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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
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
------------------- ---------------------
<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 $1,052,105,774 as of March 13, 2000 based on the
reported last sale price as published for the New York Stock Exchange--
Composite Transactions for such date.
The Registrant had 70,511,346 shares of common stock outstanding as of March
13, 2000.
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 15, 2000, are incorporated by reference in
Part III (Items 10, 11, 12 and 13) of this Report.
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<PAGE>
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 the issue related to the conversion to the Euro, and the scope of the
effect of T&N and Cooper Automotive asbestos liabilities and insurance
recoverable.
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.
i
<PAGE>
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 an
automotive parts manufacturer providing innovative solutions and systems to
global customers in the automotive, small engine, heavy-duty and industrial
markets. 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. The Company 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.
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.
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,
-----------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Net Sales by Operating Segment:
Powertrain Systems................................... 38% 47% 43%
Sealing Systems, Visibility and Systems Protection
Products............................................ 29% 28% 19%
Brake, Chassis, Ignition and Fuel Products........... 32% 24% 32%
Divested Activities.................................. 1% 1% 6%
------- ------- -------
100% 100% 100%
======= ======= =======
<CAPTION>
Year Ended December 31,
-----------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Net Sales by Geographic Region:
United States........................................ 61% 52% 62%
Mexico............................................... 2% 3% 5%
Canada............................................... 2% 2% 3%
------- ------- -------
Total North America................................ 65% 57% 70%
------- ------- -------
United Kingdom....................................... 8% 12% 1%
Germany.............................................. 10% 11% 7%
France............................................... 5% 7% 2%
Italy................................................ 4% 4% 4%
Other Europe......................................... 4% 4% 6%
------- ------- -------
Total Europe....................................... 31% 38% 20%
------- ------- -------
Rest of World........................................ 4% 5% 10%
------- ------- -------
100% 100% 100%
======= ======= =======
</TABLE>
1
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Operating Divisions
The Company's integrated operations are conducted under three operating
units corresponding to major product areas: Powertrain Systems; Sealing
Systems, Visibility and Systems Protection Products; and Brake, Chassis,
Ignition and Fuel 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. The primary products of this operating unit
include engine bearings, large bearings, pistons, piston pins, rings, cylinder
liners, connecting rods, camshafts and sintered products. These products are
marketed under the brand names Federal-Mogul(R), Glyco(R), AE Goetze(R),
Sterling(R), Sealed Power(R), Weyburn-Bartel(R), Weyburn-Lydmet(R), Brico(R)
and Sintertech(R).
Sealing Systems, Visibility and Systems Protection Products are used in
automotive, light truck, heavy-duty diesel, agricultural, off-highway, marine,
railroad, high performance and industrial applications. The primary products
of this operating unit include dynamic seals, gaskets, lighting products,
wiper blades and systems protection products. These 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),
Anco(R), Blazer(R), Zanxx(R), Wagner(R), Signal-Stat(R) and Bentley-Harris(R).
Brake, Chassis, Ignition and Fuel Products are used in automotive, light
truck, heavy-duty, agricultural, off-highway, marine and high performance
applications. The primary products of this operating unit include brake and
friction products, chassis products, ignition products and fuel system
components. These products are marketed under the brand names Abex(R),
Wagner(R), Moog(R), Precision(R), Omega(R), Champion(R), PowerPath(R),
Belden(R) and Carter(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 BMW, Caterpillar,
Cummins, DaimlerChrysler, Fiat, Ford/Jaguar/Volvo, General Motors,
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 essentially 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 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 1998 acquisitions of T&N, Cooper Automotive and Fel-
Pro. In 1999, approximately 16% of the Company's net sales were to the three
major automotive manufacturers in the United States, with General Motors
Corporation accounting for approximately 6% of the Company's net sales, Ford
Motor Company accounting for approximately 5% of the Company's net sales and
DaimlerChrysler accounting for approximately 5% 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. In addition, management
believes that the 1998 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.
2
<PAGE>
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 products to
market. Federal-Mogul provides its customers with real-time engineering
capabilities and design development in their home countries. Technological
activities are conducted at the Company's major research centers in Cawston,
England; Burscheid, Germany; Plymouth, Michigan; Skokie, Illinois; Ann Arbor,
Michigan; Toledo, Ohio; Bad Camberg, Germany 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.
Total expenditures for research and development activities were
approximately $128 million in 1999, $85 million in 1998 and $13 million in
1997. 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 January 1999, the Company completed its acquisition of the piston
division of Alcan Deutschland GmbH (Alcan) in Germany, a subsidiary of Alcan
Aluminum Ltd. in Canada. The division manufactures pistons for passenger cars
and commercial vehicles under the Nural(R) brand name. The piston division
employs approximately 1,100 people with 1998 annual sales of approximately
$150 million.
Also in January 1999, the Company completed its acquisition of certain
manufacturing operations of Crane Technologies, Inc. (Crane) to increase its
camshaft capacity. The two plants located in Orland, Indiana and Jackson,
Michigan employ approximately 230 people with 1998 annual sales of
approximately $36 million.
Divestitures and Closings
During the second quarter of 1999, the Company sold its South African heat
transfer business. The business had sales of approximately $56 million in 1998
in four South African locations and employed approximately 1,200 people. The
Company did not record a significant gain or loss on this transaction.
During the third quarter of 1999, the Company sold its subsidiary,
Bertolotti Pietro e Figli, S.r.l. (Bertolotti), an Italian aftermarket
operation. In 1998, the Company recognized a $20.0 million charge primarily
associated with the writedown of Bertolotti's assets to the estimated fair
value. In 1999, the Company recognized an additional $7.9 million loss
associated with the writedown of Bertolotti's assets to their fair value
resulting from the sale. Offsetting the loss was a tax benefit of $7.9 million
resulting from the sale.
3
<PAGE>
Raw Materials and Suppliers
The Company purchases various raw materials for use in its manufacturing
processes. The principal raw materials purchased include steel, aluminum,
copper and nickel. In addition, the Company purchases parts manufactured by
other manufacturers for sale in the aftermarket. The Company has not
experienced any shortages of raw materials or finished parts and normally does
not carry inventories of raw materials or finished parts in excess of those
reasonably required to meet its production and shipping schedules. In 1999, no
outside supplier of the Company provided products that accounted for more than
5% of the Company's net sales.
Employee Relations
As of December 31, 1999, the Company had approximately 50,400 full-time
employees, of which approximately 24,400 were employed in the United States.
Various unions represent approximately 35% of the Company's United States
hourly employees and approximately 60% of the Company's foreign hourly
employees. 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 1999
and are not expected to have a material impact on the Company's financial
position or results of operations in 2000 or 2001.
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 2000 sales volumes.
Intellectual Property
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-
US) and U.S. patents and pending patent applications that 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.
4
<PAGE>
Item 2. Properties.
The Company's world headquarters is located 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, 1999 are listed below. All properties are owned in fee
simple except where otherwise noted.
At December 31, 1999, the Company had 414 manufacturing, distribution and
sales and administration office facilities worldwide. Approximately 39% of the
facilities are leased, the majority of which are distribution, sales and
administration offices. The Company owns the remainder of the facilities.
<TABLE>
<CAPTION>
North Rest of
Type of Facility America Europe the World Total
---------------- ------- ------ --------- -----
<S> <C> <C> <C> <C>
Manufacturing.................................... 92 91 60 243
Distribution..................................... 86 10 10 106
Sales and Administration Offices................. 7 31 27 65
--- --- --- ---
Total............................................ 185 132 97 414
=== === === ===
</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
facilities are 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
ASBESTOS LIABILITY AND LEGAL PROCEEDINGS
T&N Asbestos Litigation
In the United States, the Company's United Kingdom subsidiary, T&N Ltd., and
two former United States subsidiaries of T&N, plc. (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 France. 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 expenditures which may
arise therefrom.
As of December 31, 1999, the T&N Companies had approximately 95,000 claims
pending. During 1999, approximately 49,000 new claims were filed and 60,000
claims were settled, dismissed or otherwise resolved. In addition to the
pending cases above, the T&N Companies have approximately 64,000 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.
The $1.1 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, 1999, the $1.1 billion total
provision is comprised of approximately $520 million related to known claims
and approximately $620 million related to IBNR claims.
In arriving at the IBNR provision for the T&N Companies, assumptions have
been made regarding the total number of claims anticipated to 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.
5
<PAGE>
T&N Ltd. has appointed the Center for Claims Resolution (CCR) as its
exclusive representative in relation to all asbestos-related personal injury
claims made against it in the United States. The CCR provides to its 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 Ltd. 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.
Effective January 18, 2000, the two United States subsidiaries withdrew from
the CCR membership and appointed a law firm specializing in asbestos matters
as their claims handling defense and administrative service provider.
Indemnity and defense obligations incurred while members of the CCR will
continue to be honored. This change is intended to create greater economic and
defense efficiencies for the two companies.
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 costs 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 initial reserve provided for the T&N Companies for claims filed after June
30, 1996 approximated 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 asbestos-related claims against the T&N Companies, given
the nature and complexity of the factors affecting the estimated liability,
the actual liability may differ. No absolute assurance can be given that the
T&N Companies 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 reserve for the T&N Companies is
re-evaluated periodically as additional information becomes available.
During 1999, T&N Ltd. was named in a complaint filed in the United States
District Court for the Eastern District of Texas by Owens-Illinois alleging
that T&N is liable to Owens-Illinois for Owens-Illinois' own indemnity and
defense costs pertaining to asbestos-related personal injury claims. The
Company believes it has meritorious defenses to the claim and has successfully
defended against similar underlying claims in the past.
Cooper Automotive Asbestos Litigation
Former businesses of Cooper Automotive, primarily Abex and Wagner, are
involved as defendants in numerous court actions in the United States alleging
personal injury from exposure to asbestos or asbestos-containing products,
mainly involving friction products. In 1998, the Company acquired the capital
stock of a Cooper Automotive entity resulting in the assumption by a Company
subsidiary of contractual liability, under certain circumstances, for all
claims pending and to be filed in the future alleging exposure to certain
Wagner automotive and industrial friction products and for all claims filed
after August 29, 1998, alleging exposure to certain Abex (non-railroad and
non-aircraft) friction products. As of December 31, 1999, Abex has
approximately 10,500 claims pending and Wagner has approximately 13,700 claims
pending. The Company has completed its assessment of the potential liability
and related potential insurance recoveries related to the Cooper Automotive
acquisition and has recorded a $325.9 million insurance recoverable asset and
a liability of the subsidiaries involved of approximately $400 million. This
is the Company's estimate, after taking into account legal counsel's
evaluation related to amounts expected to be paid or reimbursed by insurers.
In arriving at these provisions, certain assumptions have been made regarding
the total number of claims which may be received in the future against these
two entities and the average costs associated with such claims.
6
<PAGE>
Abex maintained product liability insurance coverage for most of the time
that it manufactured products that contained asbestos. The subsidiary of the
Company that may be liable for the post-August 1998 asbestos claims against
Abex has the benefit of that insurance. Abex has been in litigation since 1982
with the insurance carriers of its primary layer of liability concerning
coverage for asbestos claims. Abex also has substantial excess layer liability
insurance coverage which, barring unforeseen insolvencies of excess carriers
or other adverse events, should provide coverage for asbestos claims against
Abex.
Wagner also maintained product liability insurance coverage for some of the
time that it manufactured products that contained asbestos. The subsidiary of
the Company that may be liable for asbestos claims against Wagner has the
benefit of that insurance. Primary layer liability insurance coverage for
asbestos claims against Wagner is the subject of an agreement with Wagner's
solvent primary carriers. The agreement provides for partial reimbursement of
indemnity and defense costs for Wagner asbestos claims until exhaustion of
aggregate limits. Wagner also has substantial excess layer liability insurance
coverage which, barring unforeseen insolvencies of excess carriers or other
adverse events, should provide coverage for asbestos claims against Wagner.
The ultimate exposure of the Company's subsidiary with respect to claims
against Abex and Wagner will depend upon the extent to which the insurance
described above will be available to cover such claims, the amounts paid for
indemnity and defense, changes in the legal environment and other factors.
While the Company believes that the liability and receivable recorded for
these claims are reasonable and appropriate, given the nature and complexity
of factors affecting the estimated liability and potential insurance recovery,
the actual liability and insurance recovery may differ. In the event that the
actual liability net of insurance proceeds recovered exceeds the reserve net
of insurance receivable recorded by the Company, the Company's results of
operations, business, liquidity and financial condition could be materially
adversely affected. The asbestos reserves for the businesses acquired as part
of the Cooper Automotive acquisition will be re-evaluated periodically as
additional information becomes available.
Federal-Mogul and Fel-Pro Asbestos Litigation
The Company also is sued in its own name as one of a large number of
defendants in a number of lawsuits brought by claimants alleging injury due to
exposure to asbestos. The Company's Fel-Pro subsidiary has been named as a
defendant in a number of product liability cases involving asbestos, primarily
involving gasket or packing products. The Company is defending all such claims
vigorously and believes that it and Fel-Pro have substantial defenses to
liability and adequate insurance coverage for defense and indemnity. While the
outcome of litigation cannot be predicted with certainty, management believes
that asbestos claims pending against the Company and Fel-Pro as of December
31, 1999, will not have a material effect on the Company's financial position.
Aggregate of Asbestos Liability
As of December 31, 1999, the Company has provided a total reserve for all of
its subsidiaries and businesses with potential asbestos liability of
approximately $1.5 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. The company has a corresponding receivable from certain insurance
carriers of approximately $325.9 million.
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".
There were no material legal proceedings that were terminated during the
fourth quarter of 1999.
7
<PAGE>
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 1999.
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 13, 2000 was 21,714 . 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>
1999 1998
------------- -------------
High Low High Low
Quarter ------ ------ ------ ------
<S> <C> <C> <C> <C>
First............................................... $64.88 $40.63 $54.37 $39.00
Second.............................................. $53.81 $41.94 $69.25 $52.62
Third............................................... $55.00 $23.38 $72.00 $46.62
Fourth.............................................. $29.13 $17.56 $63.00 $33.00
</TABLE>
The closing price of the Company's common stock as reported on the New York
Stock Exchange-Composite Tape on March 13, 2000 was $15.0625.
Quarterly dividends of $.0025 per common share were declared during each
quarter of 1999 and for the second, third and fourth quarters of 1998. A
quarterly dividend of $.12 per common share was declared for the first quarter
of 1998. 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.
8
<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, 1999. 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 Supplemental Data."
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(Millions of Dollars, Except Per Share
Amounts)
<S> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data
Net sales............... $6,487.5 $4,468.7 $1,806.6 $2,032.7 $1,999.8
Costs and expenses...... (6,006.2)(1) (4,266.9)(2) (1,703.7)(3) (2,258.0)(4) (2,000.7)(5)
Other expense........... (21.4) (16.3) (3.4) (3.4) (2.4)
Income tax (expense)
benefit................ (180.9) (93.6) (27.5) 22.4 (2.5)
-------- -------- -------- -------- --------
Earnings (loss) before
extraordinary items and
net effect of
cumulative effect of
change in accounting
principle.............. 279.0 91.9 72.0 (206.3) (5.8)
Extraordinary items --
loss on early
retirement of debt, net
of applicable income
tax benefits........... (23.1) (38.2) (2.6) -- --
Cumulative effect of
change in accounting
for costs of start-up
activities, net of
applicable income tax
benefit................ (12.7) -- -- -- --
-------- -------- -------- -------- --------
Net earnings (loss)..... $ 243.2 $ 53.7 $ 69.4 $ (206.3) $ (5.8)
======== ======== ======== ======== ========
Common Share Summary
(Diluted)
Average shares and
equivalents outstanding
(in thousands)......... 84,206 53,748 41,854 34,659 34,642
Earnings (loss) per
share:
Before extraordinary
items and cumulative
effect of a change in
accounting principle.. $ 3.59 $ 1.67 $ 1.67 $ (6.20) $ (.42)
Extraordinary items --
loss on early
retirement of debt,
net of applicable
income tax benefits... (.28) (.71) (.06) -- --
Cumulative effect of
change in accounting
for costs of start-up
activities, net of
applicable income tax
benefit............... (.15) -- -- -- --
-------- -------- -------- -------- --------
Net earnings (loss) per
share.................. $ 3.16 $ .96 $ 1.61 $ (6.20) $ (.42)
======== ======== ======== ======== ========
Dividends declared per
share.................. $ .01 $ .1275 $ .48 $ .48 $ .48
======== ======== ======== ======== ========
Consolidated Balance
Sheet Data
Total assets............ $9,945.2 $9,940.1 $1,802.1 $1,455.2 $1,701.1
Short-term debt(6)...... 190.8 211.0 28.6 280.1 111.9
Long-term debt.......... 3,020.0 3,130.7 273.1 209.6 481.5
Company-obligated
mandatorily redeemable
preferred securities of
subsidiary trust
holding solely
convertible
subordinated debentures
of the Company......... 575.0 575.0 575.0 -- --
Shareholders' equity.... 2,075.2 1,986.2 369.3 318.5 550.3
Other Financial
Information
Net cash provided from
(used by) operating
activities............. $ 562.4 $ 325.5 $ 215.7 $ 149.0 $ (34.7)
Expenditures for
property, plant,
equipment and other
long-term assets....... 395.2 228.5 49.7 54.2 78.5
Depreciation and
amortization expense... 354.9 228.0 51.5 61.9 59.2
</TABLE>
- - -----------------
(1) Includes a $46.9 million charge for integration costs and a $7.9 million
charge for adjustment of assets held for sale and other long-lived assets
to fair value.
(2) 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.
(3) 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.
(4) 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.
(5) 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.
(6) Includes current maturities of long-term debt (see Note 6 to the
consolidated financial statements).
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
Federal-Mogul Corporation is an automotive parts manufacturer providing
innovative solutions and systems to global customers in the automotive, small
engine, heavy-duty and industrial markets. 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. The Company also manufactures and supplies
its products and related parts to the aftermarket.
Results of Operations
Net Sales
Sales by operating segment were:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(Millions of Dollars)
<S> <C> <C> <C>
Powertrain Systems................................. $ 2,459 $ 2,107 $ 782
Sealing Systems, Visibility and Systems Protection
Products.......................................... 1,887 1,252 333
Brake, Chassis, Ignition and Fuel Products......... 2,123 1,036 577
Divested Activities................................ 19 74 115
------- ------- -------
Total Sales...................................... $ 6,488 $ 4,469 $ 1,807
======= ======= =======
</TABLE>
Powertrain Systems
Sales increased 17% from 1998 to 1999 primarily due to the full-year effect
of the 1998 acquisitions of T&N and Triway, the 1999 acquisitions of Alcan and
Crane and higher North American OE sales. These increase were partially offset
by the impact of foreign exchange rates, lower European OE sales due mainly to
softness in the U.K. markets and lower aftermarket sales due to an overall
decrease in the engine parts market size due to improved OE quality.
Sales increased 169% from 1997 to 1998 primarily due to the acquisition of
T&N and certain OE volume increases, partially offset by lower aftermarket
sales and the impact of foreign exchange rates. Sales in the aftermarket were
impacted by an overall decrease in the engine parts market size due to
improved OE quality and the bankruptcy of a major customer in the North
American aftermarket.
Sealing Systems, Visibility and Systems Protection Products
Sales increased 51% from 1998 to 1999 primarily due to the full-year effect
of the 1998 acquisitions of Cooper Automotive, T&N and Fel-Pro, and higher
North American OE sales. These increases were partially offset by the impact
of foreign exchange rates and lower European sales.
Sales increased 276% from 1997 to 1998 primarily due to the acquisitions of
Cooper Automotive, T&N and Fel-Pro and OE sales increases due to certain model
volume increases. These increases were partially offset by aftermarket sales
decreases primarily due to the bankruptcy of a major customer in the North
American aftermarket.
Brake, Chassis, Ignition and Fuel Products
Sales increased 105% from 1998 to 1999 primarily due to the full-year effect
of the 1998 acquisitions of Cooper Automotive and T&N and higher North
American OE sales. These increases were partially offset by the loss of
certain domestic aftermarket business and the impact of foreign exchange
rates.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS -- Continued
Sales increased 80% from 1997 to 1998 primarily due to the acquisitions of
T&N and Cooper Automotive and certain OE volume increases. These increases
were partially offset by the impact of foreign exchange rates and the
bankruptcy of a major customer in the North American aftermarket.
Operational EBIT
The accounting policies of the business segments are consistent with those
described in Note 1, "Accounting Policies." Operational EBIT is defined as
earnings before interest, income taxes, extraordinary items and certain
nonrecurring items such as certain acquisition-related adjustments and
integration costs associated with new acquisitions.
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(Millions of Dollars)
<S> <C> <C> <C>
Powertrain Systems............................... $ 262 $ 248 $ 68
Sealing Systems, Visibility and Systems
Protection Products............................. 297 154 26
Brake, Chassis, Ignition and Fuel Products....... 277 104 44
Divested Activities.............................. (1) (4) 1
------- ------- -------
Operational EBIT............................... $ 835 $ 502 $ 139
======= ======= =======
</TABLE>
Powertrain Systems
Operational EBIT increased 6% in 1999 from 1998. This increase was due to
higher OE sales from the full-year effect of the 1998 acquisitions of T&N and
Triway, the 1999 acquisitions of Alcan and Crane, reduced administrative
costs, material sourcing savings and other synergies as a result of the
acquisitions. This increase was partially offset by productivity issues in the
camshaft operations and lower aftermarket sales. Operational EBIT increased
265% 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 the
Company's constraint management programs across the combined companies.
Sealing Systems, Visibility and Systems Protection Products
Operational EBIT increased 93% in 1999 from 1998. This increase was due to
higher sales from the full- year effect of the 1998 acquisitions of Cooper
Automotive and T&N reduced administrative costs and material sourcing savings
as a result of the acquisitions. Operational EBIT increased 492% in 1998 from
1997 due to higher sales as noted above, reduced administrative costs and
material sourcing savings as a result of the acquisitions.
Brake, Chassis, Ignition and Fuel Products
Operational EBIT increased 166% in 1999 from 1998. This increase was due to
higher sale from the full year effect of the 1998 acquisitions of Cooper
Automotive and T&N, reduced administrative costs and material sourcing savings
as a result of the acquisitions. This increase was partially offset by the
loss of certain aftermarket customers. Operational EBIT increased 136% in 1998
from 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 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.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS -- Continued
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 provided for $180.0 million in relocation and
severance costs and $36.8 million in exit costs, and were recorded as a
component of goodwill in the purchase price allocation.
The components of the integration plan included closure of certain
manufacturing facilities worldwide; relocation of highly manual manufacturing
product lines to 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.
The Company paid $72.2 million and $61.6 million related to these
rationalization reserves in 1999 and 1998, respectively. Also during 1999, the
Company made adjustments to reduce the rationalization reserves, with an
offsetting amount to goodwill, by $47.9 million. These adjustments related to
the finalization of rationalization plans. As of December 31, 1999, remaining
rationalization reserves were $30.3 million, primarily relating to the closure
of several Powertrain Systems facilities in Europe and the consolidation of
aftermarket warehouses in Europe. These costs are expected to be paid in 2000.
Restructuring Charges (Credits)
In 1999, the Company recognized $13.2 million of restructuring charges
related to severance and exit costs. Employee severance costs of $11.1 million
resulted from planned terminations in certain European operations of the
Company, employees at the Company's Milan, Michigan plant, and certain
executive severances. 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 governmental regulations. Total
headcount reductions are expected to be approximately 250 employees. Exit
costs of $2.1 million were related to the closing of the Company's Milan plant
and French bearing operations. These actions are expected to be primarily
completed in 2000.
Also in 1999, the Company recognized $13.2 million of reversals of
restructuring charges recorded in previous years. These reversals resulted
primarily from lower than expected employee severance costs principally
associated with the reduction of the aftermarket sales force and consolidation
of certain operations in the Americas. In 1999, the Company paid $3.3 million
relating to these reserves.
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
resulted 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.
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.
Adjustment of Assets Held for Sale and Other Long-Lived Assets to Fair Value
In 1999, the Company sold its subsidiary, Bertolotti Pietro e Figli, S.r.l.
(Bertolotti), an Italian aftermarket operation. In 1998, the Company
recognized a $20.0 million charge primarily associated with their writedown of
Bertolotti's assets to their estimated fair value. In 1999, the Company
recognized an additional $7.9 million loss associated with the writedown of
Bertolotti's assets to their fair value resulting from the sale. Offsetting
the loss was a tax benefit of $7.9 million resulting from the sale.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS -- Continued
Integration Costs
The Company recognized $46.9 million and $22.4 million of integration costs
in 1999 and 1998, respectively, in connection with the acquisitions of T&N,
Cooper Automotive and Fel-Pro. These expenses included one-time items such 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 $69.5 million in 1999 to $273.5. The increase is
primarily attributable to the full-year effect of the issuance of new debt to
finance the acquisitions of Cooper Automotive and other businesses, offset
slightly by debt reductions from cash flow generated from operations and the
Company's increased accounts receivable securitizations.
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 Income
Interest income decreased $6.0 million in 1999 to $4.6 million in 1998. The
decrease in interest income is due to the Company using the proceeds of the
Company-obligated mandatorily redeemable preferred securities for the purchase
of T&N and improved cash management.
Interest income increased $3.5 million in 1998 to $10.6 million 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.
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 has 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."
Income Taxes
The effective tax rates for 1999, 1998 and 1997 were 39.3%, 50.5% and 27.6%,
respectively. The decrease in 1999 was primarily due to the reduction in
valuation allowances and the dilutive effect of the increase in pretax
earnings on non-deductible goodwill. The Company reduced its valuation
allowance related to deferred tax assets in 1999 as a result of regulatory
approvals and other events establishing that it is more likely than not that
certain deferred tax assets related to foreign tax attributes will be
realized. Also, to the extent the Company utilized pre-
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS -- Continued
acquisition net operating loss carryforwards during the year, the related
valuation allowance was reduced with a corresponding reduction to goodwill.
The increase in 1998 was primarily due to non-deductible goodwill, a one-time
charge for purchased in-process research and development and foreign tax rate
differences.
Extraordinary Items
As a result of certain financing transactions (see Liquidity and Capital
Resources), the Company incurred extraordinary losses on the early retirement
of debt of $23.1 million and $38.2 million, net of related tax benefits of
$13.5 million and $19.9 million, in 1999 and 1998, respectively.
Cumulative Effect of Change in Accounting Principle
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 was 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 adopted SOP 98-5 on January 1, 1999
and subsequently wrote off, as a cumulative effect of change in accounting
principle, the unamortized balance of start-up costs totaling $12.7 million,
net of applicable income tax benefits of $6.8 million, in the quarter ended
March 31, 1999.
Effect of Accounting Pronouncements
In 1998, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities. In June 1999, the effective date of SFAS
No. 133 was delayed by one year to January 1, 2001. The statement requires the
Company to recognize all derivatives on the balance sheet at fair value. The
effect of adoption of this statement on the Company's earnings or financial
position has not been finalized.
In 1999, the Emerging Issues Task Force ("EITF") of the FASB reached
consensus on issue No. 99-5, Accounting for Pre-Production Costs Related to
Long-Term Supply Arrangements. The EITF addresses the accounting for pre-
production costs relating to design and development of production parts and
tooling. The EITF is required to be applied beginning January 1, 2000. The
Company does not believe the adoption of this pronouncement will have a
material effect on the Company's financial position or financial operations as
its current accounting practices are consistent with the pronouncement.
Liquidity and Capital Resources
Cash Flow Provided from Operating Activities
Cash flow provided from operating activities was $562.4 million in 1999.
Cash flows were generated primarily from net earnings plus depreciation and
amortization. Additional cash flow was generated primarily from an increase in
accounts payable of $149.7 million, a decrease in inventories of $117.2
million, and certain non-recourse sales of foreign accounts receivables of
$115.0 million. These items were offset by payments related to restructuring
and rationalization reserves of $80.6 million and asbestos payments of $178.2
million.
Cash Flow Used by Investing Activities
Cash flow used by investing activities was $713.1 million in 1999. The
Company used $371.2 million to fund business acquisitions, including the
piston division of Alcan, Crane and the final payments of $154.9 million
related to its 1998 acquisition of Cooper Automotive. Capital expenditures of
$395.2 million were to implement process improvements, increase manufacturing
capacity, information technology, integration of acquired businesses and new
product introductions.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS -- Continued
Cash Flow Provided from Financing Activities
Cash flow provided from financing activities was $138.0 million in 1999,
primarily arising from proceeds of $2,123.0 million from the issuance of long-
term debt and $304.3 provided by the investment in accounts receivable
securitization. This was offset primarily by principal payments on long-term
debt of $2,251.5 million.
In July 1999, the Company entered into a new $450 million accounts
receivable securitization agreement replacing the existing $150 million
agreement. The facility maturity date is June 28, 2000. Net proceeds were used
to repay borrowings under the Senior Credit Agreement's multicurrency
revolving credit facility.
In February 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.
In January 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.
The Company believes the cashflows 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 former United States subsidiaries of T&N, plc. (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 France. 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 expenditures which may
arise therefrom.
As of December 31, 1999, the T&N Companies had approximately 95,000 claims
pending. During 1999, approximately 49,000 new claims were filed and 60,000
claims were settled, dismissed or otherwise resolved. In addition to the
pending cases above, the T&N Companies have approximately 64,000 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.
The $1.1 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, 1999, the $1.1 billion total
provision is comprised of approximately $520 million related to known claims
and approximately $620 million related to IBNR claims.
In arriving at the IBNR provision for the T&N Companies, assumptions have
been made regarding the total number of claims anticipated to 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.
T&N Ltd. has appointed the Center for Claims Resolution (CCR) as its
exclusive representative in relation to all asbestos-related personal injury
claims made against it in the United States. The CCR provides to its
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS -- Continued
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 Ltd. 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.
Effective January 18, 2000, the two United States subsidiaries withdrew from
the CCR membership and appointed a law firm specializing in asbestos matters
as their claims handling defense and administrative service provider.
Indemnity and defense obligations incurred while members of the CCR will
continue to be honored. This change is intended to create greater economic and
defense efficiencies for the two companies.
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 costs 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 initial reserve provided for the T&N Companies for claims filed after June
30, 1996 approximated 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 asbestos-related claims against the T&N Companies, given
the nature and complexity of the factors affecting the estimated liability,
the actual liability may differ. No absolute assurance can be given that the
T&N Companies 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 reserve for the T&N Companies is
re-evaluated periodically as additional information becomes available.
During 1999, T&N Ltd. was named in a complaint filed in the United States
District Court for the Eastern District of Texas by Owens-Illinois alleging
that T&N is liable to Owens-Illinois for Owens-Illinois' own indemnity and
defense costs pertaining to asbestos-related personal injury claims. The
Company believes it has meritorious defenses to the claim and has successfully
defended against similar underlying claims in the past.
Cooper Automotive Asbestos Litigation
Former businesses of Cooper Automotive, primarily Abex and Wagner, are
involved as defendants in numerous court actions in the United States alleging
personal injury from exposure to asbestos or asbestos-containing products,
mainly involving friction products. In 1998, the Company acquired the capital
stock of a Cooper Automotive entity resulting in the assumption by a Company
subsidiary of contractual liability, under certain circumstances, for all
claims pending and to be filed in the future alleging exposure to certain
Wagner automotive and industrial friction products and for all claims filed
after August 29, 1998, alleging exposure to certain Abex (non-railroad and
non-aircraft) friction products. As of December 31, 1999, Abex has
approximately 10,500 claims pending and Wagner has approximately 13,700 claims
pending. The Company has completed its assessment of the potential liability
and related potential insurance recoveries related to the Cooper Automotive
acquisition and has recorded a $325.9 million insurance recoverable asset and
a liability of the subsidiaries involved of approximately $400 million. This
is the Company's estimate, after taking into account legal counsel's
evaluation related to amounts expected to be paid or reimbursed by insurers.
In arriving at these provisions, certain assumptions have been made regarding
the total number of claims which may be received in the future against these
two entities and the average costs associated with such claims.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS -- Continued
Abex maintained product liability insurance coverage for most of the time
that it manufactured products that contained asbestos. The subsidiary of the
Company that may be liable for the post-August 1998 asbestos claims against
Abex has the benefit of that insurance. Abex has been in litigation since 1982
with the insurance carriers of its primary layer of liability concerning
coverage for asbestos claims. Abex also has substantial excess layer liability
insurance coverage which, barring unforeseen insolvencies of excess carriers
or other adverse events, should provide coverage for asbestos claims against
Abex.
Wagner also maintained product liability insurance coverage for some of the
time that it manufactured products that contained asbestos. The subsidiary of
the Company that may be liable for asbestos claims against Wagner has the
benefit of that insurance. Primary layer liability insurance coverage for
asbestos claims against Wagner is the subject of an agreement with Wagner's
solvent primary carriers. The agreement provides for partial reimbursement of
indemnity and defense costs for Wagner asbestos claims until exhaustion of
aggregate limits. Wagner also has substantial excess layer liability insurance
coverage which, barring unforeseen insolvencies of excess carriers or other
adverse events, should provide coverage for asbestos claims against Wagner.
The ultimate exposure of the Company's subsidiary with respect to claims
against Abex and Wagner will depend upon the extent to which the insurance
described above will be available to cover such claims, the amounts paid for
indemnity and defense, changes in the legal environment and other factors.
While the Company believes that the liability and receivable recorded for
these claims are reasonable and appropriate, given the nature and complexity
of factors affecting the estimated liability and potential insurance recovery,
the actual liability and insurance recovery may differ. In the event that the
actual liability net of insurance proceeds recovered exceeds the reserve net
of insurance receivable recorded by the Company, the Company's results of
operations, business, liquidity and financial condition could be materially
adversely affected. The asbestos reserves for the businesses acquired as part
of the Cooper Automotive acquisition will be re-evaluated periodically as
additional information becomes available.
