purchase hereunder, and all Receivables arising
thereafter through and including the Termination Date, all Collections and
Related Security associated therewith, all proceeds of the foregoing, and all
Collection Accounts and all balances, checks, money orders and other instruments
from time to time therein.
"PURCHASER" has the meaning set forth in the Purchase Agreement.
"RECEIVABLE" means all the U.S. dollar denominated and all the
Canadian dollar-denominated accounts receivable shown on the records of Federal-
Mogul or any subsidiary, and from time to time thereafter, arising from the sale
of merchandise by Federal-Mogul or any subsidiary in the ordinary course of
business; provided, however, that "Receivable" that includes a Stock Lift shall
-------- -------
be sold to Buyer net of any adjustment with respect to such Stock Lift.
Receivables which become Defaulted Receivables will cease to be included as
Receivables on the day on which they become Defaulted Receivables.
"RECEIVABLE INTERESTS" has the meaning set forth in the Purchase
Agreement.
"RECORDS" means, with respect to any Receivable, all Contracts and
other documents, books, records and other information (including, without
limitation, computer programs, tapes, disks, punch cards, data processing
software and related property and rights) relating to such Receivable, any
Related Security therefor and the related Obligor.
"REFERENCE BANK" means NBD Bank or such other bank as the Agent shall
designate with the consent of the Buyer.
"RELATED SECURITY" means, with respect to any Receivable:
(i) all of the Originator's interest, if any, in any goods the sale
of which gave rise to such Receivable,
(ii) all other security interests or liens and property subject
thereto from time to time, if any, purporting to secure payment of such
Receivable, whether pursuant to the Contract related to such Receivable or
otherwise, together with all financing statements and security agreements
describing any collateral securing such Receivable,
(iii) all guaranties, insurance and other agreements or arrangements
of whatever character from time to time supporting or securing payment of
such Receivable whether pursuant to the Contract related to such Receivable
or otherwise,
(iv) all Records related to such Receivables,
(v) all of the Originator's right, title and interest in, to and
under each Contract executed in connection therewith in favor of or
otherwise for the benefit of the Originator; and
(vi) all proceeds of any of the foregoing.
<PAGE>
"REPORT DATE" shall have the meaning specified in the Purchase
Agreement.
"REPORTABLE EVENT" has the meaning set forth in Section 4043 of ERISA.
"REQUIRED CAPITAL AMOUNT" means $4,500,000.
"REQUIRED INVESTORS" has the meaning set forth in the Purchase
Agreement.
"REQUIREMENT OF LAW" shall have the meaning specified in the Purchase
Agreement.
"RESTRICTED JUNIOR PAYMENT" shall have the meaning specified in the
Purchase Agreement.
"SECTION" means a numbered section of this Agreement, unless another
document is specifically referenced.
"SERVICER" means at any time the Person then authorized pursuant to
Article VII of the Purchase Agreement to service, administer and collect
Receivables.
"SETTLEMENT DATE" means, (a) prior to the earlier to occur of (i) an
Event of Purchase and Sale Termination or (ii) the Facility Termination Date,
the twentieth (20th) day of each month or, if such day is not a Business Day,
the next succeeding Business Day, and (b) from and after the earlier to occur of
(i) an Event of Purchase and Sale Termination or (ii) the Facility Termination
Date, the twentieth (20th) day of each month or, if such day is not a Business
Day, the next succeeding Business Day, and any other Business Day designated by
the Agent.
"SETTLEMENT STATEMENT" means a report substantially in the form of
Exhibit VIII hereto (appropriately completed) furnished by a Sub-Servicer to the
Buyer and the Agent (as the Buyer's Assignee) pursuant to Section 5.5.
"STOCK LIFT" shall mean an account receivable, or portion thereof, as
to which Federal-Mogul or one of its subsidiaries has issued a credit in an
amount equal to the balance of such account receivable or portion thereof.
"SUBORDINATED LOAN" has the meaning set forth in SECTION 1.2(B).
"SUBORDINATED NOTE" means a promissory note in substantially the form
of EXHIBIT X hereto as more fully described in SECTION 1.2, as the same may be
amended, restated, supplemented or otherwise modified from time to time.
"SUBSCRIPTION AGREEMENT" means the Stockholder and Subscription
Agreement in substantially the form of EXHIBIT IX hereto, as the same may be
amended, restated, supplemented or otherwise modified from time to time.
<PAGE>
"SUB-SERVICER" means Federal-Mogul in its capacity as a sub-servicer
for the Servicer as described in SECTION 5.1 hereof.
"SUB-SERVICER FEE" means the fee described in SECTION 5.6 hereof.
"SUBSIDIARY" of a Person means (i) any corporation more than 50% of
the outstanding securities having ordinary voting power of which shall at the
time be owned or controlled, directly or indirectly, by such Person or by one or
more of its Subsidiaries or by such Person and one or more of its Subsidiaries,
or (ii) any partnership, association, limited liability company, joint venture
or similar business organization more than 50% of the ownership interests having
ordinary voting power of which shall at the time be so owned or controlled.
Unless otherwise expressly provided, all references herein to a "SUBSIDIARY"
shall mean a Subsidiary of the Originator.
"TERMINATION DATE" means the earliest of (i) the Facility Termination
Date, (ii) the date of the declaration or automatic occurrence of the
Termination Date pursuant to SECTION 6.2, and (iii) the date designated by any
Originator as the Termination Date in a written notice delivered to the Buyer
not less than ten days prior to such designated date.
"TRANSACTION DOCUMENTS" means collectively, this Agreement, the
Purchase Agreement, the Subordinated Notes, the Subscription Agreement, each
Collection Agreement and all other instruments, documents and agreements
executed and delivered by the Originator in connection herewith.
"UCC" means the Uniform Commercial Code as from time to time in effect
in the specified jurisdiction.
"YEAR 2000 PROBLEM" means any significant risk that computer hardware
or software used in the business or operations of any Originators will not, in
the case of dates or time periods occurring after December 31, 1999, function at
least as effectively and reliably as in the case of dates or time periods
occurring before January 1, 2000.
All accounting terms not specifically defined herein shall be
construed in accordance with generally accepted accounting principles. All
terms used in Article 9 of the UCC in the State of New York, and not
specifically defined herein, are used herein as defined in such Article 9.
<PAGE>
EXHIBIT II
CHIEF EXECUTIVE OFFICE OF THE ORIGINATORS; LOCATIONS OF RECORDS;
TRADE NAMES; FEDERAL EMPLOYER IDENTIFICATION NUMBER
FEDERAL MOGUL CORPORATION
-------------------------
Chief Executive Office and Location of Records 26555 Northwestern Highway
Southfield, MI 48034
Trade Names and Assumed Names Federal Mogul Corporation
Federal Employer Identification Number 38-0533580
CARTER AUTOMOTIVE COMPANY, INC.
-------------------------------
Chief Executive Office and Location of Records 26555 Northwestern Highway
Southfield, MI 48034
Trade Names and Assumed Names Carter Automotive
Company, Inc.
Federal Employer Identification Number 43-1374271
FEDERAL-MOGUL CANADA LIMITED
----------------------------
Chief Executive Office and Location of Records 590 Barmac Drive
Toronto, Ontario
Canada M9L 2X8
Trade Names and Assumed Names Federal-Mogul Canada
Limited
Federal Employer Identification Number None
<PAGE>
EXHIBIT III
COLLECTION ACCOUNTS
A. Lockbox number 67000, Department 148901
Comerica account number 1000013027, in the name of Federal-Mogul Funding
Corporation
B. Lockbox number 07922
Royal Bank of Canada account number 1113414, in the name of Federal-Mogul
Funding Corporation
<PAGE>
EXHIBIT IV
[RESERVED]
<PAGE>
EXHIBIT V
FORM OF COLLECTION ACCOUNT AGREEMENT
[See Exhibit B to Receivables Interest Purchase Agreement]
<PAGE>
EXHIBIT VI
CREDIT POLICIES
CUSTOMER CREDIT
PURPOSE
- - -------
This policy outlines requirements for creation and monitoring customer credit.
CUSTOMER CREDIT LIMITS
- - ----------------------
The establishment and monitoring of a limit or maximum level of credit sales to
each individual customer serves to reduce the risk of a significant loss due to
uncollectible accounts. A credit limit represents the level of credit sales
(including previous outstanding accounts receivable) above which additional
credit will not be extended.
Credit limits should be established after consideration is given to the payment
history of each customer and an assessment of the customer's financial
condition. Independent outside sources of credit history available locally
(e.g. Dun & Bradstreet in the U.S.), credit references and or customer financial
statements should be evaluated to establish customer credit limits and for
updating credit limits on a periodic basis.
CREDIT HOLD ROUTINES
- - --------------------
Routines should be established to preclude shipping product to customers that
exceeds the customer credit limit. Specific approval by a designated
finance/customer credit individual of any deviation from the established
routines.
INTRODUCTION
CENTRALIZED SOUTHFIELD ENVIRONMENT
. SUPPORTING THE FOLLOWING
. OEM--United States
. Aftermarket--United States
. Aftermarket--Canada
. SPECIFIC RESPONSIBILITIES
. Credit approval
. Collection
. Receivable management
. Billing--NAA only
<PAGE>
. Dispute resolution
. DEPARTMENT ORGANIZATION CHART
. 45 total employees
. 4 part-time/associate
. 41 full-time company employees (74% 4-year degrees)
. SOFTWARE UTILIZED
. CARMS--receivable management
. Lotus Notes--communication and dispute management
. Maxretriever--document management
. UPS--proof of deliveries
. PRC--scanner utilization
. Internally developed--AMS, MAPS, STRAP
. AGGRESSIVE REENGINEERING INITIATIVE
. Relentless pursuit of superior customer service
. Eliminate deductions
. Continuous investigation of electronic options in our daily operations
. Review of document delivery options for invoices and statements
. Resolve customer inquiries with one call methodology
. Investigation of order to cash possibilities at manufacturing plants
CREDIT POLICY AND PROCEDURE
. DETERMINATION OF CREDIT LIMITS
. Credit limits are set at approximately 2.5 times estimated month sales for
new accounts.
. Existing account credit limits are adjusted according to payment habits and
financial stability. An account that shows a pattern of paying their
account past due will have their credit limit adjusted downward to 1 - 1
1/2 times monthly sales.
. NEW ACCOUNT PROCEDURE
. The following information is requested for new open accounts:
- 3-trade credit references
- 1 bank credit reference
- Credit reporting agency report (optional)
- Verbal credit references from industry credit group members (optional)
. Requests for additional credit are evaluated by reviewing payment history
(prompt %/discount % vs. late %), review of current financial statements
and amount of additional credit requested compared to the current year high
credit.
<PAGE>
. LEVELS OF CREDIT GRANTING APPROVAL
. Two step process for new credit approval, after Sales has requested the
account be given open account status. Review and approval/reject is given
first by the Credit Analyst, then by the Area Credit Manager.
. Increases in credit for current customers are reviewed by the Credit
Analyst.
. USE OF SECURITY DOCUMENTS AND PERSONAL GUARANTEES
. Personal guarantees are included in the customer's Credit Application.
While a personal guarantee is not required for all new accounts, it is
required in cases of higher than usual financial risk.
. UCC-1's, UCC-3's, and Purchase Money Security Agreements are taken (or
continued) on customers with large projected or current sales volumes
(*$150,000) or when a customer's financial condition is deteriorating.
. TRAINING OF CREDIT GRANTING PERSONNEL
. Each Credit Analyst undergoes a 5 day training schedule, reviewing a formal
training agenda with each of the Credit Analysts. Items covered include:
- A/R management software and systems (CARMS, MAPS & STRAP)
- New account/account maintenance procedures
- Special payment terms request approval and rejection
- Security documents
- Credit and collection procedures
. CREDIT FILES
. A file is kept for each customer account. An example of information in this
file is:
- Original credit application
- Notes from phone conversations and meeting with customers
- Copies of written correspondence
- Information from creditor discussion groups
- Personal guarantee (optional)
. These files are kept in a central location in the Customer Financial
Services Department
. Additionally, notes are kept concerning Credit Analyst discussions with the
customer on CARMS. Examples of this information are:
- Customer commitments to send checks
- Date customers are put on hold
- Miscellaneous comments noted by the Credit Analyst that may be of value
in future credit decisions
. PAYMENT TERMS
. Standard terms for OEM customers are either net 10/th/ and net 25/th/ prox
or net 30 days on the date in the month in which the product is shipped.
For net 10/th/ and
- - ---------------
* greater than
<PAGE>
net 25/th/ prox, if the product is shipped in the first 15 days of the
month, payment is due by the 10/th/ day of the following month. If shipped
later in the month, payment is due by the 25/th/ day of the following
month. Customers are sent an invoice or an ASN for each shipment.
. Standard terms for the FM Aftermarket and Retail are based on a shipping
month of the 26/th/ to the 25/th/ and qualify for a 2% prompt payment
discount if the invoice is paid by the 10/th/ of the following month,
otherwise, full payment for the Aftermarket is due by the 25/th/ of the
following month and for Retail, full payment is due the 25/th/ of the 2/nd/
month following. Gasket terms in general are 2% 10/th/ net 25/th/ prox. In
addition, there are negotiated terms for Retailers and selected buying
groups which can range from 2% 2/nd/ 10/th/ to net 90 days.
. DETERMINANTS OF PRICE
. Prices for the Aftermarket are published on product line price sheets.
. Prices for Retail and OEM accounts are negotiated and specified on a
pricing agreement for a given period of time and are supported by a
purchase order or vendor agreement.
. CASH IN ADVANCE/CASH ON ACCOUNT
. Used at the Credit Analyst's discretion in the following situations:
- Account consistently pays past due and is judged to be a credit risk
- Bankruptcy
- New account with credit references judged unsatisfactory
. NOTES RECEIVABLE
. Used at the Credit Analyst's discretion and reviewed monthly for payment.
As of October, 1998 month end, there were 6 open Notes Receivable for a
total of $131,757.08.
CREDIT AND COLLECTION
. ACCOUNT MAINTENANCE
. The Credit and Accounts Receivable Management System (CARMS) produces an
action list on a daily basis, which lists accounts that require attention
due to a change in status (account over credit limit, account past due,
etc).
. Action lists are reviewed by credit analysts for resolution.
. Summary past due reports are generated on a monthly basis and are reviewed
by the analysts for credit restriction.
. Credit analysts continue follow up by making timely collection calls to
customers on past due invoices until payment is received.
. Sales is contacted to assist with collection of past due items and the
resolution of customer disputes.
<PAGE>
. If payment is not received or a mutual payment arrangement cannot be made,
the customer is sent a final demand notice, which details the debt and
allows the customer ten working days to make acceptable payment
arrangements.
. If payment is still not received and no payment agreement has been made,
the account is referred to the Area Credit Manager for further disposition.
. COLLECTION AGENCIES / BANKRUPTCIES
. Accounts which are seriously past due may be referred to FM's legal counsel
for action or placed with an outside collection agency. Accounts are moved
to a separate credit manager code for follow-up.
. Accounts that have filed for bankruptcy are moved to a separate credit
manager code for follow-up and are written off quarterly.
AFTERMARKET - CUSTOMER BASE OVERVIEW
. NUMBER OF AFTERMARKET AND RETAIL ACCOUNTS
. 4,617 active Aftermarket accounts
. 39 active Retail accounts
. PRODUCT LINES PURCHASED
. Engine parts - pistons, piston rings, engine bearings, camshafts
. Chassis parts - rack & pinion, tie rods, ball joints, half-shafts
. Anti-friction - ball and roller bearings
. Sealing products - oil seals
. Fuel products - fuel pumps, carburetors, emission control products
. Lighting products - strobes, marker lights, reflective tape, wire harnesses
. METHOD OF ORDER PLACEMENT AND SHIPMENT
. Orders can be placed electronically via EDI or through Federal-Mogul's
Customer Service/Order Entry via phone or fax.
. Aftermarket orders are usually shipped from one of our Service Centers
located in the U.S. and Canada. Larger orders may be shipped from one of
three main Distribution Centers located in Jacksonville, AL, Maysville, KY
and Skokie, IL.
. CUSTOMER OPERATIONS
. Aftermarket customers consist mainly of warehouse distributors that buy
product for downstream sales to independent or warehouse owned auto parts
stores. Examples are NAPA, MAWDI and Pittsburgh Crankshaft.
. Retail customers buy product for resale in their own company owned store.
Examples are CSK Automotive, Advance and AutoZone.
ORIGINAL EQUIPMENT MARKET AND EXPORT OVERVIEW
<PAGE>
. OE EXPORT CUSTOMER BASE
. 856 active OEM accounts
. 106 active Export accounts
. CUSTOMER OPERATIONS
. OE & Export customers consist primarily of automotive, heavy duty vehicle,
farm equipment and industrial equipment manufacturers.
. Major customers include Ford, General Motors and Chrysler.
. PRODUCT LINES PURCHASED
. Manufactured products include engine and transmission products, sealing
devices, lighting products and fuel systems.
. Aftermarket products sold in the OE market to the sales and service
operations of our OE customers for their dealers.
. ORDER PROCESS
. Decentralized customer service - one at each of our plant locations.
. Orders are scheduled in advance by large OEM Customers (such as Ford, GM,
Chrysler) and the accum's are adjusted as product is shipped, material
release forecasts updated weekly.
. Smaller OEM's send purchase orders in advance with date required. Purchase
orders reviewed at plant before orders are scheduled.
ACCOUNTS RECEIVABLE DILUTIONS
. CASH DISCOUNT
. 1.8% of NAA Sales
. DOUBTFUL ACCOUNTS
. Written off quarterly as approved by the department manager
. Continual follow up until financial conclusion
. CREDIT MEMOS
. Stocklift returns
. Obsolescence returns
. 30 day returns
. Warranty
. Price
. Policy allowance
. CHECKS ISSUED
. Rebates for volume incentives
<PAGE>
. INVOICES/STATEMENTS
. The invoices generated from a plant sale can be mailed or sent
electronically through EDI.
. The Aftermarket invoices that are not sent via EDI are mailed at least
weekly.
. Monthly statements are sent to customers based on the 25/th/ or month-end
cutoff based on the customer.
. RECONCILIATIONS
. A monthly reconciliation is completed of CARMS to the General Ledger
balance.
. Typical reconciliation items can be cash or billings due to different
closing schedules.
<PAGE>
EXHIBIT VII
[RESERVED]
<PAGE>
EXHIBIT VIII
FORM OF SETTLEMENT DATE STATEMENT
[See Exhibit C to the Receivable Interest Purchase Agreement]
<PAGE>
EXHIBIT IX
FORM OF SUBSCRIPTION AGREEMENT
_________
STOCKHOLDER AND SUBSCRIPTION AGREEMENT
THIS STOCKHOLDER AND SUBSCRIPTION AGREEMENT (this "AGREEMENT"), dated
as of November 20, 1998, is entered into by and between Federal-Mogul Funding
Corporation, a Michigan corporation ("SPC"), and Federal-Mogul Corporation, a
Michigan corporation ("PARENT"). Except as otherwise specifically provided
herein, capitalized terms used in this Agreement have the meanings ascribed
thereto in the Receivables Sale and Contribution Agreement dated as of even date
herewith among Parent, Carter Automotive Company, Inc., Federal-Mogul Canada
Limited and SPC (as amended, restated, supplemented or otherwise modified from
time to time, the "SALE AGREEMENT").
RECITALS
A. SPC has been organized under the laws of the State of Michigan for
the purpose of, among other things, purchasing, holding, financing,
receiving and transferring accounts receivable and related assets
originated or otherwise held by Parent.
B. Contemporaneously with the execution and delivery of this
Agreement: (i) Parent and SPC have entered into the Sale Agreement pursuant
to which Parent has, from and after the initial purchase date thereunder
and prior to the termination date specified therein, sold all of its
Receivables, Collections and Related Security to SPC; and (ii) SPC, Parent,
Falcon Asset Securitization Corporation, certain financial institutions
party thereto as "Investors," and The First National Bank of Chicago, as
the "Agent," have entered into a Receivables Interest Purchase Agreement
(as amended, restated, supplemented or otherwise modified from time to
time, the "Purchase Agreement") pursuant to which SPC will sell "RECEIVABLE
INTERESTS" to the Agent for the benefit of the Purchasers.
C. SPC desires to sell shares of its capital stock to Parent, and
Parent desires to purchase such shares, on the terms set forth in this
Agreement.
NOW, THEREFORE, SPC and Parent agree as follows:
1. Purchase and Sale of Capital Stock. Parent hereby purchases from
----------------------------------
SPC, and SPC hereby sells to Parent, 100 shares of common stock, par value $1.00
per share, of SPC (the "COMMON STOCK") for the Stock Purchase Price set forth in
Section 2.1. The shares of Common Stock being purchased under this Agreement
are referred to herein as the "SHARES." Within three (3) Business Days from the
date hereof, SPC shall deliver to Parent a certificate registered in Parent's
name representing the Shares.
<PAGE>
2. Consideration for Shares and Capital Contributions.
--------------------------------------------------
2.1 Consideration for Shares. To induce SPC to enter into the Sale
------------------------
Agreement and to enable SPC to fund its obligations thereunder by consummating
the transactions contemplated by the Purchase Agreement, and in reliance upon
the representations and warranties set forth herein, Parent hereby pays to SPC
on the date hereof the sum of $4,500,000 (the "STOCK PURCHASE PRICE") in
consideration of the purchase of the Shares. The Stock Purchase Price shall
take the form of a transfer of cash, except that Parent may, in lieu of cash
payment of the Stock Purchase Price, offset the amount of the Stock Purchase
Price against the purchase price otherwise payable by SPC to Parent on the
initial purchase date pursuant to the Sale Agreement.
2.2 Contributions After Initial Closing Date. From time to time
----------------------------------------
Parent may make additional capital contributions to SPC. All such contributions
shall take the form of a cash transfer, except that SPC agrees to, in lieu of
cash payment thereof, offset the amount of such contributions against the
purchase price for Receivables otherwise payable by SPC to Parent on the date of
such capital contributions. All of the Receivables so paid for through such
offset shall constitute purchased Receivables within the meaning of the Sale
Agreement and shall be subject to all of the representations, warranties and
indemnities otherwise made thereunder. It is expressly understood and agreed
that Parent has no obligations under this Agreement or otherwise to make any
capital contributions from and after payment of the Stock Purchase Price.
3. Representations and Warranties of SPC. SPC represents and
-------------------------------------
warrants to Parent as follows:
(a) SPC is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Michigan, and has all
requisite corporate power and authority to carry on its business as
proposed to be conducted on the date hereof.
(b) SPC has all requisite legal and corporate power to enter into this
Agreement, to issue the Shares and to perform its other obligations under
this Agreement.
(c) Upon receipt by SPC of the Stock Purchase Price and the issuance
of the Shares to Parent, the Shares will be duly authorized, validly
issued, fully paid and nonassessable.
(d) SPC has taken all corporate action necessary for its
authorization, execution and delivery of, and, its performance under, this
Agreement.
(e) This Agreement constitutes a legally valid and binding obligation
of SPC, enforceable against SPC in accordance with its terms, except that
enforceability may be limited by bankruptcy, insolvency, reorganization or
other similar laws affecting the enforcement of creditors' rights generally
and by general principles of equity, regardless of whether such
enforceability is considered in a proceeding in equity or at law.
<PAGE>
(f) The issuance of the Shares by SPC hereunder is legally permitted
by all laws and regulations to which SPC is subject.
4. Representations and Warranties of Parent. Parent represents and
----------------------------------------
warrants to SPC as follows:
(a) Parent is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Michigan, and has all
requisite corporate power and authority to carry on its business as
conducted on the date hereof.
(b) Parent has all requisite legal and corporate power to enter into
this Agreement, to purchase the Shares and to perform its other obligations
under this Agreement.
(c) Parent has taken all corporate action necessary for its
authorization, execution and delivery of, and its performance under, this
Agreement.
(d) This Agreement constitutes a legally valid and binding obligation
of Parent, enforceable against Parent in accordance with its terms, except
that enforceability may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity, regardless
of whether such enforceability is considered in a proceeding in equity or
at law.
(e) Parent is purchasing the Shares for investment for its own
account, not as a nominee or agent, and not with a view to any distribution
of any part thereof; Parent has no current intention of selling, granting a
participation in, or otherwise distributing, the shares.
(f) Parent understands that the Shares have not been registered under
the Securities Act of 1933, as amended, or under any other Federal or state
law, and that SPC does not contemplate such a registration.
(g) Parent has such knowledge, sophistication and experience in
financial and business matters that it is capable of evaluating the merits
and risks of the transactions contemplated by this Agreement, and has made
such investigations in connection herewith as have been deemed necessary or
desirable to make such evaluation.
(h) The purchase of the Shares by Parent is legally permitted by all
laws and regulations to which Parent is subject.
5. Restrictions on Transfer Imposed by the Act; Legend.
---------------------------------------------------
5.1 Legend. Each certificate representing any Shares shall be
------
endorsed with the following legend:
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE NOT REGISTERED
PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES ACT. SUCH SECURITIES SHALL NOT BE SOLD, PLEDGED,
HYPOTHECATED, DONATED OR OTHERWISE TRANSFERRED OR DISPOSED OF ABSENT
SUCH REGISTRATION, UNLESS, IN THE OPINION OF THE CORPORATION'S
COUNSEL, SUCH REGISTRATION IS NOT REQUIRED. IN ADDITION, THESE
SECURITIES HAVE BEEN ISSUED OR SOLD IN RELIANCE ON SECTION 4(2) OF THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD OR TRANSFERRED
EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER SUCH ACT OR PURSUANT TO
AN EFFECTIVE REGISTRATION UNDER SUCH ACT.
5.2 Registration of Transfers. SPC need not register a transfer of
-------------------------
any Shares unless the conditions specified in the legend set forth in Section
5.1 hereof are satisfied. SPC may also instruct its transfer agent (which may
be SPC) not to register the transfer of any Shares unless the conditions
specified in the legend set forth in Section 5.1 hereof are satisfied.
6. Agreement to Vote. Parent hereby agrees and covenants to vote
-----------------
all of the shares of Common Stock now or hereafter owned by it, whether
beneficially or otherwise, as is necessary at a meeting of stockholders of SPC,
or by written consent in lieu of any such meeting, to cause to be elected to,
and maintained on, SPC's board of directors at least one (1) person meeting the
qualifications of an Independent Director and selected in accordance with the
provisions of the Certificate of Incorporation and By-Laws of SPC.
7. Successors and Assigns. Each party agrees that it will not
----------------------
assign, sell, transfer, delegate, or otherwise dispose of, whether voluntarily
or involuntarily, or by operation of law, any right or obligation under this
Agreement except in connection with a transfer of Shares in compliance with the
terms and conditions hereof, as contemplated by Section 5.2 above, or otherwise
in accordance with the terms hereof. Any purported assignment, transfer or
delegation in violation of this Section 7 shall be null and void ab initio.
Subject to the foregoing limits on assignment and delegation and except as
otherwise provided herein, this Agreement shall be binding upon and inure to the
benefit of the parties hereto, their respective heirs, legatees, executors,
administrators, assignees and legal successors.
8. Amendments and Waivers. Any term hereof may be amended and the
----------------------
observance of any term hereof may be waived (either generally or in a particular
instance and either retroactively or prospectively) only with the written
consent of SPC and Parent. Any amendment or waiver so effected shall be binding
upon SPC and Parent.
9. Further Acts. Each party agrees to perform any further acts and
------------
execute and deliver any document which may be reasonably necessary to carry out
the provisions of this Agreement.
10. Counterparts. This Agreement may be executed in any number of
------------
counterparts, and all of such counterparts together will be deemed one
instrument.
<PAGE>
11. Notices. Any and all notices, acceptances, statements and other
-------
communications to Parent in connection herewith shall be in writing, delivered
personally, by facsimile or certified mail, return receipt requested, and shall
be addressed to the address of Parent indicated on the stock transfer register
of SPC or, if no address is so indicated, to the address provided to SPC
pursuant to the Sale Agreement unless changed by written notice to SPC or its
successor.
12. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
-------------
WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, EXCEPT AND TO THE
EXTENT THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE IS APPLICABLE.
13. Entire Agreement. This Agreement, together with the Sale
----------------
Agreement and documents expressly to be delivered in connection therewith,
constitute the entire understanding and agreement between the parties hereto
with subject matter hereof and thereof.
14. Severability of this Agreement. In case any provision of this
------------------------------
Agreement shall be invalid or unenforceable, the validity, legality and
enforceability of the remaining shall not in any way be affected or impaired
thereby.