Federal-Mogul and Fel-Pro Asbestos Litigation
The Company also is sued in its own name as one of a large number of
defendants in a number of lawsuits brought by claimants alleging injury due to
exposure to asbestos. The Company's Fel-Pro subsidiary has been named as a
defendant in a number of product liability cases involving asbestos, primarily
involving gasket or packing products. The Company is defending all such claims
vigorously and believes that it and Fel-Pro have substantial defenses to
liability and adequate insurance coverage for defense and indemnity. While the
outcome of litigation cannot be predicted with certainty, management believes
that asbestos claims pending against the Company and Fel-Pro as of December
31, 1999, will not have a material effect on the Company's financial position.
Aggregate of Asbestos Liability
As of December 31, 1999, the Company has provided a total reserve for all of
its subsidiaries and businesses with potential asbestos liability of
approximately $1.5 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. The company has a corresponding receivable from certain insurance
carriers of approximately $325.9 million.
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
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS -- Continued
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 CERCLA 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 reserve was approximately $74.5 million at
December 31, 1999, and $50.0 million at December 31, 1998. The 1999 increase
results from a number of factors, including retaining liabilities from the
divestiture of the T&N Bearings Business. 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 consist 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 statements of
operation 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, 1999 and 1998, the Company's net current assets (defined
as current assets less current liabilities) subject to foreign currency
translation risk were $187.4 million and $146.8 million, respectively. The
potential decrease in net assets from a hypothetical 10% adverse change in
quoted foreign currency exchange rates would be approximately $18.7 million
and $14.7 million respectively.
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.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS -- Continued
The Company manages 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 its foreign
currency activities, including the matching of revenues and costs.
As of December 31, 1999, the Company had entered into foreign currency
forward contracts to hedge the British pound against the United States dollar
and the Euro against the United States dollar in the amount of $41.3 million
and $45.1 million, respectively, with an average contract rate of
$1.62/(Pounds) and $1.01/Euro. The Company had also entered into foreign
currency forward contracts to hedge the British pound against the Euro, French
franc and Italian lira in the amounts of $28.4 million, $25.7 million and
$41.8 million with average contract rates of 1.58 Euro/(Pounds), 10.06
franc/(Pounds), 2,982.93 lira/(Pounds), respectively. At December 31, 1999,
the unrealized gains or losses on these contracts were not material.
As of December 31, 1999, the Company had also entered into foreign currency
forward contracts to hedge foreign currency debt exposures from the British
pound to the Australian dollar, Belgium franc, Czech koruna, Dutch guilder,
Danish krone, German mark, Irish punt, Japanese yen, South African rand and
Spanish peseta whose notional amounts and related unrealized gains or losses
were not material.
As of December 31, 1998, the Company had 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 had
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.
As of December 31, 1998 the Company had 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
were 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. Most 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
As of December 31, 1999
(Millions of Dollars)
<TABLE>
<CAPTION>
Fair Value at
2000 2001 2002 2003 2004 Thereafter Total December 31, 1999
---- ---- ---- ---- ---- ---------- ----- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Liabilities
Long-term debt,
including current
portion
Fixed rate............. $33.0 $ 44.8 $ 5.8 $ 20.9 $250.5 $1,885.0 $2,240.0 $2,040.0
Average interest rate.. 7.71% 7.70% 7.70% 7.68% 7.68% 7.69% 7.69%
Variable rate.......... $57.8 $111.6 $118.7 $134.5 $261.5 $ 186.7 $ 870.8 $ 870.8
Average interest rate.. 7.32% 7.37% 7.38% 7.37% 7.36% 7.43% 7.37%
</TABLE>
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS -- Continued
Interest Rate Sensitivity
Principal Amount by Expected Maturity
As of December 31, 1998
(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. As of December 31, 1999, the Company had net unrealized gains for
commodity contracts of $0.7 million. As of December 31, 1998, the Company had
net unrealized losses for commodity contracts of $1.4 million.
Other Matters
Impact of Year 2000
In prior years, the Company discussed the nature and progress of its plans
to become Year 2000 compliant. In late 1999, the Company completed its
remediation and testing of systems.
As a result of those planning and implementation efforts, the Company
experienced no significant disruptions in mission-critical information
technology and non-information technology systems and believes those systems
successfully responded to the Year 2000 date change. The Company is not aware
of any material problems resulting from Year 2000 issues, either with its
products, its internal systems, or the products and services of third parties.
As of December 31, 1999, the Company incurred and expensed approximately $12.1
million and capitalized $7.7 million. Year 2000 program costs incurred during
2000 are not expected to be material and will be funded from operations. The
Company will continue to monitor its mission-critical computer applications
and those of its suppliers and vendors throughout 2000 to ensure that any
latent Year 2000 matters that may arise are addressed promptly.
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 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 effect
on its financial condition or results of operations.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS -- Continued
Status of Lighting, Wiper and Fuel Businesses
During the third quarter of 1999, the Company announced plans to sell its
lighting, wiper blade and fuel systems businesses. Accordingly, the Company
accounted for these businesses as held for sale in its press release on
February 2, 2000, and did not include pretax depreciation and amortization
totaling $5.2 million related to these businesses in its operating results at
such time. Subsequent to the Company's February 2, 2000 press release relative
to fourth quarter and total year financial results, the Company, in
recognition of the market price available for the businesses held for sale and
the continued profitability of these businesses, decided to retain its
lighting, wiper blade and fuel systems businesses. As a result, the $5.2
million of depreciation and amortization is reflected in the fourth quarter
and total year 1999 financial results.
2000 Restructuring Program
On February 23, 2000, the Board of Directors of the Company approved a
restructuring plan to reduce costs in the Company's aftermarket and OE
businesses. Under the restructuring plan, the Company expects to incur
restructuring charges of approximately $100 million which it expects to incur
over the next two years, the majority of which will be recognized in 2000 when
specific actions are finalized. The Company will also incur an additional $100
million in incremental expenses and capital expenditures associated with this
plan that will be expensed or capitalized as incurred. The majority of these
expenses will occur in 2000 with the remainder over the subsequent two years.
As a result of this restructuring plan, the Company may also take a non-cash
asset writedown of approximately $35 million to adjust certain assets to their
fair value. The Company anticipates recognizing the first of these charges in
the first quarter of 2000. It is possible the Company may identify additional
areas of potential improvements requiring further restructuring plans.
21
<PAGE>
Item 8. Financial Statements and Supplemental Data
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------
1999 1998 1997
---- ---- ----
(Millions of Dollars,
Except Per Share Amounts)
<S> <C> <C> <C>
Net sales........................................ $6,487.5 $4,468.7 $1,806.6
Cost of products sold............................ 4,709.1 3,290.2 1,381.8
-------- -------- --------
Gross margin.................................... 1,778.4 1,178.5 424.8
Selling, general and administrative expenses..... 848.9 640.8 276.0
Amortization of goodwill and other intangible
assets.......................................... 127.2 83.8 8.9
Purchased in-process research and development
charge.......................................... -- 18.6 --
Restructuring charges (credits).................. -- 7.3 (1.1)
Reengineering and other related credits.......... -- -- (1.6)
Adjustment of assets held for sale and other
long-lived assets to fair value................. 7.9 19.0 2.4
Integration costs................................ 46.9 22.4 --
Interest expense................................. 273.5 204.0 33.3
Interest income.................................. (4.6) (10.6) (7.1)
International currency exchange (gains) losses... (2.7) 4.7 0.6
Net (gain) loss on British pound currency option
and forward contract............................ -- (13.3) 10.5
Other expense, net............................... 21.4 16.3 3.4
-------- -------- --------
Earnings before income taxes, extraordinary
items and cumulative effect of change in
accounting principle........................ 459.9 185.5 99.5
Income tax expense............................... 180.9 93.6 27.5
-------- -------- --------
Earnings before extraordinary items and
cumulative effect of change in accounting
principle................................... 279.0 91.9 72.0
Extraordinary items--loss on early retirement of
debt, net of applicable income tax benefits..... 23.1 38.2 2.6
Cumulative effect of change in accounting for
costs of start-up activities, net of applicable
income tax benefit.............................. 12.7 -- --
-------- -------- --------
Net earnings................................. 243.2 53.7 69.4
Preferred dividends, net of related tax benefit.. 2.4 3.6 5.5
-------- -------- --------
Net Earnings Available for Common Shareholders... $ 240.8 $ 50.1 $ 63.9
======== ======== ========
Earnings Per Common Share:
Basic
Earnings before extraordinary items and
cumulative effect of change in accounting
principle..................................... $ 3.96 $ 1.84 $ 1.81
Extraordinary items--loss on early retirement
of debt, net of applicable income tax
benefits...................................... (.34) (.80) (.07)
Cumulative effect of change in accounting for
costs of start-up activities, net of
applicable income tax benefit................. (.18) -- --
-------- -------- --------
Net Earnings Available for Common
Shareholders................................ $ 3.44 $ 1.04 $ 1.74
======== ======== ========
Diluted
Earnings before extraordinary items and
cumulative effect of change in accounting
principle..................................... $ 3.59 $ 1.67 $ 1.67
Extraordinary items--loss on early retirement
of debt, net of applicable income tax
benefits...................................... (.28) (.71) (.06)
Cumulative effect of change in accounting for
costs of start-up activities, net of
applicable income tax benefit................. (.15) -- --
-------- -------- --------
Net Earnings Available for Common
Shareholders................................ $ 3.16 $ .96 $ 1.61
======== ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
22
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
----------------------
1999 1998
---- ----
(Millions of Dollars)
<S> <C> <C>
ASSETS
Cash and equivalents................................... $ 64.5 $ 77.2
Accounts receivable.................................... 514.6 1,025.0
Investment in accounts receivable securitization....... 232.2 91.1
Inventories............................................ 883.6 1,068.6
Prepaid expenses and income tax benefits............... 331.6 337.7
---------- ----------
Total Current Assets................................. 2,026.5 2,599.6
Property, plant and equipment, net..................... 2,503.7 2,477.5
Goodwill............................................... 3,547.8 3,398.4
Other intangible assets................................ 796.3 886.4
Asbestos-related insurance recoverable................. 325.9 --
Other noncurrent assets................................ 745.0 578.2
---------- ----------
Total Assets......................................... $ 9,945.2 $ 9,940.1
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term debt, including current portion of long-term
debt.................................................. $ 190.8 $ 211.0
Accounts payable....................................... 621.9 498.4
Accrued compensation................................... 182.9 200.3
Restructuring and rationalization reserves............. 46.0 178.9
Current portion of asbestos liability.................. 180.0 125.0
Income taxes payable................................... 72.3 142.2
Other accrued liabilities.............................. 488.7 673.7
---------- ----------
Total Current Liabilities............................ 1,782.6 2,029.5
Long-term debt......................................... 3,020.0 3,130.7
Long-term portion of asbestos liability................ 1,335.3 1,176.7
Postemployment benefits................................ 661.9 660.9
Other accrued liabilities.............................. 454.9 343.1
Minority interest in consolidated subsidiaries......... 40.3 38.0
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......................... 41.5 44.4
Series E preferred stock.............................. -- 132.7
Common stock.......................................... 352.1 336.8
Additional paid-in capital............................ 1,782.4 1,665.8
Retained earnings (accumulated deficit)............... 170.3 (69.9)
Unearned ESOP compensation............................ (7.9) (15.1)
Accumulated other comprehensive income................ (262.1) (106.0)
Other................................................. (1.1) (2.5)
---------- ----------
Total Shareholders' Equity........................... 2,075.2 1,986.2
---------- ----------
Total Liabilities and Shareholders' Equity........... $ 9,945.2 $ 9,940.1
========== ==========
</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.
23
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------
1999 1998 1997
--------- --------- -------
(Millions of Dollars)
<S> <C> <C> <C>
Cash Provided From (Used By) Operating
Activities
Net earnings................................... $ 243.2 $ 53.7 $ 69.4
Adjustments to reconcile net earnings to net
cash provided from operating activities:
Depreciation and amortization................. 354.9 228.0 51.5
Purchased in-process research and development
charge....................................... -- 18.6 --
Restructuring charges (credits)............... -- 7.3 (1.1)
Reengineering and other related credits....... -- -- (1.6)
Adjustment of assets held for sale and other
long-lived assets to fair value.............. 7.9 19.0 2.4
Loss on early retirement of debt.............. 36.6 58.1 4.1
Cumulative effect of change in accounting
principle.................................... 19.5 -- --
Vesting of restricted stock................... 1.4 0.7 9.0
Postemployment benefits....................... (18.8) 10.9 (7.7)
(Increase) decrease in accounts receivable.... (33.4) 37.5 7.6
Decrease in inventories....................... 117.2 55.9 59.9
Increase (decrease) in accounts payable....... 149.7 5.4 (19.5)
Increase (decrease) in current liabilities and
other........................................ (57.0) (2.4) 67.9
Payments against restructuring and
rationalization reserves..................... (80.6) (78.0) (26.2)
Payments against asbestos liability........... (178.2) (89.2) --
--------- --------- -------
Net Cash Provided From Operating Activities.. 562.4 325.5 215.7
Cash Provided From (Used By) Investing
Activities
Expenditures for property, plant and equipment
and other long-term assets.................... (395.2) (228.5) (49.7)
Proceeds from sale of business investments..... 53.3 53.4 73.6
Proceeds from sale of options.................. -- 39.1 --
Business acquisitions, net of cash acquired.... (371.2) (4,225.2) (30.5)
Other.......................................... -- -- 1.1
--------- --------- -------
Net Cash Used By Investing Activities........ (713.1) (4,361.2) (5.5)
Cash Provided From (Used By) Financing
Activities
Issuance of common stock....................... 1.2 1,382.2 14.2
Proceeds from issuance of long-term debt....... 2,123.0 6,197.5 179.6
Principal payments on long-term debt........... (2,251.5) (3,927.6) (127.4)
Increase (decrease) in short-term debt......... (3.0) 0.5 (235.8)
Fees paid for debt issuance and other
securities.................................... (25.5) (76.6) (42.8)
Fees for early retirement of debt.............. -- (27.4) (4.1)
Sale (repurchase) of accounts receivable under
securitization................................ 304.3 42.6 (31.8)
Issuance of Company-obligated mandatorily
redeemable preferred securities............... -- -- 575.0
Dividends...................................... (4.3) (10.4) (24.8)
Other.......................................... (6.2) (9.3) (4.0)
--------- --------- -------
Net Cash Provided From Financing Activities.. 138.0 3,571.5 298.1
--------- --------- -------
Increase (Decrease) in Cash and Equivalents.. (12.7) (464.2) 508.3
Cash and equivalents at beginning of year....... 77.2 541.4 33.1
--------- --------- -------
Cash and Equivalents at End of Year.......... $ 64.5 $ 77.2 $ 541.4
========= ========= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
24
<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 January 1,
1997................. $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
Net earnings.......... 243.2 243.2
Currency translation.. (149.7) (149.7)
Other................. (6.4) (6.4)
--------
Total Comprehensive
Income.............. 87.1
Conversion of Series E
preferred stock...... (132.7) 15.2 117.5 --
Issuance of stock,
net.................. 0.1 (1.1) 1.4 0.4
Retirement of Series C
ESOP preferred
stock................ (2.9) (2.9)
Amortization of
unearned ESOP
compensation......... 7.2 7.2
Dividends............. (1.3) (3.0) (4.3)
Preferred dividend tax
benefits............. 1.5 1.5
----- ------- ------ -------- ------- ------ ------- ----- --------
Balance at December
31, 1999............. $41.5 -- $352.1 $1,782.4 $ 170.3 $ (7.9) $(262.1) $(1.1) $2,075.2
===== ======= ====== ======== ======= ====== ======= ===== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Accounting Policies
Organization: Federal-Mogul is an automotive parts manufacturer providing
innovative solutions and systems to global customers in the automotive, small
engine, heavy-duty and industrial markets. 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. 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 50% and 53% of
the inventory at December 31, 1999 and 1998, respectively. The remaining
inventories are recorded using the first-in, first-out (FIFO) method. If
inventories had been valued at current cost, amounts reported would have been
increased by $45.0 million and $39.0 million as of December 31, 1999 and 1998,
respectively.
Inventory quantity reductions resulting in liquidations of certain LIFO
inventory layers increased net earnings by $3.2 million, $3.4 million and $3.2
million ($.04, $.06 and $.08 per diluted share) in 1999, 1998 and 1997,
respectively.
At December 31, inventories consisted of the following:
<TABLE>
<CAPTION>
1999 1998
---------- -----------
(Millions of Dollars)
<S> <C> <C>
Finished products.................................... $ 638.9 $ 737.9
Work-in-process...................................... 133.1 147.1
Raw materials........................................ 138.1 208.5
--------- -----------
910.1 1,093.5
Reserve for inventory valuation...................... (26.5) (24.9)
--------- -----------
$ 883.6 $ 1,068.6
========= ===========
</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 1999 1998
----------- ---------- ----------
(Millions of Dollars)
<S> <C> <C> <C>
Goodwill................................. 40 years $ 3,725.7 $ 3,481.8
Accumulated amortization................. (177.9) (83.4)
---------- ----------
Total Goodwill......................... $ 3,547.8 $ 3,398.4
========== ==========
Trademarks............................... 40 years $ 415.7 $ 417.6
Developed technology..................... 12-30 years 368.1 390.1
Assembled workforce...................... 15 years 76.9 88.1
Other.................................... 5-20 years 14.4 39.9
---------- ----------
875.1 935.7
Accumulated amortization................. (78.8) (49.3)
---------- ----------
Total Other Intangible Assets.......... $ 796.3 $ 886.4
========== ==========
</TABLE>
26
<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.
Intangible assets are amortized on a straight-line basis over their estimated
useful lives. Impairment charges recorded in 1999, 1998 and 1997 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 $128.0 million, $85.0 million and $13.1 million for 1999, 1998 and 1997,
respectively.
Costs associated with advertising and promotion are expensed as incurred.
Advertising and promotion expense was $59.8 million, $45.9 million, $31.8
million for 1999, 1998 and 1997, 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.
Environmental Liabilities: The Company recognizes environmental liabilities
when a loss is probable and estimable. Such liabilities are generally not
subject to insurance coverage. Engineering and legal specialists within the
Company, based on current law and existing technologies, estimate each
environmental obligation. 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 16, "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: These are incremental direct costs associated with
integrating material acquisitions and 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. Such costs are expensed as incurred.
Derivative Financial Instruments: The Company has used 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, and uses forward foreign exchange
contracts to minimize and lock the amount 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 settled
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
27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
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.
Comprehensive Income: The Company displays comprehensive income in the
Consolidated Statements of Shareholders' Equity. At December 31, 1999 and
1998, comprehensive income consisted of $252.0 million and $102.3 million of
foreign currency translation adjustments, respectively, and $10.1 million and
$3.7 million of other comprehensive income, primarily minimum pension funding,
respectively.
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 1999.
Effect of Accounting Pronouncements: Effective January 1, 1999, the Company
adopted AICPA Statement of Position (SOP) 98-5, Reporting the Costs of Start-
Up Activities. SOP 98-5 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 written off as a
cumulative effect of an accounting change was approximately $12.7 million, net
of tax.
The following table summarizes the pro forma net earnings and per share
amounts for each period presented. Pro forma amounts assume the change in
application of accounting principle was applied retroactively (unaudited):
<TABLE>
<CAPTION>
1999 1998 1997
------ ----- -----
(Millions of
Dollars, Except
Per Share Amount)
<S> <C> <C> <C>
Net earnings as reported................................. $243.2 $53.7 $69.4
Pro forma................................................ $255.9 $45.3 $65.1
Basic earnings per share as reported..................... $ 3.44 $1.04 $1.74
Pro forma................................................ $ 3.63 $ .87 $1.62
Diluted earnings per share as reported................... $ 3.16 $ .96 $1.61
Pro forma................................................ $ 3.31 $ .80 $1.51
</TABLE>
In 1998, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities. In June 1999, the effective date of SFAS
No. 133 was delayed by one year to January 1, 2001. The statement requires the
Company to recognize all derivatives on the balance sheet at fair value. The
effect of adoption of this statement on the Company's earnings or financial
position has not been finalized.
In 1999, the Emerging Issues Task Force ("EITF") of the FASB reached
consensus on issue No. 99-5, Accounting for Pre-Production Costs Related to
Long-Term Supply Arrangements. The EITF addresses the accounting for pre-
production costs relating to design and development of production parts and
tooling. The EITF is required to be applied beginning January 1, 2000. The
Company does not believe the adoption of this pronouncement will have a
material effect on the Company's financial position or financial operations as
its current accounting practices are consistent with the pronouncement.
28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
2. Acquisitions of Businesses
1999 Acquisitions:
In January 1999, the Company completed its acquisition of the piston
division of Alcan Deutschland GmbH (Alcan) in Germany, a subsidiary of Alcan
Aluminum Ltd. in Canada. The division manufactures pistons for passenger cars
and commercial vehicles under the Nural(R) brand name. The piston division
employs approximately 1,100 people with 1998 annual sales of approximately
$150 million.
Also in January 1999, the Company completed its acquisition of certain
manufacturing operations of Crane Technologies, Inc. (Crane) to increase its
camshaft capacity. Its two plants, located in Orland, Indiana and Jackson,
Michigan, employ approximately 230 people with 1998 annual sales of
approximately $36 million.
1998 Acquisitions:
T&N
In March 1998, the Company acquired T&N plc (T&N), a manufacturer of high
technology engineered automotive components and industrial materials, 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.
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.
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 included a price adjustment based upon acquired net assets,
as defined in the agreement, under which the Company made additional cash
payments of $154.9 million in 1999. Cooper is a leading supplier of
aftermarket parts for repair and maintenance and serves OE automobile
manufacturers worldwide.
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 1,030,326 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 in the North American aftermarket and
OE heavy-duty market.
The Alcan, Crane, 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 statements of
operations for the years ended December 31, 1999 and 1998 include 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 their respective acquisition dates.
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
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 provided for $180.0 million in relocation and
severance costs, and $36.8 million in exit costs, and were recorded as a
component of goodwill in the purchase price allocation.
The components of the integration plan included: closure of certain
manufacturing facilities worldwide; relocation of highly manual manufacturing
product lines to 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.
The Company paid $72.2 million and $61.6 million related to these
rationalization reserves in 1999 and 1998, respectively. Also during 1999, the
Company made adjustments to reduce the rationalization reserves, with an
offsetting amount to goodwill, by $47.9 million. These adjustments related to
the finalization of rationalization plans. As of December 31, 1999, remaining
rationalization reserves were $30.3 million, primarily relating to the closure
of several Powertrain Systems facilities in Europe and the consolidation of
aftermarket warehouses in Europe. These costs are expected to be paid in 2000.
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.
In December 1998, the Company sold 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 realized 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.
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
30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
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>
3. Sales of Businesses
In 1999, the Company sold its subsidiary, Bertolotti Pietro e Figli, S.r.l.
(Bertolotti), an Italian aftermarket operation. In 1998, the Company
recognized a $20.0 million charge primarily associated with the writedown of
Bertolotti's assets to their estimated fair value. In 1999, the Company
recognized an additional $7.9 million loss associated with the writedown of
Bertolotti's assets to their fair value resulting from the sale. Offsetting
the loss was a tax benefit of $7.9 million resulting from the sale.
Also during 1999, the Company sold its South African heat transfer business.
The business had sales of approximately $56 million in 1998 in four South
African locations and employed approximately 1,200 people. The Company did not
realize a significant gain or loss on this transaction.
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. 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.
31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
4. Restructuring Charges
The following is a summary of restructuring charges and related activity for
1997, 1998 and 1999 (in millions of dollars):
<TABLE>
<CAPTION>
1995 and 1996
Restructuring 1997 Restructuring 1998 Restructuring 1999 Restructuring
Provisions 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
January 1, 1997........ $ 38.0 $17.2 $ 55.2
1997 restructuring
charge................ -- -- $ 16.7 $ 5.3 22.0
Adjustment to
restructuring
reserves.............. (20.8) (2.3) -- -- (23.1)
------ ----- --------- --------- ------
1997 restructuring
charges (net).......... (20.8) (2.3) 16.7 5.3 (1.1)
Payments against
restructuring
reserves............... (11.6) (5.4) (0.1) -- (17.1)
------ ----- --------- --------- ------
Balance of restructuring
reserves at
December 31, 1997...... 5.6 9.5 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............... (1.1) (5.8) (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
1999 restructuring
charges............... $ 11.1 $ 2.1 13.2
Adjustment to
restructuring
reserves.............. (0.9) (0.6) (3.1) (2.3) (6.1) (0.2) -- -- (13.2)
------ ----- --------- --------- --------- --------- --------- --------- ------
1999 restructuring
charges (net).......... (0.9) (0.6) (3.1) (2.3) (6.1) (0.2) 11.1 2.1 --
Payments and charges
against restructuring
reserves............... (3.6) (0.7) (2.8) (0.9) (0.8) (0.1) (3.1) (0.2) (12.2)
------ ----- --------- --------- --------- --------- --------- --------- ------
Balance of restructuring
reserves at
December 31, 1999...... $ -- $ -- $ -- $ -- $ 5.8 $ -- $ 8.0 $ 1.9 $ 15.7
====== ===== ========= ========= ========= ========= ========= ========= ======
</TABLE>
1999 Restructuring Provision
In 1999, the Company recognized $13.2 million of restructuring charges
related to severance and exit costs. Employee severance costs of $11.1 million
resulted from planned terminations in certain European operations of the
Company, employees at the Company's Milan, Michigan plant, and certain
executive severances. 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 governmental regulations. Total
headcount reductions are expected to be approximately 250 employees. Exit
costs of $2.1 million were related to the closing of the Company's Milan plant
and French bearing operations. These actions are expected to be primarily
completed in 2000.
Also in 1999, the Company recognized $13.2 million of reversals of
restructuring charges recorded in previous years. These reversals resulted
primarily from lower than expected employee severance costs principally
associated with the reduction of the aftermarket sales force and consolidation
of certain operations in the Americas.
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 resulted from planned terminations of approximately
1,800 employees in various business operations of the Company. The severance
costs were based on the estimated and actual
32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
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 remaining actions related to the 1998
restructuring plan will be completed in 2000.
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.
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
under performing assets.
Employee severance costs for 1997 resulted from the planned and actual
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. The 1997 restructuring
actions were completed during 1999.
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 has 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, did 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."
33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
6. Debt
Long-term debt at December 31 consists of the following:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
(Millions of Dollars)
<S> <C> <C>
Senior Credit Agreements:
Term loans......................................... $ 750.0 $ 1,893.6
Multi-currency revolving credit facility........... 65.0 --
Notes due 2004 -- 7.5%, issued in 1998............... 249.6 249.5
Notes due 2006 -- 7.75%, issued in 1998.............. 399.9 399.9
Notes due 2006 -- 7.375%, issued in 1999............. 398.6 --
Notes due 2009 -- 7.5%, issued in 1999............... 597.6 --
Notes due 2010 -- 7.875%, issued in 1998............. 349.2 349.2
Medium-term notes -- due between 2000 and 2005,
average rate of 8.8%, issued in 1994 and 1995....... 104.0 125.0
Senior notes -- due in 2007, rate of 8.8%, issued in
1997................................................ 124.7 124.7
ESOP obligation -- due in 2000, average rate of
7.19%............................................... 7.9 14.7
Other................................................ 64.3 82.6
---------- ----------
3,110.8 3,239.2
Less current maturities included in short-term debt.. 90.8 108.5
---------- ----------
$ 3,020.0 $ 3,130.7
========== ==========
</TABLE>
In February 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 multi-currency revolving
credit facility related to the T&N acquisition. As a result of these
transactions, the Company recognized an extraordinary charge in the first
quarter of 1999 of approximately $14.6 million, net of tax, related to the
early extinguishment of debt. The Company had $815.0 million outstanding under
these Senior Credit Agreements as of December 31, 1999, which were due from
2000 to 2005 with an average interest rate of 7.36%.
In January 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
recognized an extraordinary charge in the first quarter of 1999 of
approximately $8.5 million, net of tax, related to early extinguishment of
debt.
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
million outstanding under these Senior Credit Agreements as of December 31,
1998, which were due from 1999 to 2005 with an average interest rate of 7.33%.
These Agreements were replaced with the 1999 Senior Credit Agreements
discussed above.
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 9, "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.
34
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
The Company has pledged 100% of the capital stock of certain United States
subsidiaries, 65% of capital stock of certain foreign subsidiaries and certain
intercompany 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 18, "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.
The weighted average interest rate for the Company's short-term debt was
approximately 7.42% and 7.75% as of December 31, 1999 and 1998, respectively.
Aggregate maturities of long-term debt for each of the years following 2000
are, in millions: 2001 -- $156.4; 2002 -- $124.5; 2003 -- $155.4; 2004 --
$512.0 and thereafter $2,071.7.
Interest paid in 1999, 1998 and 1997 was $240.3 million, $173.4 million and
$30.7 million, respectively.
7. 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, 1999, the Company has foreign exchange forward contracts
principally for British pound exposures relating to the United States dollar,
Euro, French franc, and Italian lira. The Company also has foreign exchange
forward contracts for United States dollar exposure relating to the Euro. At
December 31, 1999, the unrealized gains or losses relating to these contracts
were not material.
The Company enters into copper, aluminum and nickel 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,
aluminum and nickel. Under the agreements, the Company was committed to
purchase approximately 3.6, 6.4 and 0.5 million pounds of copper, aluminum,
and nickel respectively. The net unrealized gain on these firm purchase
commitments were not material.
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.
Accounts Receivable Securitization
In July 1999, the Company entered into a new $450 million accounts
receivable securitization agreement replacing the existing $150 million
agreement. The facility maturity date is June 28, 2000. Net proceeds were used
to repay borrowings under the Senior Credit Agreement's multicurrency
revolving credit facility.
35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
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 $410.1 million and $105.8 million at December 31, 1999 and 1998,
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."
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 $69.3 million and $60.4
million at December 31, 1999 and 1998, 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, including the current portion were $3,110.8
million and $2,910.8 million, respectively, at December 31, 1999. The carrying
amounts and estimated fair values of the Company's long-term debt, including
the current portion were $3,239.2 million and $3,274.8 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.
8. Property, Plant and Equipment
Property, plant and equipment are stated at cost and include expenditures
that 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, 1999, 1998 and
1997, was $221.4 million, $144.2 million and $42.6 million, respectively.
At December 31, property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
Estimated
Useful Life 1999 1998
----------- ---------- ----------
(Millions of Dollars)
<S> <C> <C> <C>
Land.................................... -- $ 145.7 $ 139.4
Buildings and building improvements..... 24-40 years 496.1 560.1
Machinery and equipment................. 3-12 years 2,402.9 2,097.6
---------- ----------
3,044.7 2,797.1
Accumulated depreciation................ (541.0) (319.6)
---------- ----------
$ 2,503.7 $ 2,477.5
========== ==========
</TABLE>
36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
Future minimum payments under noncancelable operating leases with initial or
remaining terms of more than one year are, in millions: 2000 -- $41.7; 2001 --
$33.1; 2002 -- $27.1; 2003 -- $21.6, 2004 -- $19.8 and thereafter $45.2.
Total rental expense under operating leases was $52.6 million in 1999, $46.5
million in 1998 and $29.1 million in 1997, exclusive of property taxes,
insurance and other occupancy costs generally payable by the Company.
9. 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 70,422,525 shares, 67,233,216
shares and 40,196,603 shares were outstanding at December 31, 1999, 1998 and
1997, respectively.
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 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 "1998 Acquisitions").
In February 1998, in connection with the Fel-Pro acquisition, the Company
issued 1,030,326 shares Series E Stock with an imputed value of $225 million.
The shares of Series E Stock were exchangeable into shares of the Company's
common stock at a rate of five shares of common stock per share of Series E
Stock. In conjunction with the June 1998 common stock offering described
above, the Company converted 422,581 shares of Series E Stock into
approximately 2.1 million shares of common stock. On February 24, 1999, the
remaining 607,745 shares of the Company's Series E Stock were exchanged into
shares of the Company's common stock.
In August 1997, the Company announced a call for the redemption of all its
outstanding $3.875 Series D Convertible Exchangeable Preferred Stock. These
preferred stockholders elected to convert each preferred share into 2.778
shares of common stock. The Company issued 4.4 million shares of common stock
in exchange for all the outstanding Series D Convertible Exchangeable
Preferred Stock.
The Series C ESOP Convertible Preferred Stock shares of stock are used to
fund a portion of the Company's matching contributions within the Salaried
Employees' Investment Program. 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. There were 701,758, 724,644
and 762,939 shares of Series C ESOP preferred stock outstanding at December
31, 1999, 1998 and 1997, respectively. The Series C ESOP preferred shares pay
dividends at a rate of 7.5%. The Company repurchased and retired 28,549,
38,295 and 72,959 Series C ESOP preferred shares valued at $2.9 million, $4.6
million and $4.1 million during 1999, 1998 and 1997, respectively. All of the
repurchases represent plan distributions or fund transfers for participants in
the plan.
The charge to operations for the cost of the ESOP was $5.5 million in 1999,
$5.2 million in 1998 and $5.2 million in 1997. The Company made cash
contributions to the plan of $8.2 million in 1999, $8.2 million in 1998 and
$8.1 million in 1997, including preferred stock dividends of $3.4 million in
1999, $3.6 million in 1998 and $3.8 million in 1997. 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
37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
allocated shares and suspense shares held by the ESOP were 621,088 and 80,670
at December 31, 1999, 563,995 and 160,649 at December 31, 1998, and 512,147
and 250,792 at December 31, 1997, respectively. There were no committed-to-be-
released shares at December 31, 1999, 1998 and 1997. Any repurchase of the
ESOP shares is strictly at the option of the Company.
The Company's common stock is subject to a Rights Agreement under which each
share has attached to it a Right to purchase one one-thousandth of a share of
a new series of Preferred Stock, at a price of $250 per Right. In the event an
entity acquires or attempts to acquire 10% (20% in the case of an
institutional investor) or more of the then outstanding shares, each Right
would entitle the holder to purchase a number of shares of common stock
pursuant to a formula contained in the Agreement. These Rights will expire on
April 30, 2009, but may be redeemed at a price of $.01 per Right at any time
prior to a public announcement that the above event has occurred. The Board
may amend the Rights at any time without shareholder approval.
10. 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.
38
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
11. 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>
1999 1998 1997
------ ----- -----
<S> <C> <C> <C>
Numerator:
Net earnings........................................... $243.2 $53.7 $69.4
Extraordinary items -- loss on early retirement of
debt, net of applicable tax benefits.................. 23.1 38.2 2.6
Cumulative effect of change in accounting for costs of
start-up activities, net of applicable income tax
benefit............................................... 12.7 -- --
------ ----- -----
Earnings before extraordinary items and cumulative
effect change in accounting principle................. 279.0 91.9 72.0
Series C preferred dividend requirement................ (2.2) (2.3) (2.4)
Series D preferred dividend requirement................ -- -- (3.1)
Series E preferred dividend requirement................ (0.2) (1.3) --
------ ----- -----
Numerator for basic earnings per share -- income
available to common shareholders before extraordinary
items and cumulative effect of change in accounting
principle............................................. $276.6 $88.3 $66.5
Effect of dilutive securities:
Series C preferred dividend requirement.............. 2.2 2.3 2.4
Series D preferred dividend requirement.............. -- -- 3.1
Series E preferred dividend requirement.............. 0.2 1.3 --
Minority interest -- preferred securities of an
affiliate........................................... 25.4 -- --
Additional required ESOP contribution................ (2.2) (2.1) (1.9)
------ ----- -----
Numerator for diluted earnings per share -- income
available to common shareholders after assumed
conversions, before extraordinary items and cumulative
of effect change in accounting principle.............. $302.2 $89.8 $70.1
Numerator for basic earnings per share -- income
available to common shareholders after extraordinary
items and cumulative effect of change in accounting
principle............................................. $240.8 $50.1 $63.9
Numerator for diluted earnings per share -- income
available to common shareholders after extraordinary
items and cumulative effect change in accounting
principle............................................. $266.4 $51.6 $67.5
Denominator:
Denominator for basic earnings per share -- weighted
average shares........................................ 69.8 48.1 36.6
Effect of dilutive securities:
Dilutive stock options outstanding................... 0.5 0.8 0.4
Nonvested stock...................................... 0.1 0.1 0.3
Conversion of Series C preferred stock............... 1.4 1.5 1.6
Conversion of Series D preferred stock............... -- -- 3.0
Conversion of Series E preferred stock............... 0.5 3.2 --
Conversion of Company-obilgated mandatorily
redeemable preferred securities..................... 11.2 -- --
Contingently issuable shares of common stock......... 0.7 -- --
------ ----- -----
Dilutive potential common shares....................... 14.4 5.6 5.3
------ ----- -----
Denominator for dilutive earnings per share -- adjusted
weighted average shares and assumed conversions....... 84.2 53.7 41.9
====== ===== =====
Basic earnings per share before extraordinary items and
cumulative effect of change in accounting principle..... $ 3.96 $1.84 $1.81
====== ===== =====
Basic earnings per share after extraordinary items and
cumulative effect of change in accounting principle..... $ 3.44 $1.04 $1.74
====== ===== =====
Diluted earnings per share before extraordinary items and
cumulative effect of change in accounting principle..... $ 3.59 $1.67 $1.67
====== ===== =====
Diluted earnings per share after extraordinary items and
cumulative effect of change in accounting principle..... $ 3.16 $ .96 $1.61
====== ===== =====
</TABLE>
39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
For additional disclosures regarding the Series C, Series D and Series E
preferred stock, the employee stock options and non-vested stock shares, refer
to Note 9, "Capital Stock and Preferred Share Purchase Rights," and Note 12,
"Incentive Stock Plans".
Convertible preferred securities (refer to Note 10, "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. These shares were dilutive in 1999 and
therefore included in the computation of earnings per share.
12. 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, 1999, there were 513,836 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 $1.4 million, $0.7 million and $9.0
million in 1999, 1998 and 1997, 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 No. 123 (SFAS 123) Accounting for
Stock Based Compensation, the Company's net earnings, in millions, and
earnings per share would have been adjusted to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
1999 1998 1997
------ ----- -----
(Millions of
Dollars, Except
Per Share Amounts)
<S> <C> <C> <C>
Net earnings as reported................................. $243.2 $53.7 $69.4
Pro forma................................................ $230.3 $48.3 $70.7
Basic earnings per share as reported..................... $ 3.44 $1.04 $1.74
Pro forma................................................ $ 3.27 $ .93 $1.78
Diluted earnings per share as reported................... $ 3.16 $ .96 $1.61
Pro forma................................................ $ 3.01 $ .86 $1.64
</TABLE>
Pro forma information regarding net income and earnings per share is
required by SFAS 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 1999, 1998 and 1997, respectively:
risk-free interest rates of 6.2%; dividend yields of 0.03%, 0.2% and 1.5%;
volatility factors of the expected market price of the Company's common stock
of 48.0%,
40
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
30.1%, and 27.2% 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.
The weighted-average fair value and the total number (in millions) of
options granted was $16.81, $22.36 and $9.99, and 2.7, 1.1 and 0.9 for 1999,
1998 and 1997, respectively. The weighted-average fair value and total number
(in millions) of nonvested stock awards granted was $53.52 and $24.47 and 0.1
and 0.1 for 1998 and 1997, respectively. There were no stock awards granted in
1999. All options and stock awards that are not vested at December 31, 1999,
vest solely on employees' rendering additional service.
The following table summarizes the activity relating to the Company's
incentive stock plans:
<TABLE>
<CAPTION>
Weighted-
Number Average
of Shares Price
------------- ---------
(In Millions)
<S> <C> <C>
Outstanding at January 1, 1997....................... 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 granted.................................... 2.7 33.85
Options exercised/stock vested..................... (0.1) 25.98
Options/stock lapsed or canceled................... (0.3) 41.86
---- ------
Outstanding at December 31, 1999..................... 5.1 $37.14
==== ======
Options exercisable at December 31, 1999........... 0.9 $31.04
==== ======
Options exercisable at December 31, 1998........... 0.6 $30.11
==== ======
Options exercisable at December 31, 1997........... 0.9 $23.07
==== ======
</TABLE>
The following is a summary of the range of exercise prices for stock options
that are outstanding and the amount of nonvested stock awards at December 31,
1999:
<TABLE>
<CAPTION>
Weighted-Average
Outstanding ---------------------
Range Awards Price Remaining Life
----- ------------- ------ --------------
(In Millions)
<S> <C> <C> <C>
Options:
$15.69-$23.50.......................... 1.8 $20.18 4 years
$23.51-$35.25.......................... 0.6 $27.98 2 years
$35.26-$52.87.......................... 1.6 $46.17 4 years
$52.88-$70.69.......................... 1.0 $59.15 4 years
Nonvested stock.......................... 0.1
---
Total................................ 5.1
===
</TABLE>
41
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
13. Postemployment Benefits
The Company sponsors several defined benefit pension plans (Pension
Benefits) and health care and life insurance benefits (Other Benefits) for
certain employees and retirees 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
---------------------- -------------------- ----------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
------ ------ ------ ------ ----- ----- ------- ------- ----
(Millions of Dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Service cost............ $ 26.4 $ 16.4 $ 7.8 $ 4.7 $ 4.4 $ 2.5 $ 26.8 $ 26.7 $0.3
Interest cost........... 51.0 29.9 14.0 31.0 19.2 10.5 112.0 100.7 1.9
Expected return on plan
assets................. (79.8) (48.1) (24.2) -- -- -- (144.8) (123.6) --
Net amortization and
deferral............... (3.0) (4.3) (4.2) (2.7) (0.6) (0.5) 9.2 -- --
Curtailment loss
(gains)................ 0.1 1.6 -- (12.5) -- -- (3.1) -- --
------ ------ ------ ------ ----- ----- ------- ------- ----
Net periodic (benefit)
cost................... $ (5.3) $(4.5) $ (6.6) $ 20.5 $23.0 $12.5 $ 0.1 $ 3.8 $2.2
====== ====== ====== ====== ===== ===== ======= ======= ====
</TABLE>
Change in benefit obligation:
<TABLE>
<CAPTION>
United States Plans
------------------------------------ International Plans
Pension Benefits Other Benefits Pension Benefits
------------------ ---------------- --------------------
1999 1998 1999 1998 1999 1998
-------- -------- ------- ------- --------- ---------
(Millions of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Benefit obligation at
beginning of year...... $ 717.5 $ 197.2 $ 468.9 $ 150.4 $ 2,099.3 $ 26.6
Service cost............ 26.4 16.4 4.7 4.4 26.8 26.7
Interest cost........... 51.0 29.9 31.0 19.2 112.0 100.7
Acquisitions............ -- 496.7 2.9 297.3 (0.2) 1,895.0
Employee contributions.. -- -- -- -- 9.3 13.3
Benefits paid........... (60.2) (26.0) (39.6) (15.0) (139.9) (124.3)
Plan amendments......... 12.3 9.9 -- -- -- --
Actuarial (gains) and
losses and changes in
actuarial assumptions.. (31.8) 4.8 (28.5) 12.6 19.8 161.3
Settlements and
curtailments........... -- (11.4) (12.5) -- (3.3) --
Prior service cost...... -- -- (2.0) -- -- --
Currency translation
adjustment............. -- -- -- -- (63.6) --
-------- -------- ------- ------- --------- ---------
Benefit obligation at
end of year............ $ 715.2 $ 717.5 $ 424.9 $ 468.9 $ 2,060.2 $ 2,099.3
======== ======== ======= ======= ========= =========
</TABLE>
42
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
Change in plan assets:
<TABLE>
<CAPTION>
United States Plans
------------------------------------ International Plans
Pension Benefits Other Benefits Pension Benefits
------------------ ---------------- --------------------
1999 1998 1999 1998 1999 1998
-------- -------- ------- ------- --------- ---------
(Millions of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Fair value of plan
assets at beginning of
year................... $ 775.4 $ 293.7 $ -- $ -- $ 2,034.5 $ --
Actual return on plan
assets................. 83.9 25.3 -- -- 325.3 157.6
Acquisitions............ -- 487.1 -- -- 1,979.8
Company contributions... 6.5 7.9 -- -- 19.1 21.4
Benefits paid........... (60.2) (26.0) -- -- (139.9) (124.3)
Settlements and
curtailments........... -- (12.6) -- -- -- --
Currency translation
adjustment............. -- -- -- -- (54.0) --
-------- -------- ------- ------- --------- ---------
Fair value of plan
assets at end of year.. $ 805.6 $ 775.4 $ -- $ -- $ 2,185.0 $ 2,034.5
======== ======== ======= ======= ========= =========
Funded status of the
plan................... $ 90.4 $ 57.9 $(424.9) $(468.9) $ 124.8 $ (64.8)
Unrecognized net asset
at transition.......... 0.3 0.3 -- -- -- --
Unrecognized net
actuarial (gain) loss.. (60.9) (30.1) (19.5) 8.9 (46.3) 128.9
Unrecognized prior
service cost........... 27.6 17.6 (2.4) (2.9) -- --
-------- -------- ------- ------- --------- ---------
Prepaid (accrued)
benefit cost........... $ 57.4 $ 45.7 $(446.8) $(462.9) $78.5 $ 64.1
======== ======== ======= ======= ========= =========
</TABLE>
Weighted-average assumptions as of December 31:
<TABLE>
<CAPTION>
United States Plans
--------------------------------- International Plans
Pension Benefits Other Benefits Pension Benefits
----------------- --------------- --------------------
1999 1998 1999 1998 1999 1998
-------- -------- ------- ------- ---------- ---------
(Millions of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Discount rate........... 7.75% 7.25% 7.75% 7.25% 6.25-6.5% 5.5-6%
Expected return on plan
assets................. 10% 10% -- -- 6.5-8.5% 7.5%
Rate of compensation
increase............... 4-4.75% 4.25-5% -- -- 3-4.4% 2.5-3.9%
</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 1999 1998
- - ------------------- ---------- ----------
(Millions of Dollars)
<S> <C> <C>
Projected benefit obligation............................. $ 362.8 $ 138.1
Accumulated benefit obligation........................... 359.1 137.9
Fair value of plan assets................................ 336.8 126.6
<CAPTION>
International Plans 1999 1998
- - ------------------- ---------- ----------
<S> <C> <C>
Projected benefit obligation............................. $ 157.4 $ 180.0
Accumulated benefit obligation........................... 156.9 171.0
Fair value of plan assets................................ 0.2 --
</TABLE>
Amounts recognized in the balance sheet consist of:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
------------------ ----------------
1999 1998 1999 1998
-------- -------- ------- -------
(Millions of Dollars)
<S> <C> <C> <C> <C>
Prepaid (accrued) benefit cost........... $ 135.9 $ 109.8 $(446.8) $(462.9)
Accrued benefit liability................ (20.5) (12.7) -- --
Intangible asset......................... 7.2 7.3 -- --
Accumulated other comprehensive income... 10.1 3.4 -- --
-------- -------- ------- -------
Net amount recognized.................... $ 132.7 $ 107.8 $(446.8) $(462.9)
======== ======== ======= =======
</TABLE>
43
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
At December 31, 1999, the assumed annual health care cost trend used in
measuring the APBO approximated 6.7% in 1999, declining to 6.5% in 2000 and to
an ultimate annual rate of 5.5% estimated to be achieved in 2010. Increasing
the assumed cost trend rate by 1% each year would have increased the APBO by
approximately 9.5% and 11.5% at December 31, 1999 and 1998, respectively.
Aggregate service and interest costs would have increased by approximately
10.4%, 13.3% and 9.4% for 1999, 1998 and 1997, respectively.
During 1999, the Company decided to curtail retiree healthcare benefits for
approximately 4,000 employees. As a result, the Company reduced its
postretirement liability and recognized a one-time benefit of approximately
$8.0 million, net of applicable taxes.
14. Income Taxes
Under the liability method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse. The
components of earnings before income taxes, extraordinary items and cumulative
effect changes consisted of the following:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
(Millions of Dollars)
<S> <C> <C> <C>
Domestic........................................... $ 237.8 $ (73.4) $50.1
International...................................... 222.1 258.9 49.4
------- ------- ------
$ 459.9 $ 185.5 $ 99.5
======= ======= ======
</TABLE>
Significant components of the provision for income taxes (tax benefit) are
as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
(Millions of Dollars)
<S> <C> <C> <C>
Current:
Federal......................................... $ 49.3 $ (12.1) $ 9.6
State and local................................. 11.6 10.0 0.2
International................................... 45.7 65.4 6.6
------- ------- ------
Total current................................. 106.6 63.3 16.4
Deferred:
Federal......................................... 29.2 33.0 6.1
State and local................................. (2.1) 2.1 0.7
International................................... 47.2 (4.8) 4.3
------- ------- ------
Total deferred................................ 74.3 30.3 11.1
------- ------- ------
$ 180.9 $ 93.6 $ 27.5
======= ======= ======
</TABLE>
44
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
The reconciliation of income taxes computed at the United States federal
statutory tax rate to income tax expense is:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
(Millions of Dollars)
<S> <C> <C> <C>
Income taxes at United States statutory rate..... $ 161.0 $ 64.9 $ 34.9
Tax effect from:
State income taxes............................. 9.5 7.9 0.8
Foreign operations, net of foreign tax
credits....................................... 6.4 5.6 (2.7)
Sale of international retail/wholesale
operations.................................... (4.7) (11.5) (6.8)
Goodwill amortization.......................... 28.1 19.7 --
Purchased in-process research and development.. -- 6.5 --
Valuation allowance reductions................. (21.4) -- --
Tax credits and other.......................... 2.0 0.5 1.3
------- ------- ------
$ 180.9 $ 93.6 $ 27.5
======= ======= ======
</TABLE>
The following table summarizes the Company's total provision for income
taxes/(tax benefit) by component:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
(Millions of Dollars)
<S> <C> <C> <C>
Income tax expense............................... $ 180.9 $ 93.6 $ 27.5
Extraordinary items and cumulative effect of
change in accounting principle.................. (20.3) (19.8) (1.5)
T&N Bearings Divestiture......................... -- 56.1 --
Allocated to equity:
Currency translation........................... -- 15.3 (3.6)
Preferred dividends............................ (1.2) (1.2) (1.3)
Incentive stock plans.......................... (0.3) (3.9) (3.4)
Investment securities.......................... (0.1) -- (0.6)
Pension........................................ (4.5) 0.2 (0.9)
Other.......................................... -- -- 2.1
------- ------- ------
$ 154.5 $ 140.3 $ 18.3
======= ======= ======
</TABLE>
45
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
Significant components of the Company's deferred tax assets and liabilities
as of December 31 are as follows:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
(Millions of Dollars)
<S> <C> <C>
Deferred tax assets:
Asbestos......................................... $ 399.1 $ 429.1
Postemployment benefits.......................... 178.2 165.2
Net operating loss carryforwards of international
subsidiaries.................................... 103.0 110.9
Restructuring and rationalization reserves....... 20.9 98.8
Inventory basis.................................. 19.9 34.2
Allowance for doubtful accounts.................. 25.6 15.2
Other temporary differences...................... 105.5 117.6
---------- ----------
Total deferred tax assets...................... 852.2 971.0
Valuation allowance for deferred tax assets........ (54.5) (77.0)
---------- ----------
Net deferred tax assets.......................... 797.7 894.0
Deferred tax liabilities:
Fixed asset basis differences.................... (351.1) (379.4)
Intangible asset basis differences............... (289.5) (326.2)
Deferred gains................................... (130.0) (130.0)
Pension.......................................... (33.3) (6.9)
---------- ----------
Total deferred tax liabilities................. (803.9) (842.5)
---------- ----------
$ (6.2) $ 51.5
========== ==========
</TABLE>
Deferred tax assets and liabilities are recorded in the consolidated balance
sheets as follows:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
(Millions of Dollars)
<S> <C> <C>
Assets:
Prepaid expenses and income tax benefits........... $ 128.2 $ 187.3
Other noncurrent assets............................ 148.8 --
Liabilities:
Other current accrued liabilities.................. (24.3) --
Other long-term accrued liabilities................ (258.9) (135.8)
---------- ----------
$ (6.2) $ 51.5
========== ==========
</TABLE>
Income taxes paid in 1999, 1998 and 1997 were $87.5 million, $34.7 million
and $2.6 million, respectively.
The 1999 provision includes the estimated U.S. federal income tax effects of
retained earnings of subsidiaries expected to be distributed to the Company.
No provision was made with respect to $417.3 million of undistributed earnings
at December 31, 1999, since these earnings are considered by the Company to be
permanently reinvested. Upon distribution of these earnings, the Company would
be subject to United States income taxes and foreign withholding taxes.
Determining the unrecognized deferred tax liability on the distribution of
these earnings is not practicable as such liability, if any, is dependent on
circumstances existing when remittance occurs.
At December 31, 1999, the Company has $162 million in net operating loss
carryforwards in the United Kingdom with no expiration date or valuation
allowance. Also, the Company has $155 million of additional
46
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
foreign net operating loss carryforwards with a full valuation allowance and
various expiration dates. Included in the previous amounts are $168 million of
net operating loss carryforwards acquired with the purchases of T&N, Cooper
Automotive and Fel-Pro. A valuation allowance was recorded on $90 million of
these purchased net operating loss carryforwards, and to the extent such
benefits are ever realized, such benefits will be recorded as a reduction of
goodwill.
15. Operations By Industry Segment and Geographic Area
During 1999, the Company reorganized its operating segments. Prior to the
internal reorganization, the Company's three operating segments were
Powertrain Systems; Sealing Systems and General Products. As a result of the
Company's internal reorganization, integrated operations are conducted under
three operating segments corresponding to major product areas: Powertrain
Systems; Sealing Systems, Visibility and Systems Protection Products; and
Brake, Chassis, Ignition and Fuel Products. The segment information to follow
has been restated to reflect the internal reorganization changes announced in
1999.
Powertrain Systems products are used primarily in automotive, light truck,
heavy-duty, industrial, marine, agricultural, power generation and small air-
cooled engine applications. The primary products of this operating unit
include camshafts, sintered products, engine bearings, large bearings,
pistons, piston pins, rings, cylinder liners and connecting rods.
Sealing Systems, Visibility and Systems Protection Products are used in
automotive, light truck, heavy-duty, agricultural, off-highway, marine,
railroad, high performance and industrial applications. The primary products
of this operating unit include dynamic seals, gaskets, lighting products,
wiper blades and systems protection products.
Brake, Chassis, Ignition and Fuel Products are used in automotive, light
truck, heavy-duty, agricultural, off -highway, marine and high performance
applications. The primary products of this operating unit include brake and
friction products, chassis products, ignition products and fuel system
components.
Divested Activities include the historical operating results and assets of
aftermarket operations in South Africa, Australia, Chile and heavy wall
bearing operations in Germany and Brazil which were sold or closed in 1997.
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. Operational EBIT is defined
as earnings before interest, income taxes, extraordinary items and certain
nonrecurring items such as certain acquisition related adjustments and
integration costs associated with new acquisitions. 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>
1999 1998 1997
------- ------- -------
(Millions of Dollars)
<S> <C> <C> <C>
Net Sales:
Powertrain Systems............................... $ 2,459 $ 2,107 $ 782
Sealing Systems, Visibility and Systems
Protection Products............................. 1,887 1,252 333
Brake, Chassis, Ignition and Fuel Products....... 2,123 1,036 577
Divested Activities.............................. 19 74 115
------- ------- -------
Total.......................................... $ 6,488 $ 4,469 $ 1,807
======= ======= =======
</TABLE>
47
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
(Millions of Dollars)
<S> <C> <C> <C>
Operational EBIT:
Powertrain Systems............................. $ 262 $ 248 $ 68
Sealing Systems, Visibility and Systems
Protection Products........................... 297 154 26
Brake, Chassis, Ignition and Fuel Products..... 277 104 44
Divested Activities............................ (1) (4) 1
------- ------- -------
Total........................................ $ 835 $ 502 $ 139
======= ======= =======
<CAPTION>
1999 1998 1997
------- ------- -------
(Millions of Dollars)
<S> <C> <C> <C>
Reconciliation:
Total segments operational EBIT................ $ 835 $ 502 $ 139
Net interest and other financing costs......... (309) (233) (29)
Restructuring, impairment and other special
charges....................................... (8) (20) (10)
Acquisition-related costs...................... (58) (63) --
------- ------- -------
Earning before income taxes, extraordinary
items and cumulative effect change in
accounting principle........................ $ 460 $ 186 $ 100
======= ======= =======
<CAPTION>
1999 1998 1997
------- ------- -------
(Millions of Dollars)
<S> <C> <C> <C>
Assets:
Powertrain Systems............................. $ 3,526 $ 3,467 $ 786
Sealing Systems, Visibility and Systems
Protection Products........................... 3,000 2,925 382
Brake, Chassis, Ignition and Fuel Products..... 3,419 3,471 508
Divested Activities............................ -- 77 126
------- ------- -------
Total........................................ $ 9,945 9,940 $ 1,802
======= ======= =======
<CAPTION>
1999 1998 1997
------- ------- -------
(Millions of Dollars)
<S> <C> <C> <C>
Capital Expenditures:
Powertrain Systems............................. $ 229 $ 153 $ 28
Sealing Systems, Visibility and Systems
Protection Products........................... 79 41 13
Brake, Chassis, Ignition and Fuel Products..... 87 35 9
------- ------- -------
Total........................................ $ 395 $ 229 $ 50
======= ======= =======
<CAPTION>
1999 1998 1997
------- ------- -------
(Millions of Dollars)
<S> <C> <C> <C>
Depreciation and Amortization:
Powertrain Systems............................. $ 151 $ 115 $ 28
Sealing Systems, Visibility and Systems
Protection Products........................... 94 50 11
Brake, Chassis, Ignition and Fuel Products..... 109 62 12
Divested Activities............................ 1 1 1
------- ------- -------
Total........................................ $ 355 $ 228 $ 52
======= ======= =======
</TABLE>
48
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
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
-------------------- ----------------------
1999 1998 1997 1999 1998 1997
------ ------ ------ ------- ------- ------
(Millions of Dollars)
<S> <C> <C> <C> <C> <C> <C>
United States..................... $3,922 $2,345 $1,111 $ 1,492 $ 1,422 $ 166
Mexico............................ 153 124 87 28 30 7
Canada............................ 162 76 58 43 39 1
------ ------ ------ ------- ------- -----
Total North America............. 4,237 2,545 1,256 1,563 1,491 174
United Kingdom.................... 533 516 21 305 312 9
Germany........................... 630 478 126 344 318 105
France............................ 303 327 33 79 113 9
Italy............................. 252 200 71 77 77 9
Other Europe...................... 295 188 117 55 62 3
------ ------ ------ ------- ------- -----
Total Europe.................... 2,013 1,709 368 860 882 135
Rest of World..................... 238 215 183 81 104 5
------ ------ ------ ------- ------- -----
Total........................... $6,488 $4,469 $1,807 $ 2,504 $ 2,477 $ 314
====== ====== ====== ======= ======= =====
</TABLE>
16. Litigation and Environmental Matters
T&N Asbestos Litigation
In the United States, the Company's United Kingdom subsidiary, T&N Ltd., and
two former United States subsidiaries of T&N, plc. (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 France. 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 expenditures which may
arise therefrom.
As of December 31, 1999, the T&N Companies had approximately 95,000 claims
pending. During 1999, approximately 49,000 new claims were filed and 60,000
claims were settled, dismissed or otherwise resolved. In addition to the
pending cases above, the T&N Companies have approximately 64,000 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.
The $1.1 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, 1999, the $1.1 billion total
provision is comprised of approximately $520 million related to known claims
and approximately $620 million related to IBNR claims.
In arriving at the IBNR provision for the T&N Companies, assumptions have
been made regarding the total number of claims anticipated to 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.
T&N Ltd. has appointed the Center for Claims Resolution (CCR) as its
exclusive representative in relation to all asbestos-related personal injury
claims made against it in the United States. The CCR provides to its
49
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
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 Ltd. 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.
Effective January 18, 2000, the two United States subsidiaries withdrew from
the CCR membership and appointed a law firm specializing in asbestos matters
as their claims handling defense and administrative service provider.
Indemnity and defense obligations incurred while members of the CCR will
continue to be honored. This change is intended to create greater economic and
defense efficiencies for the two companies.
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 costs 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 initial reserve provided for the T&N Companies for claims filed after June
30, 1996 approximated 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 asbestos-related claims against the T&N Companies, given
the nature and complexity of the factors affecting the estimated liability,
the actual liability may differ. No absolute assurance can be given that the
T&N Companies 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 reserve for the T&N Companies is
re-evaluated periodically as additional information becomes available.
During 1999, T&N Ltd. was named in a complaint filed in the United States
District Court for the Eastern District of Texas by Owens-Illinois alleging
that T&N is liable to Owens-Illinois for Owens-Illinois' own indemnity and
defense costs pertaining to asbestos-related personal injury claims. The
Company believes it has meritorious defenses to the claim and has successfully
defended against similar underlying claims in the past.
Cooper Automotive Asbestos Litigation
Former businesses of Cooper Automotive, primarily Abex and Wagner, are
involved as defendants in numerous court actions in the United States alleging
personal injury from exposure to asbestos or asbestos-containing products,
mainly involving friction products. In 1998, the Company acquired the capital
stock of a Cooper Automotive entity resulting in the assumption by a Company
subsidiary of contractual liability, under certain circumstances, for all
claims pending and to be filed in the future alleging exposure to certain
Wagner automotive and industrial friction products and for all claims filed
after August 29, 1998, alleging exposure to certain Abex (non-railroad and
non-aircraft) friction products. As of December 31, 1999, Abex has
approximately 10,500 claims pending and Wagner has approximately 13,700 claims
pending. The Company has completed its assessment of the potential liability
and related potential insurance recoveries related to the Cooper Automotive
acquisition and has recorded a $325.9 million insurance recoverable asset and
a liability of the subsidiaries involved of approximately $400 million. This
is the Company's estimate, after taking into account legal counsel's
evaluation related to amounts expected to be paid or reimbursed by insurers.
In arriving at these provisions, certain assumptions have been made regarding
the total number of claims which may be received in the future against these
two entities and the average costs associated with such claims.
50
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
Abex maintained product liability insurance coverage for most of the time
that it manufactured products that contained asbestos. The subsidiary of the
Company that may be liable for the post-August 1998 asbestos claims against
Abex has the benefit of that insurance. Abex has been in litigation since 1982
with the insurance carriers of its primary layer of liability concerning
coverage for asbestos claims. Abex also has substantial excess layer liability
insurance coverage which, barring unforeseen insolvencies of excess carriers
or other adverse events, should provide coverage for asbestos claims against
Abex.
Wagner also maintained product liability insurance coverage for some of the
time that it manufactured products that contained asbestos. The subsidiary of
the Company that may be liable for asbestos claims against Wagner has the
benefit of that insurance. Primary layer liability insurance coverage for
asbestos claims against Wagner is the subject of an agreement with Wagner's
solvent primary carriers. The agreement provides for partial reimbursement of
indemnity and defense costs for Wagner asbestos claims until exhaustion of
aggregate limits. Wagner also has substantial excess layer liability insurance
coverage which, barring unforeseen insolvencies of excess carriers or other
adverse events, should provide coverage for asbestos claims against Wagner.
The ultimate exposure of the Company's subsidiary with respect to claims
against Abex and Wagner will depend upon the extent to which the insurance
described above will be available to cover such claims, the amounts paid for
indemnity and defense, changes in the legal environment and other factors.
While the Company believes that the liability and receivable recorded for
these claims are reasonable and appropriate, given the nature and complexity
of factors affecting the estimated liability and potential insurance recovery,
the actual liability and insurance recovery may differ. In the event that the
actual liability net of insurance proceeds recovered exceeds the reserve net
of insurance receivable recorded by the Company, the Company's results of
operations, business, liquidity and financial condition could be materially
adversely affected. The asbestos reserves for the businesses acquired as part
of the Cooper Automotive acquisition will be re-evaluated periodically as
additional information becomes available.
Federal-Mogul and Fel-Pro Asbestos Litigation
The Company also is sued in its own name as one of a large number of
defendants in a number of lawsuits brought by claimants alleging injury due to
exposure to asbestos. The Company's Fel-Pro subsidiary has been named as a
defendant in a number of product liability cases involving asbestos, primarily
involving gasket or packing products. The Company is defending all such claims
vigorously and believes that it and Fel-Pro have substantial defenses to
liability and adequate insurance coverage for defense and indemnity. While the
outcome of litigation cannot be predicted with certainty, management believes
that asbestos claims pending against the Company and Fel-Pro as of December
31, 1999, will not have a material effect on the Company's financial position.
Aggregate of Asbestos Liability
As of December 31, 1999, the Company has provided a total reserve for all of
its subsidiaries and businesses with potential asbestos liability of
approximately $1.5 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. The company has a corresponding receivable from certain insurance
carriers of approximately $325.9 million.
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
51
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
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 CERCLA 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 reserve was approximately $74.5 million at
December 31, 1999, and $50.0 million at December 31, 1998. The 1999 increase
results from a number of factors, including retaining liabilities from the
divestiture of the T&N Bearings Business. Management believes that such
accruals will be adequate to cover the Company's estimated liability for its
exposure in respect of such matters.
52
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
17. 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,
1999:
Net sales.............. $ 1,642.2 $ 1,687.1 $ 1,583.9 $ 1,574.3 $ 6,487.5
Gross margin........... 449.5 482.6 441.2 405.1 1,778.4
Earnings before
extraordinary items
and cumulative effect
of change in
accounting principle.. 61.4 87.3 70.1 60.2 279.0
Extraordinary items --
loss on early
retirement of debt,
net of applicable
income tax benefit.... 23.1 -- -- -- 23.1
Cumulative effect of
change in accounting
for costs of start-up
activities, net of
applicable income tax
benefit............... 12.7 -- -- -- 12.7
Net earnings........... 25.6 87.3 70.1 60.2 243.2
Diluted earnings per
share................. .38 1.11 .91 .79 3.16
Stock price
High................... $ 64.88 $ 53.81 $ 55.00 $ 29.13
Low.................... $ 40.63 $ 41.94 $ 23.38 $ 17.56
Dividend per share..... $ .0025 $ .0025 $ .0025 $ .0025
<CAPTION>
First(5) Second(6) Third(7) Fourth(8) 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 items --
loss on early
retirement of debt,
net of tax benefit.... -- (31.3) -- (6.9) (38.2)
Net earnings........... (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
Dividend per share..... $ .12 $ .0025 $ .0025 $ .0025
</TABLE>
- - ------------------
(1) Includes $10.1 million of integration costs.
(2) Includes $13.3 million of integration costs.
(3) Includes $13.2 million of integration costs and a $7.9 million charge for
adjustment of assets held for sale and other long-lived assets to fair
value.
(4) Includes $10.3 million of integration costs.
(5) Includes $1.0 million of integration costs, 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.
(6) Includes $3.7 million of integration costs.
(7) Includes $9.0 million of integration costs and a $6.6 million
restructuring credit.
(8) Includes $8.7 million of integration costs, and a $3.4 million net
restructuring charge.
53
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
18. 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.
F-M 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 1999 and 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.