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
SPC PARENT
FEDERAL-MOGUL FUNDING FEDERAL-MOGUL CORPORATION,
CORPORATION, a Michigan corporation a Michigan corporation
By: _____________________________ By: ________________________
Name: Name:
Title: Title:
<PAGE>
EXHIBIT X
FORM OF SUBORDINATED NOTE
_________
SUBORDINATED NOTE
November 20, 1998
1. Note. FOR VALUE RECEIVED, the undersigned, FEDERAL-MOGUL FUNDING
----
CORPORATION, a Michigan corporation ("SPC"), hereby unconditionally promises to
pay to the order of [ORIGINATOR NAME], a _________ corporation ("ORIGINATOR"),
in lawful money of the United States of America and in immediately available
funds, on the date following the Termination Date which is one year and one day
after the date which (i) the Outstanding Balance of all Receivables sold under
the "SALE AGREEMENT" referred to below has been reduced to zero and (ii) the
Originator has paid to the Buyer all indemnities, adjustments and other amounts
which may be owed hereunder in connection with the Purchases (the "COLLECTION
DATE"), the aggregate unpaid principal sum outstanding of all "Subordinated
Loans" made from time to time by Originator to SPC pursuant to and in accordance
with the terms of that certain Receivables Sale and Contribution Agreement dated
as of November 20, 1998 among Originator, _____________, ___________ and SPC (as
amended, restated, supplemented or otherwise modified from time to time, the
"SALE AGREEMENT"). Reference to SECTION 1.2 of the Sale Agreement is hereby
made for a statement of the terms and conditions under which the loans evidenced
hereby have been and will be made. All terms which are capitalized and used
herein and which are not otherwise specifically defined herein shall have the
meanings ascribed to such terms in the Sale Agreement.
2. Interest. SPC further promises to pay interest on the
--------
outstanding unpaid principal amount hereof from the date hereof until payment in
full hereof at a rate equal to the Base Rate; PROVIDED, HOWEVER, that if SPC
shall default in the payment of any principal hereof, SPC promises to, on
demand, pay interest at the rate of the Base Rate plus 2.00% on any such unpaid
amounts, from the date such payment is due to the date of actual payment.
Interest shall be payable on the first Business Day of each month in arrears;
PROVIDED, HOWEVER, that SPC may elect on the date any interest payment is due
hereunder to defer such payment and upon such election the amount of interest
due but unpaid on such date shall constitute principal under this Subordinated
Note. The outstanding principal of any loan made under this Subordinated Note,
together with all accrued and unpaid interest thereon, shall be due and payable
on the Collection Date and may be repaid or prepaid at any time without premium
or penalty.
3. Principal Payments. Originator is authorized and directed by SPC
------------------
to enter on the grid attached hereto, or, at its option, in its books and
records, the date and amount of each loan made by it which is evidenced by this
Subordinated Note and the amount of each payment of principal made by SPC, and
absent manifest error, such entries shall constitute PRIMA FACIE evidence of the
accuracy of the information so entered; PROVIDED THAT neither the failure of
<PAGE>
Originator to make any such entry or any error therein shall expand, limit or
affect the obligations of SPC hereunder.
4. Subordination. The indebtedness evidenced by this Subordinated
-------------
Note is subordinated to the prior payment in full of all of SPC's recourse
obligations under that certain Receivable Interest Purchase Agreement dated as
of November 20, 1998 by and among SPC, Federal-Mogul Corporation, Falcon Asset
Securitization Corporation, the financial institutions from time to time a party
thereto, and The First National Bank of Chicago, as the "AGENT" (as amended,
restated, supplemented or otherwise modified from time to time, the "PURCHASE
AGREEMENT"). The subordination provisions contained herein are for the direct
benefit of, and may be enforced by, the Agent and the Purchasers and/or any of
their respective assignees (collectively, the "SENIOR CLAIMANTS") under the
Purchase Agreement. Until the date on which all "Capital" outstanding under the
Purchase Agreement has been repaid in full and all other obligations of SPC
and/or the Servicer thereunder and under the "Fee Letter" referenced therein
(all such obligations, collectively, the "Senior Claim") have been indefeasibly
paid and satisfied in full, Originator shall not demand, accelerate, sue for,
take, receive or accept from SPC, directly or indirectly, in cash or other
property or by set-off or any other manner (including, without limitation, from
or by way of collateral) any payment or security of all or any of the
indebtedness under this Subordinated Note or exercise any remedies or take any
action or proceeding to enforce the same; PROVIDED, HOWEVER, that (i) Originator
hereby agrees that it will not institute against SPC any Insolvency Event unless
and until the Collection Date has occurred and (ii) nothing in this paragraph
shall restrict SPC from paying, or Originator from requesting, any payments
under this Subordinated Note so long as SPC is not required under the Purchase
Agreement to set aside for the benefit of, or otherwise pay over to, the funds
used for such payments to any of the Senior Claimants and further provided that
the making of such payment would not otherwise violate the terms and provisions
of the Purchase Agreement. Should any payment, distribution or security or
proceeds thereof be received by Originator in violation of the immediately
preceding sentence, Originator agrees that such payment shall be segregated,
received and held in trust for the benefit of, and deemed to be the property of,
and shall be immediately paid over and delivered to the Agent for the benefit of
the Senior Claimants.
5. Bankruptcy; Insolvency. Upon the occurrence of any Insolvency
----------------------
Event involving SPC as debtor, then and in any such event the Senior Claimants
shall receive payment in full of all amounts due or to become due on or in
respect of Capital and the Senior Claim (including "Discount" accruing under the
Purchase Agreement after the commencement of any such proceeding, whether or not
any or all of such Discount is an allowable claim in any such proceeding) before
Originator is entitled to receive payment on account of this Subordinated Note,
and, to that end, any payment or distribution of assets of SPC of any kind or
character, whether in cash, securities or other property, in any applicable
insolvency proceeding, which would otherwise be payable to or deliverable upon
or with respect to any or all indebtedness under this Subordinated Note, is
hereby assigned to and shall be paid or delivered by the Person making such
payment or delivery (whether a trustee in bankruptcy, a receiver, custodian or
liquidating trustee or otherwise) directly to the Agent for application to, or
as collateral for the payment of, the Senior Claim until such Senior Claim shall
have been paid in full and satisfied.
<PAGE>
6. Amendments. This Subordinated Note shall not be amended or
----------
modified except in accordance with SECTION 8.1(B) of the Sale Agreement. The
terms of this Subordinated Note may not be amended or otherwise modified without
the prior written consent of the Agent for the benefit of the Purchasers.
7. Governing Law. This Subordinated Note has been made and
-------------
delivered at the offices of Latham & Watkins, 885 Third Avenue, New York, New
York 10022, and shall be interpreted and the rights and liabilities of the
parties hereto determined in accordance with the laws and decisions of the State
of New York. Wherever possible each provision of this Subordinated Note shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Subordinated Note shall be prohibited by or invalid
under applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Subordinated Note.
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK
<PAGE>
8. Waivers. All parties hereto, whether as makers, endorsers, or
-------
otherwise, severally waive presentment for payment, demand, protest and notice
of dishonor. Originator additionally expressly waives all notice of the
acceptance by any Senior Claimant of the subordination and other provisions of
this Subordinated Note and expressly waives reliance by any Senior Claimant upon
the subordination and other provisions herein provided.
9. Assignment. This Subordinated Note may not be assigned, pledged
----------
or otherwise transferred to any party other than Originator without the prior
written consent of the Agent, and any such attempted transfer shall be void.
FEDERAL-MOGUL FUNDING CORPORATION
By: ________________________________
Name:
Title:
<PAGE>
SCHEDULE
TO
SUBORDINATED NOTE
SUBORDINATED LOANS AND PAYMENTS OF PRINCIPAL
--------------------------------------------
<TABLE>
<CAPTION>
Amount Unpaid
Amount of of Principal Notation
Date Subordinated Loan Principal Paid Balance made by
--------------- ------------------ ---------------- --------------- -------------
<S> <C> <C> <C> <C>
_______________ __________________ ________________ _______________ _____________
_______________ __________________ ________________ _______________ _____________
_______________ __________________ ________________ _______________ _____________
_______________ __________________ ________________ _______________ _____________
_______________ __________________ ________________ _______________ _____________
_______________ __________________ ________________ _______________ _____________
_______________ __________________ ________________ _______________ _____________
_______________ __________________ ________________ _______________ _____________
_______________ __________________ ________________ _______________ _____________
_______________ __________________ ________________ _______________ _____________
_______________ __________________ ________________ _______________ _____________
_______________ __________________ ________________ _______________ _____________
_______________ __________________ ________________ _______________ _____________
_______________ __________________ ________________ _______________ _____________
_______________ __________________ ________________ _______________ _____________
_______________ __________________ ________________ _______________ _____________
</TABLE>
<PAGE>
SCHEDULE A
DOCUMENTS AND RELATED ITEMS TO BE DELIVERED
ON OR PRIOR TO THE INITIAL PURCHASE
I. Receivables Sale Agreement
--------------------------
A. Receivables Sale and Contribution Agreement dated as of September __,
1998 (the "SALE AGREEMENT") by and among Federal-Mogul Corporation, a Michigan
corporation, Carter Automotive Company, Inc., a Delaware corporation, and
Federal-Mogul Canada Limited, a Canadian corporation (each, an "ORIGINATOR" and
collectively the "ORIGINATORS"), and Federal-Mogul Funding Corporation, a
Michigan corporation ("SPC"), with completed exhibits.
B. Subordinated Notes dated November __, 1998 executed by SPC in favor of
each Originator.
C. Stockholder and Subscription Agreement dated as of November ___, 1998
by and between the Federal-Mogul Corporation and SPC.
D. Certificate of each Originator's [Assistant] Secretary certifying:
1. An attached copy of such Originator's Articles of Incorporation
(certified within 60 days prior to closing by the Secretary of State
of the state of such Originator's incorporation)
2. An attached copy of such Originator's By-Laws
3. An attached copy of resolutions of such Originator's Board of
Directors authorizing such Originator's execution, delivery and
performance of the Sale Agreement and related documents
4. The names, titles and specimen signatures of such Originator's
officers authorized to execute and deliver the Sale Agreement and
related documents
E. Good standing certificates for each Originator from the following
states certified within 60 days prior to closing:
1. Michigan
2. ___________
F. Pre-filing state and federal tax lien, judgment lien and UCC lien
searches against each Originator from the following jurisdictions:
1. Michigan
2. As applicable for tax and judgment liens, ________ County, ______
3. _________________
<PAGE>
G. UCC Financing Statements naming each Originator, as debtor, SPC, as
secured party, and The First National Bank of Chicago, as Agent, as assignee of
secured party, for filing in the following jurisdictions:
1. Secretary of State of Michigan
2. _____________
H. Post-filing UCC lien searches against the Originator from the
following jurisdictions: [post closing]
1. Secretary of State of Michigan
2. _____________
I. Opinions:
1. Corporate/UCC opinions
2. True Sale/Non-consolidation opinion
J. Each Originator's CFO's Certificate re no Event of Purchase and Sale
Termination or Potential Event of Purchase and Sale Termination, and absence of
Material Adverse Effect since June 30, 1998.
K. If applicable, irrevocable letters of direction to third-parties
storing Records, authorizing SPC and the Agent, as SPC's assignee, access to
each Originator's Records and the right to make copies thereof at such
Originator's expense.
L. Collection Agreements.
M. Copies of any Third-Party Consents.
II. Receivables Interest Purchase Agreement
---------------------------------------
A. Receivables Interest Purchase Agreement dated as of November ___, 1998
(the "INVESTOR AGREEMENT") by and among SPC, Federal-Mogul Corporation, Falcon
Asset Securitization Corporation, financial institutions from time to time a
party thereto and The First National Bank of Chicago, as Agent (in such
capacity, the "AGENT") with completed exhibits.
B. Fee Letter dated as of November
___, 1998 by and between SPC and the Agent.
C. Certificate of SPC's [Assistant] Secretary certifying:
1. An attached copy of SPC's Certificate of Incorporation (certified
within 30 days prior to closing by the Michigan Secretary of State)
2. An attached copy of SPC's By-Laws
<PAGE>
3. An attached copy of resolutions of SPC's Board of Directors
authorizing SPC's execution, delivery and performance of the Investor
Agreement and related documents
4. The names, titles and specimen signatures of SPC's officers
authorized to execute and deliver the Investor Agreement and related
documents
D. Good standing certificates for SPC from the following states certified
within 30 days prior to closing:
1. Michigan
2. ____________
E. UCC Financing Statements naming SPC, as debtor, and the Agent, as
secured party, for filing in the following jurisdictions:
1. Secretary of State of Michigan
2. ____________
F. Post-filing UCC lien searches against SPC from the following
jurisdictions: [post closing]
1. Secretary of State of Michigan
2. ____________
G. Purchase Notice executed by SPC.
H. Opinion of SPC's counsel re _____________ [similar to last
transaction]
I. SPC's CFO's Certificate re no Amortization Event or Potential
Amortization Event and absence of Material Adverse Effect since June 30, 1998.
J. If applicable, irrevocable letters of direction to third-parties
storing Records, authorizing SPC and the Agent, as SPC's assignee, access to the
Originator's Records and the right to make copies thereof at the Originator's
expense.
K. Collection Account Agreements.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered by their duly authorized officers as of the date
hereof.
ORIGINATORS AND SUB-SERVICER:
FEDERAL-MOGUL CORPORATION,
as Originator and Sub-Servicer
By: _____________________________
Name:
Title:
Address for Notices:
Federal-Mogul Corporation
26555 Northwestern Highway
Southfield, Ml 48034
Attention: Treasury Department
Phone: (248) 354-7700
Fax: (248) 354-6746
CARTER AUTOMOTIVE COMPANY, INC.,
as Originator
By: _____________________________
Name:
Title:
Address for Notices:
Carter Automotive Company, Inc.
26555 Northwestern Highway
Southfield, Ml 48034
Attention: Treasury Department
Phone: (248) 354-7700
Fax: (248) 354-6746
<PAGE>
FEDERAL-MOGUL CANADA LIMITED,
as Originator
By: ___________________________
Name:
Title:
Address for Notices:
Federal-Mogul Canada Limited
26555 Northwestern Highway
Southfield, Ml 48034
Attention: Treasury Department
Phone: (248) 354-7700
Fax: (248) 354-6746
BUYER:
FEDERAL-MOGUL FUNDING CORPORATION
as Buyer
By: _______________________________
Name:
Title:
Address for Notices:
Federal-Mogul Funding Corporation
26555 Northwestern Highway
Southfield, Ml 48034
Attention: Treasury Department
Phone: (248) 354-770
Fax: (248) 354
<PAGE>
EXHIBIT 10.15
--------------------------------------------------------------------------
--------------------------------------------------------------------------
$150,000,000
RECEIVABLE INTEREST PURCHASE AGREEMENT
DATED AS OF NOVEMBER 20, 1998
AMONG
FEDERAL-MOGUL FUNDING CORPORATION,
AS SELLER,
FEDERAL-MOGUL CORPORATION,
AS SERVICER,
FALCON ASSET SECURITIZATION CORPORATION,
AS A PURCHASER,
THE FINANCIAL INSTITUTIONS FROM TIME TO TIME PARTY HERETO,
AS INVESTORS,
AND
THE FIRST NATIONAL BANK OF CHICAGO,
AS AGENT
--------------------------------------------------------------------------
--------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I DEFINITIONS
Section 1.01. Defined Terms................................................................................. 1
Section 1.02. Other Definitional Provisions................................................................. 20
ARTICLE II AMOUNTS AND TERMS OF THE PURCHASES
Section 2.01. Purchase Facility; Reduction of Purchase Limit................................................ 20
Section 2.02. Making the Initial Purchase and Subsequent Incremental Purchases.............................. 20
Section 2.03. Selection of Tranche Periods and Discount Rates............................................... 21
Section 2.04. Percentage Evidenced by Receivable Interests.................................................. 22
Section 2.05. Dividing or Combining Receivable Interests.................................................... 22
Section 2.06. Reinvestments and Pre-Liquidation Settlements................................................. 22
Section 2.07. Liquidation Settlement Procedures............................................................. 23
Section 2.08. Deemed Collection of Dilutions and Certain Other Recourse
Obligations................................................................................... 24
Section 2.09. Discount: Payments and Computations, Etc...................................................... 25
Section 2.11. Seller's Extinguishment....................................................................... 26
Section 2.12. Servicing Compensation........................................................................ 26
ARTICLE III LIQUIDITY FACILITY
Section 3.01. Transfer to Investors......................................................................... 26
Section 3.02. Transfer Price Reduction Discount............................................................. 27
Section 3.03. Payments to Falcon............................................................................ 27
Section 3.04. Limitation on Commitment to Purchase from Falcon.............................................. 27
Section 3.05. Defaulting Investors.......................................................................... 27
ARTICLE IV REPRESENTATIONS AND WARRANTIES
Section 4.01. Seller Representations and Warranties......................................................... 28
(a) Corporate Existence and Power................................................................... 28
(b) Due Qualification............................................................................... 28
(c) Due Authorization; No Conflict.................................................................. 28
(d) No Consents..................................................................................... 28
(e) Binding Effect.................................................................................. 28
(f) No Proceedings.................................................................................. 29
(g) Accuracy of Information......................................................................... 29
(h) Use of Proceeds................................................................................. 29
(i) Title to Receivables............................................................................ 29
(j) Good Title; Perfection.......................................................................... 29
(k) Places of Business.............................................................................. 30
(l) Collection Banks; etc........................................................................... 30
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
(m) Names.............................................................................................. 30
(n) Credit Policies.................................................................................... 30
(o) Payments to Originator............................................................................. 31
(p) Ownership of the Seller............................................................................ 31
(q) Not an Investment Company.......................................................................... 31
(r) Purpose............................................................................................ 31
(s) Net Receivables Balance............................................................................ 31
(t) Year 2000 Problem.................................................................................. 31
Section 4.02. Investor Representations and Warranties.................................................. 31
(a) Existence and Power................................................................................ 31
(b) No Conflict........................................................................................ 31
(c) Governmental Authorization......................................................................... 32
(d) Binding Effect.
ARTICLE V CONDITIONS OF PURCHASES
Section 5.01. Conditions Precedent to Initial Purchase...................................................... 32
Section 5.02. Conditions Precedent to All Purchases and Reinvestments....................................... 32
ARTICLE VI COVENANTS OF THE SELLER
Section 6.01. Affirmative Covenants of Seller............................................................... 33
(a) Notices............................................................................................ 33
(i) Amortization Events or Potential Amortization Events........................................... 33
(ii) Judgment...................................................................................... 33
(iii) Litigation................................................................................... 33
(iv) Termination Date under Sale Agreement......................................................... 33
(v) Downgrade...................................................................................... 33
(vi) Copies of Notices, Etc. under Sale Agreement and Other Transaction
Documents....................................................................................... 33
(vii) Change in Credit Policies.................................................................... 33
(viii) Other Information........................................................................... 33
(b) Compliance with Laws............................................................................... 34
(c) Audits; Inspection Rights.......................................................................... 34
(d) Keeping and Marking of Records and Books........................................................... 34
(e) Compliance with Invoices and Credit Policies; Taxes................................................ 34
(f) Purchase of Receivables from the Originators....................................................... 35
(g) Ownership Interest................................................................................. 35
(h) Payment to the Originators......................................................................... 35
(i) Performance and Enforcement of Sale Agreement...................................................... 35
(j) Purchasers' Reliance............................................................................... 35
(k) Collections........................................................................................ 36
(l) Minimum Net Worth.................................................................................. 37
(m) Year 2000 Problems................................................................................. 37
Section 6.02. Negative Covenants of Seller.................................................................. 37
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
(a) Name Change, Offices, Records and Books of Accounts................................................ 37
(b) Change in Payment Instructions to Obligors......................................................... 38
(c) Modifications to Credit Policies................................................................... 38
(d) Sales, Liens, Etc.................................................................................. 38
(e) Nature of Business; Other Agreements; Other Indebtedness........................................... 38
(f) Amendments to Sale Agreement....................................................................... 39
(g) Amendments to Corporate Documents.................................................................. 39
(h) Merger............................................................................................. 39
(i) Restricted Junior Payments......................................................................... 39
ARTICLE VII SERVICING, ADMINISTRATION AND COLLECTION OF THE RECEIVABLES
Section 7.01. Designation of Servicer....................................................................... 40
Section 7.02. Duties of Servicer............................................................................ 40
Section 7.03. Collection Notices............................................................................ 41
Section 7.04. Responsibilities of the Seller................................................................ 41
Section 7.05. Settlement Statements......................................................................... 41
Section 7.06. Quarterly Servicer's Certificate.............................................................. 41
Section 7.07. Weekly Report and Distribution................................................................ 42
Section 7.08. Reporting Covenants of the Servicer........................................................... 42
(a) Financial Reporting................................................................................ 42
(i) Annual Reporting............................................................................... 42
(ii) Quarterly Reporting........................................................................... 42
(iii) Securities and Exchange Commission Filings................................................... 43
(b) Notices............................................................................................ 43
Section 7.09. Inspection Rights............................................................................. 43
Section 7.10. Credit Policies............................................................................... 43
ARTICLE VIII AMORTIZATION EVENTS
Section 8.01. Amortization Events........................................................................... 44
(a) Insolvency Events.................................................................................. 44
(b) Failure to Make Payments and Deposits.............................................................. 44
(c) Settlement Statements.............................................................................. 44
(d) Other Covenants.................................................................................... 44
(e) Material Misrepresentations........................................................................ 44
(f) Investment Company................................................................................. 45
(g) Delinquency Ratio.................................................................................. 45
(h) Loss-to-Liquidation Ratio.......................................................................... 45
(i) Dilution Ratio..................................................................................... 45
(j) Nonpayment of Coverage Shortfall................................................................... 45
(k) Minimum Enhancement Amount......................................................................... 45
(l) Change of Control.................................................................................. 45
(m) Event of Default in Material Debt.................................................................. 45
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
ARTICLE IX INDEMNIFICATION
Section 9.01. Indemnities by the Seller..................................................................... 46
Section 9.02. Increased Cost and Reduced Return............................................................. 47
Section 9.03. Costs and Expenses Relating to this Agreement................................................. 48
Section 9.04. Taxes......................................................................................... 48
ARTICLE X THE AGENT
Section 10.01. Authorization and Action..................................................................... 50
Section 10.02. Delegation of Duties......................................................................... 50
Section 10.03. Exculpatory Provisions....................................................................... 50
Section 10.04. Reliance by Agent............................................................................ 51
Section 10.05. Non-Reliance on Agent and Other Purchasers................................................... 51
Section 10.06. Reimbursement and Indemnification............................................................ 51
Section 10.07. Agent in its Individual Capacity............................................................. 52
Section 10.08. Successor Agent.............................................................................. 52
ARTICLE XI ASSIGNMENTS; PARTICIPATIONS
Section 11.01. Assignments.................................................................................. 52
Section 11.02. Participations............................................................................... 53
ARTICLE XII MISCELLANEOUS
Section 12.01. Waivers and Amendments....................................................................... 53
Section 12.02. Notices...................................................................................... 54
Section 12.03. Ratable Payments............................................................................. 55
Section 12.04. Protection of Ownership Interests of the Agent on behalf of the
Purchasers................................................................................... 55
Section 12.05. Confidentiality.............................................................................. 56
Section 12.06. Bankruptcy Petition.......................................................................... 57
Section 12.07. Limitation of Liability...................................................................... 57
Section 12.08. CHOICE OF LAW................................................................................ 57
Section 12.09. CONSENT TO JURISDICTION...................................................................... 57
Section 12.10. WAIVER OF JURY TRIAL......................................................................... 58
Section 12.11. Integration; Survival of Terms............................................................... 58
Section 12.12. Counterparts; Severability................................................................... 58
Section 12.13. First Chicago Roles.......................................................................... 58
Section 12.14. Characterization............................................................................. 58
Section 12.15. Acknowledgments.............................................................................. 59
</TABLE>
iv
<PAGE>
THIS RECEIVABLE INTEREST PURCHASE AGREEMENT, dated as of November 20,
1998, is by and among FEDERAL-MOGUL FUNDING CORPORATION, a Michigan corporation
(the "SELLER"), FEDERAL-MOGUL CORPORATION, a Michigan corporation (initially,
the "SERVICER"), FALCON ASSET SECURITIZATION CORPORATION, a Delaware corporation
("FALCON"), THE FINANCIAL INSTITUTIONS LISTED FROM TIME TO TIME ON THE SIGNATURE
PAGES HERETO AS INVESTORS (individually, an "INVESTOR" and collectively, the
"INVESTORS"), and THE FIRST NATIONAL BANK OF CHICAGO, as Agent.
PRELIMINARY STATEMENTS
WHEREAS, the Seller desires to transfer and assign Receivable
Interests to the Agent for the benefit of Falcon or the Investors from time to
time;
WHEREAS, on the terms and subject to the conditions hereinafter set
forth, Falcon may, in its absolute and sole discretion, purchase Receivable
Interests from the Seller from time to time and, in the event Falcon does not
purchase a particular Receivable Interest, unless the Seller otherwise directs,
the Investors shall purchase such Receivable Interest from the Seller;
WHEREAS, the Investors have also agreed to provide a liquidity
facility to Falcon with respect to Receivable Interests purchased by Falcon;
WHEREAS, Federal-Mogul Corporation has been requested to act, and is
willing to act, as Servicer on behalf of the Seller and the Purchasers in
accordance with the terms hereof; and
WHEREAS, The First National Bank of Chicago has been requested to act,
and is willing to act, as Agent on behalf of Falcon and the Investors in
accordance with the terms hereof.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Defined Terms. As used in this Agreement, the following
-------------
terms shall have the following meanings:
"ACQUISITION AMOUNT" means, on the date of any purchase by the
Investors from Falcon of Receivable Interests pursuant to SECTION 3.01: (a)
with respect to each Investor other than NBD Bank, the lesser of (i) such
Investor's Pro Rata Share of the Falcon Transfer Price and (ii) such Investor's
unused Commitment, and (b) with respect to NBD Bank, the difference
<PAGE>
between (i) the Falcon Transfer Price and (ii) the aggregate amount payable by
all other Investors on such date pursuant to clause (a) above.
"ADJUSTED LIQUIDITY PRICE" means, in determining the Falcon Transfer
Price for any Receivable Interest, an amount equal to:
RI x [ (i) DC + (ii) NDR ]
---
ARP
where:
RI = the undivided percentage interest represented
by such Receivable Interest.
DC = the Deemed Collections.
NDR = the Outstanding Balance of all Receivables
that are not Defaulted Receivables.
ARP = 1 + (.50 x the Aggregate Reserve Percentage).
Each of the foregoing shall be determined from the most recent Settlement
Statement received from the Servicer.
"ADMINISTRATION FEE" shall have the meaning specified in the Fee
Letter.
"ADVERSE CLAIM" means a lien, security interest, charge or
encumbrance, or other right or claim in, of or on any Person's assets or
properties in favor of any other Person.
"AFFECTED INVESTOR" shall have the meaning assigned to such term in
Section 11.01(c).
"AFFILIATE" means, with respect to any Person, any other Person
directly or indirectly controlling (including but not limited to all directors
and officers of such Person), controlled by, or under direct or indirect common
control with such Person. A Person shall be deemed to control another Person if
the controlling Person owns 10% or more of any class of voting securities of the
controlled Person or possesses, directly or indirectly, the power to direct or
cause the direction of the management or policies of the other Person, whether
through ownership of voting securities, by contract or otherwise. In addition,
for purposes of the definitions of "OBLIGOR OVERCONCENTRATION," "ELIGIBLE
RECEIVABLE" and "NET RECEIVABLES BALANCE," a Person shall be deemed to control
another Person if such Person owns more than 50% of any class of voting
securities (or corresponding interest in the case of non-corporate entities) of
the other Person.
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"AGENT" means First Chicago in its capacity as agent for the
Purchasers pursuant to ARTICLE X, and not in its individual capacity, and any
successor Agent appointed pursuant to ARTICLE X.
"AGGREGATE RESERVE PERCENTAGE" means, as of any Report Date, the sum
of (a) the Loss Reserve Percentage, (b) the Floating Dilution Reserve
Percentage, and (c) the Fee Reserve Percentage.
"AGGREGATE RESERVES" shall equal, as of any Report Date, the product
of (a) the Aggregate Reserve Percentage times (b) the Available Receivables.
"AGGREGATE UNPAIDS" means, at any time, an amount equal to the sum of
all accrued and unpaid Discount, Capital and all other amounts owed (whether due
or accrued) hereunder or under the Fee Letter to the Agent and the Purchasers at
such time, plus all accrued and unpaid Monthly Servicing Fees owed hereunder to
the Servicer.
"AGREEMENT" means this Receivable Interest Purchase Agreement, as it
may be amended, restated or otherwise modified and in effect from time to time.
"AMORTIZATION EVENT" has the meaning assigned to that term in SECTION
8.01.
"ASSIGNMENT AND ACCEPTANCE" means an assignment and acceptance in form
reasonably acceptable to the Agent pursuant to which an Investor assigns all or
a portion of its rights and obligations under this Agreement in accordance with
the terms of SECTION 11.01(B).
"AVAILABLE FUNDING AMOUNT" means, as of any date of determination, the
lesser of (a) the Available Receivables less the Aggregate Reserves and (b)
$150,000,000.
"AVAILABLE RECEIVABLES" means, as of any Report Date, the excess of
the Net Receivables Balance over the Contractual Dilution Balance.