54
<PAGE>
FEDERAL-MOGUL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
December 31, 1999
(Millions of Dollars)
<TABLE>
<CAPTION>
(Unconsolidated)
------------------------------------
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales............... $1,540.3 $1,687.5 $3,704.8 $(445.1) $6,487.5
Cost of products sold... 1,099.8 1,205.7 2,848.7 (445.1) 4,709.1
-------- -------- -------- ------- --------
Gross margin.......... 440.5 481.8 856.1 -- 1,778.4
Selling, general and
administrative
expenses............... 331.7 151.8 365.4 -- 848.9
Amortization of goodwill
and other intangible
assets................. 6.7 38.1 82.4 -- 127.2
Adjustment of assets
held for sale and other
long-lived assets to
fair value............. 7.9 -- -- -- 7.9
Integration costs....... 18.1 8.3 20.5 -- 46.9
Interest expense........ 260.3 0.7 280.1 (267.6) 273.5
Interest income......... (1.4) (1.1) (269.7) 267.6 (4.6)
International currency
exchange (gains)
losses................. (0.1) 2.3 (4.9) -- (2.7)
Other expense (income),
net.................... 52.3 (148.4) 117.5 -- 21.4
-------- -------- -------- ------- --------
Earnings (loss) before
income taxes,
extraordinary items
and cumulative effect
of change in
accounting
principle............ (235.0) 430.1 264.8 -- 459.9
Income tax expense
(benefit).............. (87.0) 159.1 108.8 -- 180.9
-------- -------- -------- ------- --------
Earnings (loss) before
extraordinary items
and cumulative effect
of change in
accounting
principle............ (148.0) 271.0 156.0 -- 279.0
Extraordinary item --
loss on early
retirement of debt, net
of applicable income
tax benefit............ 23.1 -- -- -- 23.1
Cumulative effect of
change in accounting
for costs of start-up
activities, net of
applicable income tax
....................... 12.7 -- -- -- 12.7
-------- -------- -------- ------- --------
Net earnings (loss)
before equity in
earnings (loss) of
subsidiaries......... $ (183.8) $ 271.0 $ 156.0 $ -- $ 243.2
Equity in earnings
(loss) of
subsidiaries........... 427.0 251.8 -- (678.8) --
-------- -------- -------- ------- --------
Net Earnings............ $ 243.2 $ 522.8 $ 156.0 $(678.8) $ 243.2
======== ======== ======== ======= ========
</TABLE>
55
<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 of goodwill
and other intangible
assets................. 21.5 9.1 53.2 -- 83.8
Purchased in-process
research and
development charge..... -- -- 18.6 -- 18.6
Restructuring charge.... 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 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 benefits........... 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>
56
<PAGE>
FEDERAL-MOGUL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
December 31, 1997
(Millions of Dollars)
<TABLE>
<CAPTION>
(Unconsolidated)
------------------------------------
Guarantor Non-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 of goodwill
and other intangible
assets................. 7.8 -- 1.1 -- 8.9
Restructuring credit.... (1.1) -- -- -- (1.1)
Reengineering and other
related (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 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 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 before
extraordinary item... 8.2 10.4 53.4 -- 72.0
Extraordinary item--loss
on early retirement of
debt, net of applicable
income tax benefit..... 2.6 -- -- -- 2.6
-------- ----- ------ ------ --------
Net earnings before
equity in earnings 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>
57
<PAGE>
FEDERAL-MOGUL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING CONDENSED BALANCE SHEET
December 31, 1999
(Millions of Dollars)
<TABLE>
<CAPTION>
(Unconsolidated)
------------------------------------
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and equivalents.... $ 54.1 $ 20.3 $ (9.9) $ -- $ 64.5
Accounts receivable..... 18.1 73.3 423.2 -- 514.6
Investment in accounts
receivable
securitization......... -- -- 232.2 -- 232.2
Inventories............. 187.9 328.0 367.7 -- 883.6
Prepaid expenses and
income tax benefits.... 100.8 121.2 109.6 -- 331.6
-------- -------- -------- --------- --------
Total Current Assets.. 360.9 542.8 1,122.8 -- 2,026.5
Property, plant and
equipment.............. 292.9 619.7 1,591.1 -- 2,503.7
Goodwill................ 558.4 810.9 2,178.5 -- 3,547.8
Other intangible
assets................. 38.4 396.0 361.9 -- 796.3
Investment in
subsidiaries........... 4,912.7 1,641.8 -- (6,554.5) --
Intercompany accounts,
net.................... (498.3) 1,821.3 (1,323.0) -- --
Asbestos-related
insurance recoverable.. -- 325.9 -- -- 325.9
Other noncurrent
assets................. 233.2 53.1 458.7 -- 745.0
-------- -------- -------- --------- --------
Total Assets.......... $5,898.2 $6,211.5 $4,390.0 $(6,554.5) $9,945.2
======== ======== ======== ========= ========
LIABILITIES
Short-term debt,
including current
portion of long-term
debt................... $ 127.7 $ 6.0 $ 57.1 $ -- $ 190.8
Accounts payable........ 152.8 152.0 317.1 -- 621.9
Accrued compensation.... 46.3 28.5 108.1 -- 182.9
Restructuring and
rationalization
reserves............... -- -- 46.0 -- 46.0
Current portion of
asbestos liability..... -- -- 180.0 -- 180.0
Income taxes payable.... 16.0 12.2 44.1 -- 72.3
Other accrued
liabilities............ 151.9 85.7 251.1 -- 488.7
-------- -------- -------- --------- --------
Total Current
Liabilities.......... 494.7 284.4 1,003.5 -- 1,782.6
Long-term debt.......... 2,977.0 -- 43.0 -- 3,020.0
Long-term portion of
asbestos liability..... -- 408.9 926.4 -- 1,335.3
Postemployment
benefits............... 188.0 219.7 254.2 -- 661.9
Other accrued
liabilities............ 157.2 162.8 134.9 -- 454.9
Minority interest in
consolidated
subsidiaries........... 6.1 2.1 32.1 -- 40.3
Company-obligated
mandatorily redeemable
preferred securities of
subsidiary holding
solely convertible
subordinated debentures
of the Company......... -- -- 575.0 -- 575.0
Shareholders' Equity.... 2,075.2 5,133.6 1,420.9 (6,554.5) 2,075.2
-------- -------- -------- --------- --------
Total Liabilities and
Shareholders'
Equity............... $5,898.2 $6,211.5 $4,390.0 $(6,554.5) $9,945.2
======== ======== ======== ========= ========
</TABLE>
58
<PAGE>
FEDERAL-MOGUL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING CONDENSED BALANCE SHEET
December 31, 1998
(Millions of Dollars)
<TABLE>
<CAPTION>
(Unconsolidated)
------------------------------------
Guarantor Non-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 noncurrent
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............... 218.2 207.6 235.1 -- 660.9
Other accrued
liabilities............ 12.2 255.0 75.9 -- 343.1
Minority interest in
consolidated
subsidiaries........... 8.1 1.5 28.4 -- 38.0
Company-obligated
mandatorily redeemable
preferred securities of
subsidiary holding
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>
59
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
December 31, 1999
(Millions of Dollars)
<TABLE>
<CAPTION>
(Unconsolidated)
-------------------------------------
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Cash Provided From
(Used By) Operating
Activities............. $ (254.3) $ 319.0 $ 497.7 $ -- $ 562.4
Expenditures for
property, plant and
equipment and other
long-term assets....... (55.8) (64.4) (275.0) -- (395.2)
Proceeds from sale of
business investments... 3.9 -- 49.4 -- 53.3
Business acquisitions,
net of cash acquired... (97.0) (1.9) (272.3) -- (371.2)
--------- ------- ------- ------ ---------
Net Cash Used By
Investing
Activities........... (148.9) (66.3) (497.9) -- (713.1)
Issuance of common
stock.................. 1.2 -- -- -- 1.2
Proceeds from issuance
of long-term debt...... 2,123.0 -- -- -- 2,123.0
Principal payments on
long-term debt......... (2,223.2) (2.0) (26.3) -- (2,251.5)
Increase (decrease) in
short-term debt........ 44.2 (11.7) (35.5) -- (3.0)
Fees paid for debt
issuance and other
securities............. (25.5) -- -- -- (25.5)
Change in intercompany
accounts............... 216.1 (239.4) 23.3 -- --
Sale of accounts
receivable under
securitization......... 304.3 -- -- -- 304.3
Dividends............... (4.3) -- -- -- (4.3)
Other................... (3.8) -- (2.4) -- (6.2)
--------- ------- ------- ------ ---------
Net Cash Provided From
(Used By) Financing
Activities........... 432.0 (253.1) (40.9) -- 138.0
--------- ------- ------- ------ ---------
Net Increase
(Decrease) in Cash... $ 28.8 $ (0.4) $ (41.1) $ -- $ (12.7)
========= ======= ======= ====== =========
</TABLE>
60
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
December 31, 1998
(Millions of Dollars)
<TABLE>
<CAPTION>
(Unconsolidated)
-------------------------------------
Guarantor Non-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 and other
long-term assets....... (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) --
Sale of accounts
receivable under
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>
61
<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 (Used By) Provided
From Operating Activities.... $ (23.2) $ 5.9 $ 233.0 $ 215.7
Expenditures for property,
plant and equipment and other
long-term assets............. (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 Provided From (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)
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) --
Repurchase of accounts
receivable under
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 in Cash........ $ 470.8 $ -- $ 37.5 $ 508.3
======= ===== ======= =======
</TABLE>
62
<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 five 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/ Kenneth P. Slaby
Kenneth P. Slaby
Vice President and Controller
63
<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, 1999 and 1998, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1999. 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 auditing standards generally
accepted in the United States. 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, 1999 and 1998,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States. 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 16, 2000
64
<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 15, 2000 relating to its 2000 Annual Meeting of Shareholders (the "2000
Proxy Statement") (except for the information appearing under the caption
"Compensation of Directors"), which information is incorporated herein by
reference; (b) under the caption "Section 16(a) Beneficial Ownership Reporting
Compliance" in the 2000 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 2000 Proxy Statement (excluding the
information appearing under the caption "Compensation Committee Report on
Executive Compensation") and under the caption "Compensation of Directors" in
the 2000 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 2000 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 2000 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.
65
<PAGE>
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FEDERAL-MOGUL CORPORATION AND SUBSIDIARIES
(Millions of Dollars)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- --------- -------------------- ---------- --------
Additions
--------------------
Balance Charged Charged to Balance
At to Costs Other Deductions at End
Beginning and Accounts -- -- of
Description of Period Expenses Describe Describe Period
----------- --------- -------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C>
Year Ended December 31,
1999:
Valuation allowance for
trade receivable......... $60.4 $5.2 $ 5.1(2) $ 1.4(3) $69.3
Reserve for inventory
valuation................ 24.9 1.6 26.5
Valuation allowance for
deferred tax assets...... 77.0 22.5(1) 54.5
Year Ended December 31,
1998:
Valuation allowance for
trade receivable......... 18.7 7.6 34.1(2) -- 60.4
Reserve for inventory
valuation................ 15.1 1.6 8.2(2) -- 24.9
Valuation allowance for
deferred tax assets...... 44.4 3.9 28.7(4) -- 77.0
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(5) 15.1
Valuation allowance for
deferred tax assets...... 89.4 -- 45.0(6) 44.4
</TABLE>
- - ------------------
(1) Decrease due to a $21.4 million reduction of the valuation reserve which
was reversed to the statement of operations and a $1.1 million utilization
of pre-acquisition net operating loss carryforwards the effect of which
reduces goodwill.
(2) Amounts related to the acquisition of businesses.
(3) Uncollectable accounts charged off net of recoveries.
(4) Increase due to purchased foreign net operating loss carryforwards.
(5) Decrease due to the disposal of certain foreign subsidiaries and the
disposal of slow-moving and obsolete inventory that was fully reserved.
(6) Disposition of certain international retail operations plus utilization of
foreign net operating loss carryforwards.
66
<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.
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 Restated Articles of Incorporation.
3.2 The Company's Bylaws, as amended. (Incorporated by reference to Exhibit
3.2 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1998. (the "1998 10-K".)
4.1 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.)
4.2 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.)
4.3 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.)
4.4 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.)
4.5 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.)
4.6 Indenture among Federal-Mogul Corporation and The Bank of New York,
dated as of January 20, 1999. (Incorporated by reference to Exhibit 4.8
to the Company's 1998 10-K.)
4.7 Indenture among Federal-Mogul Corporation and Continental Bank, dated
as of August 12, 1994. (Incorporated by reference to Exhibit 4.14 to
the Company's Current Report on Form 8-K filed August 19, 1994.)
*4.8 Indenture among Federal-Mogul Corporation and The Bank of New York,
dated as of June 29, 1998.
*4.9 First Supplemental Indenture among Federal-Mogul Corporation and The
Bank of New York, dated as of June 30, 1998.
10.1 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.)
10.2 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".)
67
<PAGE>
10.3 Supplemental Executive Retirement Plan, as amended. (Incorporated by
reference to Exhibit 10.10 to the Company's 1992 10-K.)
10.4 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.)
10.5 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.)
10.6 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.)
10.7 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.)
10.8 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.
(Incorporated by reference to Exhibit 10.13 to the Company's 1998 10-
K.)
*10.9 Amended and Restated Receivables Sale and Contribution Agreement, dated
as of July 1, 1999, among the Company and Federal-Mogul Funding
Corporation.
*10.10 Amended and Restated Receivable Interest Purchase Agreement, dated as
of July 1, 1999, in the amount of $450,000,000 among the Company,
Federal-Mogul Funding Corporation, Falcon Asset Securitization
Corporation and International Securitization Corporation.
*10.11 Federal-Mogul Supplemental Key Executive Pension Plan dated January 1,
1999.
*21 Subsidiaries of the Registrant.
*23.1 Consent of Ernst & Young LLP.
*24 Powers of Attorney.
*27 Financial Data Schedule.
- - ------------------
* Filed Herewith
(b) Reports on Form 8-K:
(c) Separate financial statements of affiliates whose securities are
pledged as collateral.
1) 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, 1999 and
1998, and the related statements of operations and comprehensive
income and cash flows for the year ended December 31, 1999, for the
periods January 1, 1998 through October 9, 1998, October 10, 1998
through December 31, 1998 and for the year ended December 31, 1997.
2) 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, 1999 and 1998, and the related statements
of operations and comprehensive income and cash flows for the year
ended December 31, 1999, for the periods January 1, 1998 through
October 9, 1998, October 10, 1998 through December 31, 1998 and for
the year ended December 31, 1997.
On December 20, 1999, the Company filed a Current Report on Form 8-K to
report a default judgment entered against the Company in favor of Owens-
Illinois, Inc.
68
<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, 1999 and 1998,
respectively, and the related consolidated statements of operations and
comprehensive income and cash flows for the year ended December 31, 1999, 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 the year 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 auditing standards generally
accepted in the United States. 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, 1999 and 1998, and the
consolidated results of their operations and their cash flows for the year
ended December 31, 1999, 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 the year ended December 31, 1997, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
Detroit, Michigan
February 16, 2000
69
<PAGE>
FEDERAL-MOGUL PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Millions of Dollars)
<TABLE>
<CAPTION>
Predecessor
-----------------------
Period
Period January 1,
October 10, 1998
Year ended 1998 through through Year ended
December 31, December 31, October 9, December 31,
1999 1998 1998 1997
------------ ------------ ---------- ------------
<S> <C> <C> <C> <C>
Net sales................... $724.2 $170.2 $666.7 $842.0
Cost of products sold....... 521.6 120.1 458.8 611.2
Selling, general and
administrative expenses.... 119.5 28.5 106.4 158.1
Amortization of goodwill and
other intangible assets.... 16.0 2.9 11.9 15.1
Integration costs........... 3.5 -- -- --
Nonrecurring charges........ -- -- -- 27.3
Other expense, net.......... 11.7 1.9 1.6 1.9
Interest expense............ 20.1 15.1 -- 0.4
------ ------ ------ ------
Earnings before income
taxes.................... 31.8 1.7 88.0 28.0
Income tax expense.......... 15.1 1.0 38.4 16.0
------ ------ ------ ------
Net earnings............ 16.7 0.7 49.6 12.0
Components of Comprehensive
Income (Loss):
Minimum pension liability,
net of tax............... (4.2) -- -- (1.6)
Translation adjustments,
net of tax............... -- (0.8) (1.6) 2.0
------ ------ ------ ------
Comprehensive Income
(Loss)................. $ 12.5 $ (0.1) $ 48.0 $ 12.4
====== ====== ====== ======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
70
<PAGE>
FEDERAL-MOGUL PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
(Millions of Dollars)
<TABLE>
<CAPTION>
December 31,
------------------
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Cash...................................................... $ 17.0 $ 7.7
Accounts receivable (net of allowance for doubtful
accounts of $16.7 million in 1998)....................... -- 183.5
Inventories............................................... 161.2 208.0
Other..................................................... 19.8 15.4
-------- --------
Total Current Assets.................................. 198.0 414.6
Property, plant and equipment, net........................ 254.0 294.3
Intangible assets, net.................................... 553.4 339.8
Asbestos-related insurance recoverable.................... 325.9 --
Other assets.............................................. 47.9 19.2
-------- --------
Total Assets.......................................... $1,379.2 $1,067.9
======== ========
LIABILITIES AND NET PARENT INVESTMENT
Accounts payable.......................................... $ 67.6 $ 77.1
Accrued liabilities....................................... 60.8 107.9
-------- --------
Total Current Liabilities............................. 128.4 185.0
Long-term debt............................................ -- 0.8
Long-term portion of asbestos liability................... 408.8 20.0
Other long-term liabilities............................... 3.3 51.6
Net Parent Investment
Accumulated other comprehensive income.................. (5.0) (0.8)
Intercompany transactions............................... 843.7 811.3
-------- --------
Net Parent Investment................................. 838.7 810.5
-------- --------
Liabilities and Net Parent Investment................. $1,379.2 $1,067.9
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
71
<PAGE>
FEDERAL-MOGUL PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Millions of Dollars)
<TABLE>
<CAPTION>
Predecessor
-----------------------
Period Period
October 10, January 1,
Year 1998 1998
Ended through through Year Ended
December 31, December 31, October 9, December 31,
1999 1998 1998 1997
------------ ------------ ---------- ------------
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income................ $ 16.7 $ 0.7 $ 49.6 $ 12.0
Adjustments to reconcile to
net cash provided by (used
in) operating activities:
Depreciation and
amortization............. 41.0 10.1 29.8 40.3
Nonrecurring asset write-
down..................... -- -- -- 36.2
Changes in assets and
liabilities:
Accounts receivable..... -- 16.7 (43.2) 11.5
Inventories............. 48.3 31.0 (18.7) (18.1)
Accounts payable and
accrued liabilities.... (40.5) (12.2) (28.6) (14.1)
Other assets and
liabilities, net....... (72.0) 0.5 (9.5) 14.9
------ ------ ------ ------
Net cash provided by
(used in) operating
activities........... (6.5) 46.8 (20.6) 82.7
Cash flows from investing
activities:
Capital expenditures...... (34.3) (4.9) (18.8) (36.3)
Proceeds from sales of
property, plant and
equipment................ -- 4.9 5.8 2.2
------ ------ ------ ------
Net cash used in
investing
activities........... (34.3) -- (13.0) (34.1)
Cash flows from financing
activities:
Repayments of long-term
debt..................... (0.8) (0.3) (2.4) (3.5)
Transfers from (to)
parent................... 50.9 (40.6) 37.8 (45.1)
------ ------ ------ ------
Net cash provided by
(used in) financing
activities........... 50.1 (40.9) 35.4 (48.6)
------ ------ ------ ------
Increase in cash and cash
equivalents................ 9.3 5.9 1.8 --
Cash, beginning of
period............... 7.7 1.8 -- --
------ ------ ------ ------
Cash, end of period... $ 17.0 $ 7.7 $ 1.8 $ --
====== ====== ====== ======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
72
<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 its
subsidiaries ("Products"). Products is a wholly-owned subsidiary of Federal-
Mogul Corporation ("Federal-Mogul"). Products' Predessor was previously known
as the Moog Automotive Division of Cooper Industries, Inc., hereafter also
referred to as "Products." Federal-Mogul purchased the automotive divisions of
Cooper, including Products, on October 9, 1998 for approximately $2.0 billion
of which approximately $1.1 billion 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.
Products operates with financial and operational staff on a decentralized
basis. Federal-Mogul provides certain centralized services for employee
benefits administration, cash management, risk management, legal services,
public relations, domestic tax reporting and internal and external audit.
Federal-Mogul bills Products for all direct costs incurred on its behalf.
General corporate, accounting, tax, legal and other administrative costs, such
as centralized aftermarket advertising, selling and marketing expenses, that
are not directly attributable to the operations of Products have been
allocated based on management's estimates, primarily driven by sales.
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 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.
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 in consolidation.
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 stated at the lower of cost or market. Prior to
Federal-Mogul's acquisition of Products, cost was determined using the first-
in, first-out (FIFO) method. Subsequent to Federal-Mogul's acquisition of
Products, cost is determined using the last-in, first-out method (LIFO).
Approximately 88% and 89% of the inventory at December 31, 1999 and 1998,
respectively was accounted for using the LIFO method. The remaining
inventories are recorded using the first-in, first-out (FIFO) method. If
inventories had been valued at current cost, amounts reported would have been
increased by $8.3 million as of December 31, 1999. LIFO approximated cost at
December 31, 1998.
73
<PAGE>
FEDERAL-MOGUL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
At December 31, inventories consisted of the following:
<TABLE>
<CAPTION>
1999 1998
------- ------
(Millions of
Dollars)
<S> <C> <C>
Raw materials.............................................. $ 30.4 $ 59.0
Work-in-process............................................ 14.3 19.0
Finished goods............................................. 116.5 130.0
------- ------
$ 161.2 $208.0
======= ======
</TABLE>
Property, Plant and Equipment: Property, plant and equipment are stated at
cost. Depreciation is computed 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 12 years. At December 31,
property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
1999 1998
------- ------
(Millions of
Dollars)
<S> <C> <C>
Property, plant and equipment:
Land and land improvements............................. $ 11.4 $ 10.4
Buildings.............................................. 82.8 89.4
Machinery and equipment................................ 192.0 201.7
------- ------
286.2 301.5
Accumulated depreciation............................... (32.2) (7.2)
------- ------
$ 254.0 $294.3
======= ======
</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 1999 1998
----------- ------ ------
(Millions of
Dollars)
<S> <C> <C> <C>
Goodwill...................................... 40 years $422.5 $195.5
Accumulated amortization...................... (10.0) (1.1)
------ ------
412.5 194.4
Trademarks.................................... 40 years 66.2 66.2
Developed technology.......................... 12-30 years 67.4 67.4
Assembled workforce........................... 15 years 13.3 13.6
Other......................................... 20 years 2.9 --
------ ------
149.8 147.2
Accumulated amortization...................... (8.9) (1.8)
------ ------
140.9 145.4
------ ------
Net Intangible Assets..................... $553.4 $339.8
====== ======
</TABLE>
During 1999, Federal-Mogul completed its allocation of the purchase price of
Products, including completing valuations of certain assets and liabilities.
The net effect of such analysis resulted in increasing goodwill $227 million.
74
<PAGE>
FEDERAL-MOGUL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 1999 or 1998. 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' historical earnings, intercompany debt, accrued and
deferred income taxes, other transactions between Products and Federal-Mogul,
foreign currency translations and equity pension adjustments.
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.
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.
Effect of Accounting Pronouncements: In 1998, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards
(SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities.
In June 1999, the effective date of SFAS No. 133 was delayed by one year to
January 1, 2001. The statement requires Products to recognize all derivatives
on the balance sheet at fair value. The effect of adoption of this statement
on Products earnings or financial position has not been finalized.
In 1999, the Emerging Issues Task Force ("EITF") of the FASB reached
consensus on issue No. 99-5, Accounting for Pre-Production Costs Related to
Long-Term Supply Arrangements. The EITF addresses the accounting for pre-
production costs relating to design and development of production parts and
tooling. The EITF is required to be applied beginning January 1, 2000.
Products does not believe the adoption of this pronouncement will have a
material effect on Products financial position or financial operations as its
current accounting practices are consistent with the pronouncement.
Note 3: Nonrecurring Charges
During 1997, Products incurred charges of $14.7 million 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
replacing systems of $3.5 million.
During 1997, Cooper Industries, Inc. ("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. On March 28, 1998,
Products exchanged 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.
75
<PAGE>
FEDERAL-MOGUL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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: Commitments and Contingencies
Asbestos Litigation
Current businesses of Products, primarily Abex and Wagner, are involved as
defendants in numerous court actions in the United States alleging personal
injury from exposure to asbestos or asbestos-containing products,
mainly involving friction products. In 1998, Federal-Mogul acquired Products
resulting in the assumption by Federal-Mogul of contractual liability, under
certain circumstances, for all claims pending and to be filed in the future
alleging exposure to certain Wagner automotive and industrial friction
products and for all claims filed after August 29, 1998, alleging exposure to
certain Abex (non-railroad and non-aircraft) friction products. As of December
31, 1999, Abex has approximately 10,500 claims pending and Wagner has
approximately 13,700 claims pending. Federal-Mogul has completed its
assessment of the potential liability and related potential insurance
recoveries related to the Products acquisition and has recorded a $325.9
million insurance recoverable asset and a liability of the subsidiaries
involved of $408.8 million. This is Federal-Mogul's estimate, after taking
into account legal counsel's evaluation related to amounts expected to be paid
or reimbursed by insurers. In arriving at these provisions, certain
assumptions have been made regarding the total number of claims which may be
received in the future against these two entities and the average costs
associated with such claims.
Abex maintained product liability insurance coverage for most of the time
that it manufactured products that contained asbestos. The subsidiary of
Federal-Mogul that may be liable for the post-August 1998 asbestos claims
against Abex has the benefit of that insurance. Abex has been in litigation
since 1982 with the insurance carriers of its primary layer of liability
concerning coverage for asbestos claims. Abex also has substantial excess
layer liability insurance coverage which, barring unforeseen insolvencies of
excess carriers or other adverse events, should provide coverage for asbestos
claims against Abex.
Wagner also maintained product liability insurance coverage for some of the
time that it manufactured products that contained asbestos. The subsidiary of
Federal-Mogul that may be liable for asbestos claims against Wagner has the
benefit of that insurance. Primary layer liability insurance coverage for
asbestos claims against Wagner is the subject of an agreement with Wagner's
solvent primary carriers. The agreement provides for partial reimbursement of
indemnity and defense costs for Wagner asbestos claims until exhaustion of
aggregate limits. Wagner also has substantial excess layer liability insurance
coverage which, barring unforeseen insolvencies of excess carriers or other
adverse events, should provide coverage for asbestos claims against Wagner.
The ultimate exposure of Federal-Mogul's subsidiary with respect to claims
against Abex and Wagner will depend upon the extent to which the insurance
described above will be available to cover such claims, the amounts paid for
indemnity and defense, changes in the legal environment and other factors.
While Federal-Mogul believes that the liability and receivable recorded for
these claims are reasonable and appropriate, given the nature and complexity
of factors affecting the estimated liability and potential insurance recovery,
the actual liability and insurance recovery may differ. In the event that the
actual liability net of insurance proceeds recovered exceeds the reserve net
of insurance receivable recorded by the Federal-Mogul, the Federal-Mogul's
results of operations, business, liquidity and financial condition could be
materially adversely affected. The asbestos reserves for the businesses
acquired as part of the Products acquisition will be re-evaluated periodically
as additional information becomes available.
76
<PAGE>
FEDERAL-MOGUL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Environmental Liabilities
At December 31, 1999, Products had accruals of $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.
Products has not utilized any form of discounting in establishing its
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 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
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.
Future minimum payments under noncancelable operating leases with initial or
remaining terms of more than one year are, in millions: 2000--$3.1; 2001--
$2.8; 2002--$2.1; 2003--$1.7; 2004--$1.7 and thereafter $3.2.
Note 5: Restructuring
In connection with acquisitions accounted for using the purchase method of
accounting, Products recorded accruals for the costs of closing duplicate
facilities and severing redundant personnel as part of integrating the
acquired business into existing operations. Significant accruals include plant
shut-down and realignment costs, and personnel relocations, and aggregated
$25.0 million at December 31, 1998. Substantially all payments related to
December 31, 1998 accruals were made in 1999.
Note 6: Long-Term Debt and Other Borrowing Arrangements
Products' cash and indebtedness is managed on a worldwide basis by Federal-
Mogul. 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.
Products has an inter-company loan with Federal-Mogul in the amount of
$311.2 million, which is included in the net parent investment balance at
December 31, 1999 and 1998. In 1999 and 1998 Federal-Mogul charged interest on
this balance based on its incremental borrowing rate, which approximated 7.36%
and 7.75, respectively.
77
<PAGE>
FEDERAL-MOGUL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 1999, 1998 and 1997 was $0.1 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 and $3.2 billion at
December 31, 1999 and 1998, respectively. Such pledges and guarantees have
also been made by other subsidiaries of Federal-Mogul.
In July 1999, Products began participating in Federal-Mogul's accounts
receivable securitization program. On an ongoing basis, Products sells certain
accounts receivable to Federal-Mogul Funding Corporation (FMFC), a wholly
owned subsidiary of Federal-Mogul, which then sells such receivables, without
recourse, to a financial conduit. The transfers of these receivables are
charged to the Net Parent Investment account. Products does not retain any
interest in these receivables
Note 7: Net Parent Investment
Changes in net parent investment were as follows:
<TABLE>
<CAPTION>
(Million of Dollars)
<S> <C>
Balance at January 1, 1997......................... $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.................. (0.1)
Intercompany transactions, net................... (22.6)
------
Balance at December 31, 1998....................... 810.5
Comprehensive income............................. 12.5
Intercompany transactions, net................... 15.7
------
Balance at December 31, 1999....................... $838.7
======
</TABLE>
Intercompany transactions are principally cash transfers and non-cash
charges between Products and its parent. The Company includes comprehensive
income in net parent investment. At December 31, 1999 accumulated other
comprehensive income included $0.8 million of foreign currency translation
adjustments and $4.2 million of minimum pension funding. At December 31, 1998
accumulated other comprehensive income included $0.8 million of foreign
currency translation adjustments.
78
<PAGE>
FEDERAL-MOGUL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 8: Income Taxes
Products files a consolidated return with Federal-Mogul 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
December 31, October 9,
1999 1998 1998 1997
----- ------------ ---------- -----
(Millions of Dollars)
<S> <C> <C> <C> <C>
Components of income tax expense
(benefit):
Current............................... $18.6 $1.0 $ 55.3 $24.6
Deferred.............................. (3.5) -- (16.9) (8.6)
----- ---- ------ -----
Income tax expense.................... $15.1 $1.0 $ 38.4 $16.0
===== ==== ====== =====
</TABLE>
A reconciliation between the statutory federal income tax rate and the
effective tax rate is as follows:
<TABLE>
<CAPTION>
Period
Period January 1,
October 10, 1998
1998 through through
December 31, October 9,
1999 1998 1998 1997
---- ------------ ---------- ----
<S> <C> <C> <C> <C>
U.S. Federal statutory rate............ 35% 35% 35% 35%
State and local taxes.................. 4 4 4 5
Nondeductible goodwill................. 8 24 5 15
Foreign / other........................ -- (6) -- 2
--- --- --- ---
Effective tax rate..................... 47% 57% 44% 57%
=== === === ===
</TABLE>
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 Company's net deferred tax asset are non-deductible accruals
and depreciation timing differences.
<TABLE>
<CAPTION>
1999 1998
---------- -----------
(Millions of Dollars)
<S> <C> <C>
Current deferred tax assets..................... $ 19.6 $ 76.6
Long-term deferred tax liabilities.............. (53.5) (115.4)
---------- -----------
Net deferred liabilities........................ $ (33.9) $ (38.8)
========== ===========
</TABLE>
As Products files a consolidated tax return with Federal-Mogul, the net
deferred tax liability at December 31, 1999 and 1998 is a component of the net
parent investment.
Note 9: Pension Plans
In 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 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
79
<PAGE>
FEDERAL-MOGUL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 $0.3 million for the year
ended December 31, 1997. During 1997, Products' expense with respect to
domestic and foreign defined contribution plans (primarily related to various
groups of hourly employees) and Product's aggregate pension expense amounted
to $2.2 million and $3.4 million, respectively.
<TABLE>
<CAPTION>
Year Ended
December 31,
1997
---------------------
(Millions of Dollars)
<S> <C>
Components of defined benefit plan net pension
expense:
Service cost--benefits earned during the year.. $ 0.8
Interest cost on projected benefit obligation.. 1.4
Actual return on assets........................ (1.8)
Net amortization and deferral.................. 0.8
-----
Net pension expense.......................... $ 1.2
=====
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 multiple-employer plans were assumed by Federal-Mogul
in its acquisition of the automotive divisions of Cooper. Such plans were
required to be fully funded by Cooper prior to the acquisition by Federal-
Mogul. 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
$0.4 million. Such plans were required to be fully funded by Cooper prior to
the acquisition by Federal-Mogul.
For the year ended December 31, 1999, the credit to Products from Federal-
Mogul was approximately $1.0 million. The fully funded aggregated projected
benefit obligation of such plans of $345.6 million was based upon a discount
rate of 7.75% at December 31, 1999. The fair value of the plan's assets at
December 31, 1999 was $327.0 million. Company contributions for 1999 were $0.5
million.
Note 10: Postretirement Benefits Other Than Pensions
As part of Cooper and subsequently Federal-Mogul, benefits provided to
employees of Products under various multiple-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 $2.5
million, $1.7 million, $.6 million and $1.0 million, for 1999, the period
January 1, 1998 to October 9, 1998, the period October 10, 1998 to December
31, 1998 and 1997, respectively. The unfunded projected benefit obligation of
these plans aggregated approximately $34.9 million at December 31, 1999, based
upon a discount rate of 7.75%.
Note 11: Domestic and International Operations
Products operates in a single business segment. Products manufactures and
distributes brake friction materials and other products for use by the
automotive aftermarket and in automobile assemblies. In addition,
80
<PAGE>
FEDERAL-MOGUL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Products manufactures and distributes suspension, steering drive-line and
brake system components and material for the automotive aftermarket. No single
customer accounted for 10% or more of revenues in 1999, 1998 or 1997. All
revenues and assets of Products reside in North America, principally in the
United States.
Note 12: 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 does 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.