"BASE RATE" means a rate per annum equal to the corporate base rate,
prime rate or base rate of interest, as applicable, announced by the Reference
Bank from time to time, changing when and as such rate changes; PROVIDED,
HOWEVER, that from and after the occurrence of an Amortization Event, and during
the continuation thereof, the "BASE RATE" shall mean a rate per annum equal to
the sum of 2% per annum PLUS the corporate base rate, prime rate or base rate of
interest, as applicable, announced by the Reference Bank from time to time,
changing when and as such rate changes.
"BREAKAGE COSTS" means, for any Receivable Interest which has its
Capital reduced, or its Tranche Period terminated, prior to the date on which it
was originally scheduled to end, the excess, if any, of (a) the Discount that
would have accrued during the remainder of the Tranche Period subsequent to the
date of such reduction or termination on the Capital of such Receivable Interest
if such reduction or termination had not occurred, over (b) the sum of (i) to
the extent all or a portion of such Capital is allocated to another Receivable
Interest, the Discount actually accrued during such period on such Capital for
the new Receivable Interest, and (ii) to
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<PAGE>
the extent such Capital is not allocated to another Receivable Interest, the
income, if any, actually received during such period by the holder of such
Receivable Interest from investing the portion of such Capital not so allocated.
In the event that the amount referred to in clause (b) exceeds the amount
referred to in clause (a), the relevant Purchaser or Purchasers agree to pay to
the Seller the amount of such excess.
"BUSINESS DAY" means any day on which banks are not authorized or
required to close in New York, New York, Detroit, Michigan, or Chicago,
Illinois, and The Depository Trust Company of New York is open for business,
and, if the applicable Business Day relates to any computation or payment to be
made with respect to the LIBO Rate, any day on which dealings in dollar deposits
are carried on in the London interbank market.
"CANADIAN RECEIVABLES" means Receivables which are payable in Canadian
Dollars and generated from sales to Obligors located in Canada.
"CAPITAL" of any Receivable Interest means, at any time, the Purchase
Price of such Receivable Interest (and after giving effect to any adjustments
contemplated in SECTION 3.05), minus the sum of the aggregate amount of
Collections and other payments received by the Agent which in each case are
applied to reduce such Capital; PROVIDED THAT such Capital shall be restored in
the amount of any Collections or payments so received and applied if at any time
the distribution of such Collections or payments are rescinded or must otherwise
be returned for any reason.
"CARTER" means Carter Automotive Company, Inc., a Delaware
corporation.
"CHANGE OF CONTROL" means (i) any Person or Persons acting in concert
shall acquire beneficial ownership (within the meaning of Rule 13d-3 of the
Securities and Exchange Commission under the Securities Exchange Act of 1934) of
50% or more of the outstanding shares of voting stock of Federal-Mogul; or (ii)
during any period of twelve (12) consecutive months, commencing before or after
the date hereof, individuals who at the beginning of such twelve-month period
were directors of Federal-Mogul shall cease for any reason to constitute a
majority of the board of directors of Federal-Mogul; or (iii) Federal-Mogul
shall cease to own, free and clear of all Adverse Claims, all of the outstanding
shares of voting stock of the Seller on a fully diluted basis.
"CLOSING DATE" means November 20, 1998.
"COLLECTION ACCOUNT" means each concentration account, depositary
account, lock-box account or similar account in which any Collections are
collected or deposited.
"COLLECTION ACCOUNT AGREEMENT" means, in the case of any actual or
proposed Collection Account, an agreement in substantially the form of EXHIBIT B
hereto.
"COLLECTION BANK" means, at any time, any of the banks or other
financial institutions holding one or more Collection Accounts.
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<PAGE>
"COLLECTION NOTICE" means a notice in the form attached to a
Collection Account Agreement, from the Agent to a Collection Bank.
"COLLECTION PERIOD" means, with respect to any Settlement Date, the
calendar month preceding the month in which such Settlement Date occurs.
"COLLECTIONS" means, with respect to any Receivable, all cash
collections and other cash proceeds in respect of such Receivable, including,
without limitation, all cash proceeds of Related Security with respect to such
Receivable and all Deemed Collections payable to the Agent for the account of
the applicable Purchaser(s) by the Seller pursuant to SECTION 2.08.
"COMMERCIAL PAPER" means promissory notes of Falcon issued by Falcon
in the commercial paper market.
"COMMITMENT" means, for each Investor, the commitment of such Investor
to purchase its Pro Rata Share of Receivable Interests from (i) the Seller and
(ii) Falcon, such Pro Rata Share not to exceed, in the aggregate, the amount set
forth opposite such Investor's name on the signature pages of this Agreement, as
such amount may be modified in accordance with the terms hereof.
"CONFIDENTIAL INFORMATION" means, in relation to any Person, any
written information delivered or made available by or on behalf of another
Person (or its Affiliates or subsidiaries) in connection with or pursuant to the
Transaction Documents or the transactions contemplated thereby which is
proprietary in nature and clearly marked or identified in writing as being
confidential information, other than information (a) which was publicly known,
or otherwise known to such Person, at the time of disclosure (except pursuant to
disclosure in connection with the Transaction Documents), (b) which subsequently
becomes publicly known through no act or omission by such Person, or (c) which
otherwise becomes known other than through disclosure by the Person to whom it
pertains or one of its Affiliates or subsidiaries.
"CONTRACTUAL DILUTION BALANCE" means, as of any Report Date, the sum
of (a) 2% of North American aftermarket sales during the immediately preceding
Collection Period, (b) the greater of (i) the accrual for obsolescence and (ii)
two times the aggregate amount of Credit Memos issued during such Collection
Period due to obsolescence, (c) 1.5 times the aggregate amount of Credit Memos
issued during such Collection Period due to stock lifts and (d) the total
rebates and adjustments currently owed to Obligors as of the end of such
Collection Period (as reflected in the Customer Program Balances in the books
and records of the Servicer).
"COVERAGE SHORTFALL" means, as of any Report Date, the excess, if any,
of (a) outstanding Capital as of such Report Date, over (b) the Available
Receivables determined as of such Report Date minus the Aggregate Reserves
determined as of such Report Date.
"CP RATE" means the rate, requested by the Seller and agreed to by
Falcon, equivalent to the rate (or if more than one rate, the weighted average
of the rates) at which Commercial Paper having a term equal to the relevant
Tranche Period may be sold by any
5
<PAGE>
placement agent or commercial paper dealer reasonably selected by Falcon, as
agreed between each such dealer or agent and Falcon plus any and all applicable
issuing and paying agent fees and commissions of placement agents and commercial
paper dealers in respect of such Commercial Paper; PROVIDED, HOWEVER, that if
the rate (or rates) as agreed between any such agent or dealer and Falcon is a
discount rate (or rates), the "CP RATE" for such Tranche Period shall be the
rate (or if more than one rate, the weighted average of the rates) resulting
from Falcon's converting such discount rate (or rates) to an interest-bearing
equivalent rate per annum.
"CREDIT MEMO" means any credit memo relating to (a) the North American
Aftermarket obsolescence, (b) the North American Aftermarket stock lifts, (d)
the North American Aftermarket core deposits, (e) the North American Aftermarket
billing adjustments, (f) the North American Aftermarket customer accommodation
returns, (g) the North American Aftermarket other and (h) original equipment
manufacturers.
"CREDIT POLICIES" has the meaning assigned to that term in SECTION
7.10.
"CUSTOMER PROGRAM BALANCES" means rebates owed to customers by an
Originator based upon prior purchases.
"DEEMED COLLECTIONS" means the aggregate of all amounts owing to
Falcon pursuant to SECTIONS 2.08 and 9.01.
"DEFAULT FEE" means with respect to any amount due and payable by the
Seller hereunder or under the Fee Letter, an amount equal to interest on any
such amount at a rate per annum equal to 2% above the Base Rate; PROVIDED,
HOWEVER, that such interest rate will not at any time exceed the maximum rate
permitted by applicable law.
"DEFAULTED RECEIVABLE" means a Receivable: (i) as to which any
payment, or part thereof, remains unpaid for 90 days or more from the original
due date for such payment; (ii) an Insolvency Event has occurred with respect to
the Obligor thereof; (iii) as to which the Obligor thereof, if a natural person,
is deceased; or (iv) which has been identified by the Seller as uncollectible.
"DEFAULTING INVESTOR" shall have the meaning assigned to such term in
SECTION 3.05.
"DELINQUENCY RATIO" means, as of any Report Date, the percentage
equivalent of a fraction, the numerator of which is the aggregate amount of
Receivables as of the last Business Day of the immediately preceding Collection
Period that are 61 or more days past due and the denominator of which is the
Pool Balance as of such Business Day.
"DILUTION HORIZON RATIO" or "DHR" means, for any Report Date, a
fraction, the numerator of which is the sum of the aggregate amounts of all new
Receivables generated during the two immediately preceding Collection Periods
and the denominator of which is the Available Receivables as of such Report
Date.
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<PAGE>
"DILUTION RATIO" means, as of any Report Date, the percentage
equivalent of a fraction, the numerator of which is all non-cash reductions to
the Pool Balance, not related to the credit-worthiness of the Obligor,
including, but not limited to, the aggregate amount of Credit Memos issued
during the immediately preceding Collection Period, adjustments related to 2/10
discounts made during the immediately preceding Collection Period, and other
adjustments made during the immediately preceding Collection Period and the
denominator of which is the Pool Balance as of such Business Day.
"DISCOUNT" means, for each Receivable Interest for any Tranche Period:
DR x C x AD
---
360
where:
DR = the Discount Rate for such Receivable Interest
for such Tranche Period;
C = the Capital of such Receivable Interest during
such Tranche Period; and
AD = the actual number of days elapsed during such
Tranche Period;
PROVIDED, THAT no provision of this Agreement shall require the payment or
permit the collection of Discount in excess of the maximum permitted by
applicable law; and PROVIDED FURTHER, that Discount for any Tranche Period shall
not be considered paid by any distribution to the extent that at any time all or
a portion of such distribution is rescinded or must otherwise be returned for
any reason.
"DISCOUNT RATE" means the LIBO Rate, the CP Rate or the Base Rate, as
applicable; PROVIDED THAT from and after the occurrence of an Amortization
Event, the Discount Rate in respect of each Receivable Interest and Tranche
Period shall be the Base Rate.
"ELIGIBLE ORIGINATOR" means Federal-Mogul and each other Originator at
any time while it is wholly-owned by Federal-Mogul.
"ELIGIBLE RECEIVABLE" means each Receivable which meets the following
criteria:
(1) the obligation is denominated and payable in U.S. dollars in the
United States, or, if a Canadian Receivable, is denominated and payable in
Canadian dollars; or is related to an original equipment manufacturer
export and is denominated in U.S. dollars;
7
<PAGE>
(2) the related Obligor is a resident of the United States or Canada
or is an original equipment manufacturer;
(3) the related Obligor is not an Affiliate of any of the parties
hereto;
(4) the contract terms of the Receivables call for payment within 90
days of original billing date, except for up to 3% of the Pool Balance
which may have terms that call for payment within 91 to 180 days of
original billing date;
(5) the Receivable is not more than 90 days past due;
(6) the Receivable is an "account" under Section 9-106 of the Uniform
Commercial Code;
(7) the Receivable is a legal, valid and binding obligation of the
related Obligor;
(8) the terms of the contract for the Receivable do not require the
consent of the Obligor to sell or assign such Receivable;
(9) the Agent has not notified the Seller that the Receivable is not
acceptable;
(10) the Receivable was generated in the ordinary course of business
by an Eligible Originator;
(11) the Receivable satisfies all applicable requirements of the
Credit Policies of an Eligible Originator and the Seller;
(12) there are no offset arrangements with the related Obligor;
(13) the contract for the Receivable represents all or a part of the
sales price of merchandise, insurance and services within the meaning of
(S) 3(c)(5) of the Investment Company Act of 1940, as amended;
PROVIDED, HOWEVER, that if, as of any Report Date, the aggregate amount of
Receivables for an Obligor represent 2.00% or more of the Pool Balance and
30.00% or more of such Receivables are 91 days or more past due, all Receivables
relating to such Obligor shall not constitute "ELIGIBLE RECEIVABLES."
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"EXCESS CONCENTRATION AMOUNT" means, as of any Report Date, the sum of
the Obligor Overconcentrations on such date.
"EXPECTED FLOATING DILUTION RATIO" or "EFD" means, as of any Report
Date, the average of the Floating Dilution Ratios for the twelve immediately
preceding Collection Periods.
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"FACILITY TERMINATION DATE" means the earliest of (i) the Liquidity
Termination Date, (ii) the date the Seller shall exercise its right to
repurchase the outstanding Receivable Interests pursuant to SECTION 2.11, (iii)
any date selected by the Seller on not less than 30 days' prior written notice
to the Agent; PROVIDED THAT if any Person then acting as Agent hereunder shall
have elected or been required to resign as Agent pursuant to SECTION 10.08, the
Seller may elect, by written notice to the Agent given promptly following notice
to the Seller of such resignation, to have the Facility Termination Date occur
on the effective date of such resignation, (iv) the date of the occurrence of an
Amortization Event involving the Seller and of the type described in SECTION
8.01(A), (v) any date following the occurrence, and during the continuance, of
any other Amortization Event which the Required Investors declare in writing to
be the Facility Termination Date, and (vi) the date on which Federal-Mogul
ceases selling and/or contributing Receivables to the Seller pursuant to the
Sale Agreement and/or the Subscription Agreement referred to therein.
"FALCON" has the meaning assigned to that term in the preamble to this
Agreement and includes such entity's successors and assigns (but does not
include the Investors as assignees under SECTION 3.01).
"FALCON RESIDUAL" means the sum of the Falcon Transfer Price
Reductions.
"FALCON TRANSFER PRICE" means, with respect to the assignment by
Falcon of one or more Receivable Interests to the Agent for the benefit of the
Investors pursuant to SECTION 3.01, the sum of (i) the lesser of (a) the Capital
of each Receivable Interest and (b) the Adjusted Liquidity Price of each
Receivable Interest and (ii) all accrued and unpaid Discount for such Receivable
Interests.
"FALCON TRANSFER PRICE DEFICIT" has the meaning assigned to that term
in SECTION 3.05.
"FALCON TRANSFER PRICE REDUCTION" means in connection with the
assignment of a Receivable Interest by Falcon to the Agent for the benefit of
the Investors, the positive difference between (i) the Capital of such
Receivable Interest and (ii) the Adjusted Liquidity Price for such Receivable
Interest.
"FEDERAL FUNDS EFFECTIVE RATE" means, for any period, a fluctuating
interest rate per annum equal for each day during such period equal to (i) the
weighted average of the rates on overnight federal funds transactions with
members of the Federal Reserve System arranged by federal funds brokers, as
published for such day (or, if such day is not a Business Day, for the preceding
Business Day) by the Federal Reserve Bank of New York in the Composite Closing
Quotations for U.S. Governments Securities; or (ii) if such rate is not so
published for any day which is a Business Day, the average of the quotations at
approximately 10:30 a.m. (Chicago time) for such day on such transactions
received by the Reference Bank from three federal funds brokers of recognized
standing selected by it.
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"FEDERAL-MOGUL" means Federal-Mogul Corporation, a Michigan
corporation, and its successors in interest to the extent permitted hereunder,
as amended, modified or supplemented and in effect from time to time.
"FEDERAL-MOGUL AFFILIATE" means Federal-Mogul or any of its
Subsidiaries or Affiliates.
"FEDERAL-MOGUL CANADA" means Federal-Mogul Canada Limited, a Canadian
corporation.
"FEE RESERVE PERCENTAGE" means (a) as of any Report Date when Turnover
Days have been less than or equal to 60 days during the immediately preceding
Collection Period, 1.5%, and (b) as of any Report Date when Turnover Days have
been greater than 60 days during the immediately preceding Collection Period,
2.0%.
"FEES" means, collectively, the Administration Fee, Program Fee and
Default Fees.
"FEE LETTER" means that certain letter agreement dated as of the date
hereof between the Seller and the Agent, as it may be amended or modified and in
effect from time to time.
"FINANCE CHARGES" means, with respect to an invoice, any finance,
interest, late payment charges or similar charges owing by an Obligor pursuant
to such invoice.
"FIRST CHICAGO" means The First National Bank of Chicago in its
individual capacity and its successors.
"FIRST CHICAGO ROLES" has the meaning assigned to that term in SECTION
12.13.
"FLOATING DILUTION RATIO" means, as of any Report Date, the percentage
equivalent of a fraction, the numerator of which shall be the Floating Dilution
determined as of such Report Date and the denominator of which shall be the
aggregate amount of new Receivables transferred to the Seller pursuant to the
Sale Agreement during the second immediately preceding Collection Period.
"FLOATING DILUTION" means, as of any Report Date, the aggregate amount
of Credit Memos issued during the immediately preceding Collection Period
relating to the (i) North American Aftermarket core deposits, (ii) the North
American Aftermarket billing adjustments, (iii) the North American Aftermarket
customer accommodation returns, (iv) the North American Aftermarket other and
(v) original equipment manufacturers.
"FLOATING DILUTION RESERVE PERCENTAGE" or "FDRP" shall equal, as of
any Report Date, the greater of:
(a) 15%, and
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(b) 1.75 X EFD X DHR + [ (FDS-EFD) x FDS ]
---
EFD
where:
FDR = Floating Dilution Ratio
EFD = Expected Floating Dilution Ratio
FDS = Floating Dilution Spike Ratio
DHR = Dilution Horizon Ratio
"FLOATING DILUTION SPIKE RATIO" or "FDS" means, as of any Report Date,
the highest average of the Floating Dilution Ratio for any two consecutive
Collection Periods that occurred during the twelve immediately preceding
Collection Periods.
"FUNDING AGREEMENT" means this Agreement and any agreement or
instrument executed by any Funding Source with or for the benefit of Falcon.
"FUNDING SOURCE" means (i) any Investor or (ii) any insurance company,
bank or other financial institution providing liquidity, credit enhancement or
back-up purchase support or facilities to Falcon.
"GOVERNMENTAL AUTHORITY" shall mean the United States of America, any
state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"GUARANTY" means any guaranty by any Person of Indebtedness or other
obligations of any other Person that is not a consolidated subsidiary of such
Person or any assurance with respect to the financial condition of any other
Person that is not a consolidated subsidiary of such Person (including, without
limitation, any purchase or repurchase agreement, any indemnity or any keep-
well, take-or-pay, through-put or other arrangement having the effect of
assuring or holding harmless any third Person against loss with respect to any
Indebtedness or other obligation of such other Person) except endorsements of
negotiable instruments for collection in the ordinary course of business.
"INCREMENTAL PURCHASE" means a purchase of one or more Receivable
Interests which increases the total outstanding Capital hereunder.
"INDEBTEDNESS" means any (a) indebtedness for borrowed money or for
the deferred purchase price of property or services, (b) obligations under
leases which, in accordance with generally accepted accounting principles, are
to be recorded as capital leases, (c) obligations which are evidenced by notes,
acceptances or other instruments, (d) net liabilities under interest rate swap,
foreign currency swap, commodity swap, exchange or cap agreements and (e)
obligations, whether or not assumed, secured by Liens or payable out of proceeds
or production from property now or hereafter owned or acquired; PROVIDED,
HOWEVER, that the term "INDEBTEDNESS" shall not include short-term obligations
payable to suppliers incurred in the ordinary course of business.
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"INDEMNIFIED AMOUNTS" shall have the meaning assigned to such term in
SECTION 9.01.
"INDEMNIFIED PARTY" shall have the meaning assigned to such term in
SECTION 9.01.
"INDEPENDENT DIRECTOR" shall have the meaning assigned to such term in
the Sale Agreement.
"INSOLVENCY EVENT" means, with respect to any Person, the occurrence
of any of the following:
(a) such Person files a petition commencing a voluntary case under any
chapter of the Federal bankruptcy laws; or such Person files a petition,
answer or consent seeking reorganization, arrangement, adjustment, or
composition under any other similar applicable federal law, or shall
consent to the filing of any such petition, answer, or consent; or such
Person appoints, or consents to the appointment of, a custodian, receiver,
liquidator, trustee, assignee, sequestrator or other similar official in
bankruptcy or insolvency of it or of any substantial part of its property;
or such Person makes an assignment for the benefit of creditors, or admits
in writing its inability to pay its debts generally as they become due; or
(b) an order for relief is entered against such Person by a court
having jurisdiction in the premises under any chapter of the Federal
bankruptcy laws; a decree or an order by a court having jurisdiction in the
premises is entered approving as properly filed a petition seeking
reorganization, arrangement, adjustment, or composition of such Person
under any other similar applicable federal law; or a decree or an order of
a court having jurisdiction in the premises for the appointment of a
custodian, receiver, liquidator, trustee, assignee, sequestrator, or other
similar official in bankruptcy or insolvency of such Person or of any
substantial part of its property or for the winding up or liquidation of
its affairs, is entered (each of the foregoing events in this clause (b),
an "INVOLUNTARY INSOLVENCY EVENT").
"INTENDED CHARACTERIZATION" means, for income tax purposes, the
characterization of the acquisition by the Purchasers of Receivable Interests as
a loan or loans by the Purchasers to the Seller secured by the Receivables, the
Related Security, the Collection Accounts and the Collections.
"INVESTORS" means the financial institutions listed on the signature
pages of this Agreement under the heading "INVESTORS" and their respective
successors and assigns.
"LIBO RATE" means the rate per annum equal to the sum of (i) (a) the
rate at which deposits in U.S. Dollars are offered by the Reference Bank to
first-class banks in the London interbank market at approximately 11:00 a.m.
(London time) two Business Days prior to the first day of the relevant Tranche
Period, such deposits being in the approximate amount of the Capital of the
Receivable Interest to be funded or maintained, divided by (b) one minus the
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Reserve Requirement (expressed as a decimal) applicable to such Tranche Period
plus (ii) 0.75%. The LIBO Rate shall be rounded, if necessary, to the next
higher 1/16 of 1%.
"LIQUIDITY TERMINATION DATE" means November 19, 1999, unless such date
is extended by mutual written agreement of the Seller, the Agent and each of the
Purchasers.
"LOSS RESERVE PERCENTAGE" means, as of any Report Date, the greater of
(a) 5% and (b) 3 times the Loss-to-Liquidation Ratio.
"LOSS-TO-LIQUIDATION RATIO" means, as of any Report Date, a fraction,
the numerator of which equals the sum of (a) the aggregate of Receivables that
were 61 to 90 days past due as of the last day of the immediately preceding
Collection Period and (b) the excess, if any, of (i) the aggregate amount of
placed accounts balance during the immediately preceding Collection Period over
(ii) the aggregate amount of placed accounts balance during the second
immediately preceding Collection Period, and the denominator of which is
Collections received during the immediately preceding Collection Period.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (i) the
financial condition, business or operations of the Seller or any Originator,
(ii) the ability of the Seller or any Originator to perform its obligations
under any Transaction Document, (iii) the legality, validity or enforceability
of this Agreement, any Transaction Document or any Collection Account Agreement
or Collection Notice relating to a Collection Account into which a material
portion of Collections are deposited, (iv) the Seller's or any Purchaser's
interest in the Receivables generally or in any significant portion of the
Receivables, the Related Security or the Collections with respect thereto, or
(v) the collectibility of the Receivables generally or of any material portion
of the Receivables.
"MINIMUM ENHANCEMENT AMOUNT" means, as of any Report Date, an amount
equal to the greater of: (a) an amount equal to the product of (i) the Aggregate
Reserve Percentage as of such Report Date and (ii) a fraction the numerator of
which is equal to outstanding Capital as of such Report Date and the denominator
of which is 1 minus such Aggregate Reserve Percentage plus (iii) the Contractual
Dilution as of such Report Date and (b) $5,000,000.
"MONTHLY SERVICING FEE" shall have the meaning specified in SECTION
2.12.
"NET RECEIVABLES BALANCE" means, at anytime, the aggregate Outstanding
Balance of all Eligible Receivables at such time, reduced by the Excess
Concentration Amount.
"NEW CONCENTRATION ACCOUNT" has the meaning assigned to that term in
SECTION 6.01(K).
"NON-DEFAULTING INVESTOR" shall have the meaning assigned to such term
in SECTION 3.05.
"OBLIGOR" means a Person obligated to make payments pursuant to an
invoice.
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"OBLIGOR OVERCONCENTRATION" means, as of any Report Date, the excess
of (a) the aggregate of all amounts of Eligible Receivables owned by the Seller
and generated under accounts receivable with any one Obligor or type of
Receivable as of the last day of the Collection Period immediately preceding
such Report Date over (b) 2% of the Eligible Receivables on the last day of such
immediately preceding Collection Period; provided that the Obligor
Overconcentration with respect to the following Obligors or types of
Receivables, shall be the applicable amount described in clause (a) in excess of
the following percentages respectively, of the Eligible Receivables on the last
day of such immediately preceding Collection Period:
Obligor/Receivable Type Percentage
----------------------- ----------
Chrysler 4%
Ford 7%
General Motors 7%
Caterpillar 3%
Canadian Receivables 6%
OEM Export Receivables 5%
; provided, further, that the Obligor Overconcentration with respect to Genuine
Parts shall be an amount equal to the lesser of (i) $11,000,000 and (ii) the
applicable amount described in clause (a) in excess of 6% of the Eligible
Receivables on the last day of such immediately preceding Collection Period;
provided, further, that the Obligor Overconcentration with respect to Autozone
shall be an amount equal to the lesser of (x) 15,000,000 and (y) the applicable
amount described in clause (a) in excess of 9% of the Eligible Receivables on
the last day of such immediately preceding Collection Period.
"ORIGINATOR" means each of (a) Federal-Mogul, (b) Carter, (c) Federal-
Mogul Canada, and shall include any other wholly-owned Subsidiary of Federal-
Mogul which the Agent and the Purchasers unanimously approve.
"OUTSTANDING BALANCE" of any Receivable at any time means the then
outstanding principal balance thereof, and shall exclude any interest or finance
charges thereon, without regard to whether any of the same shall have been
capitalized.
"PERSON" means an individual, partnership, corporation, association,
trust, or any other entity, or organization, including a Governmental Authority
or other government or political subdivision or agent or instrumentality
thereof.
"POOL BALANCE" means, as of the time of determination thereof, the
aggregate Outstanding Balance of all Receivables owned by the Seller at such
time.
"POTENTIAL AMORTIZATION EVENT" means an event which, with the passage
of time or the giving of notice, or both, would constitute an Amortization
Event.
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"PRO RATA SHARE" means, for each Investor, the Commitment of such
Investor divided by the Purchase Limit, adjusted as necessary to give affect to
the application of the terms of SECTION 2.05.
"PROGRAM FEE" shall have the meaning specified in the Fee Letter.
"PURCHASE LIMIT" means the aggregate of the Commitments of the
Investors hereunder (which aggregate amount is $150,000,000 as of the date of
this Agreement).
"PURCHASE DATE" means the date of the sale by Seller, and the purchase
by Falcon or the Agent on behalf of the Investors, of any Receivables Interests
hereunder.
"PURCHASE NOTICE" shall have the meaning specified in SECTION 2.02(A).
"PURCHASE PRICE" means, with respect to any Incremental Purchase, the
least of:
(a) the amount of Capital requested by the Seller,
(b) the remaining unused portion of the Purchase Limit, and
(c) the maximum amount by which the aggregate outstanding Capital
could be increased such that after giving effect to such increase in
Capital, the Net Receivables Balance will equal or exceed the product of
(i) the sum of 100% plus the Aggregate Reserve Percentage, times (ii) the
aggregate outstanding Capital after giving effect to such Incremental
Purchase.
"PURCHASER" means Falcon and/or an Investor, as applicable.
"PURCHASING INVESTORS" has the meaning assigned to that term in
SECTION 11.01(B).
"REASSIGNMENT AMOUNT" means, with respect to any Settlement Date,
after giving effect to any deposits and distributions otherwise to be made on
such Settlement Date, the sum of (i) the Capital on such Settlement Date, (ii)
the amount of accrued and unpaid Discount relating to such Settlement Date or
any prior Settlement Date which was previously due and unpaid, and (iii) the
amount of any accrued and unpaid Fees and Breakage Costs.
"RECEIVABLE" means all the U.S. dollar denominated and all the
Canadian dollar-denominated accounts receivable shown on the records of Federal-
Mogul or any Originator, and from time to time thereafter, arising from the sale
of merchandise by Federal-Mogul or any Originator in the ordinary course of
business; provided, however, that "Receivable" that includes a Stock Lift shall
-------- -------
be sold to Seller net of any adjustment with respect to such Stock Lift.
"RECEIVABLE INTEREST" means, at any time, an undivided percentage
ownership interest associated with a designated amount of Capital, Discount Rate
and Tranche Period selected pursuant to SECTION 2.03 in: (a) all Receivables
transferred to or otherwise acquired or held by the Seller and arising prior to
the time of the most recent computation or recomputation
15
<PAGE>
of such undivided interest pursuant to Section 2.04, (b) all Related Security
with respect to such Receivables, and (c) all Collections with respect to, and
other proceeds of, such Receivables. Such undivided percentage interest shall
equal:
C
---------------------------------
NRB - (ARP x NRB)
where:
C = the Capital of such Receivable Interest.
ARP = the Aggregate Reserve Percentage.
NRB = the Net Receivables Balance.
"RECORDS" means, with respect to any Receivable, all invoices and
other documents, books, records and other information (including, without
limitation, computer programs, tapes, disks, punch cards, data processing
software and related property and rights) relating to such Receivable, any
Related Security therefor and the related Obligor.
"REDUCTION PERCENTAGE" means, for any Receivable Interest acquired by
the Investors from Falcon for less than the Capital of such Receivable Interest,
a percentage equal to a fraction the numerator of which is the Falcon Transfer
Price Reduction for such Receivable Interest and the denominator of which is the
Capital of such Receivable Interest.
"REFERENCE BANK" means NBD Bank or such other bank as the Agent shall
designate with the consent of the Seller.
"REINVESTMENT" has the meaning assigned to that term in SECTION
2.06(C).
"RELATED SECURITY" means, with respect to any Receivable:
(i) all of the Seller's interest in the goods, the shipment of which
gave rise to such Receivable,
(ii) all other security interests or liens and property subject
thereto from time to time, if any, purporting to secure payment of such
Receivable, whether pursuant to the invoice related to such Receivable or
otherwise, together with all financing statements and security agreements
describing any collateral securing such Receivable,
(iii) all guaranties, insurance and other agreements or arrangements
of whatever character from time to time supporting or securing payment of
such Receivable whether pursuant to the invoice related to such Receivable
or otherwise,
(iv) all Records related to such Receivables,
16
<PAGE>
(v) all of the Seller's right, title and interest in, to and under
the Sale Agreement and each bill of lading, instrument, document or
agreement executed in connection therewith in favor of or otherwise for the
benefit of the Seller; and
(vi) all proceeds of any of the foregoing.
"REPORT DATE" means the fifteenth day of each month, or if such day is
not a Business Day, the next succeeding Business Day.
"REPURCHASE PRICE" means, on any date of determination pursuant to
Section 2.11, an amount equal to the Aggregate Unpaids.
"REQUIRED INVESTORS" means, at any time, Investors with Commitments in
excess of 66-2/3% of the Purchase Limit.
"REQUIRED NOTICE TIME" means, with respect to the Purchase Date of any
Incremental Purchase other than the initial purchase of Receivable Interests
hereunder or the selection of any new Discount Rate or Tranche Period with
respect to a maturing Tranche Period, not later than 11:00 a.m. (New York City
time): (i) at least three Business Days prior to such date if the LIBO Rate is
being requested as the Discount Rate relating to such Incremental Purchase, (ii)
at least three Business Days prior to such date if the CP Rate is being
requested as the Discount Rate relating to such Incremental Purchase and (iii)
at least one Business Day prior to such date if the Base Rate is being requested
as the Discount Rate relating to such Incremental Purchase.
"REQUIREMENTS OF LAW" for any Person shall mean the certificate of
incorporation and by-laws or other organizational or governing documents of such
Person, and any law, treaty, rule or regulation, or determination of an
arbitrator or Governmental Authority, in each case applicable to or binding upon
such Person or to which such Person is subject, whether Federal, state or local
(including usury laws and the Federal Truth in Lending Act).
"RESERVE REQUIREMENT" means the maximum aggregate reserve requirement
(including all basic, supplemental, marginal and other reserves) which is
imposed against the Reference Bank in respect of Eurocurrency liabilities, as
defined in Regulation D of the Board of Governors of the Federal Reserve System
as in effect from time to time.
"RESTRICTED JUNIOR PAYMENT" means (i) any dividend or other
distribution, direct or indirect, on account of any shares of any class of
capital stock of the Seller now or hereafter outstanding, except a dividend
payable solely in shares of that class of stock or in any junior class of stock
to any Originator, (ii) any redemption, retirement, sinking fund or similar
payment, purchase or other acquisition for value, direct or indirect, of any
shares of any class of capital stock of the Seller now or hereafter outstanding,
(iii) any payment or prepayment of principal of, premium, if any, or interest,
fees or other charges on or with respect to, and any redemption, purchase,
retirement, defeasance, sinking fund or similar payment and any claim for
rescission with respect to the Indebtedness evidenced by the Subordinated Notes
(as defined in the Sale Agreement), (iv) any payment made to redeem, purchase,
repurchase or retire, or to obtain the
17
<PAGE>
surrender of, any outstanding warrants, options or other rights to acquire
shares of any class of capital stock of the Seller now or hereafter outstanding,
and (v) any payment of management fees by the Seller.
"SALE AGREEMENT" means that certain Receivables Sale and Contribution
Agreement of even date herewith between the Seller, as purchaser, and the
Originators, as sellers, as the same may be amended, restated, supplemented or
otherwise modified from time to time.
"SECTION" means a numbered section of this Agreement, unless another
document is specifically referenced.
"SERVICER" means at any time the Person (which may be the Agent) then
authorized pursuant to Article VII to service, administer and collect
Receivables.
"SETTLEMENT DATE" means, (a) prior to the earlier to occur of (i) an
Amortization Event or (ii) the Facility Termination Date, the twentieth (20/th/)
day of each month or, if such day is not a Business Day, the next succeeding
Business Day, and (b) from and after the earlier to occur of (i) an Amortization
Event or (ii) the Facility Termination Date, the twentieth (20/th/) day of each
month or, if such day is not a Business Day, the next succeeding Business Day,
and any other Business Day designated by the Agent.
"SETTLEMENT STATEMENT" means a report, in substantially the form of
EXHIBIT C hereto (appropriately completed), furnished by the Servicer to the
Agent pursuant to SECTION 7.05.
"STOCK LIFT" means an account receivable, or portion thereof, as to
which Federal-Mogul or one of its subsidiaries has issued a credit in an amount
equal to the balance of such account receivable or portion thereof.
"SUBSIDIARY" of a Person means (i) any corporation more than 50% of
the outstanding securities having ordinary voting power of which shall at the
time be owned or controlled, directly or indirectly, by such Person or by one or
more of its Subsidiaries or by such Person and one or more of its Subsidiaries,
or (ii) any partnership, association, joint venture or similar business
organization more than 50% of the ownership interests having ordinary voting
power of which shall at the time be so owned or controlled. Unless otherwise
expressly provided, all references herein to a "SUBSIDIARY" shall mean a
Subsidiary of the Seller.
"TAXES" shall have the meaning set forth in SECTION 3.03.
"TERM" means, with respect to each Investor's Commitment, November 19,
1999.
"TRANCHE PERIOD" means, with respect to any Receivable Interest:
(i) if Discount for such Receivable Interest is calculated with
respect to the CP Rate, a period of days not to exceed 270 days commencing
on a Business Day requested by the Seller and agreed to by Falcon;
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<PAGE>
(ii) if Discount for such Receivable Interest is calculated on the
basis of the LIBO Rate, a period of one, two or three months, or such other
period as may be mutually agreeable to the Agent and the Seller, commencing
on a Business Day selected by the Seller or the Agent pursuant to this
Agreement. Such Tranche Period shall end on the day in the applicable
succeeding calendar month which corresponds numerically to the beginning
day of such Tranche Period, PROVIDED, HOWEVER, that if there is no such
numerically corresponding day in such succeeding month, such Tranche Period
shall end on the last Business Day of such succeeding month; and
(iii) if Discount for such Receivable Interest is calculated on the
basis of the Base Rate, a period of 30 days commencing on a Business Day.
If any Tranche Period would end on a day which is not a Business Day, such
Tranche Period shall end on the next succeeding Business Day, PROVIDED, HOWEVER,
that in the case of Tranche Periods corresponding to the LIBO Rate, if such next
succeeding Business Day falls in a new month, such Tranche Period shall end on
the immediately preceding Business Day. In the case of any Tranche Period for
any Receivable Interest of which commences before the Facility Termination Date
and would otherwise end on a date occurring after the Facility Termination Date,
such Tranche Period shall end on the Facility Termination Date. The duration of
each Tranche Period which commences after the Facility Termination Date shall be
of such duration as selected by the Agent.
"TRANSACTION DOCUMENTS" means, collectively, this Agreement, the Sale
Agreement, the Subscription Agreement, the Subordinated Notes (as defined in the
Sale Agreement), the Fee Letter, each Collections Notice and all other
instruments, documents and agreements executed and delivered by the Seller or
any Originator in connection herewith.
"TURNOVER DAYS" means, as of any Report Date, an amount equal to the
Pool Balance as of the last day of the immediately preceding Collection Period
divided by Collections relating to the immediately preceding Collection Period
times 30.
"UCC" means the Uniform Commercial Code as from time to time in effect
in the specified jurisdiction.
"WEEKLY SETTLEMENT DATE" has the meaning assigned to that term in
SECTION 7.07.
"WEEKLY REPORT" has the meaning assigned to that term in SECTION 7.07.
"YEAR 2000 PROBLEM" means any significant risk that computer hardware
or software used in the business or operations of the Seller, in the case of
dates or time periods occurring after December 31, 1999, function at least as
effectively and reliably as in the case of dates or time periods occurring
before January 1, 2000.
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Section 1.02. Other Definitional Provisions.
-----------------------------
(a) All accounting terms not specifically defined herein shall be
construed in accordance with generally accepted accounting principles in effect
in the United States from time to time.
(b) All terms used in Article 9 of the UCC in the State of New York,
and not specifically defined herein, are used herein as defined in such Article
9.
(c) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Section, subsection,
Schedule and Exhibit references are to this Agreement unless otherwise
specified.
(d) Meanings given to terms defined herein shall be equally applicable
to both the singular and plural forms of such terms.
ARTICLE II
AMOUNTS AND TERMS OF THE PURCHASES
Section 2.01. Purchase Facility; Reduction of Purchase Limit.
----------------------------------------------
(a) Upon the terms and subject to the conditions hereof, from time to
time prior to the Facility Termination Date: (i) the Seller may, at its option,
sell and assign Receivable Interests to the Agent for the benefit of Falcon or
the Investors, and (ii) Falcon may, at its option, instruct the Agent to
purchase one or more Receivable Interests on behalf of Falcon, or if Falcon
shall decline to purchase a particular Receivable Interest, unless the Seller
cancels such purchase in accordance with SECTION 2.02(B), the Agent shall
purchase such Receivable Interest on behalf of the Investors.
(b) The Seller may, upon at least 30 days' prior written irrevocable
notice to the Agent, terminate in whole or permanently reduce in part, ratably
among the Investors, the unused portion of the Purchase Limit; PROVIDED THAT
each partial reduction of the Purchase Limit shall be in a minimum amount equal
to $2,000,000 or a larger integral multiple of $1,000,000.
Section 2.02. Making the Initial Purchase and Subsequent Incremental
------------------------------------------------------
Purchases.
- - ---------
(a) The Seller shall provide the Agent with a prior written notice, in
substantially the form of EXHIBIT A hereto (each, a "PURCHASE NOTICE"):
(i) in the case of the initial purchase of Receivable Interests
hereunder, not later than 12:00 noon (New York City time) on the Business
Day immediately preceding such purchase, and
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<PAGE>
(ii) in the case of all subsequent Incremental Purchases, not later
than the Required Notice Time.
Each Purchase Notice shall, except as set forth below, be irrevocable and shall
specify the Purchase Price (in each case, not to be less than $2,000,000 or a
larger integral multiple of $1,000,000) and the proposed Purchase Date, initial
Tranche Period and initial Discount Rate related thereto. The Agent shall
promptly (and in any event on or prior to 11:00 a.m. (New York City time) on the
applicable Purchase Date) notify the Seller and each Investor if Falcon elects
in its discretion not to make the initial Purchase or any subsequent Incremental
Purchase.
(b) Following receipt of a Purchase Notice, the Agent will determine
whether Falcon agrees to make the purchase. If Falcon declines to make the
initial purchase or any subsequent Incremental Purchase, the Agent shall
promptly advise the Seller and the Servicer of such fact, and: (i) the Seller
may thereupon cancel the Purchase Notice or (ii) in the absence of such a
cancellation, such initial purchase or any Incremental Purchase will be made by
the Investors.
(c) On each Purchase Date, upon satisfaction of the applicable
conditions precedent set forth in ARTICLE V, Falcon or each Investor, as
applicable, shall deposit to the Facility Account, in immediately available
funds, no later than 1:00 p.m. (New York City time), an amount equal to:
(i) in the case of Falcon, the aggregate Purchase Price of each
Receivable Interest Falcon is then purchasing, or
(ii) in the case of an Investor, such Investor's Pro Rata Share of
the aggregate Purchase Price of each of the Receivable Interests the
Investors are purchasing.
Section 2.03. Selection of Tranche Periods and Discount Rates.
-----------------------------------------------
(a) Each Receivable Interest shall at all times have an associated
amount of Capital, a Discount Rate and Tranche Period applicable to it. Not less
than $2,000,000 of Capital (or a larger integral multiple of $1,000,000) may be
allocated to any single Receivable Interest. The Seller shall request Discount
Rates and Tranche Periods for the Receivable Interests of the Purchasers as
follows (i) for the Receivable Interests of Falcon, the Seller may select a CP
Rate (with the concurrence of the Agent) or the Base Rate; and (ii) for the
Receivable Interests of the Investors, the Seller may select the LIBO Rate or
the Base Rate. The Seller shall select Discount Rates and Tranche Period by
giving the Agent irrevocable notice of the new Tranche Period and Discount Rate
for the Receivable Interest associated with such expiring Tranche Period not
later than the Required Notice Time. The Agent shall, promptly following its
knowledge thereof, advise the Seller in any instance if the Tranche Period
selected by the Seller at any time is not acceptable to Falcon or the Investors,
as applicable. If the Seller fails to request a Discount Rate and/or a Tranche
Period for any Receivable Interest pursuant to the terms of this SECTION 2.03 on
a timely basis, or the Seller and the Agent fail to agree on an acceptable
duration for any Tranche Period, the Discount Rate shall be the CP Rate (if
Falcon is the applicable Purchaser) or the Base Rate, in the Agent's sole
discretion, and the applicable Tranche Period shall be a period of one
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<PAGE>
Business Day commencing on the day requested in the Purchase Notice or the last
day of the then expiring Tranche Period for such Receivable Interest, as
applicable. Until the Seller gives timely notice to the Agent of another
Discount Rate, the initial Discount Rate for any Receivable Interest transferred
from Falcon to the Investors pursuant to SECTION 3.01 shall be the Base Rate.
(b) If any Investor notifies the Agent that it has determined that
funding its Pro Rata Share of the Receivable Interests of the Investors at a
LIBO Rate would violate any applicable law, rule, regulation, or directive of
any governmental or regulatory authority, whether or not having the force of
law, or that (i) deposits of a type and maturity appropriate to match fund its
Receivable Interests at such LIBO Rate are not available or (ii) such LIBO Rate
does not accurately reflect the cost of acquiring or maintaining a Receivable
Interest at such LIBO Rate, then the Agent shall suspend the availability of
such LIBO Rate and require the Seller to select a new Discount Rate for any
Receivable Interest accruing Discount at such LIBO Rate.
Section 2.04. Percentage Evidenced by Receivable Interests. Each
--------------------------------------------
Receivable Interest shall be initially computed on its Purchase Date.
Thereafter, until the Facility Termination Date, each Receivable Interest shall
be automatically recomputed (or deemed to be recomputed) on each day prior to
the Facility Termination Date. The variable percentage represented by any
Receivable Interest as computed (or deemed recomputed) as of the close of
business on the day immediately preceding the Facility Termination Date shall
remain constant at all times thereafter.
Section 2.05. Dividing or Combining Receivable Interests. The Seller
------------------------------------------
or the Agent may, upon notice to and consent by the other received not later
than the Required Notice Time for any Receivable Interest, take any of the
following actions with respect to such Receivable Interest: (i) divide the
Receivable Interest into two or more Receivable Interests having aggregate
Capital equal to the Capital of such divided Receivable Interest, (ii) combine
the Receivable Interest with another Receivable Interest with a Tranche Period
ending on the same day, creating a new Receivable Interest having Capital equal
to the Capital of the two Receivable Interests combined or (iii) combine the
Receivable Interest with a Receivable Interest to be purchased on such day by
such Purchaser, creating a new Receivable Interest having Capital equal to the
Capital of the two Receivable Interests combined, provided that a Receivable
Interest of Falcon may not be combined with a Receivable Interest of the
Investors.
Section 2.06. Reinvestments and Pre-Liquidation Settlements. At any
---------------------------------------------
time that any Collection is received by the Servicer from and after its Purchase
Date and on or prior to the Facility Termination Date:
(a) the Servicer (at any time the Servicer is not a Federal-Mogul
Affiliate) may retain a portion of such Collection in payment of any
Monthly Servicing Fee then due and owing;
(b) thereafter, the Servicer is hereby directed to pay a portion of
the remainder, if any, of such Collection to the Agent in payment of any
accrued and unpaid
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Discount, Fees and Breakage Costs (if any), in each case that are due and
owing on such day; and
(c) thereafter, except to the extent the Seller wishes to reduce the
outstanding amount of Capital of a Receivable Interest (in which case the
provisions of SECTION 2.07 shall be applicable to the portion of such
Receivable Interest represented by such reduction in Capital), the Seller
hereby requests and the Purchasers hereby agree to make, simultaneously
with such receipt, a reinvestment (each, a "REINVESTMENT") with that
portion of the remainder of such Collection that is part of such Receivable
Interest such that after giving effect to such Reinvestment, the amount of
the Capital of such Receivable Interest immediately after any such receipt
and corresponding Reinvestment shall be equal to the amount of the Capital
immediately prior to such receipt;
(d) thereafter, the Servicer (if the Servicer is a Federal-Mogul
Affiliate) may retain a portion of the remainder, if any, of such
Collection to payment of the Monthly Servicing Fee;
(e) thereafter, if requested by the Seller, any remaining portion of
such Collection may be applied to making an additional Incremental Purchase
in accordance with the terms of this Agreement; and
(f) finally, any remaining portion of such Collection shall be paid to
the Seller, as the Seller may direct.
Section 2.07. Liquidation Settlement Procedures. On the Facility
---------------------------------
Termination Date and on each day thereafter, the Servicer shall set aside and
hold in trust: (a) for the Purchasers, the percentage evidenced by each
Receivable Interest of Collections received on such day, and (b) for the Seller,
all remaining Collections. On each Settlement Date following the Facility
Termination Date:
(i) the Servicer shall remit to the Agent, by transfer of immediately
available funds to the account specified in SECTION 2.09(D), the amounts
set aside pursuant to SECTION 2.07(A), together with any remaining amounts
set aside pursuant to SECTION 2.08 prior to such day, but not to exceed the
sum of (A) the accrued Discount for such Receivable Interest, (B) the
Capital of such Receivable Interest, (c) the aggregate of all fees and
other amounts then owed hereunder or under the Fee Letter by Seller to the
Agent or any of the Purchasers, and (D) the accrued Monthly Servicing Fee
for such Receivable Interest; and
(ii) the Servicer shall remit to the Seller the Seller's undivided
percentage interest of all Collections in respect of such Receivable
Interest which are received on and after the Facility Termination Date.
If there shall be insufficient funds on deposit for the Servicer to distribute
funds to the Agent in payment in full of the amounts described in the foregoing
clause (i), the Servicer shall distribute such funds:
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first, to reimbursement of the Agent's costs of collection and
-----
enforcement of the Transaction Documents,
second, to the Servicer (if the Servicer is not a Federal-Mogul
------
Affiliate) in payment of all accrued Monthly Servicing Fee in respect of
such Receivable Interest,
third, in payment of all accrued Discount and Breakage Costs for such
-----
Receivable Interest,
fourth, in reduction of the Capital of the Receivable Interests,
------
fifth, in payment of all Fees and Indemnified Amounts, if any, then
-----
due and owing hereunder to the Agent or the Purchasers, and
sixth, to the Servicer (if the Servicer is a Federal-Mogul Affiliate)
-----
in payment of all accrued Monthly Servicing Fee in respect of such
Receivable Interest.
Collections allocated to the Receivable Interests of the Investors shall be
shared ratably by the Investors in accordance with their Pro Rata Shares.
Collections applied to the payment of costs of collection and enforcement,
Discount, Fees, Breakage Costs and/or Indemnified Amounts shall be allocated
ratably among the Agent and the Purchasers in accordance with such amounts owing
to each of them. To the extent Collections are available for such purpose in
accordance with the foregoing, the accrued Monthly Servicing Fee in respect of
each Receivable Interest shall be remitted to the Servicer. Following the date
on which the Aggregate Unpaids are reduced to zero, the Servicer shall pay to
Seller any remaining Collections set aside and held by the Servicer pursuant to
this SECTION 2.07.
Section 2.08. Deemed Collection of Dilutions and Certain Other
------------------------------------------------
Recourse Obligations.
- - --------------------
(a) If on any day the Outstanding Balance of any Receivable is either
(i) reduced as a result of any defective or rejected services, any cash discount
or any adjustment by the Seller, the Servicer or any Originator or (ii) reduced
or canceled as a result of a setoff in respect of any claim by any Person
(whether such claim arises out of the same or a related transaction or an
unrelated transaction), the Seller shall be deemed to have received on such day
a Collection of such Receivable in the amount of such reduction or cancellation.
(b) If on any day any of the representations or warranties in SECTIONS
4.01(I), (J), (L), (N) OR (O) are no longer true with respect to a Receivable,
the Seller shall be deemed to have received on such day, a Collection of such
Receivable in full.
(c) If on any day the representation and warranty in Section 4.01(s)
is no longer true, the Seller shall be deemed to have received on such day
Collections of Receivables in full such that the representation and warranty in
Section 4.01(s) is true and correct on such day.
24
<PAGE>
(d) If the Seller receives any Collections or is deemed to receive
Collections pursuant to this SECTION 2.08 or otherwise, the Seller shall pay
such Collections or deemed Collections to the Servicer prior to the next
succeeding Settlement Date and at all times prior to such payment, such
Collections shall be held in trust by the Seller for the exclusive benefit of
the Purchasers and the Agent.
Section 2.09. Discount: Payments and Computations, Etc.
----------------------------------------
(a) Discount shall accrue for each Receivable Interest for each day
occurring during the Tranche Period for such Receivable Interest. On each
Settlement Date, the Agent shall deduct from Collections remitted to it pursuant
to SECTION 2.06 OR 2.07, as applicable, an amount equal to the accrued and
unpaid Discount for the Collection Period then most recently ended.
(b) Notwithstanding any limitation on recourse contained in this
Agreement, the Seller shall pay to the Agent, for the account of the relevant
Purchasers, the Administration Fee and Program Fees pursuant to the Fee Letter,
all amounts payable pursuant to ARTICLE IX, if any, all Servicer costs, if any,
payable pursuant to SECTION 7.02 and on demand therefor, any Breakage Costs. If
any Person fails to pay any amount when due hereunder, such Person agrees to
pay, on demand, the Default Fee.
(c) All amounts to be paid or deposited by any Person hereunder shall
be paid or deposited in accordance with the terms hereof no later than 1:00 p.m.
(New York City time) on the day when due in immediately available funds; if such
amounts are payable to a Purchaser they shall be paid to the Agent, for the
account of such Purchaser, at the account specified in SECTION 2.09(D) until
otherwise notified by the Agent. The Agent shall, in accordance with its
customary practice, provide monthly invoices from time to time to the Seller in
respect of Discount and other fees and expenses payable by the Seller hereunder.
In the event the Seller shall at any time fail to pay any amount when due
hereunder, the Agent may, on notice to the Seller, debit the Facility Account
for such amount. All computations of Discount and per annum fees hereunder and
under the Fee Letter shall be made on the basis of a year of 360 days for the
actual number of days elapsed (including the first but excluding the last day).
All per annum fees shall be payable monthly in arrears on Settlement Dates. If
any amount hereunder shall be payable on a day which is not a Business Day, such
amount shall be payable on the next succeeding Business Day.
(d) All amounts payable to the Agent or any Purchaser under this
Agreement or the Fee Letter shall be made in immediately available funds to FMSD
Clearing Account no. 7521-7683 at The First National Bank of Chicago, in
Chicago, Illinois, ABA No. 071000013, Reference: Federal-Mogul Funding
Corporation, until otherwise notified by the Agent.
(e) In the event that the amount in clause (b) of the definition of
Breakage Costs exceeds the amount referred to in clause (a) of the definition of
Breakage Costs, the relevant Purchaser or Purchasers agree to pay to the Seller
the amount of such excess.
Section 2.10. Maximum Aggregate of Receivable Interests; Grant of
---------------------------------------------------
Security Interest. The Seller shall ensure that the aggregate Receivable
- - -----------------
Interests of the Purchasers shall at
25
<PAGE>
no time exceed 100%. If, on any day, the aggregate Receivable Interests of the
Purchasers exceeds 100%, the Seller shall, not later than the next succeeding
Settlement Date, pay to the Agent an amount to be applied to reduce the Capital
of the Receivable Interests, such that after giving effect to such payment the
aggregate of the Receivable Interest equals or is less than 100%. Such amount
shall be applied to the reduction of the Capital of the Receivable Interests
ratably in accordance with the percentages of the Receivable Interests. Any
amounts received by the Investors pursuant to the preceding sentence shall be
applied ratably in accordance with their Pro Rata Shares. The Seller hereby
grants to the Agent for the ratable benefit of the Purchasers a security
interest in all of its interest in the Receivables, Related Security,
Collections and proceeds thereof to secure payment of the Aggregate Unpaids,
including its indemnity obligations under ARTICLE IX and all other obligations
owed hereunder to the Purchasers.
Section 2.11. Seller's Extinguishment. The Seller shall have the
-----------------------
right, on not less than thirty (30) days' written notice to the Agent, at any
time following the reduction of the Capital to a level that is less than 10.0%
of the original Purchase Limit, to repurchase from the Purchasers all, but not
less than all, of the then outstanding Receivable Interests by paying the
Repurchase Price therefor in immediately available funds to the Facility
Account. Such repurchase shall be without representation, warranty or recourse
of any kind by, on the part of, or against any Purchaser or the Agent, except
that the Receivable Interests reconveyed to the Seller have been reconveyed free
and clear of any Adverse Claim created by the Agent or any of the Purchasers.
Section 2.12. Servicing Compensation. The monthly servicing fee
----------------------
(the "MONTHLY SERVICING FEE") shall be payable to the Servicer, either (a)
through withdrawals from Collections as provided in SECTIONS 2.06 AND 2.07 or
(b) shall be payable in arrears, on each Settlement Date in respect of any
Collection Period (or portion thereof) occurring prior to the earlier of the
first Settlement Date following reduction of the Pool Balance to zero and the
first Settlement Date on which Capital is zero. The Monthly Servicing Fee shall
be an amount equal to the product of (a) 0.50% per annum and (b) the Pool
Balance and (c) a fraction, the numerator of which is the actual number of days
in the preceding Collection Period and the denominator of which is 360. The
Monthly Servicing Fee shall be payable to the Servicer solely to the extent
amounts are available for distribution in accordance with the terms of SECTIONS
2.06 AND 2.07.
ARTICLE III
LIQUIDITY FACILITY
Section 3.01. Transfer to Investors. Each Investor hereby agrees,
---------------------
subject to SECTION 3.04, that immediately upon written notice from Falcon
delivered on or prior to the Liquidity Termination Date, it shall acquire by
assignment from Falcon. without recourse or warranty, its Pro Rata Share of one
or more of the Receivable Interests of Falcon as specified by Falcon. Each
Investor shall promptly pay to the Agent at an account designated by the Agent,
for the benefit of Falcon, its Acquisition Amount. Unless an Investor has
notified the Agent that it does not intend to pay its Acquisition Amount, the
Agent may assume that such payment has been made and may, but shall not be
obligated to, make the amount of such payment available to
26
<PAGE>
Falcon in reliance upon such assumption. Falcon hereby sells and assigns to the
Agent for the ratable benefit of the Investors, and the Agent hereby purchases
and assumes from Falcon, effective upon the receipt by Falcon of the Falcon
Transfer Price, the Receivable Interests of Falcon which are the subject of any
transfer pursuant to this ARTICLE III.
Section 3.02. Transfer Price Reduction Discount. If the Adjusted
---------------------------------
Liquidity Price is included in the calculation of the Falcon Transfer Price for
any Receivable Interest, each Investor agrees that the Agent shall pay to Falcon
the Reduction Percentage of any Discount received by the Agent with respect to
such Receivable Interest.
Section 3.03. Payments to Falcon. In consideration for the
------------------
reduction of the Falcon Transfer Prices by the Falcon Transfer Price Reductions,
effective only at such time as the aggregate amount of the Capital of the
Receivable Interests of the Investors equals the Falcon Residual, each Investor
hereby agrees that the Agent shall not distribute to the Investors and shall
immediately remit to Falcon any Discount, Collections or other payments received
by it to be applied pursuant to the terms hereof or otherwise to reduce the
Capital of the Receivable Interests of the Investors.
Section 3.04. Limitation on Commitment to Purchase from Falcon.