81
<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, 1999 and 1998,
respectively and the related consolidated statements of operations and
comprehensive income and cash flows for the year ended December 31, 1999, 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 the year 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 auditing standards generally
accepted in the United States. 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, 1999 and 1998, and the
consolidated results of their operations and their cash flows for the year
ended December 31, 1999, 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 the year ended December 31, 1997, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
Detroit, Michigan
February 16, 2000
82
<PAGE>
FEDERAL-MOGUL IGNITION COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Millions of Dollars)
<TABLE>
<CAPTION>
Predecessor
-----------------------
Period
Period January 1,
October 10, 1998
Year ended 1998 through through Year ended
December 31, December 31, October 9, December 31,
1999 1998 1998 1997
------------ ------------ ---------- ------------
<S> <C> <C> <C> <C>
Net sales................... $963.8 $233.1 $782.8 $1,031.3
Cost of products sold....... 687.6 169.1 589.7 759.5
Selling, general and
administrative expenses.... 124.8 40.1 100.6 132.9
Amortization of goodwill and
other intangibles.......... 18.6 4.4 13.7 17.6
Integration costs........... 5.0 -- -- --
Nonrecurring charges........ -- -- -- 16.2
Other expense, net.......... 15.9 2.8 15.4 12.6
Interest expense............ 34.3 15.1 1.5 0.6
------ ------ ------ --------
Earnings before income
taxes.................... 77.6 1.6 61.9 91.9
Income tax expense.......... 33.7 1.0 26.8 38.3
------ ------ ------ --------
Net earnings.............. 43.9 0.6 35.1 53.6
Components of comprehensive
income (loss):
Minimum pension liability,
net of tax................. (4.1) -- -- 5.6
Translation adjustments, net
of tax..................... (13.0) (2.4) 6.0 (23.0)
------ ------ ------ --------
Comprehensive income
(loss)................... $ 26.8 $ (1.8) $ 41.1 $ 36.2
====== ====== ====== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
83
<PAGE>
FEDERAL-MOGUL IGNITION COMPANY
CONSOLIDATED BALANCE SHEETS
(Millions of Dollars)
<TABLE>
<CAPTION>
December 31,
------------------
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Cash....................................................... $ 3.3 $ 13.1
Accounts receivable (net of allowance for doubtful accounts
of $0.8 million and
$6.0 million)............................................. 91.4 212.6
Inventories................................................ 166.8 210.4
Other...................................................... 41.2 46.0
-------- --------
Total Current Assets................................... 302.7 482.1
-------- --------
Property, plant and equipment, net......................... 363.9 410.2
Intangibles, net........................................... 649.2 741.3
Other assets............................................... 48.2 19.7
-------- --------
Total Assets........................................... $1,364.0 $1,653.3
======== ========
LIABILITIES AND NET PARENT INVESTMENT
Short-term debt............................................ $ 6.0 $ 16.0
Accounts payable........................................... 84.4 75.8
Accrued compensation....................................... 7.3 21.7
Restructuring and rationalization reserves................. 10.2 32.9
Other accrued liabilities.................................. 54.9 69.9
-------- --------
Total Current Liabilities.............................. 162.8 216.3
Other long-term liabilities................................ 17.0 28.8
Net Parent Investment
Accumulated other comprehensive income................... (19.5) (2.4)
Intercompany transactions................................ 1,203.7 1,410.6
-------- --------
Net Parent Investment.................................. 1,184.2 1,408.2
-------- --------
Liabilities and Net Parent Investment.................. $1,364.0 $1,653.3
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
84
<PAGE>
FEDERAL-MOGUL IGNITION COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Millions of Dollars)
<TABLE>
<CAPTION>
Predecessor
-----------------------
Period
Period January 1,
October 10, 1998
Year ended 1998 through through Year ended
December 31, December 31, October 9, December 31,
1999 1998 1998 1997
------------ ------------ ---------- ------------
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income................. $ 43.9 $ 0.6 $ 35.1 $ 53.6
Adjustments to reconcile to
net cash provided by (used
in)
Operating activities:
Depreciation and
amortization.............. 52.5 13.5 45.5 57.3
Loss on sale of assets..... -- -- 1.0 --
Nonrecurring asset write-
down...................... -- -- -- 6.9
Changes in assets and
liabilities:
Accounts receivable...... (10.8) (1.1) 12.4 (2.2)
Inventories.............. 46.2 4.8 (27.1) (1.9)
Accounts payable and
accrued liabilities..... (6.4) 29.1 (9.3) (13.6)
Other assets and
liabilities, net........ (33.3) (47.1) (0.8) (8.7)
------ ------ ------ ------
Net cash provided by
(used in) operating
activities............ 92.1 (0.2) 56.8 91.4
Cash flows from investing
activities:
Cash paid for acquired
businesses................ (1.9) -- (8.5) (20.1)
Capital expenditures....... (30.1) (7.6) (29.8) (42.1)
Proceeds from sales of
property, plant and
equipment................. -- 1.4 0.4 0.9
------ ------ ------ ------
Net cash used in
investing activities.. (32.0) (6.2) (37.9) (61.3)
Cash flows from financing
activities:
Net short-term borrowings
(repayments).............. -- (2.4) (33.1) 30.6
Borrowings (repayments) of
long-term debt............ (10.8) (0.1) 0.3 --
Transfers from (to)
parent.................... (59.1) (23.8) 58.2 (62.5)
------ ------ ------ ------
Net cash provided by
(used in) financing
activities............ (69.9) (26.3) 25.4 (31.9)
------ ------ ------ ------
Increase (decrease) in cash
and cash equivalents........ (9.8) (32.7) 44.3 (1.8)
Cash beginning of
period................ 13.1 45.8 1.5 3.3
------ ------ ------ ------
Cash end of period..... $ 3.3 $ 13.1 $ 45.8 $ 1.5
====== ====== ====== ======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
85
<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 its
subsidiaries (Ignition). Ignition is a wholly owned subsidiary of Federal-
Mogul Corporation ("Federal-Mogul"). Ignition's Predessor was previously known
as the Cooper Divisions of Cooper Industries, Inc. hereafter also referred to
as "Ignition." Federal-Mogul purchased the automotive divisions of Cooper,
including Ignition, on October 9, 1998 for approximately $2.0 billion, of
which approximately $986.0 million 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.
Ignition operates 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. Federal-Mogul bills Ignition for all direct costs
incurred on its behalf. General corporate, accounting, tax, legal and other
administrative costs, such as centralized aftermarket advertising, selling and
marketing cost, that are not directly attributable to the operations of
Ignition have been allocated based on management's estimates, primarily driven
by sales. Management believes that this allocation method is reasonable.
The accompanying consolidated 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.
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 in consolidation.
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. Prior to Federal-Mogul's acquisition of Ignition cost was determined
using the first-in, first-out (FIFO) method. Subsequent to Federal-Mogul's
acquisition of Ignition, cost is determined using the last-in, first-out
method (LIFO). Approximately 62% and 55% of the inventory at December 31, 1999
and 1998, respectively was accounted for using the LIFO method. The remaining
inventories are recorded using the first-in, first-out (FIFO) method. If
inventories had been valued at current cost amounts reported would have been
increased by $3.5 million, as of December 31, 1999. LIFO approximated cost at
December 31, 1998. At December 31, inventories consisted of the following:
86
<PAGE>
FEDERAL-MOGUL IGNITION COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
1999 1998
------ ------
(Millions
of
Dollars)
<S> <C> <C>
Raw materials............................................... $ 35.7 $ 45.4
Work-in-process............................................. 38.8 51.8
Finished goods.............................................. 92.3 113.2
------ ------
$166.8 $210.4
====== ======
</TABLE>
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 12 years. At December 31,
property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
1999 1998
------ ------
(Millions
of
Dollars)
<S> <C> <C>
Property, plant and equipment:
Land and land improvements.............................. $ 12.1 $ 10.3
Buildings............................................... 89.4 105.4
Machinery and equipment................................. 305.4 303.6
------ ------
406.9 419.3
Accumulated depreciation................................ (43.0) (9.1)
------ ------
$363.9 $410.2
====== ======
</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 1999 1998
----------- ------ ------
(Millions
of
Dollars)
<S> <C> <C> <C>
Goodwill..................................... 40 years $399.5 $480.8
Accumulated amortization..................... (11.2) (2.7)
------ ------
388.3 $478.1
Trademarks................................... 40 years 181.5 $176.5
Developed technology......................... 12-30 years 68.2 68.2
Assembled workforce.......................... 15 years 20.2 20.2
Other........................................ 20 years 2.8 --
------ ------
272.7 264.9
Accumulated amortization..................... (11.8) (1.7)
------ ------
260.9 263.2
------ ------
Total Intangible Assets.................. $649.2 $741.3
====== ======
</TABLE>
During 1999, Federal-Mogul completed its allocation of the purchase price of
Ignition, including completing valuations of certain assets and liabilities.
The net effect of such analysis resulted in decreasing goodwill $81 million.
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 1999 or 1998. Intangible assets are
amortized on a straight-line basis over their estimated useful lives.
87
<PAGE>
FEDERAL-MOGUL IGNITION COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Net Parent Investment: The Net Parent Investment account reflects the
balance of Ignition's historical earnings, intercompany debt, accrued and
deferred income taxes, other transactions between Ignition and Federal-Mogul,
foreign currency translations and equity pension adjustments.
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 foreign subsidiaries for which the
United States dollar is not the functional currency are reflected in the
consolidated financial statements as a component of accumulated other
comprehensive income.
Effect of Accounting Pronouncements: In 1998, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards
(SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities.
In June 1999, the effective date of SFAS No. 133 was delayed by one year to
January 1, 2001. The statement requires Ignition to recognize all derivatives
on the balance sheet at fair value. The effect of adoption of this statement
on Ignition earnings or financial position has not been finalized.
In 1999, the Emerging Issues Task Force ("EITF") of the FASB reached
consensus on issue No. 99-5, Accounting for Pre-Production Costs Related to
Long-Term Supply Arrangements. The EITF addresses the accounting for pre-
production costs relating to design and development of production parts and
tooling. The EITF is required to be applied beginning January 1, 2000.
Ignition does not believe the adoption of this pronouncement will have a
material effect on Ignition's financial position or financial operations as
its current accounting practices are consistent with the pronouncement.
Fair Value of Financial Instruments: The carrying amounts of certain
financial instruments such as cash and equivalents, accounts receivable,
accounts payable and 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 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 consolidated 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. The consolidations were announced and such costs were
accrued and expensed during 1997.
88
<PAGE>
FEDERAL-MOGUL IGNITION COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 4: Acquisitions
Ignition completed one product-line acquisition in 1999, which had an
aggregate cost of $1.9 million, with $1.3 million of goodwill recorded.
Ignition completed one product-line acquisition in 1998, which had an
aggregate cost of $8.5 million, with $5.5 of goodwill recorded. The operations
of these businesses were not significant on a pro forma basis 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.
Note 5: Commitments and Contingencies
At December 31, 1999, Ignition had accruals of $16.0 million with respect to
potential environmental liabilities, including $11.2 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
$6.5 million related to sites owned by Ignition and $9.5 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 has managed environmental costs over the
years. Ignition does not believe that the nature of their products, production
processes, materials or other factors involved in the manufacturing process is
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.
Future minimum payments under noncancelable operating leases with initial or
remaining terms of more than one year are, in millions: 2000--$9.4; 2001--
$6.4; 2002--$5.1; 2003--$2.9; 2004--$2.4 and thereafter $8.1.
Note 6: Restructuring
In connection with acquisitions accounted for using the purchase method of
accounting, Ignition recorded 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
shutdown and realignment costs, and relocations, and aggregated $32.9 million,
at December 31, 1998. Ignition expects to these actions to be primarily
completed in 2000.
Note 7: Borrowing Arrangements
Ignition's cash and indebtedness is managed on a worldwide basis by Federal-
Mogul. The majority of the cash provided by or used by a particular division,
including Ignition's, 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 Cooper.
89
<PAGE>
FEDERAL-MOGUL IGNITION COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Ignition has an intercompany loan with Federal-Mogul in the amount of $509.9
million, which is included in the net parent investment balance at December
31, 1999 and 1998. In 1999 and 1998, Federal-Mogul charged interest on this
balance based on its incremental borrowing rate, which approximated 7.36% and
7.75% 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
1999, 1998 and 1997 was $0.8 million, $1.5 million, $0.6 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 several 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 and $3.2 billion at
December 31, 1999 and 1998, respectively. Such pledges and guarantees have
also been made by other subsidiaries of Federal-Mogul.
In July 1999, Ignition began participating in Federal-Mogul's accounts
receivable securitization program. On an ongoing basis, Ignition sells certain
accounts receivable to Federal-Mogul Funding Corporation (FMFC), a wholly
owned subsidiary of Federal-Mogul, which then sells such receivables, without
recourse, to a financial conduit. The transfers of these receivables are
charged to the net parent investment account. Ignition does not retain any
interest in these receivables
Note 8: Net Parent Investment
Changes in net parent investment were as follows:
<TABLE>
<CAPTION>
(Millions of
Dollars)
<S> <C>
Balance at January 1, 1997................................. $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
Comprehensive income..................................... 26.8
Intercompany transactions, net........................... (250.8)
--------
Balance at December 31, 1999............................... $1,184.2
========
</TABLE>
Intercompany transactions were principally cash transfers and non-cash
charges between Ignition and its parent. The Company includes comprehensive
income in Net Parent Investment. At December 31, 1999 accumulated other
comprehensive income included $15.4 million of foreign currency translation
adjustments and $4.1 million of minimum pension funding. At December 31, 1998
accumulated other comprehensive income included $2.4 million of foreign
currency translation adjustments.
90
<PAGE>
FEDERAL-MOGUL IGNITION COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 9: 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
Year ended 1998 through through Year ended
December 31, December 31, October 9, December 31,
1999 1998 1998 1997
------------ ------------ ---------- ------------
(Millions of Dollars)
<S> <C> <C> <C> <C>
Components of income tax
expense (benefit):
Current............... $37.7 $1.0 $ 43.8 $39.1
Deferred.............. (4.0) -- (17.0) (0.8)
----- ---- ------ -----
Income tax expense.... $33.7 $1.0 $ 26.8 $38.3
===== ==== ====== =====
</TABLE>
<TABLE>
<CAPTION>
Period
Period January 1,
October 10, 1998
Year ended 1998 through through Year ended
December 31, December 31, October 9, December 31,
1999 1998 1998 1997
------------ ------------ ---------- ------------
<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 4
Nondeductible
goodwill............. 5 50 8 7
Foreign / other....... (1) (26) (4) (3)
--- --- --- ---
Effective tax rate.... 43% 63% 43% 43%
=== === === ===
</TABLE>
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 are non-deductible accruals
and depreciation timing differences.
<TABLE>
<CAPTION>
1999 1998
------ ------
(Millions
of
Dollars)
<S> <C> <C>
Current deferred tax assets............................... $ 23.7 $ 64.3
Long term deferred tax liabilities........................ (72.1) (51.9)
------ ------
Net deferred tax assets (liabilities)..................... $(48.4) $ 12.4
====== ======
</TABLE>
As Ignition files a consolidated tax return with Federal-Mogul, the net
deferred tax asset at December 31, 1999 and 1998 is a component of the net
parent investment.
Note 10: Pension Plans
In 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
91
<PAGE>
FEDERAL-MOGUL IGNITION COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 for the years ended December 31, 1997, respectively.
During 1997, Ignition's expense with respect to domestic and foreign defined
contribution plans (primarily related to various groups of hourly employees)
and Ignition's aggregate pension expense amounted to $3.2 million and $9.7
million, respectively.
<TABLE>
<CAPTION>
Year Ended
December 31,
1997
------------
(Millions of
Dollars)
<S> <C>
Components of defined benefit plan net pension expense:
Service cost--benefits earned during the year.............. $ 3.5
Interest cost on projected benefit obligation.............. 18.0
Actual return on assets.................................... (25.6)
Net amortization and deferral.............................. 10.6
-----
Net pension expense...................................... $ 6.5
=====
</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 net
parent investment. These multiple-employer plans were assumed by Federal-Mogul
in its acquisition of the automotive division of Cooper. Such plans were
required to be fully funded by Cooper prior to the acquisition by Federal-
Mogul. 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 $0.5 million.
For the year ended December 31, 1999, the credit to Ignition from Federal-
Mogul was approximately $2.8 million. The fully funded aggregated projected
benefit obligations of such domestic and international plans of $345.6 million
and $63.0 million was based upon discount rates of 7.75% and 6.26% at December
31, 1999, respectively. The fair value of the plan's assets at December 31,
1999 were $327.0 million and $68.8 million for domestic and international
plans, respectively. Company contributions for 1999 were $0.5 million and $2.4
million for domestic and international plans, respectively.
Note 11: Postretirement Benefits Other Than Pensions
As part of Cooper and subsequently Federal-Mogul, benefits provided to
employees of Ignition under various multiple-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 $11.8
million, $4.4 million, $2.8 million and $11.4 million for 1999, the period
January 1, 1998 to October 9, 1998, the period October 10, 1998 to December
31, 1998 and 1997, respectively. The unfunded projected benefit obligation of
these plans aggregated approximately $169.7 million at December 31, 1999,
based upon a discount rate of 7.75%
92
<PAGE>
FEDERAL-MOGUL IGNITION COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 12: North America, Europe and Other Operations
Ignition operates in a single business segment. 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 1999, 1998, and 1997.
<TABLE>
<CAPTION>
Revenues Assets
-------------------------------------------------------------- -----------------------
Period October 10, Period January 1,
Year ended 1998 through 1998 through Year ended December 31,
December 31, December 31 October 9, December 31, -----------------------
1999 1998 1998 1997 1999 1998
------------ ------------------ ----------------- ------------ ----------- -----------
(Millions of Dollars) (Millions of Dollars)
<S> <C> <C> <C> <C> <C> <C>
North America........... $738.3 $150.8 $506.1 $ 711.4 $ 847.6 $ 1,025.1
Europe.................. 159.2 59.1 195.1 253.8 380.5 463.0
Other................... 66.3 23.2 81.6 66.1 135.9 165.2
------ ------ ------ -------- ----------- -----------
Consolidated.......... $963.8 $233.1 $782.8 $1,031.3 $ 1,364.0 $ 1,653.3
====== ====== ====== ======== =========== ===========
</TABLE>
Note 13: 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 Ignition's customer
base and their dispersion across many different countries. Ignition performs
periodic credit evaluations of their customers and generally does not require
collateral.
93
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
FEDERAL-MOGUL CORPORATION
/s/ Kenneth P. Slaby
By___________________________________
Kenneth P. Slaby
Vice President and Controller
Pursuant to the requirements of the Securities Act of 1934, this Report has
been signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<C> <S>
________/s/ Richard A. Snell________ Chairman, Chief Executive
Richard A. Snell Officer and President
Vice President and Control-
ler
________/s/Kenneth P. Slaby_________ (Principal Financial and
Kenneth P. Slaby Accounting Officer)
_________________*__________________ 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.
*By______/s/ James J. Zamoyski______
James J. Zamoyski
Attorney-in-fact
</TABLE>
Dated: March 15, 2000
<PAGE>
RESTATED ARTICLES OF INCORPORATION
OF
FEDERAL-MOGUL CORPORATION
Pursuant to the provisions of Act 284, Public Acts of 1972, as amended, the
undersigned corporation executes the following Articles:
1. The present name of the corporation is:
FEDERAL-MOGUL CORPORATION
2. The corporation identification number (CID) assigned by the Bureau is;
142-176
3. All former names of the Corporation are:
FEDERAL-MOGUL-BOWER BEARINGS, INC.
FEDERAL-MOGUL CORPORATON
4. The date of filing the original articles of incorporation was:
May 1, 1924
The following Restated Articles of Incorporation supercede the Restated
Articles of Incorporation as amended and shall be the Articles of Incorporation
of the corporation:
ARTICLE I
The name of the Corporation is FEDERAL-MOGUL CORPORATION.
ARTICLE II
The purpose or purposes for which the Corporation is organized are:
The Corporation may engage in any activity within the purposes for which
corporations may be organized under the Business Corporation Act of Michigan.
ARTICLE III
A.1. The total number of shares of stock which the Corporation shall have
the authority to issue is as follows: 260,000,000 shares of Common Stock, no par
value, (Common Stock); and 5,000,000 shares of Preferred Stock (Preferred
Stock).
<PAGE>
2. The designations, voting powers, preferences and relative, participating
optional or other special rights, and qualifications, limitations or
restrictions of the shares of stock shall be as follows;
GENERAL PROVISIONS
B.1. Subject to the power of the Board of Directors to provide to the
contrary with respect to any one or more series of Preferred Stock at any time
authorized, no holder of stock of any class of the Corporation shall be entitled
as a matter of right to purchase or subscribe for any part of any unissued stock
of any class, or of any additional stock of any class of capital stock of the
Corporation, or of any bonds, certificates of indebtedness, debentures, or other
securities, whether or not convertible into other securities, but any such stock
or other securities may be issued and disposed of pursuant to resolution by the
Board of Directors to such persons, firms, corporations or associations and upon
such terms and for such consideration as the Board of Directors in the exercise
of its discretion may determine and as may be permitted by law without action by
the stockholders. The Board of Directors may provide for payment therefor to be
received by the Corporation in cash, property, or services. Any and all shares
of stock so issued for which the consideration so provided for has been paid or
delivered shall be deemed fully paid and not liable to any further call or
assessment.
2. Shares of any class or series of capital stock redeemed, converted,
exchanged, purchased, retired or surrendered to the Corporation, or which have
been issued and reacquired in any manner may, upon compliance with any
applicable provisions of the Michigan Business Corporation Act, be retained as
treasury shares, or be given the status of authorized and unissued shares of the
same class.
COMMON STOCK
C.1. Except as otherwise required by law or by these Articles of
Incorporation, each holder of Common Stock shall have one vote for each share of
stock held by him or her on all matters to be voted upon by the holders of
Common Stock, whether or not any one or more series of Preferred Stock shall be
entitled to no voting rights or to more or less than one vote for each share.
2. Subject to the preferential dividend rights, if any, applicable to
shares of Preferred Stock and subject to applicable requirements, if any, with
respect to the setting aside of sums for purchase, retirement or sinking funds
for Preferred Stock, the holders of Common Stock shall be entitled to receive,
to the extent permitted by law, such dividends as may be declared from time to
time by the Board of Directors.
3. In the event of any liquidation, dissolution or winding-up of the
Corporation, the holders of Common Stock shall be entitled, after payment or
provisions for payment of the debts and other liabilities of the Corporation and
the amounts to which
2
<PAGE>
the holders of any Preferred Stock shall be entitled, to share ratably in the
remaining net assets of the Corporation or the proceeds thereof.
PREFERRED STOCK
D.1. The Board of Directors is expressly authorized at any time, and from
time to time, to provide for the issuance of shares of Preferred Stock in one or
more series, and for such consideration or considerations as the Board of
Directors may determine, with such voting powers, full or limited, or without
voting powers, and with such designations, preferences and relative,
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, as shall be stated and expressed in the resolution or
resolutions providing for the issue thereof adopted by the Board of Directors,
all except as otherwise required by law or by these Articles of Incorporation,
and including (but without limiting the generality of the foregoing) the
following:
(a) The distinctive designation and number of shares comprising such
series, which number may (except where otherwise provided by the Board of
Directors in creating such series) be increased or decreased (but not below
the number of shares then outstanding) from time to time by action of the
Board of Directors.
(b) The dividend rate or rates on the shares of such series and the
relation which such dividend shall bear to the dividends payable on any
other class of capital stock or on any other series of Preferred Stock, the
terms and conditions upon which and the periods in respect of which
dividends shall be payable, whether and upon what conditions such dividends
shall be cumulative and, if cumulative, the date or dates from which
dividends shall accumulate.
(c) Whether the shares of such series shall be redeemable, and, if
redeemable, whether redeemable for cash, property or rights, including
securities of any other corporation, at the option of either the holder or
the Corporation or upon the happening of a specified event, the limitations
and restrictions with respect to such redemption, the time or times when,
the price or prices or rate or rates at which, the adjustments with which
and the manner in which such shares shall be redeemable, including the
manner of selecting shares of such series for redemption if less than all
shares are to be redeemed.
(d) The rights to which the holders of shares of such series shall be
entitled, and the preferences, if any, over any other series (or of any
other series over such series), upon the voluntary or involuntary
liquidation, dissolution, distribution or winding-up of the Corporation,
which rights may vary depending on whether such liquidation, dissolution,
distribution or winding-up is voluntary or involuntary, and, if voluntary,
may vary at different dates.
(e) Whether the shares of such series shall be subject to the
operation of a purchase, retirement, or sinking fund, and, if so, whether
and upon what conditions
3
<PAGE>
such purchase, retirement or sinking fund shall be cumulative or
noncumulative, the extent to which and the manner in which such fund shall
be applied to the purchase or redemption of the shares of such series for
retirement or to other corporate purposes and the terms and provisions
relative to the operation thereof.
(f) Whether the shares of such series shall be convertible into or
exchangeable for shares of any other class or of any other series of any
class of capital stock or other securities of the Corporation, or the
securities of any other corporation or entity, and, if so convertible or
exchangeable, the price or prices or the rate or rates of conversion or
exchange and the method, if any, of adjusting the same, and any other terms
and conditions of such conversion or exchange.
(g) The voting powers, full and/or limited, if any, of the shares of
such series, and whether and under what conditions the shares of such
series (alone or together with the shares of one or more other series)
shall be entitled to vote separately as a single class, upon any merger or
consolidation or other transaction of the Corporation, or upon any other
matter, including but without limitation the election of one or more
additional directors of the Corporation in case of dividend arrearages or
other specified events.
(h) Whether the issuance of any additional shares of such series, or
of any shares of any other series, shall be subject to restrictions as to
issuance, or as to the powers, preferences or rights of any other series
(i) Any other preferences, privileges and powers and relative,
participating, optional or other special rights, and qualifications,
limitations or restrictions of such series, as the Board of Directors may
deem advisable and as shall not be inconsistent with the provisions of
these Articles of Incorporation.
2. All shares of Preferred Stock of any one series shall be of equal rank
and identical in all respects, except that shares of any one series issued at
different times may differ as to the dates from which dividends thereon, if
cumulative, shall be cumulative.
Series C ESOP Convertible Preferred Stock
Section 1. Designation and Amount; Special Purpose Restricted Transfer
Issue.
(A) The shares of this series of Preferred Stock shall be designated as
Series C ESOP Convertible Preferred Stock ("Series C Preferred Stock") and the
number of shares constituting such series shall be 1,000,000.
(B) Shares of Series C Preferred Stock shall be issued only to a trustee
acting on behalf of an employee stock ownership plan or other employee benefit
plan of the Corporation. In the event of any transfer of shares of Series C
Preferred Stock to any person other than any such plan trustee, the shares of
Series C Preferred Stock so transferred, upon such transfer and without any
further action by the Corporation or the
4
<PAGE>
holder, shall be automatically converted into shares of Common Stock on the
terms otherwise provided for the conversion of shares of Series C Preferred
Stock into shares of Common Stock pursuant to Section 5 hereof and no such
transferee shall have any of the voting powers, preferences and relative,
participating, optional or special rights ascribed to the shares of Series C
Preferred Stock hereunder but, rather, on the powers and rights pertaining to
the Common Stock into which such shares of Series C Preferred Stock shall be so
converted. In the event of such a conversion, the transferee of the shares of
Series C Preferred Stock shall be treated for all purposes as the record holder
of the shares of Common Stock into which such shares of Series C Preferred Stock
have been automatically converted as of the date of such transfer. Certificates
representing shares of Series C Preferred Stock shall be legended to reflect
such restrictions on transfer. Notwithstanding the foregoing provisions of this
paragraph (B) of Section 1, shares of Series C Preferred Stock (i) may be
converted into shares of Common Stock as provided by Section 5 hereof and the
shares of Common Stock issued upon such conversion may be transferred by the
holder thereof as permitted by law and (ii) shall be redeemable by the
Corporation upon the terms and conditions provided by Sections 6,7 and 8 hereof.
Section 2. Dividends and Distributions.
(A) Subject to the provisions for adjustment hereinafter set forth, the
holders of shares of Series C Preferred stock shall be entitled to receive,
when, as and if declared by the Board of Directors out of funds legally
available therefor, cash dividends ("Preferred Dividends") in an amount per
share equal to $4.78125 per share per annum, and no more, payable semi-annually
in arrears, one-half on the last day of December and one-half on the last day of
June of each year (each a "Dividend Payment Date") commencing on June 30, 1989,
to holders of record at the start of business on such Dividend Payment Date. In
the event that any Dividend Payment Date shall fall on any other day other than
a "Business Day" (as hereinafter defined), the dividend payment due on such
Dividend Payment Date shall be paid on the Business Day immediately preceding
such Dividend Payment Date. Preferred Dividends shall begin to accrue on
outstanding shares of Series C Preferred Stock from the date of issuance of such
shares of Series C Preferred Stock. Preferred Dividends shall accrue on a daily
basis whether or not the Corporation shall have earnings or surplus at the time,
but Preferred Dividends accrued after the date of issuance on the shares of
Series C Preferred Stock for any period less than a full semi-annual period
between Dividend Payment Dates shall be computed on the basis of a 360-day year
of 30-day months. In lieu of the initial semi-annual dividend, such a
proportional dividend shall accrue for the period from the date of issuance
until June 30, 1989. Accumulated but unpaid Preferred Dividends shall cumulate
as of the Dividend Payment Date on which they first become payable, but no
interest shall accrue on accumulated but unpaid Preferred Dividends.
(B) So long as any Series C Preferred Stock shall be outstanding, no
dividend shall be declared or paid or set apart for payment on any other series
of stock ranking on a parity with the Series C Preferred Stock as to dividends,
unless there shall also be or have been declared and paid or set apart for
payment on the Series C Preferred Stock, dividends for all dividend payment
periods of the Series C Preferred Stock ending on or
5
<PAGE>
before the dividend payment date of such parity stock, ratably in proportion to
the respective amounts of dividends accumulated and unpaid through such dividend
payment period on the Series C Preferred Stock and accumulated and unpaid on
such parity stock through the dividend payment period on such parity stock next
preceding such dividend payment date. In the event that full cumulative
dividends on the Series C Preferred Stock have not been declared and paid or set
apart for payment when due, the Corporation shall not declare or pay or set
apart for payment any dividends or make any other distributions on, or make any
payment on account of the purchase, redemption or other retirement of any other
class of stock or series thereof of the Corporation ranking, as to dividends or
as to distributions in the event of a liquidation, dissolution or winding-up of
the Corporation, junior to the Series C Preferred Stock until full cumulative
dividends on the Series C Preferred Stock shall have been paid or declared and
set apart for payment; provided, however, that the foregoing shall not apply to
(i) any dividend payable solely in any shares of any stock ranking, as to
dividends or as to distributions in the event of a liquidation, dissolution or
winding-up of the Corporation, junior to the Series C Preferred Stock, or (ii)
the acquisition of shares of any stock ranking, as to dividends or as to
distributions in the event of a liquidation, dissolution or winding-up of the
Corporation, junior to the Series C Preferred Stock either (A) pursuant to any
employee or director incentive or benefit plan or arrangement (including any
employment, severance or consulting agreement) of the Corporation or any
subsidiary of the Corporation heretofore or hereafter adopted or (B) in exchange
solely for shares of any other stock ranking, as to dividends and as to
distributions in the event of a liquidation, dissolution or winding-up of the
Corporation, junior to the Series C Preferred Stock.
Section 3. Voting Rights. The holders of shares of Series C Preferred Stock
shall have the following voting rights:
(A) The holders of Series C Preferred Stock shall be entitled to vote on
all matters submitted to a vote of the holders of Common Stock of the
Corporation, voting together with the holders of Common Stock as one class. Each
share of the Series C Preferred Stock shall be entitled to the number of votes
equal to the number of shares of Common Stock into which such share of Series C
Preferred Stock could be converted on the record date for determining the
stockholders entitled to vote, rounded to the nearest one-tenth of a vote; it
being understood, that whenever the "Conversion Ratio" (as defined in Section 5
hereof) is adjusted as provided in Section 9 hereof, the voting rights of the
Series C Preferred Stock shall also be similarly adjusted.
(B) Except as otherwise required by law or set forth herein, holders of
Series C Preferred Stock shall have no special voting rights and their consent
shall not be required (except to the extent they are entitled to vote with
holders of Common Stock as set forth herein) for the taking of any corporate
action; provided, however, that the vote of at least sixty-six and two-thirds
percent (66-2/3%) of the outstanding shares of Series C Preferred Stock, voting
separately as a series, shall be necessary to adopt any alternation, amendment
or repeal of any provision of the Articles of Incorporation of the Corporation,
as amended, or this Resolution (including any such alteration, amendment or
repeal affected by any merger or consolidation in which the Corporation is the
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surviving or resulting corporation), if such amendment, alternation or repeal
would alter or change the powers, preferences or special rights of the shares of
Series C Preferred Stock so as to affect them adversely.
Section 4. Liquidation, Dissolution or Winding-up.
(A) Upon voluntary or involuntary liquidation, dissolution or winding-up of
the Corporation, the holders of Series C Preferred Stock shall be entitled to
receive out of assets of the Corporation which remain after satisfaction in full
of all valid claims of creditors of the Corporation and which are available for
payment to stockholders, and subject to the rights of holders of any stock of
the Corporation ranking senior to or on a parity with the Series C Preferred
Stock in respect of distributions upon liquidation, dissolution or winding-up of
the Corporation, before any amount shall be paid or distributed among the
holders of Common Stock or any other shares ranking junior to the Series C
Preferred Stock in respect of distributions upon liquidation, dissolution or
winding-up of the Corporation, liquidating distributions in the amount of $63.75
per share (the "Liquidation Preference"), plus an amount equal to all accrued
and unpaid dividends thereon to the date fixed for distribution, and no more. If
upon any liquidation, dissolution or winding-up of the Corporation, the amounts
payable with respect to the Series C Preferred Stock and any other stock ranking
as to any such distribution on a parity with the Series C Preferred Stock are
not paid in full, the holders of the Series C Preferred Stock and such other
stock shall share ratably in any distribution of assets in proportion to the
full respective preferential amounts to which they are entitled. After payment
of the full amount to which they are entitled as provided by the foregoing
provisions of this paragraph 4(A), the holders of shares of Series C Preferred
Stock shall not be entitled to any further right or claim to any of the
remaining assets of the Corporation.