------------------------------------------------
Notwithstanding anything to the contrary in this Agreement, no Investor shall
have any obligation to purchase any Receivable Interest from Falcon, pursuant to
SECTION 3.01 or otherwise, if an Insolvency Event with respect to Falcon has
occurred.
Section 3.05. Defaulting Investors. If one or more Investors
--------------------
defaults in its obligation to pay its Acquisition Amount pursuant to SECTION
3.01 (each such Investor shall be called a "DEFAULTING INVESTOR" and the
aggregate amount of such defaulted obligations being herein called the "FALCON
TRANSFER PRICE DEFICIT"), then upon notice from the Agent, each Investor other
than the Defaulting Investors (a "NON-DEFAULTING INVESTOR") shall promptly pay
to the Agent, in immediately available funds, an amount equal to the lesser of
(x) such Non-Defaulting Investor's proportionate share (based upon the relative
Commitments of the Non-Defaulting Investors) of the Falcon Transfer Price
Deficit and (y) the unused portion of such Non-Defaulting Investor's Commitment.
A Defaulting Investor shall forthwith upon demand pay to the Agent for the
account of the Non-Defaulting Investors all amounts paid by each Non-Defaulting
Investor on behalf of such Defaulting Investor, together with interest thereon,
for each day from the date a payment was made by a Non-Defaulting Investor until
the date such Non-Defaulting Investor has been paid such amounts in full, at a
rate per annum equal to the Federal Funds Effective Rate plus 0.5% for the two
Business Days and 2.0% per annum thereafter. In addition, without prejudice to
any other rights that Falcon may have under applicable law, each Defaulting
Investor shall pay to Falcon forthwith upon demand, the difference between such
Defaulting Investor's unpaid Acquisition Amount and the amount paid with respect
thereto by the non-Defaulting Investors, together with interest thereon, for
each day from the date of the Agent's request for such Defaulting Investor's
Acquisition Amount pursuant to SECTION 3.01 until the date the requisite amount
is paid to Falcon in full, at a rate per annum equal to the Federal Funds
Effective Rate plus 2.0%.
27
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.01. Seller Representations and Warranties. The Seller
-------------------------------------
hereby represents and warrants to the Agent and the Purchasers that:
(a) Corporate Existence and Power. The Seller is a corporation duly
-----------------------------
organized and validly existing and in good standing under the law of the State
of Michigan and has, in all material respects, full corporate power, authority
and legal right to own its properties and conduct its business as such
properties are presently owned and such business is presently conducted, and to
execute, deliver and perform its obligations under the Transaction Documents to
which it is a party.
(b) Due Qualification. The Seller is duly qualified to do business
-----------------
and, where necessary, is in good standing as a foreign corporation (or is exempt
from such requirement) and has obtained all necessary licenses and approvals in
each jurisdiction in which the conduct of its business requires such
qualification except where the failure to so qualify, be in good standing or
obtain licenses or approvals would not have a Material Adverse Effect.
(c) Due Authorization; No Conflict. The execution and delivery of the
------------------------------
Transaction Documents to which the Seller is a party, the performance of the
transactions contemplated thereby and the fulfillment of the terms thereof, will
not conflict with, result in any breach of any of the material terms and
provisions of, or constitute (with or without notice or lapse of time or both) a
material default under, any indenture, contract, agreement, mortgage, deed of
trust, or other instrument to which the Seller is a party or by which it or its
properties are bound. The execution and delivery of the Transaction Documents to
which the Seller is a party, the performance of the transactions contemplated
thereby and the fulfillment of the terms thereof which are applicable to the
Seller, will not conflict with or violate any material Requirements of Law
applicable to the Seller.
(d) No Consents. Other than the filing of the financing statements
-----------
required hereunder, no authorization or approval or other action by, and no
notice to or filing with, any Governmental Authority or regulatory body is
required for the due execution, delivery and performance by the Seller of the
Transaction Documents to which it is a party, other than authorizations,
approvals, actions, notices or filings the failure to obtain or perform would
not reasonably be expected to have a Material Adverse Effect.
(e) Binding Effect. The Transaction Documents to which the Seller
--------------
is a party have been duly executed and delivered by the Seller and constitute
the legal, valid and binding obligations of the Seller enforceable against the
Seller in accordance with their respective terms, except as such enforcement may
be limited by applicable bankruptcy, insolvency, reorganization or other similar
laws relating to or limiting creditors' rights in general and except as such
enforceability may be limited by general principles of equity (whether
considered in a suit at law or in equity).
28
<PAGE>
(f) No Proceedings. There are no actions, suits or proceedings
--------------
pending, or to the best of the Seller's knowledge, threatened, against or
affecting the Seller or any Originator, or any of the respective properties of
the Seller or any Originator, in or before any court, arbitrator or other body,
which are reasonably likely to have a Material Adverse Effect. Neither the
Seller nor any Originator is in default with respect to any order of any court,
arbitrator or Governmental Authority.
(g) Accuracy of Information. All information heretofore furnished by
-----------------------
the Seller or any of its Affiliates to the Agent or the Purchasers for purposes
of or in connection with this Agreement, any of the other Transaction Documents
or any transaction contemplated hereby or thereby is, and all such information
hereafter furnished by the Seller or any of its Affiliates to the Purchasers
will be, true and accurate in every material respect, on the date such
information is stated or certified and does not and will not contain any
material misstatement of fact or omit to state a material fact or any fact
necessary to make the statements contained therein not misleading.
(h) Use of Proceeds. No proceeds of any purchase hereunder will be
---------------
used for "purchasing" or "carrying" any "margin stock" within the respective
meanings of each of the quoted terms under Regulation G and Regulation U of the
Board of Governors of the United States Federal Reserve System as now and from
time to time hereafter in effect or for any purpose which violates the
provisions of the Regulations of such Board of Governors (including but not
limited to the provisions of Regulation G, Regulation U and Regulation X) or any
similar rule of any other Governmental Authority.
(i) Title to Receivables. Each Receivable has been purchased by the
--------------------
Seller from an Originator in accordance with the terms of the Sale Agreement,
and the Seller has thereby irrevocably obtained all legal and equitable title
to, and has the legal right to sell and encumber, such Receivable, its
Collections and the Related Security. Each such Receivable has been transferred
to the Seller free and clear of any Adverse Claim. Without limiting the
foregoing, there has been duly filed all financing statements or other similar
instruments or documents necessary under the UCC of all appropriate
jurisdictions (or any comparable law) to perfect the Seller's ownership interest
in such Receivable.
(j) Good Title; Perfection. Immediately prior to each purchase
----------------------
hereunder, the Seller shall be the legal and beneficial owner of the Receivables
and Related Security with respect thereto, free and clear of any Adverse Claim,
except as created by the Transaction Documents. This Agreement is effective to,
and shall, upon each purchase hereunder, transfer to the relevant Purchaser or
Purchasers (and such Purchaser or Purchasers shall acquire from the Seller) a
valid and perfected first priority undivided percentage ownership interest in
each Receivable existing or hereafter arising and in the Related Security and
Collections with respect thereto, free and clear of any Adverse Claim, except as
created by the Transactions Documents.
(k) Places of Business. The principal places of business and chief
------------------
executive office of the Seller and the offices where the Seller keeps all its
Records are located at the address(es) listed on EXHIBIT D or such other
locations notified to the Agent in accordance with
29
<PAGE>
SECTION 6.02(A) in jurisdictions where all action required by SECTION 6.02(A)
has been taken and completed. The Seller's Federal Employer Identification
Number is correctly set forth on EXHIBIT D.
(l) Collection Banks; etc. Except as otherwise notified to the
---------------------
Agent in accordance with Section 6.02(b):
(i) the Seller has instructed, or has required the Originators and
the Servicer to instruct, all Obligors to pay all Collections directly to a
segregated lock-box identified on EXHIBIT E hereto,
(ii) in the case of all proceeds remitted to any such lock-box which
is now or hereafter established, such proceeds will be deposited directly
by the applicable Collection Bank into a concentration account or a
depository account listed on EXHIBIT E,
(iii) the names and addresses of all Collection Banks, together with
the account numbers of the Collection Accounts of the Seller at each
Collection Bank, are listed on EXHIBIT E, and
(iv) each lock-box and Collection Account to which Collections are
remitted shall be subject to a Collection Account Agreement that is then in
full force and effect.
In the case of lock-boxes and Collection Accounts identified on EXHIBIT E which
were established by any Originator or by any Person other than the Seller,
exclusive dominion and control thereof has been transferred to the Seller. The
Seller has not granted any Person, other than the Agent as contemplated by this
Agreement, dominion and control of any lock-box or Collection Account, or the
right to take dominion and control of any lock-box or Collection Account at a
future time or upon the occurrence of a future event.
(m) Names. In the past five years, the Seller has not used any
-----
corporate names, trade names or assumed names other than the name in which it
has executed this Agreement.
(n) Credit Policies. With respect to each Receivable, each of the
---------------
Originators, the Seller and the Servicer has complied in all material respects
with the Credit Policies.
(o) Payments to Originator. With respect to each Receivable
----------------------
transferred to the Seller, the Seller has given reasonably equivalent value to
the applicable Originator in consideration for such transfer of such Receivable
and the Related Security with respect thereto under the Sale Agreement and such
transfer was not made for or on account of an antecedent debt. No transfer or
contribution by any Originator of any Receivable is or may be voidable under any
Section of the Federal Bankruptcy Reform Act of 1978 (11 U.S.C. (S)(S) 101 et
seq.), as amended.
30
<PAGE>
(p) Ownership of the Seller. Federal-Mogul directly owns 100% of the
-----------------------
issued and outstanding capital stock of the Seller. Such capital stock is
validly issued, fully paid and nonassessable and there are no options, warrants
or other rights to acquire securities of the Seller.
(q) Not an Investment Company. The Seller is not an `investment
-------------------------
company" within the meaning of the Investment Company Act of 1 940, as amended
from time to time, or any successor statute.
(r) Purpose. The Seller has determined that, from a business
-------
viewpoint, the purchase of Receivables and related interests from the
Originators under the Sale Agreement, and the sale of Receivable Interests to
the Purchasers and the other transactions contemplated herein, are in the best
interest of the Seller.
(s) Net Receivables Balance. Both before and after giving effect to
-----------------------
each Incremental Purchase and Reinvestment, the Net Receivables Balance equals
or exceeds the product of (i) 100% + the Aggregate Reserve Percentage,
multiplied by (ii) the aggregate Capital outstanding.
(t) Year 2000 Problem. Seller has reviewed its operations with a view
-----------------
to assessing whether its business will, in the receipt, transmission,
processing, manipulation, storage, retrieval, retransmission, or other
utilization of data be vulnerable to a Year 2000 Problem that could reasonably
be expected to have a Material Adverse Effect. Based on such review, Seller has
no reason to believe that a Material Adverse Effect will occur with respect to
its business or operations resulting from a Year 2000 Problem.
Section 4.02. Investor Representations and Warranties. Each Investor
---------------------------------------
hereby represents and warrants to the Agent, the other Purchasers and the Seller
that:
(a) Existence and Power. Such Investor is a corporation or a banking
-------------------
association duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation or organization, and has all corporate
power to perform its obligations hereunder.
(b) No Conflict. The execution, delivery and performance by such
-----------
Investor of this Agreement are within its corporate powers, have been duly
authorized by all necessary corporate action, do not contravene or violate (i)
its certificate or articles of incorporation or association or by-laws, (ii) any
law, rule or regulation applicable to it, (iii) any restrictions under any
agreement, contract or instrument to which it is a party or any of its property
is bound, or (iv) any order, writ, judgment, award, injunction or decree binding
on or affecting it or its property, and do not result in the creation or
imposition of any Adverse Claim on its assets. This Agreement has been duly
authorized, executed and delivered by such Investor.
(c) Governmental Authorization. No authorization or approval or other
--------------------------
action by, and no notice to or filing with, any governmental authority or
regulatory body is required for the due execution, delivery and performance by
such Investor of this Agreement.
31
<PAGE>
(d) Binding Effect. This Agreement constitutes the legal, valid and
--------------
binding obligation of such Investor enforceable against such Investor in
accordance with its terms, except as such enforcement may be limited by
applicable bankruptcy, insolvency, reorganization or other similar laws relating
to or limiting creditors' rights generally.
ARTICLE V
CONDITIONS OF PURCHASES
Section 5.01. Conditions Precedent to Initial Purchase. The initial
----------------------------------------
purchase of a Receivable Interest under this Agreement is subject to the
conditions precedent that (a) the Agent shall have received on or before the
date of such purchase those documents listed on SCHEDULE A hereto, and (b) the
Agent shall have been paid all fees required to be paid on such date pursuant to
the terms of the Fee Letter.
Section 5.02. Conditions Precedent to All Purchases and
-----------------------------------------
Reinvestments. Each purchase of a Receivable Interest (other than pursuant to
- - -------------
SECTION 3.01) and each Reinvestment shall be subject to the further conditions
precedent that:
(a) in the case of each Incremental Purchase, the Servicer shall
have delivered to the Agent on or prior to the Purchase Date all Settlement
Statements as and when due under SECTION 7.05;
(b) on the date of each Incremental Purchase or Reinvestment, the
following statements shall be true both before and after giving effect to such
purchase or Reinvestment (and acceptance of the proceeds of such purchase or
Reinvestment shall be deemed a representation and warranty by the Seller that
such statements are then true):
(i) the representations and warranties set forth in SECTION 4.01 are
correct on and as of the date of such purchase or Reinvestment as though
made on and as of such date;
(ii) no event has occurred, or would result from such purchase or
Reinvestment, that will constitute an Amortization Event, and no event has
occurred and is continuing, or would result from such purchase or
Reinvestment, that would constitute a Potential Amortization Event; and
(iii) neither the Liquidity Termination Date nor the Facility
Termination Date shall have occurred, the aggregate Capital of all
Receivable Interests shall not exceed the Purchase Limit and the aggregate
Receivable Interests shall not exceed 100%; and
(iv) if the proposed date of such purchase or Reinvestment is a
Settlement Date, the Seller shall have paid immediately available funds in
the amount of any Coverage Shortfall that will exist after giving effect to
such purchase or Reinvestment to the Agent for distribution to the
Purchasers; and
32
<PAGE>
(c) the Agent shall have received such other approvals, opinions or
documents as it may reasonably request.
ARTICLE VI
COVENANTS OF THE SELLER
Section 6.01. Affirmative Covenants of Seller. Until the date on
-------------------------------
which the Aggregate Unpaids have been indefeasibly paid in full, the Seller
hereby covenants and agrees that:
(a) Notices. Except as set forth in clauses (vii) and (viii) below,
-------
the Seller will notify the Agent in writing of any of (x) the events specified
below in clauses (i) and (iv) immediately, and (y) the events specified in
clauses (ii), (iii), (v) and (vi) within three Business Days, in each case, upon
learning of the occurrence thereof, describing the same and, if applicable, the
steps being taken with respect thereto:
(i) Amortization Events or Potential Amortization Events. The
----------------------------------------------------
occurrence of each Amortization Event or Potential Amortization Event, by a
statement of the Chief Financial Officer, the Treasurer or the Assistant
Treasurer of the Seller;
(ii) Judgment. The entry of any judgment or decree against the
--------
Seller;
(iii) Litigation. The institution of any litigation, arbitration
----------
proceeding or governmental proceeding against the Seller or to which the
Seller becomes party;
(iv) Termination Date under Sale Agreement. The declaration by
-------------------------------------
Federal-Mogul of the "TERMINATION DATE" under the Sale Agreement; and/or
(v) Downgrade. Any downgrade in the rating of any Indebtedness
---------
of Federal-Mogul by Standard & Poor's Ratings Group or by Moody's Investors
Service, Inc., setting forth the Indebtedness affected and the nature of
such change.
(vi) Copies of Notices, Etc. under Sale Agreement and Other
------------------------------------------------------
Transaction Documents. Forthwith upon its receipt of any notice, request
---------------------
for consent, financial statements of Federal-Mogul, certification, report
or other communication under or in connection with any Transaction Document
from any Person other than the Agent or Falcon, copies of the same.
(vii) Change in Credit Policies. At least 30 days prior to the
-------------------------
effectiveness of any material change in or amendment to the Credit
Policies, a copy of the Credit Policies then in effect and a notice
indicating such change or amendment.
(viii) Other Information. As soon as reasonably practicable, such
-----------------
other information (including non-financial information) as the Agent or any
Purchaser may from time to time reasonably request.
33
<PAGE>
(b) Compliance with Laws. The Seller will comply in all material
--------------------
respects with all applicable laws, rules, regulations, orders writs, judgments,
injunctions, decrees or awards to which it may be subject.
(c) Audits; Inspection Rights. The Seller will, or will require the
-------------------------
Originators and the Servicer to, furnish to the Agent from time to time such
information with respect to it and the Receivables as the Agent may reasonably
request. The Seller shall, from time to time during regular business hours as
requested by the Agent upon reasonable notice, permit the Agent, or its agents
or representatives (and shall require the Originators and the Servicer to permit
the Agent or its agents or representatives) (i) to examine and make copies of
and abstracts from all Records in the possession or under the control of the
Seller or any Originator relating to Receivables and the Related Security,
including, without limitation, the related invoices, and (ii) to visit the
offices and properties of the Seller or the Originators for the purpose of
examining such materials described in clause (i) above, and to discuss matters
relating to the Seller's or any Originator's financial condition or the
Receivables and the Related Security or the Seller's performance hereunder, or
any Originator's performance under any of the other Transaction Documents, or
the Seller's or any Originator's performance under the invoices with any of the
officers or employees of the Seller or any Originator having knowledge of such
matters.
(d) Keeping and Marking of Records and Books.
-----------------------------------------
(i) The Seller will, and will require the Originators and the
Servicer to, maintain and implement administrative and operating procedures
(including, without limitation, an ability to recreate records evidencing
Receivables in the event of the destruction of the originals thereof), and
keep and maintain all documents, books, records and other information
reasonably necessary or advisable for the collection of all Receivables
(including, without limitation, records adequate to permit the immediate
identification of each new Receivable and all Collections of and
adjustments to each existing Receivable). The Seller will, and will require
the Originators and the Servicer to, give the Agent notice of any material
change in the administrative and operating procedures referred to in the
previous sentence.
(ii) The Seller will, and will require the Originators and the
Servicer to: (a) on or prior to the date hereof, mark its master data
processing records and other books and records, if any, relating to the
Receivable Interests with a legend, acceptable to the Agent, describing the
Receivable Interests and (b) upon the request of the Agent following an
Amortization Event: (A) mark each invoice with a legend describing the
Receivable Interests and (B) deliver to the Agent all invoices (including,
without limitation, all multiple originals of any such invoice) relating to
the Receivables.
(e) Compliance with Invoices and Credit Policies; Taxes. The Seller
---------------------------------------------------
will, and will require the Originators and the Servicer to, timely and fully (i)
perform and comply with all provisions, covenants and other promises required to
be observed by it under the invoices (other than bills of lading) related to the
Receivables, and (ii) comply in all material respects with any
34
<PAGE>
bills of lading included in the invoices and with the Credit Policies. The
Seller will, and will require the Originators to, pay when due any taxes payable
in connection with the Receivables.
(f) Purchase of Receivables from the Originators. With respect to
--------------------------------------------
each Receivable purchased under the Sale Agreement, the Seller shall (or shall
require the Originators and the Servicer to) take all actions necessary to vest
legal and equitable title to such Receivable and the Related Security
irrevocably in the Seller, including, without limitation, the filing of all
financing statements or other similar instruments or documents necessary under
the UCC of all appropriate jurisdictions (or any comparable law) to perfect the
Seller's interest in such Receivable and such other action to perfect, protect
or more fully evidence the interest of the Seller as the Agent may reasonably
request.
(g) Ownership Interest. The Seller shall take all necessary action to
------------------
establish and maintain a valid and perfected first priority undivided percentage
ownership interest in the Receivables and the Related Security and Collections
with respect thereto, to the full extent contemplated herein, in favor of the
Agent and the Purchasers, including, without limitation, taking such action to
perfect, protect or more fully evidence the interest of the Agent and the
Purchasers hereunder as the Agent may reasonably request.
(h) Payment to the Originators. With respect to any Receivable
--------------------------
purchased by the Seller from an Originator, such sale shall be effected under,
and in strict compliance with the terms of, the Sale Agreement, including,
without limitation, the terms relating to the amount and timing of payments to
be made to the applicable Originator in respect of the purchase price for such
Receivable.
(i) Performance and Enforcement of Sale Agreement. The Seller shall
---------------------------------------------
timely perform the obligations required to be performed by the Seller, and shall
vigorously enforce the rights and remedies accorded to the Seller, under the
Sale Agreement. The Seller shall take all actions to perfect and enforce its
rights and interests (and the rights and interests of the Purchasers and the
Agents, as assignees of the Seller) under the Sale Agreement as the Agent may
from time to time reasonably request, including, without limitation, making
claims to which it may be entitled under any indemnity, reimbursement or similar
provision contained in the Sale Agreement.
(j) Purchasers' Reliance. The Seller acknowledges that the Purchasers
--------------------
are entering into the transactions contemplated by this Agreement in reliance
upon the Seller's identity as a legal entity that is separate from each of the
Originators. Therefore, from and after the date of execution and delivery of
this Agreement, the Seller shall take all reasonable steps including, without
limitation, all steps that the Agent or any Purchaser may from time to time
reasonably request to maintain the Seller's identity as a separate legal entity
and to make it manifest to third parties that the Seller is an entity with
assets and liabilities distinct from those of each of the Originators and any
Affiliates thereof and not just a division of an Originator. Without limiting
the generality of the foregoing and in addition to the other covenants set forth
herein, the Seller shall:
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(i) maintain its own separate books and records and bank accounts;
(ii) at all times hold itself out to the public as a legal entity
separate from the Servicer, the Originators, any Affiliates thereof or any
other Person;
(iii) at all times have at least one member of its Board of
Directors who is an Independent Director;
(iv) file its own tax returns, if any, as may be required under
applicable law, to the extent not part of a consolidated group filing a
consolidated return or returns, and pay any taxes so required to be paid
under applicable law;
(v) not commingle its assets with assets of any other Person
(except as contemplated by the Transaction Documents);
(vi) conduct its business in its own name;
(vii) maintain separate financial statements;
(viii) pay its own liabilities only out of its own funds;
(ix) maintain an arm's length relationship with its Affiliates;
(x) pay the salaries of its own employees, if any;
(xi) not guarantee or become obligated for the debts of any other
Person or hold out its credit as being available to satisfy the obligations
of others;
(xii) allocate fairly and reasonably any overhead for shared office
space;
(xiii) use separate stationery, invoices and checks;
(xiv) not pledge its assets for the benefit of any other Person or
make any loans or advances to any Person (except as contemplated by the
Transaction Documents);
(xv) correct any known misunderstanding regarding its separate
identity;
(xvi) maintain adequate capital in light of its contemplated
business purposes; and
(xvii) cause its Board of Directors to meet at least annually or act
pursuant to written consent and keep minutes of such meetings and actions
and observe all other Michigan corporate formalities;
(k) Collections. The Seller shall instruct all Obligors, or require
-----------
the Originators and the Servicer to instruct, all Obligors to pay all
Collections directly to a segregated lock-box or other Collection Account listed
on EXHIBIT E, each of which is subject to
36
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a Collection Account Agreement. In the case of payments remitted to any such
lock-box, the Seller shall require all proceeds from such lock-box to be
deposited directly by a Collection Bank into a Collection Account listed on
EXHIBIT E, which is subject to a Collection Account Agreement. The Seller shall
maintain exclusive dominion and control (subject to the terms of this Agreement)
to each such Collection Account. In the case of any Collections received by the
Seller or an Originator, the Seller shall remit (or shall require the
Originators and the Servicer to remit) such Collections to a Collection Account
not later than the Business Day immediately following the date of receipt of
such Collections, and, at all times prior to such remittance, the Seller shall
itself hold (or, if applicable, shall require the Originators and the Servicer
to hold) such Collections in trust, for the exclusive benefit of the Purchasers
and the Agent. In the case of any remittances received by the Seller in any such
Collection Account that shall have been identified, to the satisfaction of the
Servicer, to not constitute Collections or other proceeds of the Receivables or
the Related Security, the Seller shall promptly remit such items to the Person
identified to it as being the owner of such remittances. From and after the date
the Agent delivers to any of the Collection Banks a Collection Notice pursuant
to SECTION 7.03, the Agent may request that the Seller, and the Seller thereupon
promptly shall and shall direct the Originators to, direct all Obligors on
Receivables to remit all payments thereon to a new depositary account (the "NEW
CONCENTRATION ACCOUNT") specified by the Agent and, at all times thereafter the
Seller shall not deposit or otherwise credit, and shall not permit any
Originator or any other Person to deposit or otherwise credit to the New
Concentration Account any cash or payment item other than Collections.
Alternatively, the Agent may request that the Seller, and the Seller thereupon
promptly shall, direct all Persons then making remittances to any Collection
Account listed on EXHIBIT E which remittances are not payments on Receivables to
deliver such remittances to a location other than an account listed on EXHIBIT
E.
(l) Minimum Net Worth. The Seller shall at all times maintain total
-----------------
assets which exceed its total liabilities by not less than 3% of the Outstanding
Balance of the Receivables at such time.
(m) Year 2000 Problems. Seller shall take all reasonable actions to
------------------
ensure that its computer-based system are able to effectively process data,
including dates on and after January 1, 2000, without any Year 2000 Problem
which could reasonably be expected to have a Material Adverse Effect. At the
request of Agent or any Purchaser, Seller shall provide Agent or such Purchaser
with substantiation reasonably acceptable to Agent or such Purchaser as to
Seller's capability to process data on and after, or otherwise with respect to
dates occurring on or after, January 1, 2000 without any Year 2000 Problem.
Section 6.02. Negative Covenants of Seller. Until the date on which
----------------------------
the Aggregate Unpaids have been indefeasibly paid in full, the Seller hereby
covenants, individually and in its capacity as Servicer, that:
(a) Name Change, Offices, Records and Books of Accounts. The Seller
---------------------------------------------------
will not change its name, identity or corporate structure (within the meaning of
Section 9-402(7) of any applicable enactment of the UCC) or relocate its chief
executive office or any office where Records are kept unless it shall have: (i)
given the Agent at least 45 days prior notice thereof (or
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such lesser number of days as the parties hereto may agree upon) and (ii)
delivered to the Agent all financing statements, instruments and other documents
requested by the Agent in connection with such change or relocation.
(b) Change in Payment Instructions to Obligors. The Seller will not
------------------------------------------
add or terminate any bank as a Collection Bank from those listed in EXHIBIT E,
or make any change in its instructions to Obligors regarding payments to be made
to the Seller or payments to be made to any lock-box, Collection Account or
Collection Bank, unless the Agent shall have received, at least fifteen (15)
Business Days before the proposed effective date therefor:
(i) written notice of such addition, termination or change, and
(ii) with respect to the addition of a lock-box, Collection Account
or Collection Bank, an executed account agreement and an executed
Collection Account Agreement from such Collection Bank relating thereto;
PROVIDED, HOWEVER, that the Seller may make changes in instructions to Obligors
regarding payments if such new instructions require such Obligor to make
payments to another existing lock-box or Collection Account that is subject to a
Collection Account Agreement then in effect.
(c) Modifications to Credit Policies. The Seller will not make any
--------------------------------
change to the Credit Policies which would be reasonably likely to adversely
affect the collectibility of any material portion of the Receivables or decrease
the credit quality of any newly created Receivables. Except as provided in
SECTION 7.02(C), the Seller, acting as Servicer or otherwise, will not extend,
amend or otherwise modify the terms of any Receivable or any invoice related
thereto other than in accordance with the Credit Policies.
(d) Sales, Liens, Etc. The Seller shall not sell, assign (by
-----------------
operation of law or otherwise) or otherwise dispose of, or grant any option with
respect to, or create or suffer to exist any Adverse Claim upon (including,
without limitation, the filing of any financing statement) or with respect to,
any Receivable, Related Security or Collections, or upon or with respect to any
invoice under which any Receivable arises, or any lock-box or Collection Account
or assign any right to receive income in respect thereof (other than, in each
case, the creation of the interests therein in favor of the Agent and the
Purchasers provided for herein), and the Seller shall defend the right, title
and interest of the Agent and the Purchasers in, to and under any of the
foregoing property, against all claims of third parties claiming through or
under the Seller or any Originator.
(e) Nature of Business; Other Agreements; Other Indebtedness. The
--------------------------------------------------------
Seller shall not engage in any business or activity of any kind or enter into
any transaction or indenture, mortgage, instrument, agreement, contract, lease
or other undertaking other than the transactions contemplated and authorized by
this Agreement and the Sale Agreement. Without limiting the generality of the
foregoing, the Seller shall not create, incur, guarantee, assume or suffer to
exist any indebtedness or other liabilities, whether direct or contingent, other
than:
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(i) as a result of the endorsement of negotiable instruments for
deposit or collection or similar transactions in the ordinary course of
business,
(ii) the incurrence of obligations under this Agreement,
(iii) the incurrence of obligations, as expressly contemplated in the
Sale Agreement, to make payment to the applicable Originator thereunder for
the purchase of Receivables from such Originator under the Sale Agreement,
and
(iv) the incurrence of operating expenses in the ordinary course of
business of the type otherwise contemplated in SECTION 6.01(J) of this
Agreement.
In the event the Seller shall at any time borrow a "SUBORDINATED LOAN" under the
Sale Agreement, the obligations of the Seller in connection therewith shall be
subordinated to the obligations of the Seller to the Purchasers and the Agent
under this Agreement, on such terms as shall be satisfactory to the Agent.
(f) Amendments to Sale Agreement. The Seller shall not, without the
----------------------------
prior written consent of the Agent:
(i) cancel or terminate the Sale Agreement,
(ii) give any consent, waiver, directive or approval under the Sale
Agreement,
(iii) waive any default, action, omission or breach under the Sale
Agreement, or otherwise grant any indulgence thereunder, or
(iv) amend, supplement or otherwise modify any of the terms of the
Sale Agreement.
(g) Amendments to Corporate Documents. The Seller shall not amend
---------------------------------
its Certificate of Incorporation or By-Laws in any respect that would impair its
ability to comply with the terms or provisions of any of the Transaction
Documents, including, without limitation, SECTION 6.01(J) of this Agreement.
(h) Merger. The Seller shall not merge or consolidate with or into,
------
or convey, transfer, lease or otherwise dispose of (whether in one transaction
or in a series of transactions, and except as otherwise contemplated herein) all
or substantially all of its assets (whether now owned or hereafter acquired) to,
or acquire all or substantially all of the assets of, any Person.
(i) Restricted Junior Payments. The Seller shall not make any
--------------------------
Restricted Junior Payment if an Amortization Event or a Potential Amortization
Event exists or would result therefrom.
39
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ARTICLE VII
SERVICING, ADMINISTRATION AND COLLECTION OF THE RECEIVABLES
Section 7.01. Designation of Servicer. The servicing, administration
-----------------------
and collection of the Receivables shall be conducted by such Person (the
"SERVICER") so designated from time to time in accordance with this Section
7.01. Federal-Mogul is hereby designated as, and hereby agrees to perform the
duties and obligations of, the Servicer pursuant to the terms of this Agreement.
The Agent may at any time following the occurrence of an Amortization Event
designate as Servicer any Person to succeed Federal-Mogul or any successor
Servicer.
Section 7.02. Duties of Servicer.
------------------
(a) The Servicer shall take or cause to be taken all such actions as
may be necessary or advisable to collect each Receivable from time to time, all
in accordance with applicable laws, rules and regulations, with reasonable care
and diligence, and in accordance with the applicable invoices and the Credit
Policies.
(b) The Servicer shall administer the Collections in accordance with
the procedures described herein and in ARTICLE II. The Servicer shall set aside
and hold in trust for the account of the Seller and the Purchasers their
respective shares of the Collections of Receivables in accordance with SECTIONS
2.06 and 2.07. The Servicer shall upon the request of the Agent after the
occurrence of an Amortization Event segregate, in a manner acceptable to the
Agent, all cash, checks and other instruments received by it from time to time
constituting Collections from the general funds of the Servicer or the Seller
prior to the remittance thereof in accordance with SECTION 2.07. If the Servicer
shall be required to segregate Collections pursuant to the preceding sentence,
the Servicer shall segregate and deposit with a bank designated by the Agent
such allocable share of Collections of Receivables set aside for the Purchasers
on the first Business Day following receipt by the Servicer of such Collections,
duly endorsed or with duly executed instruments of transfer.
(c) The Servicer, may, in accordance with the Credit Policies, extend
the maturity of any Receivable or adjust the Outstanding Balance of any
Receivable as the Servicer may determine to be appropriate to maximize
Collections thereof; PROVIDED, HOWEVER, that such extension or adjustment shall
not alter the status of such Receivable as a Defaulted Receivable or limit the
rights of the Agent or the Purchasers under this Agreement. Notwithstanding
anything to the contrary contained herein, from and after the occurrence of an
Amortization Event, the Agent shall have the absolute and unlimited right to
direct the Servicer to commence or settle any legal action with respect to any
Receivable or to foreclose upon or repossess any Related Security.
(d) The Servicer shall hold in trust for the Seller and the
Purchasers, in accordance with their respective interests in the Receivables,
all Records that evidence or relate to the Receivables, the related invoices and
Related Security or that are otherwise necessary or desirable to collect the
Receivables and shall, as soon as practicable upon demand of the Agent following
the occurrence of an Amortization Event, deliver or make available to the Agent
all
40
<PAGE>
such Records to such location as the Agent may designate in writing. The
Servicer shall, as soon as practicable following receipt thereof, turn over to
the Seller: (i) that portion of Collections of Receivables representing the
Seller's undivided fractional ownership interest therein, less, in the event
that Federal-Mogul or one of its Affiliates is not then acting as the Servicer,
all reasonable out-of-pocket costs and expenses of the Servicer of servicing,
administering and collecting the Receivables, and (ii) any cash collections or
other cash proceeds received with respect to indebtedness not constituting
Receivables. The Servicer shall, from time to time at the request of the Agent
or any Purchaser, furnish to the Agent for distribution to the Purchasers
(promptly after any such request) a calculation of the amounts set aside for the
Purchasers pursuant to SECTION 2.07.
(e) Any payment by an Obligor in respect of any indebtedness owed by
it to the Seller shall, except as otherwise specified by such Obligor or
otherwise required by contract or law and unless otherwise instructed by the
Agent, be applied as a Collection of any Receivable of such Obligor (starting
with the oldest such Receivable) to the extent of any amounts then due and
payable thereunder before being applied to any other receivable or other
obligation of such Obligor.
Section 7.03. Collection Notices. The Agent is authorized at any time
------------------
to date and to deliver to the Collection Banks a Collection Notice under any
Collection Account Agreement. The Seller hereby transfers to the Agent for the
benefit of the Purchasers, effective when the Agent delivers such notice, the
exclusive ownership and control of the Collection Accounts. In case any
authorized signatory of the Seller whose signature appears on a Collection
Account Agreement shall cease to have such authority before the delivery of such
notice, such Collection Notice shall nevertheless be valid as if such authority
had remained in force. The Seller hereby authorizes the Agent, and agrees that
the Agent shall be entitled to (i) endorse the Seller's name on checks and other
instruments representing Collections, (ii) enforce the Receivables, the related
invoices and the Related Security and (iii) take such action as shall be
necessary or desirable to cause all cash, checks and other instruments
constituting Collections of Receivables to come into the possession of the Agent
rather than the Seller.
Section 7.04. Responsibilities of the Seller. Anything herein to the
------------------------------
contrary notwithstanding, the exercise by the Agent and the Purchasers of their
rights hereunder shall not release the Servicer or the Seller from any of their
duties or obligations with respect to any Receivables or under the related
invoices. The Purchasers shall have no obligation or liability with respect to
any Receivables or related invoices, nor shall any of them be obligated to
perform the obligations of the Seller.
Section 7.05. Settlement Statements. On or prior to the Report Date,
---------------------
the Servicer will provide to the Agent a Settlement Statement substantially in
the form of EXHIBIT C, and on each Settlement Date the Agent shall forward to
each Purchaser such statement.
Section 7.06. Quarterly Servicer's Certificate. The Servicer shall
--------------------------------
deliver to the Agent on or prior to the Report Date occurring in the month
immediately succeeding each of the first three calendar quarters of each year, a
certificate signed by a senior financial officer of the
41
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Servicer stating that (a) a review of the activities of the Servicer during the
preceding calendar quarter and of its performance under the Transaction
Documents was made under the supervision of the officer signing such Compliance
Certificate and (b) to the best of such officer's knowledge, based on such
review, the Servicer has performed in all material respects its obligations
under the Transaction Documents throughout such quarter, or, if there has been a
material default in the performance of any such obligation, specifying each such
default known to such officer and the nature and status thereof.
Section 7.07. Weekly Report and Distribution. Notwithstanding any
------------------------------
other provision of any of the Transaction Documents, upon the occurrence of an
Amortization Event, the Agent, at its sole option, may provide a written notice
to the Seller, the Servicer and the Purchasers to the effect that the Servicer
shall deliver a weekly report (the "WEEKLY REPORT") and distributions shall be
made to the Purchasers on a weekly basis, in each case, as described below. Upon
receipt of such notice, on Friday of each week, or if such day is not a Business
Day, the next succeeding Business Day, the Servicer shall deliver the Weekly
Report to the Agent. Each Weekly Report shall provide the following information:
(i) the aggregate Collections deposited in the Collection Account during the
current week, or the preceding week, as applicable, (ii) the aggregate amount of
Receivables as of the date of the Weekly Report, and (iii) the amount to be
distributed on the second Business Day immediately succeeding the date of such
report (the "WEEKLY SETTLEMENT DATE") for each line item in Section 5.01(c). On
each Weekly Settlement Date the Agent, in accordance with the Weekly Report
delivered by the Servicer, shall make a distribution to the Purchasers pursuant
to Section 5.01(c). The amounts to be distributed on each Weekly Settlement Date
shall be a pro rata portion of the amounts specified in the Transaction
Documents based upon the actual number of days in the preceding week and a 30-
day month.
Section 7.08. Reporting Covenants of the Servicer.
-----------------------------------
(a) Financial Reporting. The Servicer, for so long as Federal-Mogul
-------------------
is the Servicer and any Aggregate Unpaids remain outstanding, hereby covenants
that it shall maintain, for itself and each of its Subsidiaries, a system of
accounting established and administered in accordance with generally accepted
accounting principles, and furnish to the Agent:
(i) Annual Reporting. As soon as available, but in any event within
----------------
120 days after the close of each fiscal year of the Servicer, an audit
report not qualified for anything under the control of the Servicer,
certified by independent public accountants acceptable to the Agent (which
until the Agent notifies the Servicer in writing to the contrary may be
Ernst & Young llp, public accountants), prepared in accordance with
generally accepted accounting principles on a consolidated basis for the
Servicer and its Subsidiaries including consolidated balance sheets as of
the end of such period, and related profit and loss and reconciliation of
the surplus statements;
(ii) Quarterly Reporting. As soon as available, but in any event
-------------------
within 60 days after the close of the first three quarterly periods of each
fiscal year of the Servicer, for the Servicer and its Subsidiaries,
consolidated unaudited balance sheets as at the close of each such period
and consolidated profit and loss and reconciliation of surplus
42
<PAGE>
statements for the period beginning from the beginning of such fiscal year
to the end of such quarter; and
(iii) Securities and Exchange Commission Filings.
------------------------------------------
The Servicer shall provide the Agent, promptly after the same are
available, copies of all proxy statements, financial statements and reports
as the Servicer shall send or make available generally to any of its public
security holders, and copies of all regular and period reports and of all
registration statements which the Servicer may file with the Securities and
Exchange Commission or with any securities exchange.
(b) Notices. The Servicer shall promptly notify the Agent in writing
-------
of any of the following immediately upon learning of the occurrence thereof,
describing the same, and if applicable, the steps being taken with respect
thereto; (i) the occurrence of each Amortization Event and each Potential
Amortization Event, by a statement of the corporate comptroller or senior
financial officer of the Servicer, (ii) the entry of one or more judgments or
decrees against the Servicer or any of its Subsidiaries if the aggregate amount
of all such judgments and decrees outstanding (not paid or fully covered by
insurance as to which the insurance carrier has admitted liability) equals or
exceeds $30,000,000, (iii) the occurrence of any Insolvency Event with respect
to the Servicer, (iv) the occurrence of any Insolvency Event with respect to the
Seller or any Originator of which the Servicer becomes aware, and (v) the
occurrence of any other event of which the Servicer becomes aware that has, or
could reasonably be expected to have, a Material Adverse Effect or that
constitutes an Amortization Event or a Potential Amortization Event.
Section 7.09. Inspection Rights. The Servicer shall provide the
-----------------
Agent, and any of its agents and representatives, with access to (a) any books,
records, files and documents (including, without limitation, computer tapes and
discs) relating to the Transaction Documents, the Receivables and the servicing
of the Receivables, and the Agent and such representatives and agents shall be
permitted to make copies of and abstracts from the foregoing and (b) the
officers, directors and auditors of the Servicer to discuss the business and
operations of the Servicer relating to the Transaction Documents and the
Receivables and the Servicer's performance under the Transaction Documents, but
only (i) upon reasonable request, (ii) during normal business hours, (iii)
subject to the Servicer's normal security and confidentiality procedures and
(iv) at reasonably accessible offices designated by the Servicer.
Section 7.10. Credit Policies. The Servicer shall timely and fully
---------------
(a) perform and comply with all provisions and covenants and other promises
required to be observed by it under terms of such Receivable and (b) comply in
all material respects with the credit and collection policies and procedures in
effect on the date hereof (the "CREDIT POLICIES") with respect to the
Receivables, a copy of which is attached hereto as EXHIBIT G. The Servicer shall
not amend, modify or supplement the Credit Policies in any material adverse
respect without the prior written consent of the Agent, which consent shall not
be unreasonably withheld. Upon any amendment, modification or supplement to the
Credit Policies consented to by the Agent, the Servicer shall deliver to the
Agent, for distribution to the Purchasers, such amendment,
43
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modification or supplement and EXHIBIT G shall be deemed to be amended by such
amendment, modification or supplement.
ARTICLE VIII
AMORTIZATION EVENTS
Section 8.01. Amortization Events.
-------------------
If any one or more of the following events (each, an "AMORTIZATION
EVENT") shall occur:
(a) Insolvency Events. An Insolvency Event shall occur with respect
-----------------
to the Seller, the Servicer or an Originator, and, in the case of an
Involuntary Insolvency Event concerning an Originator, shall have continued
undischarged or unstayed for a period of 60 days;
(b) Failure to Make Payments and Deposits. Failure on the part of the
-------------------------------------
Seller, Federal-Mogul or the Servicer, as applicable, to make any payment
or deposit required by the terms of any of the Transaction Documents;
(c) Settlement Statements. Failure on the part of the Servicer to
---------------------
deliver a Settlement Statement within 5 days of the date such item is due
to be delivered under any of the Transaction Documents;
(d) Other Covenants. Failure on the part of the Seller, the Servicer
---------------
or Federal-Mogul, as applicable, to duly observe or perform in any material
respect any of their other respective covenants or agreements set forth in
the Transaction Documents, which failure continues unremedied for a period
of ten days after the earlier of (i) the date on which the Seller, the
Servicer or Federal-Mogul, as applicable, becomes aware of such failure and
(ii) the date on which written notice of such failure, requiring the same
to be remedied, shall have been received by the Seller, the Servicer or
Federal-Mogul, as applicable;
(e) Material Misrepresentations. Any representation or warranty made
---------------------------
by the Seller or Federal-Mogul in any Transaction Document to which it is a
party: (i) shall prove to have been incorrect in any material respect when
made, and shall continue to be incorrect in any material respect for a
period of 10 days after the earlier to occur of (A) the date on which
written notice of such failure, requiring the same to be remedied, shall
have been given to the Seller by the Agent, or (B) the date on which the
Seller, the Servicer or Federal-Mogul, as applicable, becomes aware of such
failure, and (ii) as a result of such incorrectness, a Material Adverse
Effect occurs; PROVIDED, HOWEVER, that an Amortization Event shall not be
deemed to have occurred under this paragraph if the misrepresentation
related to a specific Receivable and the Seller has repurchased the related
Receivable or all such Receivables, if applicable, during such period in
accordance with the provisions of this Agreement;
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(f) Investment Company. The Seller shall become an "investment
------------------
company" within the meaning of the Investment Company Act;
(g) Delinquency Ratio. The average Delinquency Ratio for any two
-----------------
consecutive Collection Periods is a rate equal to or greater than 6.00%;
(h) Loss-to-Liquidation Ratio. The average Loss-to-Liquidation Ratio
-------------------------
for any three consecutive Collection Periods is a rate equal to or greater
than 3.50%;
(i) Dilution Ratio. The average Dilution Ratio for any three
--------------
consecutive Collection Periods is a rate equal to or greater than 8.00%;
(j) Nonpayment of Coverage Shortfall. The Coverage Shortfall, if any,
--------------------------------
relating to any Settlement Date is not paid to the Purchasers on the
applicable Settlement Date;
(k) Minimum Enhancement Amount. The sum of Contractual Dilution and
--------------------------
Aggregate Reserves is less than the Minimum Enhancement Amount;
(l) Change of Control. A Change of Control shall occur; and/or
-----------------
(m) Event of Default in Material Debt. Failure of the Servicer or any
---------------------------------
of its Subsidiaries to pay any Indebtedness in excess of $10,000,000 in
aggregate principal amount ("MATERIAL DEBT") when due; or the default by
the Servicer or any of its Subsidiaries in the performance of any term,
provision or condition contained in any agreement under which any Material
Debt was created or is governed, the effect of which is to cause, or to
permit the holder or holders of such Material Debt to cause, such Material
Debt to become due prior to its stated maturity; or any Material Debt of
the Servicer or any of its Subsidiaries shall be declared to be due and
payable or required to be prepaid (other than by a regularly scheduled
payment) prior to the date of maturity thereof.
then, subject to applicable law, and after the applicable grace period, if any,
an Amortization Event shall occur without any notice or other action on the part
of the Agent or any of the Purchasers, immediately upon the occurrence of such
event and the Agent, by notice then given in writing to the Seller and the
Servicer, may terminate all but not less than all of the rights and obligations
(other than its obligations that have accrued up to the time of such
termination) of the Servicer as Servicer under the Transaction Documents and
appoint a successor Servicer hereunder. All authority and power granted to the
Servicer or any successor Servicer under the Transaction Documents shall
automatically cease and terminate upon payment in full of the Aggregate Unpaids.
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ARTICLE IX
INDEMNIFICATION
Section 9.01. Indemnities by the Seller. Without limiting any other
-------------------------
rights which the Agent or any Purchaser may have hereunder or under applicable
law, the Seller hereby agrees to indemnify the Agent and each Purchaser and
their respective officers, directors, agents and employees (each, an
"INDEMNIFIED PARTY") from and against any and all damages, losses, claims,
taxes, liabilities, costs, expenses and for all other amounts payable, including
reasonable attorneys' fees (which attorneys may be employees of the Agent or
such Purchaser) and disbursements (all of the foregoing being collectively
referred to as "INDEMNIFIED AMOUNTS") awarded against or incurred by any of them
arising out of or as a result of this Agreement or the acquisition, either
directly or indirectly, by a Purchaser of an interest in the Receivables,
EXCLUDING, HOWEVER:
(a) Indemnified Amounts to the extent final judgment of a court of
competent jurisdiction holds such Indemnified Amounts resulted from gross
negligence or willful misconduct on the part of the Indemnified Party
seeking indemnification;
(b) Indemnified Amounts to the extent the same includes losses in
respect of Receivables which are uncollectible on account of the
insolvency, bankruptcy or lack of creditworthiness of the related Obligor;
or
(c) taxes imposed by the jurisdiction in which such Indemnified
Party's principal executive office is located, on or measured by the
overall net income of such Indemnified Party to the extent that the
computation of such taxes is consistent with the Intended Characterization;
PROVIDED, HOWEVER, that nothing contained in this sentence shall limit the
liability of the Seller or the Servicer or limit the recourse of the Purchasers
to the Seller or Servicer for amounts otherwise specifically provided to be paid
by the Seller or the Servicer under the terms of this Agreement. Without
limiting the generality of the foregoing indemnification, the Seller shall
indemnify the Agent and the Purchasers for Indemnified Amounts (including,
without limitation, losses in respect of uncollectible receivables, regardless
of whether reimbursement therefor would constitute recourse to the Seller or the
Servicer) relating to or resulting from:
(i) any representation or warranty made by the Seller, any Originator
or the Servicer (or any officers of the Seller, an Originator or the
Servicer) under or in connection with this Agreement, any other Transaction
Document, any Settlement Statement or any other information or report
delivered by the Seller, any Originator or the Servicer pursuant hereto or
thereto, which shall have been false or incorrect when made or deemed made;
(ii) the failure by the Seller, any Originator or the Servicer to
comply with any applicable law, rule or regulation with respect to any
Receivable or invoice related thereto, or the nonconformity of any
Receivable or invoice included therein with any such applicable law, rule
or regulation;
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(iii) any failure of the Seller, any Originator or the Servicer to
perform its duties or obligations in accordance with the provisions of this
Agreement or any other Transaction Document;
(iv) [RESERVED]
(v) any dispute, claim, offset or defense (other than discharge in
bankruptcy of the Obligor) of any Obligor to the payment of any Receivable
(including, without limitation, a defense based on such Receivable or the
related invoice not being a legal, valid and binding obligation of such
Obligor enforceable against it in accordance with its terms), or any other
claim resulting from the sale of the merchandise or service related to such
Receivable or the furnishing or failure to furnish such merchandise or
services;
(vi) the commingling of Collections of Receivables at any time with
other funds;
(vii) any investigation, litigation or proceeding related to or
arising from this Agreement or any other Transaction Document, the
transactions contemplated hereby or thereby, the use of the proceeds of a
purchase, the ownership of the Receivable Interests or any other
investigation, litigation or proceeding relating to the Seller or any
Originator in which any Indemnified Party becomes involved as a result of
any of the transactions contemplated hereby or thereby other than (a)
litigation between the Seller on the one hand and the Agent and one or more
of the Investors on the other hand in which the Seller prevails or (b) any
investigation or proceeding arising from (i) the gross negligence or
willful misconduct of the Agent or one or more Investors or (ii) the
unlawful conduct of the Agent or one or more Investors;
(viii) any inability to litigate any claim against any Obligor in
respect of any Receivable as a result of such Obligor being immune from
civil and commercial law and suit on the grounds of sovereignty or
otherwise from any legal action, suit or proceeding; or
(ix) any Insolvency Event with respect to the Servicer.
Section 9.02. Increased Cost and Reduced Return.
---------------------------------
(a) If after the date hereof, any Funding Source shall be charged any
fee, expense or increased cost on account of the adoption of any applicable law,
rule or regulation (including any applicable law, rule or regulation regarding
capital adequacy) or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
with any request or directive (whether or not having the force of law) of any
such authority, central bank or comparable agency (a "REGULATORY CHANGE"): (i)
which subjects any Funding Source to any charge or withholding on or with
respect to any Funding Agreement or a Funding Source's obligations under a
Funding Agreement, or on or with respect to the Receivables, or changes the
basis of taxation of payments to any Funding Source of any
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amounts payable under any Funding Agreement (except for changes in the rate of
tax on the overall net income of a Funding Source) or (ii) which imposes,
modifies or deems applicable any reserve, assessment, insurance charge, special
deposit or similar requirement against assets of, deposits with or for the
account of a Funding Source, or credit extended by a Funding Source pursuant to
a Funding Agreement or (iii) which imposes any other condition the result of
which is to increase the cost to a Funding Source of performing its obligations
under a Funding Agreement, or to reduce the rate of return on a Funding Source's
capital as a consequence of its obligations under a Funding Agreement, or to
reduce the amount of any sum received or receivable by a Funding Source under a
Funding Agreement or to require any payment calculated by reference to the
amount of interests or loans held or interest received by it, then, upon demand
by the Agent, the Seller shall pay to the Agent, for the benefit of the relevant
Funding Source, such amounts charged to such Funding Source or compensate such
Funding Source for such reduction.
(b) Payment of any sum pursuant to SECTION 9.02(A) shall be made by
the Seller to the Agent, for the benefit of the relevant Funding Source, not
later than ten (10) days after any such demand is made. A certificate of any
Funding Source, signed by an authorized officer claiming compensation under this
SECTION 9.02 and setting forth the additional amount to be paid for its benefit
and explaining the manner in which such amount was determined shall be
conclusive evidence of the amount to be paid, absent manifest error.
(c) Each Investor will promptly notify the Seller and the Agent of
any event of which it has knowledge which is reasonably likely to entitle such
Investor to compensation pursuant to this Section 9.02; PROVIDED, HOWEVER, that
no failure to give or delay in giving such notification shall adversely affect
the rights of any Investor to such compensation.
Section 9.03. Costs and Expenses Relating to this Agreement. The
---------------------------------------------
Seller shall pay to the Agent and Falcon on demand all reasonable costs and out-
of-pocket expenses in connection with the preparation, execution, delivery and
administration of this Agreement, the transactions contemplated hereby and the
other documents to be delivered hereunder, including without limitation, the
reasonable cost of Falcon's auditors auditing the books, records and procedures
of the Seller and the Servicer, reasonable fees and out-of-pocket expenses of
legal counsel for Falcon and the Agent (which such counsel may be employees of
Falcon or the Agent) with respect thereto and with respect to advising Falcon
and the Agent as to their respective rights and remedies under this Agreement.
The Seller shall pay to the Agent on demand any and all costs and expenses of
the Agent and the Purchasers, if any, including reasonable counsel fees and
expenses in connection with the enforcement of this Agreement and the other
documents delivered hereunder and in connection with any restructuring or
workout of this Agreement or such documents, or the administration of this
Agreement following an Amortization Event.
Section 9.04. Taxes.
-----
(a) Any and all payments and deposits required to be made hereunder or
under any other Transaction Document by the Seller or the Servicer to or for the
benefit of Falcon or any Investor shall be made free and clear of and without
deduction for any and all present or
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future taxes, levies, imposts, deductions, charges or withholdings, and all
liabilities with respect thereto, excluding taxes imposed on, or measured by
reference to, the net income of, franchise taxes imposed on, and taxes (other
than withholding taxes) imposed on the receipts or gross receipts that are
imposed on Falcon or such Investor by any of (i) the United States or any State
thereof, (ii) the state jurisdiction under the laws of which Falcon or such
Investor is organized or in which it is otherwise doing business or (iii) any
political subdivision thereof (all such non-excluded taxes, levies, imposts,
deductions, charges, withholdings and liabilities being hereinafter referred to
as "TAXES"). If the Seller or the Servicer shall be required by law to deduct
any Taxes from or in respect of any sum required to be paid or deposited
hereunder or under any instrument delivered hereunder to or for the benefit of
Falcon or any Investor, (A) such sum shall be increased as may be necessary so
that after making all required deductions (including deductions applicable to
additional sums required to be paid or deposited under this Section 9.04) the
amount received by Falcon or the relevant Investor, or otherwise deposited
hereunder or under such instrument, shall be equal to the sum which would have
been so received or deposited had no such deductions been made, (B) the Seller
or the Servicer (as appropriate) shall make such deductions and (c) the Seller
or the Servicer (as appropriate) shall pay the full amount of such deductions to
the relevant taxation authority or other authority in accordance with applicable
law.
(b) The Seller will indemnify each of the Purchasers for the full
amount of Taxes (including, without limitation, any Taxes imposed by any
jurisdiction on amounts payable under this Section 9.04) paid by such Purchaser
and any liability (including penalties, interest and expenses) arising therefrom
or required to be paid with respect thereto. Each of the Purchasers agrees to
promptly notify the Seller of any payment of Taxes made by it and, if
practicable, any request, demand or notice received in respect thereof prior to
such payment. Each of the Purchasers shall be entitled to payment of this
indemnification, as owner of Receivable Interests within 30 days from the date
such Purchaser makes written demand therefor to the Agent and the Seller. A
certificate as to the amount of such indemnification submitted to the Seller and
the Agent by any Purchaser, setting forth the calculation thereof, shall (absent
manifest error) be conclusive and binding for all purposes.
(c) Within 30 days after the date of any payment of Taxes, the Seller
or the Servicer (as the case may be) will furnish to the Agent the original or a
certified copy of a receipt evidencing payment thereof.
(d) Notwithstanding the foregoing and any other provisions of this
Section 9.04, the obligations of the Servicer under this Section 9.04 shall be
payable only out of Collections.
(e) Each Investor that is organized under the laws of a jurisdiction
other than the United States or a state thereof hereby agrees to complete,
execute and deliver to the Agent from time to time prior to the initial
Settlement Date on which the Agent, acting on behalf of such Investor, will be
entitled to receive distributions pursuant to this Agreement, Internal Revenue
Service Forms 1001 or 4224 (or any successor form), as applicable, or such other
forms or certificates as may be required under the laws of any applicable
jurisdiction in order to permit
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the Seller or the Servicer to make payments to, and deposit funds to or for the
account of, the Agent, acting on behalf of such Investor, hereunder and under
the other Transaction Documents without any deduction or withholding for or on
account of any tax or with such withholding or deduction at a reduced rate.