(B) Neither the merger or consolidation of the Corporation with or into any
other corporation, nor the merger or consolidation of any other corporation with
or into the Corporation, nor the sale, lease, transfer or other exchange of all
or any portion of the assets of the Corporation, shall be deemed to be a
dissolution, liquidation or winding-up of the affairs of the Corporation for
purposes of this Section 4, but the holders of Series C Preferred Stock shall
nevertheless be entitled in the event of any such merger or consolidation to the
rights provided by Section 8 hereof.
(C) Written notice of any voluntary or involuntary liquidation, dissolution
or winding-up of the Corporation, stating the payment date or dates when, and
the place or places where, the amounts distributable to holders of Series C
Preferred Stock in such circumstances shall be payable, shall be given by
first-class mail, postage prepaid, mailed not less then twenty (20) days prior
to any payment date stated therein, to the holders of Series C Preferred Stock,
at the address shown on the books of the Corporation or any transfer agent for
the Series C Preferred Stock.
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Section 5. Conversion into Common Stock.
(A) A holder of shares of Series C Preferred Stock shall be entitled, at
any time prior to the close of business on the date fixed for redemption of such
shares pursuant to Section 6,7 or 8 hereof, to cause any or all such shares to
be converted into shares of Common Stock, initially at a conversion rate equal
to the ratio of one share of Common Stock for each one share of Series C
Preferred Stock, and which shall be adjusted as hereinafter provided (and, as so
adjusted, is hereinafter sometime referred to as the "Conversion Ratio");
provided, however, that in no event shall the Conversion Ratio be greater than
the Liquidation Preference divided by the par value of one share of Common
Stock.
(B) Any holder of shares of Series C Preferred Stock desiring to convert
such shares into shares of Common Stock shall surrender the certificate or
certificates representing the shares of Series C Preferred Stock being
converted, duly assigned or endorsed for transfer to the Corporation (or
accompanied by duly executed stock powers relating thereto), at the principal
executive office of the Corporation or the offices of the transfer agent for the
Series C Preferred Stock or such office or offices in the continental United
States of an agent for conversion as may from time to time be designated by
notice to the holders of Series C Preferred Stock accompanied by written notice
of conversion. Such notice of conversion shall specify (i) the number of shares
of Series C Preferred Stock to be converted and the name or names in which such
holder wishes the certificate or certificates for Common Stock and for any
shares of Series C Preferred Stock not to be so converted to be issued, and (ii)
the address to which such holder wishes delivery to be made of such new
certificates to be issued upon such conversion.
(C) Upon surrender of a certificate representing a share or shares of
Series C Preferred Stock for conversion, the Corporation shall issue and send by
hand delivery (with receipt to be acknowledged) or by first-class mail, postage
prepaid, to the holder thereof or to such holder's designee, at the address
designated by such holder, a certificate or certificates for the number of
shares of Common Stock to which such holder shall be entitled upon conversion.
In the event that there shall have been surrendered a certificate or
certificates representing shares of Series C Preferred Stock, only part of which
are to be converted, the Corporation shall issue and deliver to such holder or
such holder's designee a new certificate or certificates representing the number
of shares of Series C Preferred Stock which shall not have been converted.
(D) The issuance by the Corporation of shares of Common Stock upon a
conversion of shares of Series C Preferred Stock into shares of Common Stock
made at the option of the holder thereof shall be effective as of the earlier of
(i) the delivery to such holder or such holder's designee of the certificates
representing the shares of Common Stock issued upon conversion thereof or (ii)
the commencement of business on the second business day after the surrender of
the certificate or certificates for the shares of Series C Preferred Stock to be
converted, duly assigned or endorsed for transfer to the Corporation (or
accompanied by duly executed stock powers relating thereto) as provided herein.
On and after the effective day of conversion, the person or persons entitled to
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receive the Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock, but no
allowance or adjustment shall be made in respect of dividends payable to holders
of Common Stock in respect of any period prior to such effective date. The
Corporation shall not be obligated to pay any dividends which shall have been
declared and shall be payable to holders of shares of Series C Preferred Stock
on a Dividend Payment Date if such Dividend Payment Date for such dividend shall
coincide with or be on or subsequent to the effective date of conversion of such
shares.
(E) The Corporation shall not be obligated to deliver to holders of Series
C Preferred Stock any fractional share or shares of Common Stock issuable upon
any conversion of such shares of Series C Preferred Stock, but in lieu thereof
may make a cash payment in respect thereof in any manner permitted by law.
(F) The Corporation shall at all times reserve and keep available out of
its authorized and unissued Common Stock solely for issuance upon the conversion
of shares of Series C Preferred Stock as herein provided, free from any
preemptive rights, such number of shares of Common Stock as shall from time to
time be issuable upon the conversion of all the shares of Series C Preferred
Stock then outstanding. Nothing contained herein shall preclude the Corporation
from issuing shares of Common Stock held in its treasury upon the conversion of
shares of Series C Preferred Stock into Common Stock pursuant to the terms
thereof. The Corporation shall prepare and shall use its best efforts to obtain
and keep in force such governmental or regulatory permits or other
authorizations as may be required by law, and shall comply with all requirements
as to registration or qualification of the Common Stock, in order to enable the
Corporation lawfully to issue and deliver to each holder of record of Series C
Preferred Stock such number of shares of its Common Stock as shall from time to
time be sufficient to effect the conversion of all shares of Series C Preferred
Stock then outstanding and convertible into shares of Common Stock.
Section 6. Redemption at the Option of the Company.
(A) The Series C Preferred Stock shall be redeemable, in whole or in part,
at the option of the Corporation at any time after January 1, 1992, or at any
time after the date of issuance, if permitted by paragraph (C) or (D) of this
Section 6, at the following percentages of the Liquidation Preference:
During the Twelve-Month Price Per
Period Beginning January 1, Share
--------------------------- ---------
1989 107.50%
1990 106.75
1991 106.00
1992 105.25
1993 104.50
1994 103.75
1995 103.00
1996 102.25
1997 101.50
1998 100.75
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and thereafter at the Liquidation Preference, plus, in each case, an amount
equal to all accrued and unpaid dividends thereon to the date fixed for
redemption. Payment of the redemption price shall be made by the Corporation in
cash or shares of Common Stock or a combination thereof, as permitted by
paragraph (E) of this Section 6. From and after the date fixed for redemption,
dividends on shares of Series C Preferred Stock called for redemption will cease
to accrue, such shares will no longer be deemed to be outstanding and all rights
in respect of such shares of the Corporation shall cease, except the right to
receive the redemption price. If less then all of the outstanding shares of
Series C Preferred Stock are to be redeemed, the Corporation shall either redeem
a portion of the shares of each holder determined pro rata based on the number
of shares held by each holder or shall elect the shares to be redeemed by lot,
as may be determined by the Board of Directors of the Corporation.
(B) Unless otherwise required by law, notice of redemption pursuant to
paragraphs (A), (C), or (D) of this Section 6 will be sent to the holders of
Series C Preferred Stock at the address shown on the books of the Corporation or
any transfer agent for the Series C Preferred Stock by first-class mail, postage
prepaid, mailed not less then twenty (20) days nor more than sixty (60) days
prior to the redemption date. Each such notice shall state: (i) the redemption
date; (ii) the total number of shares of the Series C Preferred Stock to be
redeemed and, if fewer than all shares held by such holder are to be redeemed,
the number of such shares to be redeemed for such holder, (iii) the redemption
price; (iv) the place or places where certificates for such shares are to be
surrendered for payment of the redemption price; (v) that dividends on the
shares to be redeemed will cease to accrue on such redemption date; and (vi) the
conversion rights of the shares to be redeemed, the period within which
conversion rights may be exercised, and the Conversion Ratio in effect at the
time. Upon surrender of the certificate for any shares so called for redemption
and not previously converted (properly endorsed or assigned for transfer, if the
Board of Directors of the Corporation shall so require and the notice shall so
state), such shares shall be redeemed by the Corporation at the date fixed for
redemption and at the redemption price set forth pursuant to this Section 6.
(C) In the event of a change in the federal tax law of the United States of
America which has the effect of precluding the Corporation from claiming any of
the tax deductions for dividends paid on the Series C Preferred Stock when such
dividends are used as provided under Section 404(k)(2) of the Internal Revenue
Code of 1986, as amended and in effect on the date shares of Series C Preferred
Stock are initially issued, the Corporation may in its sole discretion and
notwithstanding anything to the contrary in paragraph (A) of this Section 6,
elect to redeem any or all of such shares for the amount payable in respect of
the shares upon liquidation of the Corporation pursuant to Section 4 hereof.
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(D) Notwithstanding anything to the contrary in paragraph (A) of this
Section 6, the Corporation may elect to redeem any or all of the shares of
Series C Preferred Stock at any time on or prior to January 1, 1992 on the terms
and conditions set forth in paragraphs (A) and (B) of this Section 6, if (i) the
last reported sales price, regular way, of a Common Stock, as reported on the
New York Stock Exchange Composite Tape or, if the Common Stock is not listed or
admitted to trading on the New York Stock Exchange, on the principal national
securities exchange on which such stock is listed or admitted to trading or, if
the Common Stock is not listed or admitted to trading on any national securities
exchange, on the National Market System of the National Association of
Securities Dealers, Inc. Automated Quotation System ("NASDAQ") or, if the Common
Stock is not quoted on such National Market System, the average of the closing
bid and asked prices in over-the-counter market as reported by NASDAQ, for at
least twenty (20) trading days within a period of thirty (30) consecutive
trading days ending within five (5) days of the notice of redemption equals or
exceeds one hundred fifty percent (150%) of an amount equal to (x) the
Liquidation Preference divided by (y) the Conversion Ratio (giving effect in
making such calculation to any adjustments required by Section 9 hereof); or
(ii) the Corporation terminates an employee stock ownership plan pursuant to
which shares of Series C Preferred Stock are then held by a trustee (in which
case only the shares held pursuant to such plan may be so redeemed);
(E) The Corporation, at its option, may make payment of the redemption
price required upon redemption of shares of Series C Preferred Stock in cash or
in shares of Common Stock, or in a combination of such shares and cash, any such
shares of Common Stock to be valued for such purpose at their Fair Market Value
(as defined in paragraph (F) of Section 9 hereof; provided, however, that in
calculating their Fair Market Value the Adjustment Period shall be deemed to be
the five (5) consecutive trading days preceding, and including, the date of
redemption).
Section 7. Other Redemption Rights.
Subject to the restrictions of the Michigan Business Corporation Act,
shares of Series C Preferred Stock shall be redeemed by the Corporation for cash
or, if the Corporation so elects, in shares of Common Stock, or a combination of
such shares and cash, any such shares of Common Stock to be valued for such
purpose as provided by paragraph (E) of Section 6, at a redemption price equal
to the Liquidation Preference plus accrued and unpaid dividends thereon to the
date fixed for redemption, at the option of the holder, at any time from time to
time upon notice to the Corporation given not less than five (5) business days
prior to the date fixed by the holder in such notice for such redemption, (i)
when and to the extent necessary for such holder to provide for distributions
required to be made under the Federal-Mogul Corporation Salaried Employees'
Investment Program, as amended through and restated as of January 1, 1989, as
the same may be amended, or any successor plan (the "Plan") to participants in
the Plan, or (ii) in the event that the Plan is not initially determined by the
Internal Revenue Service to be qualified within the meaning of Section 401(a)
and 4975 (e)(7) of the Internal Revenue Code of 1986, as amended.
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Section 8. Consolidation, Merger, etc.
(A) In the event that the Corporation shall consummate any consolidation or
merger or similar transaction, however named, pursuant to which the outstanding
shares of Common Stock are by operation of law exchanged solely for or changed,
reclassified or converted solely into stock of any successor or resulting
company (including the Corporation) that constitutes "qualifying employer
securities" with respect to a holder of Series C Preferred Stock within the
meaning of Section 409(e) of the Internal Revenue Code of 1986, as amended, and
Section 407(c)(5) of the Employee Retirement Income Security Act of 1974, as
amended, or any successor provisions of law, and, if applicable, for a cash
payment in lieu of fractional shares, if any, the shares of Series C Preferred
Stock of such holder shall in connection therewith be assumed by and shall
become preferred stock of such successor or resulting company, having in respect
of such company insofar as possible the same powers, preference and relative,
participating, operational or other special rights (including the redemption
rights provided by Sections 6, 7 and 8 hereof), and the qualifications,
limitations or restrictions thereon, that the Series C Preferred Stock had
immediately prior to such transaction, except that after such transaction each
share of Series C Preferred Stock shall be convertible, otherwise on the terms
and conditions provided by Section 5 hereof, into the number and kind of
qualifying employer securities so receivable by a holder of the number of shares
of Common Stock into which such shares of Series C Preferred Stock could have
been converted immediately prior to such transaction if such holder of Common
Stock failed to exercise any right or election to receive any kind or amount of
qualifying employer securities receivable upon such transaction (provided that,
if the kind or amount of qualifying employer securities receivable upon such
transaction is not the same for each non-electing share, then the kind and
amount of qualifying employer securities receivable upon such transaction for
each non-electing share shall be the kind and amount so receivable per share by
a plurality of the non-electing shares). The rights of the Series C Preferred
Stock as preferred stock of such successor or resulting company shall
successively be subject to adjustments pursuant to Section 9 hereof after any
such transaction as nearly equivalent to the adjustments provided for by such
section prior to such transaction. The Corporation shall not consummate any such
merger, consolidation or similar transaction unless all then outstanding shares
of Series C Preferred Stock shall be assumed and authorized by the successor or
resulting company as aforesaid.
(B) In the event that the Corporation shall consummate any consolidation or
merger or similar transaction however, named, pursuant to which the outstanding
shares of Common Stock are by operation of law exchanged for or changed,
reclassified or converted into other stock or securities or cash or any other
property, or any combination thereof, other than any such consideration which is
constituted solely of qualifying employer securities (as referred to in
paragraph (A) of this Section 8) and cash payments, if applicable, in lieu of
fractional shares, outstanding shares of Series C Preferred Stock shall, without
any action on the part of the Corporation or any holder thereof (but subject to
paragraph (C) of this Section 8), be automatically converted by virtue of such
merger, consolidation or similar transaction immediately prior to such
consummation into the number of shares of Common Stock into which such shares of
Series C Preferred Stock
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<PAGE>
could have been converted at such time so that each share of Series C Preferred
Stock shall, by virtue of such transaction and on the same terms as apply to the
holders of Common Stock, be converted into or exchanged for the aggregate amount
of stock, securities, cash or other property (payable in like kind) receivable
by a holder of the number of shares of Common Stock into which such shares of
Series C Preferred Stock could have been converted immediately prior to such
transaction if such holder of Common Stock failed to exercise any rights of
election as to the kind or amount of stock, securities, cash or other property
receivable upon such transaction (provided that, if the kind or amount of stock,
securities, cash or other property receivable upon such transaction is not the
same for each non-electing share, then the kind and amount of stock, securities,
cash or other property receivable upon such transaction for each non-electing
share shall be the kind and amount so receivable per share by a plurality of the
non-electing shares).
(C) In the event the Corporation shall enter into any agreement providing
for any consolidation or merger or similar transaction described in paragraph
(B) of this Section 8, then the Corporation shall as soon as practicable
thereafter (and in any event at least ten (10) business days before consummation
of such transaction) give notice of such agreement and the material terms
thereof to each holder of Series C Preferred Stock and each such holder shall
have the right to elect, by written notice to the Corporation, to receive, upon
consummation of such transaction (if and when such transaction is consummated),
from the Corporation or the successor of the Corporation, in redemption and
retirement of such Series C Preferred Stock, as cash payment equal to the amount
payable in respect of shares of Series C Preferred Stock upon liquidation of the
Corporation pursuant to Section 4 hereof. No such notice of redemption shall be
effective unless given to the Corporation prior to the close of business on the
fifth business day prior to consummation of such transaction, unless the
Corporation or the successor of the Corporation shall waive such prior notice,
but any notice of redemption so given prior to such time may be withdrawn by
notice of withdrawal to the Corporation prior to the close of business on the
fifth business day prior to consummation of such transaction.
Section 9. Anti-Dilution Adjustments.
(A) In the event the Corporation shall, at any time or from time to time
while any of the shares of the Series C Preferred Stock are outstanding, (i) pay
a dividend or make a distribution in respect of the Common Stock in shares of
Common Stock, (ii) subdivide the outstanding shares of Common Stock, or (iii)
combine the outstanding shares of Common Stock into a smaller number of shares,
in each case whether by reclassification of shares, recapitalization of the
Corporation (including a recapitalization effected by a merger or consolidation
to which Section 8 hereof does not apply), or otherwise, the Conversion Ratio in
effect immediately prior to such action shall be adjusted by multiplying such
Conversion Ratio by a fraction, the numerator of which is the number of shares
of Common Stock outstanding immediately after such event, and the denominator of
which is the number of shares of Common Stock outstanding immediately before
such event. An adjustment made pursuant to this paragraph 9(A)
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<PAGE>
shall be given effect, upon payment of such dividend or distribution, as of the
record date for the determination of shareholders entitled to receive such
dividend or distribution (on a retroactive basis) and in the case of a
subdivision or combination shall become effective immediately as of the
effective date thereof.
(B) In the event the Corporation shall, at any time or from time to time
while any of the shares of Series C Preferred Stock are outstanding, issue, sell
or exchange shares of Common Stock (other than pursuant to any right or warrant
to purchase or acquire shares of Common Stock including as such a right or
warrant any security convertible into or exchangeable for shares of Common
Stock) and other than pursuant to any employee or director incentive or benefit
plan or arrangement, including any employment, severance or consulting
agreement, of the Corporation or any subsidiary of the Corporation heretofore or
hereafter adopted, for a consideration having a Fair Market Value on the date of
such issuance, sale or exchange less than the Fair Market Value of such shares
on the date of such issuance sale or exchange, then, subject to the provisions
of paragraph (D) and (E) of this Section 9, the Conversion Ratio in effect
immediately prior to such issuance, sale or exchange shall be adjusted by
multiplying such Conversion Ratio by a fraction, the numerator of which shall be
the product of (i) the Fair Market Value of a share of Common Stock on the day
immediately preceding the first public announcement of such issuance of sale or
exchange multiplied by (ii) the sum of the number of shares of Common Stock
outstanding on such day plus the number of shares of Common Stock so issued,
sold or exchanged by the Corporation, and the denominator of which shall be the
sum of (i) the Fair Market Value of all the shares of Common Stock outstanding
on the day immediately preceding the first public announcement of such issuance,
sale or exchange plus (ii) the Fair Market Value of the consideration received
by the Corporation in respect of such issuance, sale or exchange or shares of
Common Stock. In the event the Corporation shall, at any time or from time to
time while any shares of Series C Preferred Stock are outstanding issue, sell or
exchange any right or warrant to purchase or acquire shares of Common Stock
(including as such a right or warrant any security convertible into or
exchangeable for shares of Common Stock), other than any such issuance to
holders of shares of Common Stock as a dividend or distribution (including by
way of reclassification of shares or a recapitalization of the Corporation) and
other than pursuant to any employee or director incentive or benefit plan or
arrangement (including any employment, severance or consulting agreement) of the
Corporation or any subsidiary of the Corporation heretofore or hereafter
adopted, for a consideration having a Fair Market Value on the date of such
issuance, sale or exchange less than the Non-Dilutive Amount (as herein
defined), then, subject to the provisions of paragraphs (D) and (E) of this
Section 9, the Conversion Ratio shall be adjusted by multiplying such Conversion
Ratio by a fraction, the numerator of which shall be the product of (i) the Fair
Market Value of a share of Common Stock on the day immediately preceding the
first public announcement of such issuance, sale or exchange multiplied by (ii)
the sum of the number of shares of Common Stock outstanding on such day plus the
maximum number of shares of Common Stock which could be acquired pursuant to
such right or warrant at the time of issuance, sale or exchange of such right or
warrant (assuming shares of Common Stock could be acquired pursuant to such
right or warrant at such time), and the denominator of which shall be the sum of
(i) the Fair Market Value
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of all the shares of Common Stock outstanding on the day immediately preceding
the first public announcement of such issuance, sale or exchange plus (ii) the
Fair Market Value of the consideration received by the Corporation in respect of
such issuance, sale or exchange of such right or warrant plus (iii) the Fair
Market Value as of the time of such issuance of the consideration which the
Corporation would receive upon exercise in full of all such rights or warrants.
(C) In the event the Corporation shall, at any time or from time to time
while any of the shares of Series C Preferred Stock are outstanding, make an
Extraordinary Distribution (as herein defined) in respect of the Common Stock,
whether by dividend, distribution, reclassification of shares or
recapitalization of the Corporation (including a recapitalization or
reclassification effected by a merger or consolidation to which Section 8 hereof
does not apply) or effect a Pro Rata Repurchase (as herein defined) of Common
Stock, the Conversion Ratio in effect immediately prior to such Extraordinary
Distribution or Pro Rata Repurchase shall, subject to paragraphs (D) and (E) of
this Section 9, be adjusted by multiplying such Conversion Ratio by a fraction,
the numerator of which shall be the product of (i) the number of shares of
Common Stock outstanding immediately before such Extraordinary Dividend or Pro
Rata Repurchase minus, in the case of a Pro Rata Repurchase, the number of
shares of Common Stock repurchased by the Corporation multiplied by (ii) the
Fair Market Value of a share of Common Stock on the record date with respect to
an Extraordinary Distribution or on the Effective Date (as herein defined) of a
Pro Rata Repurchase, as the case may be, and the denominator of which shall be
(i) the product of (x) the number of shares of Common Stock outstanding
immediately before such Extraordinary Distribution or Pro Rata Repurchase
multiplied by (y) the Fair Market Value of a share of Common Stock on the record
date with respect to an Extraordinary Distribution, or on the Effective Date of
a Pro Rata Repurchase, as the case may be, minus (ii) the Fair Market Value of
the Extraordinary Distribution or the aggregate purchase price of the Pro Rata
Repurchase, as the case may be; provided, however, that no Pro Rata Repurchase
shall cause an adjustment to the Conversion Ratio unless the amount of all cash
dividends and distribution made during the period of twelve (12) months,
preceding the Effective Date of such Pro Rata Repurchase, when combined with the
aggregate amount of all Pro Rata Repurchases including such Pro Rata Repurchase
(for this purpose, including only that portion of the aggregate purchase price
of each Pro Rata Repurchase which is in excess of the Fair Market Value of the
Common Stock repurchased as determined on the Effective Date of each such Pro
Rata Repurchase) the Effective Dates of which fall within such twelve-month
period, exceeds eleven and one-half percent (11-1/2%) of the aggregate Fair
Market Value of all shares of Common Stock outstanding on the Effective Date of
such Pro Rata Repurchase. The Corporation shall send each holder of Series C
Preferred Stock (i) notice of its intent to make any dividend or distribution
and (ii) notice of any offer by the Corporation to make a Pro Rata Repurchase,
in each case at the same time as, or as soon as practicable after, such offer is
first communicated (including by announcement of a record date in accordance
with the rules of any stock exchange on which the Common Stock is listed or
admitted to trading) to holders of Common Stock. Such notice shall indicate the
intended record date and the amount and nature of such dividend or distribution,
or the number of
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shares subject to such offer for a Pro Rata Repurchase and the purchase price
payable by the Corporation pursuant to such offer, and the Conversion Ratio in
effect at such time.
(D) Notwithstanding any other provisions of this Section 9, the Corporation
shall not be required to make any adjustment of the Conversion Ratio unless such
adjustment would require an increase or decrease of at least one percent (1%) in
the Conversion Ratio. Any lesser adjustment shall be carried forward and shall
be made no later than the time of, and together with, the next subsequent
adjustment which, together with any adjustment or adjustments so carried
forward, shall amount to an increase or decrease of at least one percent (1%) in
the Conversion Ratio.
(E) If the Corporation shall make any dividend or distribution on the
Common Stock or issue any Common Stock, other capital stock or other security of
the Corporation or any rights or warrants to purchase or acquire any such
security, which transaction does not result in an adjustment to the Conversion
Ratio pursuant to the foregoing provisions of this Section 9, the Board of
Directors of the Corporation shall in its sole discretion consider whether such
action is of such a nature that an adjustment to the Conversion Ratio should
equitably be made in respect of such transaction. If in such case the Board of
Directors of the Corporation determines that an adjustment to the Conversion
Ratio should be made, an adjustment shall be made effective as of such date, as
determined by the Board of Directors of the Corporation. The determination of
the Board of Directors of the Corporation as to whether an adjustment to the
Conversion Ratio should be made pursuant to the foregoing provisions of this
paragraph 9(E), and, if so, as to what adjustment should be made and when, shall
be final and binding on the Corporation and all stockholders of the Corporation.
The Corporation shall be entitled to make such additional adjustments in the
Conversion Ratio, in addition to those required by the foregoing provisions of
this Section 9, as shall be necessary in order that any dividend or distribution
of shares of capital stock of the Corporation, subdivision, reclassification or
combination of shares of stock of the Corporation or any recapitalization of the
Corporation shall not be taxable to holders of Common Stock.
(F) For purposes of this Resolution, the following definitions shall apply:
"Business Day" shall mean that each day that is not a Saturday, Sunday or a
day on which state or federally chartered banking institutions in Detroit,
Michigan are not required to be open.
"Extraordinary Distribution" shall mean any dividend or other distribution
(effected while any of the shares of Series C Preferred Stock are outstanding)
or (i) cash, where the aggregate amount of such cash dividend or distribution
together with the amount of all cash dividend and distributions made during the
preceding period of twelve (12) months, when combined with the aggregate amount
of all Pro Rata Repurchases (for this purpose, including only that portion of
the aggregate purchase price of such Pro Rata Repurchase which is in excess of
the Fair market Value of the Common Stock repurchased as determined on the
Effective Date of such Pro Rata Repurchase), the Effective Dates of which fall
within such twelve-month period, exceeds eleven and one-
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half percent (11-1/2%) of the aggregate Fair Market Value of all shares of
Common Stock outstanding on the record date for determining the shareholders
entitled to receive such Extraordinary Distribution and/or (ii) any shares of
capital stock of the Corporation (other than shares of Common Stock), other
securities of the Corporation, evidence of indebtedness of the Corporation or
any other person or any other property (including shares of any subsidiary of
the Corporation), or any combination thereof. The Fair Market Value of an
Extraordinary Distribution for purposes of paragraph (C) of this Section 9 shall
be equal to the sum of the Fair Market Value of such Extraordinary Distribution
plus the amount of any cash dividends which are not Extraordinary Distributions
made during such twelve-month period and not previously indicated in the
calculation of an adjustment pursuant to paragraph (C) of this Section 9.
"Fair Market Value" shall mean, as to shares of Common Stock or any other
class of capital stock or securities of the Corporation or any other issuer of
which are publicly traded, the average of the Current Market Prices (as herein
defined) of such shares or securities for each day of the Adjustment Period (as
herein defined).
"Current Market Price" of publicly traded shares of Common Stock or any
other class of capital stock or other security of the Corporation or any other
issuer for a day shall mean the last reported sales price, regular way, or, in
case no sale takes place on such day, the average of the reporting closing bid
and asked prices, regular way, in either case as reported on the New York Stock
Exchange Composite Tape or, if such security is not listed or admitted to
trading on the New York Stock Exchange, on the principal national securities
exchange on which such security is listed or admitted to trading or, if not
listed or admitted to trading on any national securities exchange, on the NASDAQ
National Market System or, if such security is not quoted on such National
Market System, the average of the closing bid and asked prices on each such day
in the over-the- counter market as reported by NASDAQ or, if bid and asked
prices for such security on each such day shall not have been reported through
NASDAQ, the average of the bid and asked prices for such day as furnished by any
New York Stock Exchange member firm regularly making a market in such security
selected for such purpose by the Board of Directors of the Corporation or a
committee thereof, in each case, on each trading day during the Adjustment
Period, "Adjustment Period" shall mean the period of five (5) consecutive
trading days preceding, and including, the date as of which the Fair Market
Value of a security is to be determined. The "Fair Market Value" of any security
which is not publicly traded or of any other property shall mean the fair value
thereof as determined by an independent investment banking or appraisal firm
experienced in the valuation of such securities or property selected in good
faith by the Board of Directors of the Corporation or a committee thereof, or,
if no such investment banking or appraisal firm is in the good faith judgment of
the Board of Directors or such committee available to make such determination,
as determined in good faith by the Board of Directors of the Corporation or such
committee.
"Non-Dilutive Amount" in respect of an issuance, sale or exchange by the
Corporation of any right or warrant to purchase or acquire shares of Common
Stock (including any security convertible into or exchangeable for shares of
Common Stock)
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shall mean the remainder of (i) the product of the Fair Market Value of a share
of Common Stock on the day preceding the first public announcement of such
issuance, sale or exchange multiplied by the maximum number of shares of Common
Stock which could be acquired on such date upon the exercise in full of such
rights and warrants (including upon the conversion or exchange of all such
convertible or exchangeable securities), whether or not exercisable (or
convertible or exchangeable) at such date, minus (ii) the aggregate amount
payable pursuant to such right or warrant to purchase or acquire such maximum
number of shares of Common Stock, provided, however, that in no event shall the
Non-Dilutive Amount be less than zero. For purposes of the foregoing sentence,
in the case of a security convertible into or exchangeable for shares of Common
Stock, the amount payable pursuant to a right or warrant to purchase or acquire
shares of Common Stock shall be the Fair Market Value of such security on the
date of the issuance, sale or exchange of such security by the Corporation.
"Pro Rata Repurchase" shall mean any purchase of shares of Common Stock by
the Corporation or any subsidiary thereof, whether for cash, shares of capital
stock of the Corporation, other securities of the Corporation, evidences of
indebtedness of the Corporation or any other person or any other property
(including shares of a subsidiary of the Corporation), or any combination
thereof, effected while any of the shares of Series C Preferred Stock are
outstanding, pursuant to any tender offer or exchange offer subject to Section
13(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
or any successor provision of law, or pursuant to any other offer available to
substantially all holders of Common Stock; provided, however, that no purchase
of shares by the Corporation or any subsidiary thereof made in open market
transactions shall be deemed a Pro Rata Repurchase. For purposes of this
paragraph 9(F), shares shall be deemed to have been purchased by the Corporation
or any subsidiary thereof "in open market transactions" if they have been
purchased substantially in accordance with the requirements of Rule 10-b-18 as
in effect under the Exchange Act, on the date shares of Series C Preferred Stock
are initially issued by the Corporation or on such others terms and conditions
as the Board of Directors of the Corporation or a committee thereof shall have
determined are reasonably designed to prevent such purchases from having a
material effect on the trading market for the Common Stock. The "Effective Date"
of a Pro Rata Repurchase shall mean the applicable expiration date (including
all extensions thereof) of any tender offer which is a Pro Rata Repurchase, or
the date of the purchase with respect to any Pro Rata Repurchase which is not a
tender offer.
(G) Whenever an adjustment to the Conversion Ratio and the related voting
rights of the Series C Preferred Stock is required pursuant to this Resolution,
the Corporation shall forthwith place on file with the transfer agent for the
Common Stock and the Series C Preferred Stock, if there be one, and with the
Secretary of the Corporation, a statement signed by two officers of the
Corporation stating the adjusted Conversion Ratio determined as provided herein,
and the voting rights (as appropriately adjusted), of the Series C Preferred
Stock. Such statement shall set forth in reasonable detail such facts as shall
be necessary to show the reason and the manner of computing such adjustment,
including any determination of Fair Market Value involved in such
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computation. Promptly after each adjustment to the Conversion Ratio and the
related voting rights of the Series C Preferred Stock, the Corporation shall
mail a notice thereof and of the then prevailing conversion ratio to each holder
of shares of Series C Preferred Stock.
Section 10. Ranking; Attributable Capital and Adequacy of Surplus:
Retirement of Shares.
(A) The Series C Preferred Stock shall rank senior to the Common Stock as
to the payment of dividends and the distribution of assets on liquidation,
dissolution and winding-up the Corporation, and, unless otherwise provided in
the Articles of Incorporation of the Corporation, as the same may be amended, or
a Certificate of Designations relating to a subsequent series of Preferred Stock
of the Corporation, the Series C Preferred Stock shall rank junior to all other
series of the Corporation's Preferred Stock as to payment of dividends and the
distribution of assets on liquidation, dissolution or winding-up.
(B) In addition to any vote of stockholders required by law, the vote of
the holders of the majority of the outstanding shares of Series C Preferred
Stock shall be required to increase the capital of the Corporation allocable to
the Common Stock for the purposes of the Michigan Business Corporation Act, if
as a result thereof, the surplus of the Corporation for purposes of the Michigan
Business Corporation Act would be less than the amount of Preferred Dividends
that would accrue on the then outstanding shares of Series C Preferred Stock
during the following three (3) years.
(C) Any shares of Series C Preferred Stock acquired by the Corporation by
reason of the conversion or redemption of such shares as provided by this
Resolution, or otherwise so acquired, shall be cancelled as shares of Series C
Preferred Stock and restored to the status of authorized but unissued shares of
Preferred Stock of the Corporation, undesignated as to series, and may
thereafter be reissued as part of the new series of such Preferred Stock as
permitted by law.
Section 11. Miscellaneous.