ARTICLE X
THE AGENT
Section 10.01. Authorization and Action. Each Purchaser hereby
------------------------
designates and appoints The First National Bank of Chicago to act as its agent
hereunder and under each other Transaction Document, and authorizes the Agent to
take such actions as agent on its behalf and to exercise such powers as are
delegated to the Agent by the terms of the Transaction Documents together with
such powers as are reasonably incidental thereto. The Agent shall not have any
duties or responsibilities, except those expressly set forth herein or in any
other Transaction Document, or any fiduciary relationship with any Purchaser,
and no implied covenants, functions, responsibilities, duties, obligations or
liabilities on the part of the Agent shall be read into this Agreement or any
other Transaction Document or otherwise exist for the Agent. In performing its
functions and duties hereunder and under the other Transaction Documents, the
Agent shall act solely as agent for the Purchasers and does not assume nor shall
be deemed to have assumed any obligation or relationship of trust or agency with
or for the Seller or any of its successors or assigns. The Agent shall not be
required to take any action which exposes the Agent to personal liability or
which is contrary to this Agreement, any other Transaction Document or
applicable law. The appointment and authority of the Agent hereunder shall
terminate upon the indefeasible payment in full of all Aggregate Unpaids. Each
Purchaser hereby authorizes the Agent to execute on behalf of such Purchaser
(the terms of which shall be binding on such Purchaser) each of the Uniform
Commercial Code financing statements, together with such other instruments or
documents determined by the Agent to be necessary or desirable in order to
perfect, evidence or more fully protect the interest of the Purchasers
contemplated hereunder.
Section 10.02. Delegation of Duties. The Agent may execute any of its
--------------------
duties under this Agreement and each other Transaction Document by or through
agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Agent shall not be
responsible for the negligence or misconduct of any agents or attorneys-in-fact
selected by it with reasonable care.
Section 10.03. Exculpatory Provisions. Neither the Agent nor any of
----------------------
its directors, officers, agents or employees shall be (i) liable for any action
lawfully taken or omitted to be taken by it or them under or in connection with
this Agreement or any other Transaction Document (except for its, their or such
Person's own gross negligence or willful misconduct), or (ii) responsible in any
manner to any of the Purchasers for any recitals, statements, representations or
warranties made by the Seller contained in this Agreement, any other Transaction
Document or any certificate, report, statement or other document referred to or
provided for in, or received under or in connection with, this Agreement, or any
other
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Transaction Document or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement, or any other Transaction
Document or any other document furnished in connection herewith or therewith, or
for any failure of the Seller to perform its obligations hereunder or
thereunder, or for the satisfaction of any condition specified in ARTICLE V, or
for the perfection, priority, condition, value or sufficiency or any collateral
pledged in connection herewith. The Agent shall not be under any obligation to
any Purchaser to ascertain or to inquire as to the observance or performance of
any of the agreements or covenants contained in, or conditions of, this
Agreement or any other Transaction Document, or to inspect the properties, books
or records of the Seller. The Agent shall not be deemed to have knowledge of an
Amortization Event or a Potential Amortization Event unless the Agent has
received notice from the Seller or a Purchaser.
Section 10.04. Reliance by Agent. The Agent shall in all cases be
-----------------
entitled to rely, and shall be fully protected in relying, upon any document or
conversation believed by it to be genuine and correct and to have been signed,
sent or made by the proper Person or Persons and upon advice and statements of
legal counsel (including, without limitation, counsel to the Seller),
independent accountants and other experts selected by the Agent. The Agent shall
in all cases be fully justified in failing or refusing to take any action under
this Agreement or any other Transaction Document unless it shall first receive
such advice or concurrence of Falcon or the Required Investors or all of the
Purchasers, as applicable, as it deems appropriate and it shall first be
indemnified to its satisfaction by the Purchasers, PROVIDED THAT unless and
until the Agent shall have received such advice, the Agent may take or refrain
from taking any action, as the Agent shall deem advisable and in the best
interests of the Purchasers. The Agent shall in all cases be fully protected in
acting, or in refraining from acting, in accordance with a request of Falcon or
the Required Investors or all of the Purchasers, as applicable, and such request
and any action taken or failure to act pursuant thereto shall be binding upon
all the Purchasers.
Section 10.05. Non-Reliance on Agent and Other Purchasers. Each
------------------------------------------
Purchaser expressly acknowledges that neither the Agent, nor any of its
officers, directors, employees, agents, attorneys-in-fact or affiliates has made
any representations or warranties to it and that no act by the Agent hereafter
taken, including, without limitation, any review of the affairs of the Seller,
shall be deemed to constitute any representation or warranty by the Agent. Each
Purchaser represents and warrants to the Agent that it has and will,
independently and without reliance upon the Agent or any other Purchaser and
based on such documents and information as it has deemed appropriate, made its
own appraisal of and investigation into the business, operations, property,
prospects, financial and other conditions and creditworthiness of the Seller and
made its own decision to enter into this Agreement, the other Transaction
Documents and all other documents related hereto or thereto.
Section 10.06. Reimbursement and Indemnification. The Purchasers
---------------------------------
agree to reimburse and indemnify the Agent and its officers, directors,
employees, representatives and agents ratably according to their Pro Rata
Shares, to the extent not paid or reimbursed by the Seller (i) for any amounts
for which the Agent, acting in its capacity as Agent, is entitled to
reimbursement by the Seller hereunder and (ii) for any other expenses incurred
by the Agent, in
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its capacity as Agent and acting on behalf of the Purchasers, in connection with
the administration and enforcement of the Transaction Documents.
Section 10.07. Agent in its Individual Capacity. The Agent and its
--------------------------------
Affiliates may make loans to, accept deposits from and generally engage in any
kind of business with the Seller or any Affiliate of the Seller as though the
Agent were not the Agent hereunder. With respect to the acquisition of
Receivable Interests pursuant to this Agreement, the Agent shall have the same
rights and powers under this Agreement as any Purchaser and may exercise the
same as though it were not the Agent, and the terms "Investor," "Purchaser,"
"Investors" and "Purchasers" shall include the Agent in its individual capacity
if applicable.
Section 10.08. Successor Agent. The Agent may, upon ten days' notice
---------------
to the Seller and the Purchasers, and the Agent will, upon the direction of all
of the Purchasers (other than the Agent, in its individual capacity) resign as
Agent. If the Agent shall resign, then the Required Investors during such five-
day period shall appoint from among the Purchasers a successor agent. If for any
reason no successor Agent is appointed by the Required Investors during such
five-day period, then effective upon the termination of such five day period,
the Purchasers shall perform all of the duties of the Agent hereunder and under
the other Transaction Documents and the Seller shall make all payments in
respect of the Aggregate Unpaids directly to the applicable Purchasers and for
all purposes shall deal directly with the Purchasers. After the effectiveness of
any retiring Agent's resignation hereunder as Agent, the retiring Agent shall be
discharged from its duties and obligations hereunder and under the other
Transaction Documents and the provisions of this ARTICLE X and ARTICLE IX shall
continue in effect for its benefit with respect to any actions taken or omitted
to be taken by it while it was Agent under this Agreement and under the other
Transaction Documents.
ARTICLE XI
ASSIGNMENTS; PARTICIPATIONS
Section 11.01. Assignments. (a) The Seller and each Investor hereby
-----------
agree and consent to the complete or partial assignment by Falcon of all of its
rights under, interest in, title to and obligations under this Agreement to the
Investors pursuant to SECTION 3.01 or to any other Person, and upon such
assignment, Falcon shall be released from its obligations so assigned. Further,
the Seller and each Investor hereby agree that any assignee of Falcon of this
Agreement or all or any of the Receivable Interests of Falcon shall have all of
the rights and benefits under this Agreement as if the term "FALCON" explicitly
referred to such party, and no such assignment shall in any way impair the
rights and benefits of Falcon hereunder. The Seller shall not have the right to
assign its rights or obligations under this Agreement.
(b) Any Investor may at any time and from time to time assign to one
or more Persons ("PURCHASING INVESTORS") all or any part of its rights and
obligations under this Agreement pursuant to an assignment agreement, in a form
and substance satisfactory to the Agent (the "ASSIGNMENT AND ACCEPTANCE"),
executed by such Purchasing Investor and such selling Investor. The consent of
Falcon shall be required prior to the effectiveness of any such
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assignment; provided, however, that the consent of Falcon shall not be required
if a Purchasing Investor is an Affiliate of the assigning Investor. Each
assignee of an Investor must have a short-term debt rating of A-1 or better by
Standard & Poor's Ratings Group and P-1 by Moody's Investors Service, Inc. and
must agree to deliver to the Agent, promptly following any request therefor by
the Agent or Falcon, an enforceability opinion in form and substance
satisfactory to the Agent and Falcon. Upon delivery of the executed Assignment
and Acceptance to the Agent, such selling Investor shall be released from its
obligations hereunder to the extent of such assignment. Thereafter the
Purchasing Investor shall for all purposes be an Investor party to this
Agreement and shall have all the rights and obligations of an Investor under
this Agreement to the same extent as if it were an original party hereto and no
further consent or action by the Seller, the Purchasers or the Agent shall be
required.
(c) Each of the Investors agrees that in the event that it shall cease
to have a short-term debt rating of A-1 or better by Standard & Poor's
Corporation and P-1 by Moody's Investors Service, Inc. (an "AFFECTED INVESTOR"),
such Affected Investor shall be obliged, at the request of Falcon or the Agent,
to assign all of its rights and obligations hereunder to (x) another Investor or
(y) another financial institution nominated by the Agent and acceptable to
Falcon, and willing to participate in this Agreement through the Liquidity
Termination Date in the place of such Affected Investor; provided that the
Affected Investor receives payment in full, pursuant to an Assignment and
Acceptance, of an amount equal to such Investor's Pro Rata Share of the Capital
and Discount owing to the Investors and all accruing but unpaid fees and other
costs and expenses payable in respect of its Pro Rata Share of the Receivable
Interests.
Section 11.02. Participations. Any Investor may, in the ordinary
--------------
course of its business at any time sell to one or more Persons (each, a
"PARTICIPANT") participating interests in its Pro Rata Share of the Receivable
Interests of the Investors, its obligation to pay Falcon its Acquisition Amounts
or any other interest of such Investor hereunder. Notwithstanding any such sale
by an Investor of a participating interest to a Participant, such Investor's
rights and obligations under this Agreement shall remain unchanged, such
Investor shall remain solely responsible for the performance of its obligations
hereunder, and the Seller, Falcon and the Agent shall continue to deal solely
and directly with such Investor in connection with such Investor's rights and
obligations under this Agreement. Each Investor agrees that any agreement
between such Investor and any such Participant in respect of such participating
interest shall not restrict such Investor's right to agree to any amendment,
supplement, waiver or modification to this Agreement, except for any amendment,
supplement, waiver or modification described in clause (i) of SECTION 12.01(B).
ARTICLE XII
MISCELLANEOUS
Section 12.01. Waivers and Amendments. (a) No failure or delay on the
----------------------
part of any party hereto in exercising any power, right or remedy under this
Agreement shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or remedy preclude any other further exercise
thereof or the exercise of any other power, right or remedy.
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The rights and remedies herein provided shall be cumulative and nonexclusive of
any rights or remedies provided by law. Any waiver of this Agreement shall be
effective only in the specific instance and for the specific purpose for which
given.
(b) No provision of this Agreement may be amended, supplemented,
modified or waived except in writing in accordance with the provisions of this
SECTION 12.01(B). Falcon, the Seller and the Agent, at the direction of the
Required Investors, may enter into written modifications or waivers of any
provisions of this Agreement, PROVIDED, HOWEVER, that no such modification or
waiver shall:
(i) without the consent of each affected Purchaser: (A) extend the
Liquidity Termination Date or the date of any payment or deposit of
Collections by the Seller or the Servicer, (B) reduce the rate or extend
the time of payment of Discount (or any component thereof), (C) reduce any
fee payable to the Agent for the benefit of the Purchasers, (D) except
pursuant to ARTICLE XL hereof, change the amount of the Capital of any
Purchaser, an Investor's Pro Rata Share or an Investor's Commitment, (E)
amend, modify or waive any provision of the definition of Required
Investors or this SECTION 12.01(B), (F) consent to or permit the assignment
or transfer by the Seller of any of its rights and obligations under this
Agreement, (G) change the definition of "ELIGIBLE RECEIVABLE," "DILUTION
RESERVE", "DISCOUNT RESERVE," "LOSS RESERVE PERCENTAGE," or "AGGREGATE
RESERVE PERCENTAGE" or (H) amend or modify any defined term (or any defined
term used directly or indirectly in such defined term) used in clauses (A)
through (G) above in a manner which would circumvent the intention of the
restrictions set forth in such clauses; or
(ii) without the written consent of the then Agent, amend, modify or
waive any provision of this Agreement if the effect thereof is to affect
the rights or duties of such Agent.
Notwithstanding the foregoing, (i) without the consent of the Investors, the
Agent may, with the consent of the Seller, amend this Agreement solely to add
additional Persons as Investors hereunder and (ii) without the consent of the
Seller, the Agent, the Required Investors and Falcon may enter into amendments
to modify any of the terms or provisions of ARTICLE III, ARTICLE X, ARTICLE XI
or SECTION 12.13 provided that such amendment has no negative impact upon the
Seller. Any modification or waiver made in accordance with this SECTION 12.01
shall apply to each of the Purchasers equally and shall be binding upon the
Seller, the Purchasers and the Agent.
(c) Neither the Seller nor the Agent shall consent to any amendment of
the Sale Agreement without the prior written consent of the Required Investors
if such amendment would have a material adverse effect on any Investor.
Section 12.02. Notices.
-------
(a) Except as provided in subsection (b) below, all communications and
notices provided for hereunder shall be in writing (including bank wire,
telecopy or electronic
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facsimile transmission or similar writing) and shall be given to the other
parties hereto at their respective addresses or telecopy numbers set forth on
the signature pages hereof. All such communications and notices shall, when
mailed, telecopied, telegraphed, telexed or cabled, be effective when received
through the mails, transmitted by telecopy, delivered to the telegraph company,
confirmed by telex answerback or delivered to the cable company, respectively,
except that communications and notices to the Agent or any Purchaser pursuant to
ARTICLE II or III shall not be effective until received by the intended
recipient.
(b) The Seller hereby authorizes the Agent to effect purchases and
Tranche Period and Discount Rate selections based on telephonic notices made by
any Person whom the Agent in good faith believes to be acting on behalf of the
Seller. The Seller agrees to deliver promptly to the Agent a written
confirmation of each telephonic notice signed by an authorized officer of the
Seller. However, the absence of such confirmation shall not affect the validity
of such notice. If the written confirmation differs from the action taken by the
Agent, the records of the Agent shall govern absent manifest error.
Section 12.03. Ratable Payments. If any Purchaser, whetherby setoff
----------------
or otherwise, has payment made to it with respect to any portion of the
Aggregate Unpaids owing to such Purchaser (other than payments received pursuant
to SECTION 9.02 or 9.03) in a greater proportion than that received by any other
Purchaser entitled to receive a ratable share of such Aggregate Unpaids, such
Purchaser agrees, promptly upon demand, to purchase for cash without recourse or
warranty a portion of the Aggregate Unpaids held by the other Purchasers so that
after such purchase each Purchaser will hold its ratable proportion of the
Aggregate Unpaids; provided that if all or any portion of such excess amount is
thereafter recovered from such Purchaser, such purchase shall be rescinded and
the purchase price restored to the extent of such recovery, but without
interest.
Section 12.04. Protection of Ownership Interests of the Agent on
-------------------------------------------------
behalf of the Purchasers.
- - ------------------------
(a) The Seller agrees that from time to time, at its expense, it will
promptly execute and deliver all instruments and documents, and take all
actions, that may be necessary or desirable, or that the Agent may request, to
perfect, protect or more fully evidence the Receivable Interests, or to enable
the Agent or the Purchasers to exercise and enforce their rights and remedies
hereunder. The Agent may, or the Agent may direct the Seller to, notify the
Obligors of Receivables, at any time following the replacement of the Seller as
Servicer and at the Seller's expense, of the ownership interests of the
Purchasers under this Agreement and may also direct that payments of all amounts
due or that become due under any or all Receivables be made directly to the
Agent or its designee. The Seller shall, at any Purchaser's written request,
withhold the identity of such Purchaser in any such notification.
(b) If the Seller or the Servicer fails to perform any of its
obligations hereunder, the Agent or any Purchaser may (but shall not be required
to) perform, or cause performance of, such obligation; and the Agent's or such
Purchaser's costs and expenses incurred in connection therewith shall be payable
by the Seller (if the Servicer that fails to so
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<PAGE>
perform is the Seller or an Affiliate thereof) as provided in SECTION 9.03, as
applicable. The Seller and the Servicer each irrevocably authorizes the Agent at
any time and from time to time in the sole discretion of the Agent, and appoints
the Agent as its attorney-in-fact, to act on behalf of the Seller and the
Servicer (i) to execute on behalf of the Seller as debtor and to file financing
statements necessary or desirable in the Agent's sole discretion to perfect and
to maintain the perfection and priority of the interest of the Purchasers in the
Receivables and (ii) to file a carbon, photographic or other reproduction of
this Agreement or any financing statement with respect to the Receivables as a
financing statement in such offices as the Agent in its sole discretion deems
necessary or desirable to perfect and to maintain the perfection and priority of
the interests of the Purchasers in the Receivables. This appointment is coupled
with an interest and is irrevocable.
Section 12.05. Confidentiality. Each of the Seller, Federal-Mogul,
---------------
the Servicer (if other than Federal-Mogul), the Agent and the Purchasers agrees
to use it best efforts, and to cause its agents and representatives to use their
best efforts, to hold in confidence all Confidential Information; provided that
nothing herein shall prevent the Agent or any Purchaser from delivering copies
of any financial statements and other documents constituting Confidential
Information, or disclosing any other Confidential Information, to:
(i) the Agent's, any Purchaser's or any Funding Source's respective
directors, officers, employees, agents, accountants, professional
consultants and enhancement providers,
(ii) any other Purchaser,
(iii) any other Funding Source or any Person to which such Purchaser
offers to sell or assign or sells or assigns such Purchaser or any part
thereof or any rights associated therewith so long as such other Funding
Source or Person shall have agreed to hold in confidence all Confidential
Information,
(iv) any federal or state regulatory authority having jurisdiction
over the Agent, such Purchaser or any Funding Source,
(v) any nationally recognized rating agency that requires access to
such Purchaser's investment portfolio and any Funding Source's investment
portfolio,
(vi) any other Person to which such delivery or disclosure may be
necessary or appropriate: (a) in compliance with any law, rule, regulation
or order applicable to the Agent, any Purchaser or any Funding Source, (b)
in response to any subpoena or other legal process or (c) in connection
with any litigation to which the Agent, such Purchaser or Funding Source is
a party, or
(vii) if any Amortization Event has occurred and is continuing, to
the extent the Agent or such Purchaser may reasonably determine that such
delivery and disclosure is necessary or appropriate in the enforcement or
for the protection of the rights and remedies under the Transaction
Documents.
56
<PAGE>
The Agent and the Purchasers agree to allow the Seller to inspect their security
and confidentiality arrangements from time to time upon reasonable prior notice
and during normal business hours. The Agent and the Purchasers shall provide
written notice to the Seller whenever any such disclosure is made except to the
extent prohibited by law and shall use their best efforts to provide the Seller
with five day's advance notice of any disclosure pursuant to clause (vi) of this
Section 12.05.
Section 12.06. Bankruptcy Petition. The Seller, the Agent and each
-------------------
Investor hereby covenants and agrees that, prior to the date which is one year
and one day after the payment in full of all outstanding senior indebtedness of
Falcon, it will not institute against, or join any other Person in instituting
against, Falcon any bankruptcy, reorganization, arrangement, insolvency or
liquidation proceedings or other similar proceeding under the laws of the United
States or any state of the United States.
Section 12.07. Limitation of Liability. Except with respect to any
-----------------------
claim arising out of the willful misconduct or gross negligence of Falcon, the
Agent or any Investor, no claim may be made by the Seller, the Servicer or any
other Person against Falcon, the Agent or any Investor or their respective
Affiliates, directors, officers, employees, attorneys or agents for any special,
indirect, consequential or punitive damages in respect of any claim for breach
of contract or any other theory of liability arising out of or related to the
transactions contemplated by this Agreement, or any act, omission or event
occurring in connection therewith; and the Seller hereby waives, releases, and
agrees not to sue upon any claim for any such damages, whether or not accrued
and whether or not known or suspected to exist in its favor.
Section 12.08. CHOICE OF LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
-------------
ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF
NEW YORK.
Section 12.09. CONSENT TO JURISDICTION. EACH OF THE SELLER AND THE
-----------------------
SERVICER HEREBY: (A) IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF
ANY UNITED STATES FEDERAL OR NEW YORK STATE COURT SITTING IN NEW YORK, NEW YORK
IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THE TRANSACTION
DOCUMENTS AND (B) IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION
OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY
WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH
SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN
INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE AGENT OR ANY
PURCHASER TO BRING PROCEEDINGS AGAINST THE SELLER OR THE SERVICER IN THE COURTS
OF ANY OTHER JURISDICTION WHEREIN ANY ASSETS OF THE SELLER, THE SERVICER OR ANY
ORIGINATOR MAY BE LOCATED. ANY JUDICIAL PROCEEDING BY THE SELLER OR THE SERVICER
AGAINST THE AGENT OR ANY PURCHASER OR ANY AFFILIATE OF THE AGENT OR A PURCHASER
INVOLVING, DIRECTLY OR INDIRECTLY, ANY
57
<PAGE>
MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THE TRANSACTION
DOCUMENTS SHALL BE BROUGHT ONLY IN A COURT IN NEW YORK, NEW YORK.
Section 12.10. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO
--------------------
HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR
INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY
WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THE TRANSACTION DOCUMENTS OR
THE RELATIONSHIPS ESTABLISHED THEREUNDER.
Section 12.11. Integration; Survival of Terms. The Transaction
------------------------------
Documents contain the final and complete integration of all prior expressions by
the parties hereto with respect to the subject matter hereof and shall
constitute the entire agreement among the parties hereto with respect to the
subject matter hereof superseding all prior oral or written understandings. The
provisions of ARTICLE IX and SECTION 12.06 shall survive any termination of this
Agreement.
Section 12.12. Counterparts; Severability. This Agreement may be
--------------------------
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which when taken together shall constitute one and the same
Agreement. Any provisions of this Agreement which are prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
Section 12.13. First Chicago Roles. Each of the Investors
-------------------
acknowledges that First Chicago and certain of its Affiliates including (First
Chicago Capital Markets, Inc.) act, or may in the future act, (i) as
administrative agent for Falcon, (ii) as issuing and paying agent for the
Commercial Paper, (iii) to provide credit or liquidity enhancement for the
timely payment for the Commercial Paper and (iv) to provide other services from
time to time for Falcon (collectively, the "FIRST CHICAGO ROLES"). Without
limiting the generality of this SECTION 12.13, each Investor hereby acknowledges
and consents to any and all First Chicago Roles and agrees that in connection
with any First Chicago Role, First Chicago may take, or refrain from taking, any
action which it, in its discretion, deems appropriate, including, without
limitation, in its role as administrative agent for Falcon, the giving of notice
to the Agent of a mandatory purchase pursuant to SECTION 3.01.
Section 12.14. Characterization.
----------------
(a) It is the intention of the parties hereto that, except for income
tax purposes, each purchase hereunder shall constitute an absolute and
irrevocable sale, which purchase shall provide the applicable Purchaser with the
full benefits of ownership of the applicable Receivable Interest. Except as
specifically provided in this Agreement, each sale of a Receivable Interest
58
<PAGE>
hereunder is made without recourse to the Seller; PROVIDED, HOWEVER, that (i)
the Seller shall be liable to each Purchaser and the Agent for all
representations, warranties and covenants made by the Seller pursuant to the
terms of this Agreement, and (ii) such sale does not constitute and is not
intended to result in an assumption by any Purchaser or the Agent or any
assignee thereof of any obligation of the Seller or any Originator or any other
person arising in connection with the Receivables, the Related Security, or the
related invoices, or any other obligations of the Seller or such Originator.
(b) If the conveyance by the Seller to the Purchasers of interests in
Receivables hereunder shall be characterized as a secured loan and not a sale
for any purpose in addition to income tax purposes, it is the intention of the
parties hereto that this Agreement shall constitute a security agreement under
applicable law, and that the Seller shall be deemed to have granted to the Agent
for the ratable benefit of the Purchasers a duly perfected security interest in
all of the Seller's right, title and interest in, to and under the Receivables,
the Collections, each Collection Account, all Related Security, all payments on
or with respect to such Receivables, all other rights relating to and payments
made in respect of the Receivables, and all proceeds of any thereof prior to all
other liens on and security interests therein. After an Amortization Event, the
Agent and the Purchasers shall have, in addition to the rights and remedies
which they may have under this Agreement, all other rights and remedies provided
to a secured creditor after default under the UCC and other applicable law,
which rights and remedies shall be cumulative.
Section 12.15. Acknowledgments. The Seller hereby acknowledges that:
---------------
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement;
(b) neither the Agent nor any Purchaser has any fiduciary relationship
with or fiduciary duty to the Seller arising out of or in connection with this
Agreement, and the relationship between the Agent and the Purchasers, on the one
hand, and the Seller, on the other hand, in connection herewith or therewith is
solely that of debtor and creditor; and
(c) no joint venture is created hereby or otherwise exists by virtue
of the transactions contemplated hereby among the Purchasers or among the Seller
and the Purchasers or among the Seller and the Agent.
[signature pages follow]
59
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered by their duly authorized officers as of the date
hereof.
SELLER: FEDERAL-MOGUL FUNDING CORPORATION
By:______________________________________
Name:
Title:
Address for Notices:
Federal-Mogul Funding Corporation
26555 Northwestern Highway
Southfield, Ml 48034
Attention: Treasury Department
Phone: (248) 354-7700
Fax: (248) 354-6746
SERVICER: FEDERAL-MOGUL CORPORATION
By:______________________________________
Name:
Title:
Address for Notices:
Federal-Mogul Corporation
26555 Northwestern Highway
Southfield, MI 48034
Attention: Treasury Department
Phone: (248) 354-7700
Fax: (248) 354-6746
60
<PAGE>
AGENT: THE FIRST NATIONAL BANK OF CHICAGO,
as Agent
By:____________________________________
Authorized Agent
Address for Notices:
The First National Bank of Chicago
Suite 0079, 1-21
One First National Plaza
Chicago, Illinois 60670-0079
Attention: Caitlin Kelly
Phone: (312) 732-2566
Fax: (312) 732-4487
FALCON: FALCON ASSET SECURITIZATION CORPORATION
By: _________________________________
Authorized Signatory
Address for Notices:
Falcon Asset Securitization Corporation
c/o The First National Bank
of Chicago
Asset-Backed Finance
One First National Plaza
Chicago, Illinois 60670-0079
Attention: Caitlin Kelly
Fax: (312) 732-4487
Phone: (312) 732-2566
61
<PAGE>
INVESTORS:
Commitment NBD BANK
----------
$100,000,000 By:_______________________________
Authorized Agent
Address for Notices:
NBD Bank
611 Woodward Avenue
Detroit, Michigan 48226
Attention: Alison K. Dolin
Phone: (313) 225-3182
Fax: (313) 225-4533
Commitment DRESDNER BANK AG, NEW YORK
---------- AND GRAND CAYMAN BRANCHES
$50,000,000 By: _______________________________
Authorized Agent
By:________________________________
Authorized Agent
Address for Notices:
Dresdner Bank AG, New York
and Grand Cayman Branches
190 South LaSalle
Suite 2700
Chicago, Illinois 6063
Attention: Michael Petix
Phone: (312) 444-1313
Fax: (312) 444-1192
62
<PAGE>
EXHIBIT A
---------
FORM OF PURCHASE NOTICE
[DATE]
The First National Bank of Chicago,
as Agent for the Purchasers parties
to the Receivables Interest Purchase Agreement
referred to below
Suite 0079, 1-21
One First National Plaza
Chicago, Illinois 60670
Attention: Asset-Backed Finance
Gentlemen:
The undersigned, Federal-Mogul Funding Corporation, refers to the
Receivables Interest Purchase Agreement, dated as of November 20, 1998 (the
"RECEIVABLES PURCHASE AGREEMENT", the terms defined therein being used herein as
therein defined), among the undersigned, Federal-Mogul Corporation, Falcon Asset
Securitization Corporation ("FALCON"), certain Investors parties thereto and The
First National Bank of Chicago, as Agent for FALCON and such Investors, and
hereby gives you notice, irrevocably, pursuant to SECTION 2.02 of the
Receivables Purchase Agreement that the undersigned hereby requests a purchase
of Receivables Interests under the Receivables Purchase Agreement, and in that
connection sets forth below the information relating to such purchase (the
"PROPOSED PURCHASE") as required by SECTION 2.02 of the Receivables Purchase
Agreement:
(i) The Business Day of the Proposed Purchase is , 19 .
(ii) The requested Purchase Price in respect of the Proposed Purchase
is $ .
(iii) The requested Purchaser[s] in respect of the Proposed Purchase
[is FALCON] [are the Investors].
(iv) The duration of the initial Tranche Period for the Proposed
Purchase is ____________ [days] [months].
(v) The Discount Rate related to such initial Tranche Period is
requested to be the [CP] [LIBOR] [Base] Rate.