(A) All notices referred to herein shall be in writing, and all notices
hereunder shall be deemed to have been given upon the earlier of receipt thereof
or three (3) business days after the mailing thereof if sent by registered mail
(unless first-class mail shall be specifically permitted for such notice under
the terms of this Resolution) with postage prepaid, addressed: (i) if to the
Corporation, to its office at 26555 Northwestern Highway, Southfield, Michigan,
48034 (Attention: Secretary) or to the transfer agent for the Series C Preferred
Stock, or other agent, of the Corporation designated as permitted by this
Resolution or (ii) if to any holder of the Series C Preferred Stock or Common
Stock, as the case may be, to such holder at the address of such holder as
listed in the stock record books of the Corporation (which may include the
records of the transfer agent for the Series C Preferred Stock or Common Stock,
as the case may be) or (iii) to
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such other address as the Corporation or any such holder, as the case may be,
shall have designated by notice similarly given.
(B) The term "Common Stock" as used in this Resolution means the
Corporation's Common Stock as the same exists at the date of filing of a
Certificate of Designations relating to Series C Preferred Stock or any other
class of stock resulting from successive changes or reclassifications of such
Common Stock consisting solely of changes in par value, or from par value to no
par value, or from no par value to par value. In the event that, at any time as
a result of an adjustment made pursuant to Section 9, the holder of any share of
the Series C Preferred Stock upon thereafter surrendering such shares for
conversion shall become entitled to receive any shares or other securities of
the Corporation other than shares of Common Stock, the Conversion Ratio in
respect of such other shares or securities so receivable upon conversion of
shares of Series C Preferred Stock shall thereafter be adjusted, and shall be
subject to further adjustment from time to time, in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to Common Stock
contained in Section 9 hereof, and the provisions of Sections 1 through 8 and 10
and 11 hereof with respect to Common Stock shall apply on like or similar terms
to any such other shares or securities.
(C) The Corporation shall pay any and all stock transfer and documentary
stamp taxes that may be payable in respect of any issuance or delivery of shares
of Series C Preferred Stock or shares of Common Stock or other securities issued
on account of Series C Preferred Stock pursuant hereto or certificates
representing such shares or securities. The Corporation shall not, however, be
required to pay any such tax which may be payable in respect of any transfer
involved in the issuance or delivery of shares of Series C Preferred Stock or
Common Stock or other securities in a name other than that in which the shares
of Series C Preferred Stock with respect to which such shares or other
securities are issued or delivered were registered, or in respect of any payment
to any person with respect to any such shares or securities other than a payment
to the registered holder thereof, and shall not be required to make such
issuance, delivery or payment unless and until the person otherwise entitled so
such issuance, delivery or payment unless and until the person otherwise
entitled to such issuance, delivery or payment has paid to the Corporation the
amount of any such tax or has established, to the satisfaction of the
Corporation, that such tax has been paid or is not payable.
(D) In the event that a holder of shares of Series C Preferred Stock shall
not by written notice designate the name in which shares of Common Stock to be
issued upon conversion of such shares should be registered or to whom payment
upon redemption of shares of Series C Preferred Stock should be made or the
address to which the certificate or certificates representing such shares, or
such payment, should be sent, the Corporation shall be entitled to register such
shares, and make such payment, in the name of the holder of such Series C
Preferred Stock as shown on the records of the Corporation and to send the
certificate or certificates representing such shares, or such payment, to the
address of such holder on the records of the Corporation.
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(E) Unless otherwise provided in the Articles of Incorporation, as the same
may be amended, of the Corporation, all payments in the form of dividends,
distributions on voluntary or involuntary dissolution, liquidation or winding-up
or otherwise made upon the shares of Series C Preferred Stock and any other
stock ranking on a parity with the Series C Preferred Stock with respect to such
dividend or distribution shall be made pro rata, so that amounts paid per share
on the Series C Preferred Stock and such other stock shall in all cases bear to
each other the same ratio that the required dividends, distributions or payment,
as the case may be, then payable per share on the shares of the Series C
Preferred Stock and such other stock bear to each other.
(F) The Corporation may appoint, and from time to time discharge and
change, a transfer agent for the Series C Preferred Stock. Upon such appointment
or discharge of a transfer agent, the Corporation shall send notice thereof by
first-class mail, postage prepaid, to each holder of record of Series C
Preferred Stock.
SERIES F JUNIOR PARTICIPATING PREFERRED STOCK
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series F Junior Participating Preferred Stock" and the number of
shares constituting such series shall be 260,000. Such number of shares may be
increased or decreased by resolution of the Board of Directors; provided, that
no decrease shall reduce the number of shares of Series F Preferred Stock to a
number less than the number of shares then outstanding plus the number of shares
reserved for issuance upon the exercise of outstanding options, rights or
warrants or upon the conversion of any outstanding securities issued by the
Corporation convertible into shares of Series F Preferred Stock.
Section 2. Dividends and Distributions.
(A) Subject to the prior and superior rights of the holders of any shares
of any series of Preferred Stock ranking prior and superior to the shares of
Series F Preferred Stock with respect to dividends, the holders of shares of
Series F Preferred Stock shall be entitled to receive, when, as and if declared
by the Board of Directors out of funds legally available for the purpose,
quarterly dividends payable in cash on the first business day of March, June,
September and December in each year (each such date being referred to herein as
a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a share of
Series F Preferred Stock, in an amount per share (rounded to the nearest cent)
equal to the greater of (a) $.01 or (b) subject to the provision for adjustment
hereinafter set forth, 1000 times the aggregate per share amount of all cash
dividends, and 1000 times the aggregate per share amount (payable in kind) of
all non-cash dividends or other distributions other than a dividend payable in
shares of Common Stock or a subdivision of the outstanding shares of Common
Stock (by reclassification or otherwise), declared on the Common Stock, without
par value, of the Corporation (the "Common Stock") since the immediately
preceding Quarterly Dividend Payment Date, or, with respect to the first
Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Series F Preferred Stock. In the event the Corporation
shall at any
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time after February 24, 1999 (the "Rights Declaration Date") (i) declare any
dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each case the amount to which holders of
shares of Series F Preferred Stock were entitled immediately prior to such event
under clause (b) of the preceding sentence shall be adjusted by multiplying such
amount by a fraction the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.
(B) The Corporation shall declare a dividend or distribution on the Series
F Preferred Stock as provided in paragraph (A) above immediately after it
declares a dividend or distribution on the Common Stock (other than a dividend
payable in shares of Common Stock); provided, however, that, in the event no
dividend or distribution shall have been declared on the Common Stock during the
period between any Quarterly Dividend Payment Date and the next subsequent
Quarterly Dividend Payment Date, subject to the prior and superior rights of the
holders of any shares of any series of Preferred Stock ranking prior to and
superior to the shares of Series F Preferred Stock with respect to dividends, a
dividend of $.01 per share on the Series F Preferred Stock shall nevertheless by
payable on such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding shares
of Series F Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares of Series F Preferred Stock, unless
the date of issue of such shares is prior to the record date for the first
Quarterly Dividend Payment Date, in which case dividends on such shares shall
begin to accrue from the date of issue of such shares, or unless the date of
issue is a Quarterly Dividend Payment Date or is a date after the record date
for the determination of holders of shares of Series F Preferred Stock entitled
to receive a quarterly dividend and before such Quarterly Dividend Payment Date,
in either of which events such dividends shall begin to accrue and be cumulative
from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall
not bear interest. Dividends paid on the shares of Series F Preferred Stock in
an amount less than the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding. The Board of Directors may fix a
record date for the determination of holders of shares of Series F Preferred
Stock entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be no more than 60 days prior to the date fixed
for the payment thereof.
Section 3. Voting Rights.
The holders of shares of Series F Preferred Stock shall have the following
voting rights:
(A) Subject to the provision for adjustment hereinafter set forth, each
share of Series F Preferred Stock shall entitle the holder thereof to 1000 votes
on all
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matters submitted to a vote of the stockholders of the Corporation. In the event
the Corporation shall at any time after the Rights Declaration Date (i) declare
any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide
the outstanding Common Stock, or (iii) combine the outstanding Common Stock into
a smaller number of shares, then in each such case the number of votes per share
to which holders of shares of Series F Preferred Stock were entitled immediately
prior to such event shall be adjusted by multiplying such number by a fraction
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(B) Except as otherwise provided herein or by law, the holders of shares of
Series F Preferred Stock and the holders of shares of Common Stock shall vote
collectively as one class on all matters submitted to a vote of stockholders of
the Corporation.
(C) (i) If at any time dividends on any Series F Preferred Stock shall be
in arrears in an amount equal to six (6) quarterly dividends thereon, the
occurrence of such contingency shall mark the beginning of a period (herein
called a "default period") which shall extend until such time when all accrued
and unpaid dividends for all previous quarterly dividend periods and for the
current quarterly dividend period on all shares of Series F Preferred Stock then
outstanding shall have been declared and paid or set apart for payment. During
each default period, all holders of Preferred Stock (including holders of the
Series F Preferred Stock) with dividends in arrears in an amount equal to six
(6) quarterly dividends thereon, voting as a class, irrespective of series,
shall have the right to elect two (2) Directors.
(ii) During any default period, such voting right of the holders of
Series F Preferred Stock may be exercised initially at a special meeting
called pursuant to subparagraph (iii) of this Section 3(C) or at any annual
meeting of stockholders, and thereafter at annual meetings of stockholders,
provided that such voting right shall not be exercised unless the holders
of ten percent (10%) in number of shares of Preferred Stock outstanding
shall be present in person or by proxy. The absence of a quorum of the
holders of Common Stock shall not affect the exercise by the holders of
Preferred Stock of such voting rights. At any meeting at which the holders
of Preferred Stock shall exercise such voting right initially during an
existing default period, they shall have the right, voting as a class, to
elect Directors to fill such vacancies, if any, in the Board of Directors
as may then exist up to two (2) Directors or, if such right is exercised at
an annual meeting, to elect two (2) Directors. If the number which may be
so elected at any special meeting does not amount to the required number,
the holders of the Preferred Stock shall have the right to make such
increase in the number of Directors as shall be necessary to permit the
election by them of the required number. After the holders of the Preferred
Stock shall have exercised their right to elect Directors in any default
period and during the continuance of such period, the number of Directors
shall not be increased or decreased except by vote of the holders of
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Preferred Stock as herein provided or pursuant to the rights of any equity
securities ranking senior to or pari passu with the Series F Preferred
Stock.
(iii) Unless the holders of Preferred Stock shall, during an existing
default period, have previously exercised their right to elect Directors,
the Board of Directors may order, or any stockholder or stockholders owning
in the aggregate not less than ten percent (10%) of the total number of
shares of Preferred Stock outstanding, irrespective of series, may request,
the calling of special meeting of the holders of Preferred Stock, which
meeting shall thereupon be called by the Chairman of the Board, the Chief
Executive Officer, the President, a Vice President or the Secretary of the
Corporation. Notice of such meeting and of any annual meeting at which
holders of Preferred Stock are entitled to vote pursuant to this paragraph
(C)(iii) shall be given to each holder of record of Preferred Stock by
mailing a copy of such notice to him or her at his or her last address as
the same appears on the books of the Corporation. Such meeting shall be
called for a time not earlier than 10 days and not later than 60 days after
such order or request, or in default of the calling of such meeting within
60 days after such order or request, such meeting may be called on similar
notice by any stockholder or stockholders owning in the aggregate not less
than ten percent (10%) of the total number of shares of Preferred Stock
outstanding. Notwithstanding the provisions of this paragraph (C)(iii), no
such special meeting shall be called during the period within 60 days
immediately preceding the date fixed for the next annual meeting of the
stockholders.
(iv) In any default period, the holders of Common Stock, and, if
applicable, other classes of capital stock of the Corporation, shall
continue to be entitled to elect the whole number of Directors until the
holders of Preferred Stock shall have exercised their right to elect two
(2) Directors voting as a class, after the exercise of which right (x) the
Directors so elected by the holders of Preferred Stock shall continue in
office until their successors shall have been elected by such holders or
until the expiration of the default period, and (y) any vacancy in the
Board of Directors may (except as provided in paragraph (C)(ii) of this
Section 3) be filled by vote of a majority of the remaining Directors
theretofore elected by the holders of the class of capital stock which
elected the Director whose office shall have become vacant. References in
this paragraph (C) to Directors elected by the holders of a particular
class of stock shall include Directors appointed by such Directors to fill
vacancies as provided in clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a default period, (x) the right
of the holders of Preferred Stock as a class to elect Directors shall
cease, (y) the term of any Directors elected by the holders of Preferred
Stock as a class shall terminate, and (z) the number of Directors shall be
such number as may be provided for in the articles of incorporation or
by-laws irrespective of any increase made pursuant to the provisions of
paragraph (C)(ii) of this Section 3 (such number being subject, however, to
change thereafter in any manner
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provided by law or in the articles of incorporation or by-laws). Any
vacancies in the Board of Directors effected by the provisions of clauses
(y) and (z) in the preceding sentence may be filled by a majority of the
remaining Directors.
(D) Except as set forth herein, holders of Series F Preferred Stock shall
have no special voting rights and their consent shall not be required (except to
the extent they are entitled to vote with holders of Common Stock as set forth
herein) for taking any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series F Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not declared, on shares of Series F Preferred Stock outstanding shall have
been paid in full, the Corporation shall not:
(i) declare or pay dividends on, make any other distributions on, or
redeem or purchase or otherwise acquire for consideration any shares of
capital stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series F Preferred Stock;
(ii) declare or pay dividends on or make any other distributions on
any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series F Preferred Stock,
except dividends paid ratably on the Series F Preferred Stock and all such
parity stock on which dividends are payable or in arrears in proportion to
the total amounts to which the holders of all such shares are then
entitled;
(iii) redeem or purchase or otherwise acquire for consideration shares
of any capital stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series F Preferred Stock,
provided that the Corporation may at any time redeem, purchase or otherwise
acquire shares of any such parity stock in exchange for shares of any
capital stock of the Corporation ranking junior (either as to dividends or
upon dissolution, liquidation or winding up) to the Series F Preferred
Stock; or
(iv) purchase or otherwise acquire for consideration any shares of
Series F Preferred Stock, or any shares of capital stock ranking on a
parity with the Series F Preferred Stock, except in accordance with a
purchase offer made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such terms as the
Board of Directors, after consideration of the respective annual dividend
rates and other relative rights and preferences of the respective series
and classes,
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shall determine in good faith will result in fair and equitable treatment
among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.
Section 5. Reacquired Shares.
Any shares of Series F Preferred Stock purchased or otherwise acquired by
the Corporation in any manner whatsoever shall be retired and canceled promptly
after the acquisition thereof. All such shares shall upon their cancellation
become authorized but unissued shares of Preferred Stock and may be reissued as
part of a new series of Preferred Stock to be created by resolution or
resolutions of the Board of Directors, subject to the conditions and
restrictions on issuance set forth herein.
Section 6. Liquidation, Dissolution or Winding Up.
(A) Upon any liquidation (voluntary or otherwise), dissolution or winding
up of the Corporation, no distribution shall be made to the holders of shares of
capital stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series F Preferred Stock unless, prior
thereto, the holders of shares of Series F Preferred Stock shall have received
$1000 per share, plus an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not declared, to the date of such payment (the
"Series F Liquidation Preference"). Following the payment of the full amount of
the Series F Liquidation Preference, no additional distributions shall be made
to the holders of shares of Series F Preferred Stock unless, prior thereto, the
holders of shares of Common Stock shall have received an amount per share (the
"Common Adjustment") equal to the quotient obtained by dividing (i) the Series F
Liquidation Preference by (ii) 1000 (as appropriately adjusted as set forth in
subparagraph (C) below to reflect such events as stock splits, stock dividends
and recapitalizations with respect to the Common Stock) (such number in clause
(ii), the "Adjustment Number"). Following the payment of the full amount of the
Series F Liquidation Preference and the Common Adjustment in respect of all
outstanding shares of Series F Preferred Stock and Common Stock, respectively,
and the payment of liquidation preferences of all other shares of capital stock
which rank prior to or on a parity with Series F Preferred Stock, holders of
Series F Preferred Stock and holders of shares of Common Stock shall receive
their ratable and proportionate share of the remaining assets to be distributed
in the ratio of the Adjustment Number to 1 with respect to such Preferred Stock
and Common Stock, on a per share basis, respectively.
(B) In the event, however, that there are not sufficient assets available
to permit payment in full of the Series F Liquidation Preference and the
liquidation preferences of all other series of Preferred Stock, if any, which
rank on a parity with the Series F Preferred Stock, then such remaining assets
shall be distributed ratably to the
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holders of such parity shares in proportion to their respective liquidation
preferences. In the event, however, that there are not sufficient assets
available to permit payment in full of the Common Adjustment, then such
remaining assets shall be distributed ratably to the holders of Common Stock.
(C) In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the Adjustment Number in effect immediately prior to such event shall be
adjusted by multiplying such Adjustment Number by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc.
In case the Corporation shall enter into any consolidation, merger,
combination or other transaction in which the shares of Common Stock are
exchanged for or changed into other stock or securities, cash and/or any other
property, then in any such case the shares of Series F Preferred Stock shall at
the same time be similarly exchanged or changed into an amount per share
(subject to the provision for adjustment hereinafter set forth) equal to 1000
times the aggregate amount of capital stock, securities, cash and/or any other
property (payable in kind), as the case may be, for which or into which each
share of Common Stock is exchanged or changed. In the event the Corporation
shall at any time after the Rights Declaration Date (i) declare any dividend on
Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding
Common Stock, or (iii) combine the outstanding Common Stock into a smaller
number of shares, then in each such case the amount set forth in the preceding
sentence with respect to the exchange or change of shares of Series F Preferred
Stock shall be adjusted by multiplying such amount by a fraction the numerator
of which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.
Section 8. No Redemption.
The shares of Series F Preferred Stock shall not be redeemable.
Section 9. Ranking.
The Series F Preferred Stock shall rank junior to all other series of the
Corporation's Preferred Stock as to the payment of dividends and the
distribution of assets, whether or not upon the dissolution, liquidation or
winding up of the Corporation, unless the terms of any such series shall provide
otherwise.
27
<PAGE>
Section 10. Amendment.
The Charter shall not be amended in any manner which would materially alter
or change the powers, preferences or special rights of the Series F Preferred
Stock so as to affect them adversely without the affirmative vote of the holders
of at least two-thirds of the outstanding shares of Series F Preferred Stock,
voting separately as a class.
Section 11. Fractional Shares.
Series F Preferred Stock may be issued in fractions of a share which shall
entitle the holder, in proportion to such holder's fractional shares, to
exercise voting rights, receive dividends, participate in distributions and to
have the benefit of all other rights of holders of Series F Preferred Stock.
ARTICLE IV
1. The address of the current registered office is: 26555 Northwestern
Highway, Southfield, Michigan, 48034.
2. The name of the current resident agent is: James J. Zamoyski
ARTICLE V
The duration of the Corporation is perpetual.
ARTICLE VI
A.1. In addition to any affirmative vote required by law or these Articles
of Incorporation, and except as otherwise expressly provided in paragraph B:
(a) any merger or consolidation of the Corporation or any Subsidiary
(as hereinafter defined) with or into (i) any Interested Shareholder (as
hereinafter defined) or (ii) any other corporation (whether or not itself
an Interested Shareholder) which, after such merger or consolidation, would
be an Affiliate (as hereinafter defined) of an Interested Shareholder, or
(b) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of related transactions) to or
with any Interested Shareholder or any Affiliate of any Interested
Shareholder of any assets of the Corporation or any Subsidiary having an
aggregate Fair Market Value of $1,000,000 or more, other than such a
disposition in the ordinary course of the Corporation's business on an
arms-length basis, or
(c) the issuance or transfer by the Corporation or any Subsidiary (in
one transaction or a series of related transactions) of any securities of
the Corporation or
28
<PAGE>
any Subsidiary to any Interested Shareholder or any Affiliate of any
Interested Shareholder in exchange for cash, securities or other property
(or a combination thereof) having an aggregate Fair Market Value of
$1,000,000 or more, or
(d) the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation as a result of which any Interested
Shareholder or any Affiliate of any Interested Shareholder would receive
any assets of the Corporation other than cash, or
(e) any reclassification of securities (including any reverse stock
split) or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any Subsidiary, or any similar
transaction (whether or not with or into an Interested Shareholder), which
has the effect, directly or indirectly, of increasing the proportion of the
outstanding shares of any class of equity security of the Corporation or
any Subsidiary directly or indirectly owned by any Interested Shareholder
or any Affiliate of any Interested Shareholder shall require the
affirmative vote or consent of the holders of at least a majority of the
outstanding non-interested shares of Common Stock and voting Preferred
Stock of the Corporation considered for the purposes of this Article as one
class, except that (i) in the case of any such transaction which is
required by Article III to be approved by the Preferred Stock or one or
more series thereof considered as a separate class, such transaction shall
also require the affirmative vote or consent of at least a majority of the
outstanding non-interested shares of the Preferred Stock or such series
thereof with the Preferred Stock or such series thereof considered as a
separate class; and (ii) in the case of any such transaction which under
applicable law is required to be approved by any class or series of the
Corporation's stock or any combination thereof considered as a single
class, such transaction shall also require the affirmative vote or consent
of at least a majority of the outstanding non-interested shares of each
such class or series or combination considered as a single class. Such
affirmative vote or consent shall be required notwithstanding the fact that
no vote may be required or that some lesser percentage may be specified by
law or in any agreement with any national securities exchange or otherwise.
2. The term "business combination" as used in this Article shall mean any
transaction which is referred to in any one or more clauses (a) through (e) of
Section 1 of this paragraph (A).
3. The term "non-interested shares" as used in this Article with respect to
any class of the Corporation's stock, any series of any class of the
Corporation's stock or any combination of any such classes, series or classes
and series, shall mean the shares of which the Interested Shareholder involved
in the business combination is not the beneficial owner of such class, series,
or combination of classes, series or classes and series.
B. The provisions of paragraph (A) of this Article shall not be applicable
to any particular business combination, and such business combination shall
require only
29
<PAGE>
such affirmative vote as is required by law and any other provisions of these
Articles of Incorporation, if either:
1. the Corporation's Board of Directors includes at least one member who
was a duly elected and acting member of the Board prior to the time the
Interested Shareholder involved became an Interested Shareholder and such
business combination has been approved by a majority of such members of the
Board of Directors and by a majority of the entire Board of Directors, or
2. the aggregate amount of the cash and the Fair Market Value of
consideration other than cash to be received per share by holders of Common
Stock in such business combination shall be at least equal to the highest of the
following:
(a) the highest per share price (including any brokerage commissions,
transfer taxes and soliciting dealers' fees) paid or agreed to be paid by
such Interested Shareholder to acquire beneficial ownership of any shares
of Common Stock within the two-year period prior to the consummation of the
business combination (the acquisition of any shares of Preferred Stock, for
example, being deemed an acquisition of the number of shares of Common
Stock into which such Preferred Stock is convertible at the time of the
acquisition.
(b) the per share book value of the Common Stock at the end of the
fiscal month immediately preceding the consummation of such business
combination; and
(c) if the common stock of the Interested Shareholder is publicly
traded, the price per share equal to the earnings per share of Common Stock
for the four full consecutive fiscal quarters immediately preceding the
record date for solicitation of votes on such business combination (or, if
votes are not solicited on such business combination, immediately preceding
the consummation of such business combination) multiplied by the ratio (if
any) of the highest published sale price of the Interested Shareholder's
common stock during its four fiscal quarters immediately preceding such
date, to the earnings per share of common stock of the Interested
Shareholder for such four fiscal quarters, or
3. such business combination has been unanimously approved by the Board of
Directors and the Board has, in the faithful exercise of its fiduciary duties to
the holders of Common Stock, unanimously and expressly determined that the
aggregate amount of the cash and the Fair Market Value of the consideration
other than cash to be received per share by holders of Common Stock in such
business combination, although less than the highest amount required by Section
2 of this paragraph B is nonetheless fair to all holders of Common Stock.
All per share figures specified in Section 2 of this paragraph B shall be
adjusted to reflect any subdivisions (by stock split, stock dividend or
otherwise) of the
30
<PAGE>
stock referred to above and combinations (by reverse stock split or otherwise)
of such stock into a lesser number of shares.
C. For the purposes of this Article;
1. A "person" shall mean any individual, firm, corporation or other
entity.
2. "Interested Shareholder" shall mean, in respect of any business
combination, any person (other than the Corporation) who or which, as the
record date for the determination of shareholders entitled to notice of and
to vote on such business combination, or immediately prior to the
consummation of such business combination,
(a) is the beneficial owner, directly or indirectly through one
or more intermediaries, of ten percent (10%) or more of the
outstanding shares of Common Stock, or
(b) is an Affiliate of the Corporation and at any time within two
(2) years prior thereto was the beneficial owner, directly or
indirectly through one or more intermediaries, of not less than ten
percent (10%) of the then outstanding Common Stock, or
(c) is an assignee of or has otherwise succeeded to any shares of
capital stock of the Corporation which were at any time within two (2)
years prior thereto beneficially owned by any Interested Shareholder,
and such assignment or succession shall have occurred in the course of
a transaction or series of transactions not involving a public
offering within the meaning of the Securities Act of 1933.
3. A person shall be the "beneficial owner" of any of the
Corporation's stock:
(a) which such person or any of its Affiliates or Associates (as
hereinafter defined) beneficially owns, directly or indirectly through
one or more intermediaries, or
(b) which such person or any of its Affiliates or Associates has
(i) the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any
agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options, or otherwise,
or (ii) the right to vote pursuant to any agreement, arrangement or
understanding, or
(c) which is beneficially owned, directly or indirectly through
one or more intermediaries, by any other person with which such first
31
<PAGE>
mentioned person or any of its Affiliates or Associates has any
agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any shares of the Corporation's stock;
provided, however, that no person shall be deemed the "beneficial owner" of
any shares of the Corporation's stock which such person would otherwise be
deemed the "beneficial owner" of solely because of such person's serving as
the trustee of any employee plan of the Corporation, including, without
limitation, the Corporation's Salaried Employees' Investment Plan, as the
same may be amended from time to time.
4. The outstanding "Common Stock" shall include shares deemed owned
through application of Section 3 above by and the person whose status as an
Interested Shareholder is being determined, shall not include any Common
Stock which may be issuable to any other person pursuant to any agreement,
or upon exercise of conversion rights, warrants, or options, or otherwise.
5. "Affiliate" and "Associate" shall have the respective meanings
given those terms in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as in effect on March 26, 1980.
6. "Subsidiary" means any corporation of which a majority of any class
of equity security (as defined in Rule 3all-1 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as in effect on
March 26, 1980) is owned, directly or indirectly, by the Corporation.
D. The Corporation's directors shall have the power and duty to
determine for the purpose of this Article, on the basis of information
known to them, (i) the number of shares of the Corporation's stock of any
class or series beneficially owned by any person, (ii) whether a person is
an Affiliate or Associate of another, (iii) whether a person has an
agreement, arrangement or understanding with another as to the matters
referred to in section 3 of paragraph C, and (iv) whether the assets
subject to any business combination or the consideration received for the
issuance or transfer of securities by the Corporation or any Subsidiary
have an aggregate Fair Market Value of $1,000,000 or more.
E. Nothing contained in this Article shall be constituted to relieve
any Interested Shareholder or any director of the Corporation from any
fiduciary or other obligation imposed by law.
F. The affirmative vote or consent of the holders of at least a
majority of the outstanding shares of Common Stock and Preferred Stock of
which no person who is an Interested Shareholder (or would be an Interested
Shareholder if a business combination involving such person were then being
voted on) is the beneficial owner, considered as a single class, shall be
required to amend, alter or repeal this Article.
32
<PAGE>
ARTICLE VII
A director of the Corporation shall not be personally liable to the
Corporation or its Shareholders for monetary damages for breach of fiduciary
duty as a director except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its Shareholders, (ii) for acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of law, (iii) a violation of Section 551(1) of the Michigan Business
Corporation Act, or (iv) for any transaction from which the director derived any
improper personal benefit. If the Michigan Business Corporation Act is amended
after approval by the Shareholders of this provision to authorize corporate
action further eliminating or limiting the personal liability of directors, then
the liability of a director of the Corporation shall be eliminated or limited to
the fullest extent permitted by the Michigan Business Corporation Act, as so
amended.
Any repeal or modification of the foregoing paragraph by the Shareholders
of the Corporation shall not adversely affect any right or protection of a
director of the Corporation existing at the time of such repeal or modification.
These Restated Articles of Incorporation were duly adopted on the 1st day of
January, 2000, in accordance with the provisions of Section 642 of the Michigan
Business Corporation Act, and were duly adopted by the Board of Directors
without a vote of the shareholders. These Restated Articles of Incorporation
only restate and integrate and do not further amend the provisions of the
Articles of Incorporation as heretofore amended and there is no material
discrepancy between those provisions and the provisions of the Restated Articles
of Incorporation.
Signed this 31st day of January, 2000
FEDERAL-MOGUL CORPORATION
------------------------
James J. Zamoyski
Senior Vice President and General Counsel
ATTEST:
- - ----------------------------------
David M. Sherbin
Secretary
33
<PAGE>
INDENTURE
among
FEDERAL-MOGUL CORPORATION
as Issuer,
THE GUARANTORS PARTY HERETO FROM TIME TO TIME
as Guarantors
and
THE BANK OF NEW YORK
as Trustee
Dated as of June 29, 1998
Providing for Issuance of
Senior Debt Securities in Series
<PAGE>
Reconciliation and tie between Indenture, dated as of June 29, 1998, and the
Trust Indenture Act of 1939, as amended.
Trust Indenture Act Indenture
Of 1939 Section Section
- - -------------------- ---------
310 (a)(1) ................................ 6.12
(a)(2) ................................ 6.12
(a)(3) ................................ TIA
(a)(4) ................................ Not applicable
(a)(5) ................................ TIA
(b) ................................ 6.10; 6.12; TIA
311 (a) ................................ TIA
(b) ................................ TIA
312 (a) ................................ 6.8
(b) ................................ TIA
(c) ................................ TIA
313 (a) ................................ 6.7; TIA
(b) ................................ TIA
(c) ................................ TIA; 6.7
(d) ................................ TIA; 6.7
314 (a) ................................ 9.5; 9.6; TIA
(b) ................................ Not Applicable
(c)(1) ................................ 1.2
(c)(2) ................................ 1.2
(c)(3) ................................ Not Applicable
(d) ................................ Not Applicable
(e) ................................ 1.2; TIA
(f) ................................ TIA
315 (a) ................................ 6.1
(b) ................................ 6.6
(c) ................................ 6.1
(d)(1) ................................ 6.1; TIA
(d)(2) ................................ 6.1; TIA
(d)(3) ................................ 6.1; TIA
(e) ................................ 5.15; TIA
316 (a)(last sentence)...................... 1.1
(a)(1)(A)............................... 5.2; 5.8
(a)(1)(B)............................... 5.7
(b) ................................ 5.9; 5.10
(c) ................................ 1.4; TIA
<PAGE>
317 (a)(l) ................................ 5.3
(a)(2) ................................ 5.4
(b) ................................ 9.3
318 (a) ................................ 1.11
(b) ................................ 1.11; TIA
(c) ................................ 1.11; TIA
This reconciliation and tie section does not constitute part of the
Indenture.