<PAGE>
The undersigned hereby certifies that the following statements are
true on the date hereof, and will be true on the date of the Proposed Purchase
(before and after giving effect to the Proposed Purchase):
(B) the representations and warranties set forth in Section 4.02 of
the Receivables Purchase Agreement are correct on and as of such date, as though
made on and as of such date;
(C) no event has occurred, or would result from the Proposed Purchase
that will constitute an Amortization Event, and no event has occurred and is
continuing, or would result from such Proposed Purchase, that would constitute a
Potential Amortization Event; and
(D) the Facility Termination Date has not have occurred, the aggregate
Capital of all Receivable Interests does not and will not exceed the Purchase
Limit and the aggregate Receivable Interests do not and will not exceed 100%.
Very truly yours,
FEDERAL-MOGUL FUNDING CORPORATION
By: ________________________________
Name:
Title:
2
<PAGE>
EXHIBIT B
---------
FORM OF COLLECTION ACCOUNT
AGREEMENT
[Letterhead of Federal-Mogul Funding Corporation]
_____________, 19__
[Date]
[Collection Bank Name and Address]
Attention: __________________
Re: Federal-Mogul Funding Corporation
Federal-Mogul Corporation
-------------------------
Ladies and Gentlemen:
You have exclusive control of P.O. Box ___________, [city], [state]
[zip] (the "LOCK-BOX") for the purpose of receiving mail and processing payments
therefrom pursuant to that certain lock-box services agreement dated
____________, 19__ between you and Federal-Mogul Corporation (the "AGREEMENT").
You hereby confirm your agreement to perform the services described therein.
Among the services you have agreed to perform therein is to endorse all checks
and other evidences of payment, and credit such payments to checking account no.
_________ maintained with you in the name of Federal-Mogul Corporation (the
"EXISTING ACCOUNT").
Federal-Mogul Corporation (the "ORIGINATOR") hereby transfers and
assigns all of its right, title and interest in and to, and exclusive ownership
and control over, the Lock-Box to Federal-Mogul Funding Corporation ("SPC").
Originator and SPC hereby request that from and after November 20, 1998, in lieu
of being deposited in the Existing Account, all checks and other evidences of
payment that are sent to the Lock-Box be endorsed and deposited in SPC's account
no. _____________ (the "LOCK-BOX ACCOUNT") in the name of ["Federal-Mogul
Corporation, as 'Servicer' for the benefit of The First National Bank of
Chicago, as Agent under that certain Receivables Interest Purchase Agreement
dated as of November 20, 1998 among SPC, as seller, Federal-Mogul Corporation,
as servicer, Falcon Asset Securitization Corporation, as purchaser, the
financial institutions from time to time a party thereto, as investors, and The
First National Bank of Chicago, as agent"].
<PAGE>
SPC hereby irrevocably instructs you, and you hereby agree, that upon
receiving notice from The First National Bank of Chicago, as Agent (the "AGENT")
in the form attached hereto as Annex A: (i) the name of the Lock-Box Account
will be changed to "The First National Bank of Chicago, as Agent" (or any
designee of the Agent), and the Agent will have exclusive ownership of and
access to such Lock-Box Account, and neither Originator, SPC nor any of their
respective affiliates will have any control of such Lock-Box Account or any
access thereto, (ii) you will either continue to send the funds from the Lock-
Box to the Lock-Box Account, or will redirect the funds as the Agent may
otherwise request, (iii) you will transfer monies on deposit in the Lock-Box
Account, at any time, as directed by the Agent, (iv) all services to be
performed by you under the Agreement will be performed on behalf of the Agent,
and (v) all correspondence or other mail which you have agreed to send to either
Originator or SPC will be sent to the Agent at the following address:
The First National Bank of Chicago, as Agent
Suite 0079, 1-21
One First National Plaza
Chicago, Illinois 60670-0079
Attention: ________ Kelly
Moreover, upon such notice, the Agent will have all rights and
remedies given to Originator or SPC under the Agreement. Each of Originator and
SPC agrees, however, to continue to pay all fees and other assessments due
thereunder at any time.
You hereby acknowledge that monies deposited in the Lock-Box Account
or any other account established with you by the Agent for the purpose of
receiving funds from the Lock-Box are subject to the liens of the Agent for
itself and as agent under the Receivables Purchase Agreement, and will not be
subject to deduction, set-off, banker's lien or any other right you or any other
party may have against Originator or SPC, except that you may debit the Lock-Box
Account for any items deposited therein that are returned or otherwise not
collected and for all charges, fees, commissions and expenses incurred by you in
providing services hereunder, all in accordance with your customary practices
for the charge back of returned items and expenses.
This letter agreement and the rights and obligations of the parties
hereunder will be governed by and construed and interpreted in accordance with
the laws of the State of Illinois. This letter agreement may be executed in any
number of counterparts and all of such counterparts taken together will be
deemed to constitute one and the same instrument.
This letter agreement contains the entire agreement between the
parties, and may not be altered, modified, terminated or amended in any respect,
nor may any right, power or privilege of any party hereunder be waived or
released or discharged, except upon execution by all parties hereto of a written
instrument so providing. In the event that any provision in this letter
agreement is in conflict with, or inconsistent with, any provision of the
Agreement, this letter agreement will exclusively govern and control. Each
party agrees to take all actions
2
<PAGE>
reasonably requested by any other party to carry out the purposes of this letter
agreement or to preserve and protect the rights of each party hereunder.
Please indicate your agreement to the terms of this letter agreement
by signing in the space provided below. This letter agreement will become
effective immediately upon execution of a counterpart of this letter agreement
by all parties hereto.
Very truly yours,
FEDERAL-MOGUL CORPORATION
By: ________________________________
Name:
Title:
FEDERAL-MOGUL FUNDING CORPORATION
By: ________________________________
Name:
Title:
Acknowledged and agreed to
this _______ day of ___________, 199_:
[COLLECTION BANK]
By: ___________________________________
Name:
Title:
_________________________, as Agent
By_____________________________________
Authorized Agent
3
<PAGE>
ANNEX A
FORM OF COLLECTION NOTICE
[ON LETTERHEAD OF THE AGENT]
[DATE]
[Collection Bank Name and Address]
Attention: ________________
Re: Federal-Mogul Funding Corporation
Federal-Mogul Corporation
-------------------------
Ladies and Gentlemen:
We hereby notify you that we are exercising our rights pursuant to
that certain letter agreement among Federal-Mogul Corporation, Federal-Mogul
Funding Corporation, you and us, to have the name of, and to have exclusive
ownership and control of, account number ________________ (the "LOCK-BOX
ACCOUNT") maintained with you, transferred to "_________________________, as
Agent." [The Lock-Box Account will henceforth be a zero-balance account, and
funds deposited in the Lock-Box Account should be sent at the end of each day to
_________________]. You have further agreed to perform all other services you
are performing under that certain agreement dated between you and
Federal-Mogul Corporation on our behalf.
We appreciate your cooperation in this matter.
Very truly yours,
THE FIRST NATIONAL BANK OF CHICAGO
as Agent
By: ________________________________
Authorized Agent
4
<PAGE>
EXHIBIT C
---------
FORM OF SETTLEMENT DATE STATEMENT
MONTH ENDED
- - ------------
I. RECEIVABLES ROLLFORWARD
Beginning Balance
+ New Receivables
- Cash Collections
- Credit Memos
- Gross Chargeoffs
+/- Adjustments
+/- Unreconciled Balance
Ending Balance
II. RECEIVABLES AGING
Amount Percent
------ -------
Total
Current
0-30 days past due
31-60 days past due
61-90 days past due
91-120 days past due
120+ days past due
Placed accounts
III. CALCULATION OF FUNDING (SEE SCHEDULE A)
Pool Balance
Less Ineligibles:
Balances greater than 90 dpd
APS Deferred Balance
Contra Accounts less than 91 dpd
Cross-agings less than 91 dpd
Terms over 90 but less than 180 less than 91 dpd
Less Intercompany Receivables
Less T&N Receivables
Eligible Receivables -----------
Excess Concentrations -----------
<PAGE>
Net Receivables Balance
Contractual Dilution
Available Receivables
Aggregate Reserve Percentage
Aggregate Reserves
Available Funding Amount
(max $150 MM)
IV. EARLY AMORTIZATION EVENTS
Delinquency Ratio Trigger
- greater than or equal to 6.0% for two consecutive months
Prior
Current Month
------- -----
greater than 60 dpd/Total
- - ------------------------------------------------------------------
Early Amortization? No
- - ------------------------------------------------------------------
LOSS-TO-LIQUIDATION RATIO TRIGGER
- 3-month rolling average greater than or equal to 3.50%
Prior 2 months 3-month
Current Month Prior Average
------- ----- ---- -------
61-90 days past due
change in placed accounts
cash collections
Loss/Liquidation Ratio
- - ------------------------------------------------------------------
Early Amortization?
- - ------------------------------------------------------------------
DILUTION RATIO TRIGGER
- 3-month rolling average greater than or equal to 8.00%
Prior 2 months 3-month
Current Month Prior Average
----- ---- -------
NAA Credit Memos
OEM Credit Memos
Dilutive adjustments
Pool Balance
Dilution Ratio
- - -----------------------------------------------------------------
Early Amortization?
- - ------------------------------------------------------------------
2
<PAGE>
COVERAGE AMOUNT
=Capital minus Available Funding Amount
Capital Outstanding
Available Funding Amount
Coverage Amount to be paid on Distribution
Date
MINIMUM ENHANCEMENT AMOUNT
Contractual Dilution
Aggregate Reserve
Minimum Enhancement Amount
V. CALCULATION OF CAPITAL
Available Funding Amount
Outstanding Capital
Required principal paydown
Available Increase
Requested Increase
Optional Repayment
Fees/Discount due
Net credit to FMFC Concentration Account
Net paydown due Falcon
VII. WIRING INSTRUCTIONS
Wiring instructions to pay interest and fees:
Amount:
To: Falcon Asset Securitization Corporation, account # 51-14810 at
FNBC, ABA #071-000-013, reference: Federal-Mogul Funding Corp.
Other wiring instructions:
[insert]
The undersigned hereby represents and warrants that the foregoing is a true and
accurate accounting in accordance with the Receivable Interest Purchase
Agreement dated as of November 20, 1998 and that all representations and
warranties are restated and reaffirmed.
3
<PAGE>
_____________________________________________________________________
Sandra Galac
Assistant Treasurer
4
<PAGE>
EXHIBIT D
---------
PRINCIPAL PLACES OF BUSINESS, CHIEF EXECUTIVE
OFFICE, OFFICES FOR RECORDS, FEDERAL EMPLOYEE
IDENTIFICATION NUMBER
Principal Place of Business,
Chief Executive Office,
and Offices for Records
26555 North Western Highway
Southfield, MI 48034
Federal Employee Identification Number: 38-3055838
<PAGE>
EXHIBIT E
---------
COLLECTION BANKS AND COLLECTION ACCOUNTS
A. Lockbox number 67000, Department 148901
Comerica account number 1000013027, in the name of Federal-Mogul Funding
Corporation
B. Lockbox number 07922
Royal Bank of Canada account number 1113414, in the name of Federal-Mogul
Funding Corporaiton
<PAGE>
EXHIBIT F
---------
FORM OF COMPLIANCE CERTIFICATE
To: The First National Bank of Chicago, as Agent
This Compliance Certificate is furnished pursuant to that certain
Receivables Interest Purchase Agreement dated as of November 20, 1998, among
Federal-Mogul Funding Corporation (the "SELLER"), Federal-Mogul Corporation, the
Purchasers party thereto, and The First National Bank of Chicago, as agent for
such Purchasers (the "AGREEMENT").
THE UNDERSIGNED HEREBY CERTIFIES THAT:
1. I am the duly elected of the Seller;
2. I have reviewed the terms of the Agreement and I have made, or
have caused to be made under my supervision, a detailed review of the
transactions and conditions of the Seller during the accounting period covered
by the attached financial statements;
3. The examinations described in paragraph 2 did not disclose, and I
have no knowledge of, the existence of any condition or event which constitutes
an Amortization Event or potential Amortization Event, as each such term is
defined under the Agreement, during or at the end of the accounting period
covered by the attached financial statements or as of the date of this
Certificate, except as set forth below.
Described below are the exceptions, if any, to paragraph 3 by listing,
in detail, the nature of the condition or event, the period during which it has
existed and the action which the Seller has taken, is taking, or proposes to
take with respect to each such condition or event:
The foregoing certifications, together with the computations set forth
in Schedule I hereto and the financial statements delivered with this
Certificate in support hereof, are made and delivered this ____ day of
_____________, 19__.
FEDERAL-MOGUL FUNDING CORPORATION
By ______________________________
Name:
Title:
<PAGE>
SCHEDULE I TO COMPLIANCE REPORT
A. Schedule of Compliance of Federal-Mogul Funding Corporation, Sections _____
and _____ of the Agreement. Unless otherwise defined herein, the terms
used in this Compliance Certificate have the meanings ascribed thereto in
the Purchase Agreement.
This schedule relates to the month ended: _____________________
<PAGE>
EXHIBIT G
---------
CREDIT POLICIES
CUSTOMER CREDIT
PURPOSE
- - -------
This policy outlines requirements for creation and monitoring customer credit.
CUSTOMER CREDIT LIMITS
- - ----------------------
The establishment and monitoring of a limit or maximum level of credit sales to
each individual customer serves to reduce the risk of a significant loss due to
uncollectible accounts. A credit limit represents the level of credit sales
(including previous outstanding accounts receivable) above which additional
credit will not be extended.
Credit limits should be established after consideration is given to the payment
history of each customer and an assessment of the customer's financial
condition. Independent outside sources of credit history available locally
(e.g. Dun & Bradstreet in the U.S.), credit references and or customer financial
statements should be evaluated to establish customer credit limits and for
updating credit limits on a periodic basis.
CREDIT HOLD ROUTINES
- - --------------------
Routines should be established to preclude shipping product to customers that
exceeds the customer credit limit. Specific approval by a designated
finance/customer credit individual of any deviation from the established
routines.
INTRODUCTION
CENTRALIZED SOUTHFIELD ENVIRONMENT
. SUPPORTING THE FOLLOWING
. OEM--United States
. Aftermarket--United States
. Aftermarket--Canada
. SPECIFIC RESPONSIBILITIES
. Credit approval
. Collection
. Receivable management
. Billing--NAA only
<PAGE>
. Dispute resolution
. DEPARTMENT ORGANIZATION CHART
. 45 total employees
. 4 part-time/associate
. 41 full-time company employees (74% 4-year degrees)
. SOFTWARE UTILIZED
. CARMS--receivable management
. Lotus Notes--communication and dispute management
. Maxretriever--document management
. UPS--proof of deliveries
. PRC--scanner utilization
. Internally developed--AMS, MAPS, STRAP
. AGGRESSIVE REENGINEERING INITIATIVE
. Relentless pursuit of superior customer service
. Eliminate deductions
. Continuous investigation of electronic options in our daily operations
. Review of document delivery options for invoices and statements
. Resolve customer inquiries with one call methodology
. Investigation of order to cash possibilities at manufacturing plants
CREDIT POLICY AND PROCEDURE
. DETERMINATION OF CREDIT LIMITS
. Credit limits are set at approximately 2.5 times estimated month sales
for new accounts.
. Existing account credit limits are adjusted according to payment
habits and financial stability. An account that shows a pattern of
paying their account past due will have their credit limit adjusted
downward to 1 - 1 1/2 times monthly sales.
. NEW ACCOUNT PROCEDURE
. The following information is requested for new open accounts:
. 3-trade credit references
. 1 bank credit reference
. Credit reporting agency report (optional)
. Verbal credit references from industry credit group members
(optional)
. Requests for additional credit are evaluated by reviewing payment
history (prompt %/discount % vs. late %), review of current financial
statements and amount of additional credit requested compared to the
current year high credit.
2
<PAGE>
. LEVELS OF CREDIT GRANTING APPROVAL
. Two step process for new credit approval, after Sales has requested
the account be given open account status. Review and approval/reject
is given first by the Credit Analyst, then by the Area Credit Manager.
. Increases in credit for current customers are reviewed by the Credit
Analyst.
. USE OF SECURITY DOCUMENTS AND PERSONAL GUARANTEES
. Personal guarantees are included in the customer's Credit Application.
While a personal guarantee is not required for all new accounts, it is
required in cases of higher than usual financial risk.
. UCC-1's, UCC-3's, and Purchase Money Security Agreements are taken (or
continued) on customers with large projected or current sales volumes
(>$150,000) or when a customer's financial condition is deteriorating.
. TRAINING OF CREDIT GRANTING PERSONNEL
. Each Credit Analyst undergoes a 5 day training schedule, reviewing a
formal training agenda with each of the Credit Analysts. Items covered
include:
. A/R management software and systems (CARMS, MAPS & STRAP)
. New account/account maintenance procedures
. Special payment terms request approval and rejection
. Security documents
. Credit and collection procedures
. CREDIT FILES
. A file is kept for each customer account. An example of information in
this file is:
. Original credit application
. Notes from phone conversations and meeting with customers
. Copies of written correspondence
. Information from creditor discussion groups
. Personal guarantee (optional)
. These files are kept in a central location in the Customer Financial
Services Department
. Additionally, notes are kept concerning Credit Analyst discussions with the
customer on CARMS. Examples of this information are:
. Customer commitments to send checks
. Date customers are put on hold
. Miscellaneous comments noted by the Credit Analyst that may be of
value in future credit decisions
PAYMENT TERMS
3
<PAGE>
. Standard terms for OEM customers are either net 10/th/ and net 25/th/
prox or net 30 days on the date in the month in which the product is
shipped. For net 10/th/ and net 25/th/ prox, if the product is shipped
in the first 15 days of the month, payment is due by the 10/th/ day of
the following month. If shipped later in the month, payment is due by
the 25/th/ day of the following month. Customers are sent an invoice
or an ASN for each shipment.
. Standard terms for the FM Aftermarket and Retail are based on a
shipping month of the 26/th/ to the 25/th/ and qualify for a 2% prompt
payment discount if the invoice is paid by the 10/th/ of the following
month, otherwise, full payment for the Aftermarket is due by the
25/th/ of the following month and for Retail, full payment is due the
25/th/ of the 2/nd/ month following. Gasket terms in general are 2%
10/th/ net 25/th/ prox. In addition, there are negotiated terms for
Retailers and selected buying groups which can range from 2% 2/nd/
10/th/ to net 90 days.
. DETERMINANTS OF PRICE
. Prices for the Aftermarket are published on product line price sheets.
. Prices for Retail and OEM accounts are negotiated and specified on a
pricing agreement for a given period of time and are supported by a
purchase order or vendor agreement.
. CASH IN ADVANCE/CASH ON ACCOUNT
. Used at the Credit Analyst's discretion in the following situations:
. Account consistently pays past due and is judged to be a credit risk
Bankruptcy
. New account with credit references judged unsatisfactory
. NOTES RECEIVABLE
. Used at the Credit Analyst's discretion and reviewed monthly for
payment. As of October, 1998 month end, there were 6 open Notes
Receivable for a total of $131,757.08.
CREDIT AND COLLECTION
. ACCOUNT MAINTENANCE
. The Credit and Accounts Receivable Management System (CARMS) produces
an action list on a daily basis, which lists accounts that require
attention due to a change in status (account over credit limit,
account past due, etc).
. Action lists are reviewed by credit analysts for resolution.
. Summary past due reports are generated on a monthly basis and are
reviewed by the analysts for credit restriction.
4
<PAGE>
. Credit analysts continue follow up by making timely collection calls
to customers on past due invoices until payment is received.
. Sales is contacted to assist with collection of past due items and the
resolution of customer disputes.
. If payment is not received or a mutual payment arrangement cannot be
made, the customer is sent a final demand notice, which details the
debt and allows the customer ten working days to make acceptable
payment arrangements.
. If payment is still not received and no payment agreement has been
made, the account is referred to the Area Credit Manager for further
disposition.
. COLLECTION AGENCIES / BANKRUPTCIES
. Accounts which are seriously past due may be referred to FM's legal
counsel for action or placed with an outside collection agency.
Accounts are moved to a separate credit manager code for follow-up.
. Accounts that have filed for bankruptcy are moved to a separate credit
manager code for follow-up and are written off quarterly.
AFTERMARKET - CUSTOMER BASE OVERVIEW
. NUMBER OF AFTERMARKET AND RETAIL ACCOUNTS
. 4,617 active Aftermarket accounts
. 39 active Retail accounts
. PRODUCT LINES PURCHASED
. Engine parts - pistons, piston rings, engine bearings, camshafts
. Chassis parts - rack & pinion, tie rods, ball joints, half-shafts
Anti-friction - ball and roller bearings
. Sealing products - oil seals
. Fuel products - fuel pumps, carburetors, emission control products
. Lighting products - strobes, marker lights, reflective tape, wire
harnesses
. METHOD OF ORDER PLACEMENT AND SHIPMENT
. Orders can be placed electronically via EDI or through Federal-Mogul's
Customer Service/Order Entry via phone or fax.
. Aftermarket orders are usually shipped from one of our Service Centers
located in the U.S. and Canada. Larger orders may be shipped from one
of three main Distribution Centers located in Jacksonville, AL,
Maysville, KY and Skokie, IL.
. CUSTOMER OPERATIONS
. Aftermarket customers consist mainly of warehouse distributors that
buy product for downstream sales to independent or warehouse owned
auto parts stores. Examples are NAPA, MAWDI and Pittsburgh Crankshaft.
5
<PAGE>
. Retail customers buy product for resale in their own company owned
store. Examples are CSK Automotive, Advance and AutoZone.
ORIGINAL EQUIPMENT MARKET AND EXPORT OVERVIEW
. OE EXPORT CUSTOMER BASE
. 856 active OEM accounts
. 106 active Export accounts
. CUSTOMER OPERATIONS
. OE & Export customers consist primarily of automotive, heavy duty
vehicle, farm equipment and industrial equipment manufacturers.
. Major customers include Ford, General Motors and Chrysler.
. PRODUCT LINES PURCHASED
. Manufactured products include engine and transmission products,
sealing devices, lighting products and fuel systems.
. Aftermarket products sold in the OE market to the sales and service
operations of our OE customers for their dealers.
. ORDER PROCESS
. Decentralized customer service - one at each of our plant locations.
. Orders are scheduled in advance by large OEM Customers (such as Ford,
GM, Chrysler) and the accum's are adjusted as product is shipped,
material release forecasts updated weekly.
. Smaller OEM's send purchase orders in advance with date required.
Purchase orders reviewed at plant before orders are scheduled.
ACCOUNTS RECEIVABLE DILUTIONS
. CASH DISCOUNT
. 1.8% of NAA Sales
. DOUBTFUL ACCOUNTS
. Written off quarterly as approved by the department manager
. Continual follow up until financial conclusion
. CREDIT MEMOS
. Stocklift returns
. Obsolescence returns
. 30 day returns
6
<PAGE>
. Warranty
. Price
. Policy allowance
. CHECKS ISSUED
. Rebates for volume incentives
. INVOICES/STATEMENTS
. The invoices generated from a plant sale can be mailed or sent
electronically through EDI.
. The Aftermarket invoices that are not sent via EDI are mailed at least
weekly.
. Monthly statements are sent to customers based on the 25/th/ or month-
end cutoff based on the customer.
. RECONCILIATIONS
. A monthly reconciliation is completed of CARMS to the General Ledger
balance.
. Typical reconciliation items can be cash or billings due to different
closing schedules.
7
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the registration statements
(33-55135, 33-54717, 33-51265, 333-50413, 333-56725, 333-53853, 333-67805,
333-74661) on Form S-3 and the registration statements (333-38961, 33-54301,
33-51403, 33-32429, 33-32323, 33-30172, 2-93179) on Form S-8 of our report dated
February 3, 1999, except for Note 23, as to which the date is February 24, 1999,
with respect to the consolidated financial statements and schedule of Federal-
Mogul Corporation; January 29, 1999 with respect to the consolidated financial
statements of Federal-Mogul Ignition Company (and the Cooper Automotive division
of Cooper Industries, Inc., its predecessor); January 29, 1999 with respect to
the consolidated financial statements of Federal-Mogul Products, Inc. (and the
Moog Automotive division of Cooper Industries, Inc., its predecessor); and
February 12, 1999 with respect to the financial statements of Federal-Mogul
Aviation, Inc. (and Champion Aviation, Inc., a subsidiary of Cooper Industries,
Inc., its predecessor), all of which are included in its Annual Report on Form
10-K for the year ended December 31, 1998.
/s/ Ernst and Young LLP
Detroit, Michigan
March 31, 1999
<PAGE>
EXHIBIT 21
FEDERAL-MOGUL CORPORATION SUBSIDIARIES
The direct and indirect subsidiaries of the Company and their respective States
or other jurisdictions of incorporation as of December 31, 1998, are as follows:
<TABLE>
<CAPTION>
Percentage of
Voting Stock
Jurisdiction Owned by FM
Name of Subsidiary of Incorporation & Other Subs
------------------ ---------------- -------------
<S> <C> <C>
Federal-Mogul Canada, Ltd. Canada 100%
Federal-Mogul, S.A. France 100%
Federal-Mogul Motorenteile Holding GmbH Germany 100%
Federal-Mogul Weisbaden GmbH Germany 100%
T & N Holdings GmbH Germany 100%
Federal-Mogul Ignition SpA Italy 100%
Federal-Mogul Cuorgne, S.p.A. Italy 100%
Bertolotti Pietro e Figli, S.r.l. Italy 100%
Federal-Mogul Aftermarket Italia SRL Italy 100%
Federal-Mogul Friction Products, SpA Italy 100%
Federal-Mogul Sealing Systems SpA Italy 100%
Federal-Mogul de Mexico S.A. de C.V. Mexico 94%
Servicios de Componentes Automotrices, S.A. Mexico 100%
Servicios Administrativos Industriales, S.A. Mexico 100%
Federal-Mogul Netherlands B.V. Netherlands 100%
Federal-Mogul Global B.V. Netherlands 100%
Federal-Mogul Growth B.V. Netherlands 100%
Federal-Mogul Holdings B.V. Netherlands 100%
Federal-Mogul Investments B.V. Netherlands 100%
T & N Holdings Ltd. South Africa 100%
Federal-Mogul, S.A. Switzerland 100%
Federal-Mogul Global Growth Ltd. United Kingdom 100%
F-M UK Holding Ltd. United Kingdom 100%
T & N Limited United Kingdom 100%
Fleetside Investments Ltd. United Kingdom 100%
T & N Trademarks Ltd. United Kingdom 100%
Carter Automotive Company, Inc. Delaware 100%
Federal-Mogul World Wide, Inc. Michigan 100%
Federal-Mogul Funding Corporation Michigan 100%
Federal-Mogul Ignition Company Delaware 100%
</TABLE>
Page 1 of 2
<PAGE>
FEDERAL-MOGUL CORPORATION SUBSIDIARIES (cont.)
<TABLE>
<CAPTION>
Percentage of
Voting Stock
Jurisdiction Owned by FM
Name of Subsidiary of Incorporation & Other Subs
------------------ ---------------- -------------
<S> <C> <C>
Federal-Mogul Products, Inc. Missouri 100%
Federal-Mogul UK Holdings Inc. Delaware 100%
Federal-Mogul Global Inc. Delaware 100%
Federal-Mogul Dutch Holdings Inc. Delaware 100%
F-M International Group Inc. Delaware 100%
Felt Products Manufacturing Co. Delaware 100%
T & N Industries Inc. Delaware 100%
Federal-Mogul Piston Rings, Inc. Delaware 100%
Ferodo America, Inc. Delaware 100%
Federal-Mogul Powertrain Inc. Michigan 100%
</TABLE>
Page 2 of 2
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that each one of the undersigned directors
of FEDERAL-MOGUL CORPORATION, a Michigan corporation, which is about to file
with the Securities and Exchange Commission, Washington D.C. under the
provisions of the Securities Exchange Act of 1934, as amended, the Corporation's
Annual Report on Form 10-K for the year ended December 31,1998, hereby
nominates, constitutes and appoints Thomas W. Ryan and James J. Zamoyski, or
either of them, as his true and lawful attorney-in-fact, with full power to act
and with full power of substitution, for him and in his name, place and stead,
to sign such Report and any and all amendments thereto, and to file said Report
and each Amendment so signed, with all Exhibits thereto, with the Securities and
Exchange Commission.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney this ___ day of March, 1999.
/s/ RICHARD A. SNELL
---------------------------
RICHARD A. SNELL
Chairman of the Board and
Chief Executive Officer; Director
/s/ JOHN J. FANNON /s/ ANTONIO MADERO
- - -------------------- ------------------------------
JOHN J. FANNON ANTONIO MADERO
Director Director
/s/ RODERICK M. HILLS /s/ ROBERT S. MILLER, JR.
- - -------------------- -----------------------------
RODERICK M. HILLS ROBERT S. MILLER
Director Director
/s/ PAUL SCOTT LEWIS /s/ JOHN C. POPE
- - -------------------- ----------------------
PAUL SCOTT LEWIS JOHN C. POPE
Director Director
/s/ SIR GEOFFREY WHALEN C.B.E.
------------------------------
SIR GEOFFREY WHALEN C.B.E.
Director
<TABLE> <S> <C>
<PAGE>
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
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<BONDS> 3130
0
177
<COMMON> 337
<OTHER-SE> 1472
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