2
<PAGE>
TABLE OF CONTENTS(1)
Page
----
ARTICLE 1
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 1.1. Definitions......................................................1
SECTION 1.2. Compliance Certificates and Opinions............................10
SECTION 1.3. Form of Documents Delivered to Trustee..........................10
SECTION 1.4. Acts of Holders.................................................11
SECTION 1.5. Notices, etc., to the Trustee, the Company and the Guarantors...13
SECTION 1.6. Notice to Holders; Waiver.......................................13
SECTION 1.7. Headings and Table of Contents..................................14
SECTION 1.8. Successors and Assigns..........................................14
SECTION 1.9. Separability....................................................14
SECTION 1.10. Benefits of Indenture..........................................14
SECTION 1.11. Governing Law..................................................15
SECTION 1.12. Legal Holidays.................................................15
ARTICLE 2
SECURITY FORMS
SECTION 2.1. Forms Generally.................................................15
SECTION 2.2. Form of Trustee's Certificate of Authentication.................16
SECTION 2.3. Securities in Global Form.......................................16
SECTION 2.4. Form of Legend for Securities in Global Form....................17
ARTICLE 3
THE SECURITIES
SECTION 3.1. Amount Unlimited; Issuable in Series............................17
SECTION 3.2. Denominations...................................................21
SECTION 3.3. Execution, Authentication, Delivery and Dating..................21
SECTION 3.4. Temporary Securities............................................24
SECTION 3.5. Registration, Transfer and Exchange.............................24
SECTION 3.6. Replacement Securities..........................................28
SECTION 3.7. Payment of Interest; Interest Rights Preserved..................29
SECTION 3.8. Persons Deemed Owners...........................................30
SECTION 3.9. Cancellation....................................................31
SECTION 3.10. Computation of Interest........................................31
SECTION 3.11. CUSIP Numbers..................................................31
SECTION 3.12. Currency and Manner of Payment in Respect of Securities........32
SECTION 3.13. Appointment and Resignation of Exchange Rate Agent.............35
ARTICLE 4
SATISFACTION, DISCHARGE AND DEFEASANCE
SECTION 4.1. Termination of Company's Obligations Under the Indenture........36
- - --------------------
(1) Note: This table of contents shall not, for any purpose be deemed to be
part of the Indenture.
i
<PAGE>
SECTION 4.2. Application of Trust Funds......................................37
SECTION 4.3. Applicability of Defeasance Provisions; Company's Option to
Effect Defeasance or Covenant Defeasance...................37
SECTION 4.4. Defeasance and Discharge........................................38
SECTION 4.5. Covenant Defeasance.............................................38
SECTION 4.6. Conditions to Defeasance or Covenant Defeasance.................39
SECTION 4.7. Deposited Money and Government Obligations to Be Held in Trust..40
SECTION 4.8. Repayment to Company............................................41
SECTION 4.9. Indemnity for Government Obligations............................41
ARTICLE 5
DEFAULTS AND REMEDIES
SECTION 5.1. Events of Default...............................................41
SECTION 5.2. Acceleration; Rescission and Annulment..........................43
SECTION 5.3. Collection of Indebtedness and Suits for Enforcement by Trustee.44
SECTION 5.4. Trustee May File Proofs of Claim................................44
SECTION 5.5. Trustee May Enforce Claims Without Possession of Securities.....45
SECTION 5.6. Delay or Omission Not Waiver....................................45
SECTION 5.7. Waiver of Past Defaults.........................................45
SECTION 5.8. Control by Majority.............................................45
SECTION 5.9. Limitation on Suits by Holders..................................45
SECTION 5.10. Rights of Holders to Receive Payment...........................46
SECTION 5.11. Application of Money Collected.................................46
SECTION 5.12. Restoration of Rights and Remedies.............................47
SECTION 5.13. Rights and Remedies Cumulative.................................47
SECTION 5.14. Waiver of Usury, Stay or Extension Laws........................47
SECTION 5.15. Undertaking for Costs..........................................47
ARTICLE 6
THE TRUSTEE
SECTION 6.1. Certain Duties and Responsibilities of the Trustee..............48
SECTION 6.2. Rights of Trustee...............................................48
SECTION 6.3. Trustee May Hold Securities.....................................49
SECTION 6.4. Money Held in Trust.............................................49
SECTION 6.5. Trustee's Disclaimer............................................49
SECTION 6.6. Notice of Defaults..............................................50
SECTION 6.7. Reports by Trustee to Holders...................................50
SECTION 6.8. Securityholder Lists............................................50
SECTION 6.9. Compensation and Indemnity......................................50
SECTION 6.10. Replacement of Trustee.........................................51
SECTION 6.11. Acceptance of Appointment by Successor.........................52
SECTION 6.12. Eligibility; Disqualification..................................53
SECTION 6.13. Merger, Conversion, Consolidation or Succession to Business....54
SECTION 6.14. Appointment of Authenticating Agent............................54
ARTICLE 7
CONSOLIDATION, MERGER OR SALE BY THE COMPANY
SECTION 7.1. Consolidation, Merger or Sale of Assets Permitted...............56
ii
<PAGE>
ARTICLE 8
SUPPLEMENTAL INDENTURES
SECTION 8.1. Supplemental Indentures Without Consent of Holders..............56
SECTION 8.2. Supplemental Indentures with Consent of Holders.................58
SECTION 8.3. Compliance With Trust Indenture Act.............................59
SECTION 8.4. Execution of Supplemental Indentures............................59
SECTION 8.5. Effect of Supplemental Indentures...............................59
SECTION 8.6. Reference in Securities to Supplemental Indentures..............59
ARTICLE 9
COVENANTS
SECTION 9.1. Payment of Principal, Premium, if any, and Interest, if any.....60
SECTION 9.2. Maintenance of Office or Agency.................................60
SECTION 9.3. Money for Securities Payments to Be Held in Trust;
Unclaimed Money............................................61
SECTION 9.4. Corporate Existence.............................................62
SECTION 9.5. Reports by the Company..........................................62
SECTION 9.6. Annual Review Certificate; Notice of Defaults or Events
of Default.................................................63
SECTION 9.7. Books of Record and Account.....................................63
ARTICLE 10
REDEMPTION
SECTION 10.1. Applicability of Article.......................................63
SECTION 10.2. Election to Redeem Notice to Trustee...........................64
SECTION 10.3. Selection of Securities to Be Redeemed.........................64
SECTION 10.4. Notice of Redemption...........................................64
SECTION 10.5. Deposit of Redemption Price....................................65
SECTION 10.6. Securities Payable on Redemption Date..........................66
SECTION 10.7. Securities Redeemed in Part....................................66
ARTICLE 11
SINKING FUNDS
SECTION 11.1. Applicability of Article.......................................67
SECTION 11.2. Satisfaction of Sinking Fund Payments with Securities..........67
SECTION 11.3. Redemption of Securities for Sinking Fund......................67
ARTICLE 12
GUARANTEES
SECTION 12.1. Guarantees 68
SECTION 12.1. Obligations of Guarantors Unconditional........................70
SECTION 12.1. Limitation on Guarantors' Liability............................70
SECTION 12.1. Releases of Guarantees.........................................70
SECTION 12.1. Application of Certain Terms and Provisions to Guarantors......70
SECTION 12.1. Additional Guarantors..........................................71
iii
<PAGE>
INDENTURE, dated as of June 29, 1998 among Federal-Mogul Corporation, a
Michigan corporation, as issuer (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").
RECITALS
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance from time to time of its unsecured
debentures, notes or other evidences of indebtedness ("Securities") to be issued
in one or more series as herein provided.
The Guarantors have duly authorized the execution and delivery of this
Indenture to provide a guarantee of the Securities and of certain of the
obligations of the Company hereunder.
All things necessary to make this Indenture a valid agreement of the
Company and the Guarantors, in accordance with its terms, have been done.
For and in consideration of the premises and the purchase of the Securities
by the Holders thereof, it is mutually covenanted and agreed as follows for the
equal and ratable benefit of the Holders of the Securities:
ARTICLE 1
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.1. Definitions. (a) For all purposes of this Indenture, except as
otherwise expressly provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned to them in
this Article and include the plural as well as the singular;
(2) all other terms used herein which are defined in the Trust Indenture
Act, either directly or by reference therein, have the meanings assigned to them
therein;
(3) all accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with generally accepted accounting principles;
and
(4) the words "herein", "hereof" and "hereunder" and other words of similar
import refer to this Indenture as a whole and not to any particular Article,
Section or other subdivision.
"Affiliate" of any specified Person means any Person directly or indirectly
controlling or controlled by, or under direct or indirect common control, with
such specified Person. For purposes of this definition, "control" when used with
respect to any specified Person means the power to direct the management and
policies of such Person, directly or indirectly,
<PAGE>
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Agent" means any Paying Agent or Registrar.
"Authenticating Agent" means any authenticating agent appointed by the
Trustee pursuant to Section 6.14.
"Authorized Newspaper" means a newspaper in the official language of the
country of publication or in the English language, customarily published on each
Business Day whether or not published on Saturdays, Sundays or holidays, and of
general circulation in the place in connection with which the term is used or in
the financial community of such place. Whenever successive publications in an
Authorized Newspaper are required hereunder they may be made (unless otherwise
expressly provided herein) on any Business Day and in the same or different
Authorized Newspapers.
"Bankruptcy Law" means Title 11, United States Code, or any other
applicable federal, state or foreign bankruptcy, insolvency or similar law, as
now or hereafter constituted.
"Bearer Security" means any Security issued hereunder which is payable to
bearer.
"Board" or "Board of Directors" means the Board of Directors of the
Company, the Executive Committee or any other duly authorized committee thereof.
"Board Resolution" means a copy of a resolution of the Board of Directors
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,
unless otherwise specified with respect to any Securities pursuant to Section
3.1, each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on
which banking institutions in that Place of Payment or particular location are
authorized or obligated by law or executive order to close.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Securities Exchange Act of 1934, or, if at
any time after the execution of this Indenture such Commission is not existing
and performing the duties now assigned to it under the Trust Indenture Act, then
the body performing such duties at such time.
"Common Stock" means any and all shares of series and classes of stock of
the Company designated as common stock, whether voting or non-voting, and
whether now outstanding or issued after the date of this Indenture.
2
<PAGE>
"Company" means the party named as the Company in the first paragraph of
this Indenture until one or more successor corporations shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter means
such successors.
"Company Order" and "Company Request" mean, respectively, a written order
or request signed in the name of the Company by two Officers, one of whom must
be the Chairman of the Board, the President, the Chief Financial Officer, any
Executive Vice President, Senior Vice President or Vice President, the
Treasurer, any Assistant Treasurer or the Controller of the Company.
"Conversion Event" means the cessation of use of (i) a Foreign Currency
both by the government of the country which issued such currency and for the
settlement of transactions by a central bank or other public institutions of or
within the international banking community, (ii) the ECU both within the
European Monetary System and for the settlement of transactions by public
institutions of or within the European Communities or (iii) any currency unit
other than the ECU for the purposes for which it was established.
"Corporate Trust Office" means the office of the Trustee in which at any
particular time its corporate trust business shall be principally administered,
which office at the date hereof is located at 101 Barclay Street, New York, New
York 10286, Attention: Corporate Trust Administration.
"Debt" means indebtedness for money borrowed.
"Default" means any event which is, or after notice or passage of time, or
both, would be, an Event of Default.
"Depositary", when used with respect to the Securities of or within any
series issuable or issued in whole or in part in global form, means the Person
designated as Depositary by the Company pursuant to Section 3.1 until a
successor Depositary shall have become such pursuant to the applicable
provisions of this Indenture, and thereafter shall mean or include each Person
which is then a Depositary hereunder, and if at any time there is more than one
such Person, shall be a collective reference to such Persons.
"Dollar" means the currency of the United States as at the time of payment
is legal tender for the payment of public and private debts.
"ECU" means the European Currency Unit as defined and revised from time to
time by the Council of the European Communities.
"European Communities" means the European Economic Community, the European
Coal and Steel Community and the European Atomic Energy Community.
"European Monetary System" means the European Monetary System established
by the Resolution of December 5, 1978 of the Council of the European
Communities.
"Exchange Rate Agent", when used with respect to Securities of or within
any series, means, unless otherwise specified with respect to any Securities
pursuant to Section 3.1, a
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New York Clearing House bank designated pursuant to Section 3.1 or Section 3.13
(which may include any such bank acting as Trustee hereunder).
"Exchange Rate Officers' Certificate" means a certificate setting forth (i)
the applicable Market Exchange Rate or the applicable bid quotation and (ii) the
Dollar or Foreign Currency amounts of principal (and premium, if any) and
interest, if any (on an aggregate basis and on the basis of a Security having
the lowest denomination principal amount in the relevant currency or currency
unit), payable with respect to a Security of any series on the basis of such
Market Exchange Rate or the applicable bid quotation, signed by the Chief
Financial Officer, any Executive Vice President, Senior Vice President or Vice
President, the Treasurer, any Assistant Treasurer or the Controller of the
Company.
"Foreign Currency" means any currency issued by the government of one or
more countries other than the United States or by any recognized confederation
or association of such governments.
"Government Obligations" means securities which are (i) direct obligations
of the United States or, if specified as contemplated by Section 3.1, the
government which issued the currency in which the Securities of a particular
series are or may be payable, for the payment of which its full faith and credit
is pledged or (ii) obligations of a Person controlled or supervised by and
acting as an agency or instrumentality of the United States or, if specified as
contemplated by Section 3.1, such government which issued the foreign currency
in which the Securities of such series are or may be payable, the payment of
which is unconditionally guaranteed as a full faith and credit obligation by the
United States or such other government, which, in either case, are not callable
or redeemable at the option of the issuer thereof, and shall also include a
depositary receipt issued by a bank or trust company as custodian with respect
to any such Government Obligation or a specific payment of interest on or
principal of any such Government Obligation held by such custodian for the
account of the holder of a depositary receipt, provided that (except as required
by law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depositary receipt from any amount received by the
custodian in respect of the Government Obligation evidenced by such depositary
receipt.
"Guarantee" means the guarantee of the Securities by each Guarantor under
Article 12 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 before or after the
issue date of Securities of any series, which become a guarantor of Securities
pursuant to the provisions of this Indenture.
"Holder" means, with respect to a Bearer Security, a bearer thereof or of a
coupon appertaining thereto and, with respect to a Registered Security, a person
in whose name a Security is registered on the Register.
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"Indenture" means this Indenture as originally executed or as amended or
supplemented from time to time and shall include the forms and terms of
particular series of Securities established as contemplated hereunder.
"Indexed Security" means a Security the terms of which provide that the
principal amount thereof payable at Stated Maturity may be more or less than the
principal face amount thereof at original issuance.
"Interest", when used with respect to an Original Issue Discount Security
which by its terms bears interest only after Maturity, means interest payable
after Maturity.
"Interest Payment Date", when used with respect to any Security, means the
Stated Maturity of an installment of interest on such Security.
"Market Exchange Rate" means, unless otherwise specified with respect to
any Securities pursuant to Section 3.1, (i) for any conversion involving a
currency unit on the one hand and Dollars or any Foreign Currency on the other,
the exchange rate between the relevant currency unit and Dollars or such Foreign
Currency calculated by the method specified pursuant to Section 3.1 for the
Securities of the relevant series, (ii) for any conversion of Dollars into any
Foreign Currency, the noon buying rate for such Foreign Currency for cable
transfers quoted in New York City as certified for customs purposes by the
Federal Reserve Bank of New York and (iii) for any conversion of one Foreign
Currency into Dollars or another Foreign Currency, the spot rate at noon local
time in the relevant market at which, in accordance with normal banking
procedures, the Dollars or Foreign Currency into which conversion is being made
could be purchased with the Foreign Currency from which conversion is being made
from major banks located in New York City, London or any other principal market
for Dollars or such purchased Foreign Currency, in each case determined by the
Exchange Rate Agent. Unless otherwise specified with respect to any Securities
pursuant to Section 3.1, in the event of the unavailability of any of the
exchange rates provided for in the foregoing clauses (i), (ii) and (iii), the
Exchange Rate Agent shall use, in its sole discretion and without liability on
its part, such quotation of the Federal Reserve Bank of New York as of the most
recent available date, or quotations from one or more major banks in New York
City, London or other principal market for such currency or currency unit in
question (which may include any such bank acting as Trustee under this
Indenture), or such other quotations as the Exchange Rate Agent shall deem
appropriate. If there is more than one market for dealing in any currency or
currency unit by reason of foreign exchange regulations or otherwise, the market
to be used in respect of such currency or currency unit shall be that upon which
a nonresident issuer of securities designated in such currency or currency unit
would purchase such currency or currency unit in order to make payments in
respect of such securities.
"Maturity", when used with respect to any Security, means the date on which
the principal of such Security or an installment of principal becomes due and
payable as therein or herein provided, whether at the Stated Maturity or by
declaration of acceleration, call for redemption or otherwise.
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"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.
"Original Issue Discount Security" means any Security which provides for an
amount less than the stated principal amount thereof to be due and payable upon
declaration of acceleration of the Maturity thereof pursuant to Section 5.2.
"Outstanding", when used with respect to Securities, means, as of the date
of determination, all Securities theretofore authenticated and delivered under
this Indenture, except:
(i) Securities theretofore cancelled by the Trustee or delivered to
the Trustee for cancellation;
(ii) Securities, or portions thereof, for whose payment or redemption
money or Government Obligations in the necessary amount has been
theretofore deposited with the Trustee or any Paying Agent (other than the
Company) in trust or set aside and segregated in trust (if the Company
shall act as its own Paying Agent) for the Holders of such Securities and
any coupons appertaining thereto; provided that, if such Securities are to
be redeemed, notice of such redemption has been duly given pursuant to this
Indenture or provisions therefor satisfactory to the Trustee have been
made;
(iii) Securities, except to the extent provided in Sections 4.4 and
4.5, with respect to which the Company has effected defeasance and/or
covenant defeasance as provided in Article 4; and
(iv) Securities which have been paid pursuant to Section 3.6 or in
exchange for or in lieu of which other Securities have been authenticated
and delivered pursuant to this Indenture, other than any such Securities in
respect of which there shall have been presented to the Trustee proof
satisfactory to it that such Securities are held by a bona fide purchaser
in whose hands such Securities are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of the Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, or whether
sufficient funds are available for redemption or for any
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other purpose and for the purpose of making the calculations required by Section
313 of the Trust Indenture Act, (w) the principal amount of any Original Issue
Discount Securities that may be counted in making such determination or
calculation and that shall be deemed to be Outstanding for such purpose shall be
equal to the amount of principal thereof that would be (or shall have been
declared to be) due and payable, at the time of such determination, upon a
declaration of acceleration of the maturity thereof pursuant to Section 5.2, (x)
the principal amount of any Security denominated in a Foreign Currency that may
be counted in making such determination or calculation and that shall be deemed
Outstanding for such purpose shall be equal to the Dollar equivalent, determined
as of the date such Security is originally issued by the Company as set forth in
an Exchange Rate Officers' Certificate delivered to the Trustee, of the
principal amount (or, in the case of an Original Issue Discount Security, the
Dollar equivalent as of such date of original issuance of the amount determined
as provided in clause (w) above) of such Security, (y) the principal amount of
any Indexed Security that may be counted in making such determination or
calculation and that shall be deemed Outstanding for such purpose shall be equal
to the principal face amount of such Indexed Security at original issuance,
unless otherwise provided with respect to such security pursuant to Section 3.1,
and (z) Securities owned by the Company or any other obligor upon the Securities
or any Affiliate of the Company or of such other obligor shall be disregarded
and deemed not to be Outstanding, except that, in determining whether the
Trustee shall be protected in making such calculation or in relying upon any
such request, demand, authorization, direction, notice, consent or waiver, only
Securities which the Trustee knows to be so owned shall be so disregarded.
Securities so owned which have been pledged in good faith may be regarded as
Outstanding if the pledgee establishes to the satisfaction of the Trustee the
pledgee's right so to act with respect to such Securities and that the pledgee
is not the Company or any other obligor upon the Securities or any Affiliate of
the Company or of such other obligor.
"Paying Agent" means any Person authorized by the Company to pay the
principal of, premium, if any, or interest and any other payments on any
Securities on behalf of the Company.
"Periodic Offering" means an offering of Securities of a series from time
to time the specific terms of which Securities, including, without limitation,
the rate or rates of interest or formula for determining the rate or rates of
interest thereon, if any, the Maturity thereof and the redemption provisions, if
any, with respect thereto, are to be determined by the Company upon the issuance
of such Securities.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"Place of Payment", when used with respect to the Securities of or within
any series, means the place or places where the principal of, premium, if any,
and interest, if any, and any other payments on such Securities are payable as
specified as contemplated by Sections 3.1 and 9.2.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security and,
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for the purposes of this definition, any Security authenticated and delivered
under Section 3.6 in exchange for or in lieu of a mutilated, destroyed, lost or
stolen Security shall be deemed to evidence the same debt as the mutilated,
destroyed, lost or stolen Security.
"Preferred Stock" means any and all shares of series and classes of stock
of the Company designated as preferred stock, whether voting or non-voting, and
whether now outstanding or issued after the date of this Indenture.
"Principal Amount", when used with respect to any Security, means the
amount of principal, if any, payable in respect thereof at Maturity; provided,
however, that when used with respect to an Indexed Security in any context other
than the making of payments at Maturity, "principal amount" means the principal
face amount of such Indexed Security at original issuance.
"Redemption Date", when used with respect to any Security to be redeemed,
means the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price", when used with respect to any Security to be redeemed,
in whole or in part, means the price at which it is to be redeemed pursuant to
this Indenture.
"Registered Security" means any Security issued hereunder and registered as
to principal and interest in the Register.
"Regular Record Date" for the interest payable on any Interest Payment Date
on the Registered Securities of or within any series means the date specified
for that purpose as contemplated by Section 3.1.
"Responsible Officer", when used with respect to the Trustee, shall mean
any officer within the corporate trust department of the Trustee, including any
vice president, any assistant vice president, any assistant secretary, any
assistant treasurer, any trust officer, or any other officer of the Trustee
customarily performing functions similar to those performed by the persons who
at the time shall be such officers, respectively, or to whom any corporate trust
matter is referred because of such officer's knowledge of and familiarity with a
particular subject and who shall have direct responsibility for the
administration of this Indenture.
"Security" or "Securities" has the meaning stated in the first recital of
this Indenture and more particularly means any security or securities of the
Company issued, authenticated and delivered under this Indenture.
"Senior Credit Agreement" means the Second Amended and Restated Credit
Agreement among Federal-Mogul Corporation, The Chase Manhattan Bank as Agent and
the lenders thereunder, dated as of December 18, 1997, as amended.
"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 3.7.
"Stated Maturity", when used with respect to any Security or any
installment of principal thereof or interest thereon, means the date specified
in such Security or in a coupon
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representing such installment of interest as the fixed date on which the
principal of such Security or such installment of principal or interest is due
and payable.
"Subsidiary" of any Person means any Person of which at least a majority of
capital stock having ordinary voting power for the election of directors or
other governing body of such Person is owned by such Person directly or through
one or more Subsidiaries of such Person.
"Total Assets" means, at any date, the total assets appearing on the most
recently prepared consolidated balance sheet of the Company and its consolidated
Subsidiaries as at the end of a fiscal quarter of the Company, prepared in
accordance with generally accepted accounting principles.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in effect on
the date of this Indenture, except as provided in Section 8.3.
"Trustee" means the party named as such in the first paragraph of this
Indenture until a successor Trustee replaces it pursuant to the applicable
provisions of this Indenture, and thereafter means such successor Trustee and
if, at any time, there is more than one Trustee, "Trustee" as used with respect
to the Securities of any series shall mean the Trustee with respect to the
Securities of that series.
"United States" means, unless otherwise specified with respect to the
Securities of any series as contemplated by Section 3.1 the United States of
America (including the States and the District of Columbia), its territories,
its possessions and other areas subject to its jurisdiction.
"U.S. Person" means, unless otherwise specified with respect to the
Securities of any series as contemplated by Section 3.1, a citizen, national or
resident of the United States, a corporation, partnership or other entity
created or organized in or under the laws of the United States or any political
subdivision thereof, or an estate or trust, the income of which is subject to
United States federal income taxation regardless of its source.
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(b) The following terms shall have the meanings specified in the Sections
referred to opposite such term below:
Term Section
---- -------
"Act" 1.4(a)
"Bankruptcy Law" 5.1
"Component Currency" 3.12(d)
"Conversion Date" 3.12(d)
"Custodian" 5.1
"Defaulted Interest" 3.7(b)
"Election Date" 3.12(h)
"Event of Default" 5.1
"Notice of Default" 5.1(3)
"Register" 3.5
"Registrar" 3.5
"Valuation Date" 3.7(c)
Section 1.2. Compliance Certificates and Opinions. Upon any application or
request by the Company to the Trustee to take an action under any provision of
this Indenture, the Company shall furnish to the Trustee an Officers'
Certificate stating that all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with and an Opinion
of Counsel stating that in the opinion of such counsel all such conditions
precedent, if any, have been complied with, except that in the case of any such
application or request as to which the furnishing of such documents is
specifically required by any provision of this Indenture relating to such
particular application or request, no additional certificate or opinion need be
furnished.
Every certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture (other than pursuant to Sections 2.3,
3.3 and 9.6) shall include:
(1) a statement that each individual signing such certificate or opinion
has read such condition or covenant and the definitions herein relating thereto;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has made
such examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such condition or covenant has been
complied with; and
(4) a statement as to whether, in the opinion of each such individual, such
condition or covenant has been complied with.
Section 1.3. Form of Documents Delivered to Trustee. In any case where
several matters are required to be certified by, or covered by an opinion of,
any specified Person, it is not necessary that all such matters be certified by,
or covered by the opinion of, only one such
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Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an Officer of the Company or the Guarantors
may be based, insofar as it relates to legal matters, upon a certificate or
opinion of, or representations by, counsel, unless such Officer knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which his certificate or
opinion is based are erroneous. Any such certificate or Opinion of Counsel may
be based, insofar as it relates to factual matters, upon a certificate or
opinion of, or representations by, an Officer or Officers of the Company or the
Guarantors stating that the information with respect to such factual matters is
in the possession of the Company or the Guarantors, unless such counsel knows,
or in the exercise of reasonable care should know, that the certificate or
opinion or representations as to such matters are erroneous.
Any certificate, statement or opinion of an Officer of the Company or the
Guarantors or of counsel may be based, insofar as it relates to accounting
matters, upon a certificate or opinion of or representations by an accountant or
firm of accountants in the employ of the Company, unless such Officer or
counsel, as the case may be, knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to the
accounting matters upon which his certificate, statement or opinion is based are
erroneous.
Where any Person is required to make give or execute two or more
applications, requests, consents, certificates, statements opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Any acts to be taken or matters to be established pursuant to a Board
Resolution may be taken or established by one or more Officers or other
individuals authorized to act pursuant to a Board Resolution.
Section 1.4. Acts of Holders. (a) Any request, demand, authorization,
direction, notice, consent, waiver or other action provided by this Indenture to
be given or taken by Holders may be embodied in and evidenced by one or more
instruments of substantially similar tenor signed by such Holders in person or
by an agent duly appointed in writing; and, except as herein otherwise expressly
provided, such action shall become effective when such instrument or instruments
are delivered to the Trustee and, where it is hereby expressly required, to the
Company and the Guarantors. Such instrument or instruments (and the action
embodied therein and evidenced thereby) are herein sometimes referred to as the
"Act" of the Holders signing such instrument or instruments. Proof of execution
of any such instrument or of a writing appointing any such agent shall be
sufficient for any purpose of this Indenture and conclusive in favor of the
Trustee and the Company and the Guarantors, if made in the manner provided in
this Section.
(b) The fact and date of the execution by any Person of any such instrument
or writing may be proved by the affidavit of a witness of such execution or by a
certificate of a notary public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing such instrument
or writing acknowledged to him the execution
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thereof. Where such execution is by a signer acting in a capacity other than his
individual capacity, such certificate or affidavit shall also constitute
sufficient proof of his authority. The fact and date of the execution of any
such instrument or writing, or the authority of the Person executing the same,
may also be proved in any other reasonable manner which the Trustee deems
sufficient.
(c) The ownership of Bearer Securities may be proved by the production of
such Bearer Securities or by a certificate executed by any trust company, bank,
banker or other depositary, wherever situated, if such certificate shall be
deemed by the Trustee to be satisfactory, showing that at the date therein
mentioned such Person had on deposit with such depositary, or exhibited to it,
the Bearer Securities therein described; or such facts may be proved by the
certificate or affidavit of the Person holding such Bearer Securities, if such
certificate or affidavit is deemed by the Trustee to be satisfactory. The
Trustee and the Company may assume that such ownership of any Bearer Security
continues until (i) another such certificate or affidavit bearing a later date
issued in respect of the same Bearer Security is produced, (ii) such Bearer
Security is produced to the Trustee by some other Person, (iii) such Bearer
Security is surrendered in exchange for a Registered Security or (iv) such
Bearer Security is no longer Outstanding. The ownership of Bearer Securities may
also be proved in any other reasonable manner which the Trustee deems
sufficient.
(d) The ownership of Registered Securities shall be proved by the Register.
(e) Any request, demand, authorization, direction, notice, consent, waiver
or other Act of the Holder of any Security shall bind every future Holder of the
same Security and the Holder of every Security issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done, omitted or suffered to be done by the Trustee or the Company in
reliance thereon, whether or not notation of such action is made upon such
Security.
(f) If the Company shall solicit from the Holders of any series any
request, demand, authorization, direction, notice, consent, waiver or other Act,
the Company may, at its option, by or pursuant to a Board Resolution, fix in
advance a record date for the determination of Holders of such series entitled
to give such request, demand, authorization, direction, notice, consent, waiver
or other Act, but the Company shall have no obligation to do so, provided that
the Company may not set a record date for, and the provisions of this paragraph
shall not apply with respect to, the giving or making of any notice,
declaration, request or direction referred to in the next paragraph. If such a
record date is fixed, such request, demand, authorization, direction, notice,
consent, waiver or other Act may be given before or after such record date, but
only the Holders of record at the close of business on such record date shall be
deemed to be Holders for the purposes of determining whether Holders of the
requisite proportion of Outstanding Securities have authorized or agreed or
consented to such request, demand authorization, direction, notice, consent,
waiver or other Act, and for that purpose the Outstanding Securities shall be
computed as of such record date; provided that no such authorization, agreement
or consent by the Holders on such record date shall be deemed effective unless
it shall become effective pursuant to the provisions of this Indenture not later
than six months after the record date.
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(g) The Trustee may set any day as a record date for the purpose of
determining the Holders of any series entitled to join in the giving or making
of (i) any Notice of Default, (ii) any declaration of acceleration referred to
in Section 5.2, (iii) any direction referred to in Section 5.8 or (iv) any
request to institute proceedings referred to in Section 5.9(2), in each case
with respect to Securities of such series. If such a record date is fixed
pursuant to this paragraph, the relevant action may be taken or given before or
after such record date, but only the Holders of record at the close of business
on such record date shall be deemed to be holders of a series for the purpose of
determining whether Holders of the requisite proportion of Outstanding
Securities of such series have authorized or agreed or consented to such action,
and for that purpose the Outstanding Securities of such series shall be computed
as of such record date; provided that no such action by Holders on such record
date shall be deemed effective unless it shall become effective pursuant to the
provisions of this Indenture not later than six months after the record date.
Nothing in this paragraph shall be construed to prevent the Trustee from setting
a new record date for any action for which a record date has previously been set
pursuant to this paragraph (whereupon the record date previously set shall
automatically and with no action by any Person be cancelled and of no effect),
and nothing in this paragraph shall be construed to render ineffective any
action taken by Holders of the requisite principal amount of Outstanding
Securities of the relevant series on the date such action is taken. Promptly
after any record date is set pursuant to this paragraph, the Trustee, at the
Company's expense, shall cause notice of such record date and the proposed
action by Holders to be given to the Company in writing and to each Holder of
Securities of the relevant series in the manner set forth in Section 1.6.
Section 1.5. Notices, etc., to the Trustee, the Company and the Guarantors.
Any request, demand, authorization, direction, notice, consent, waiver or Act of
Holders or other document provided or permitted by this Indenture to be made
upon, given or furnished to, or filed with,
(a) the Trustee by any Holder or by the Company or any Guarantor shall be
sufficient for every purpose hereunder (unless otherwise herein expressly
provided) if in writing and mailed, first-class postage prepaid, to the Trustee
at its Corporate Trust Office, Attention: Corporate Trust Trustee
Administration, or
(b) the Company, or any Guarantor, by the Trustee or by any Holder shall be
sufficient for every purpose hereunder (unless otherwise herein expressly
provided) if in writing and mailed, first-class postage prepaid, to the Company,
or any Guarantor, addressed to it at Federal-Mogul Corporation, 26555
Northwestern Highway, Southfield, Michigan 48034, Attention: General Counsel or
at any other address previously furnished in writing to the Trustee by the
Company.
Section 1.6. Notice to Holders; Waiver. Where this Indenture provides for
notice to Holders of an event (i) if any of the Securities affected by such
event are Registered Securities, such notice to the Holders thereof shall be
sufficiently given (unless otherwise herein expressly provided) if in writing
and mailed first-class postage prepaid to each such Holder affected by such
event, at his address as it appears in the Register within the time prescribed
for the giving of such notice and, (ii) if any of the Securities affected by
such event are Bearer Securities, notice to the Holders thereof shall be
sufficiently given (unless otherwise herein or in the terms of such Bearer
Securities expressly provided) if published once in an Authorized
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Newspaper in New York, New York and in such other city or cities, if any, as may
be specified as contemplated by Section 3.1.
In any case where notice to Holders is given by mail, neither the failure
to mail such notice, nor any defect in any notice so mailed, to any particular
Holder shall affect the sufficiency of such notice with respect to other Holders
of Registered Securities or the sufficiency of any notice to Holders of Bearer
Securities given as provided herein. In any case where notice is given to
Holders by publication, neither the failure to publish such notice, nor any
defect in any notice so published, shall affect the sufficiency of such notice
with respect to other Holders of Bearer Securities or the sufficiency of any
notice with respect to any Holders of Registered Securities given as provided
herein. Any notice mailed to a Holder in the manner herein prescribed shall be
conclusively deemed to have been received by such Holder, whether or not such
Holder actually receives such notice.
If by reason of the suspension of regular mail service or by reason of any
other cause it shall be impracticable to give such notice as provided above,
then such notification as shall be made with the approval of the Trustee shall
constitute a sufficient notification for every purpose hereunder. If it is
impossible or, in the opinion of the Trustee, impracticable to give any notice
by publication in the manner herein required, then such publication in lieu
thereof as shall be made with the approval of the Trustee shall constitute a
sufficient publication of such notice.
Any request, demand, authorization, direction, notice, consent or waiver
required or permitted under this Indenture shall be in the English language,
except that any published notice may be in an official language of the country
of publication.
Where this Indenture provides for notice in any manner, such notice may be
waived in writing by the Person entitled to receive such notice, either before
or after the event and such waiver shall be the equivalent of such notice.
Waivers of notice by Holders shall be filed with the Trustee, but such filing
shall not be a condition precedent to the validity of any action taken in
reliance upon such waiver.
Section 1.7. Headings and Table of Contents. The Article and Section
headings herein and the Table of Contents are for convenience only and shall not
affect the construction hereof.
Section 1.8. Successors and Assigns. All covenants and agreements in this
Indenture by the Company and the Guarantors shall bind their respective
successors and assigns, whether so expressed or not.
Section 1.9. 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 1.10. 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.
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Section 1.11. Governing Law. THIS INDENTURE, THE SECURITIES AND ANY COUPONS
APPERTAINING THERETO AND THE GUARANTEES SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. This Indenture is subject to
the Trust Indenture Act and if any provision hereof limits, qualifies or
conflicts with any provision of the Trust Indenture Act, which is required under
such Act to be a part of and govern this Indenture, the latter provision shall
control. If any provision of this Indenture modifies or excludes any provision
of the Trust Indenture Act which may be so modified or excluded the latter
provision shall be deemed to apply to this Indenture as so modified or to be
excluded, as the case may be. Whether or not this Indenture is required to be
qualified under the Trust Indenture Act, the provisions of the Trust Indenture
Act required to be included in an indenture in order for such indenture to be so
qualified shall be deemed to be included in this Indenture with the same effect
as if such provisions were set forth herein and any provisions hereof which may
not be included in an indenture which is so qualified shall be deemed to be
deleted or modified to the extent such provisions would be required to be
deleted or modified in an indenture so qualified.
Section 1.12. Legal Holidays. In any case where any Interest Payment Date,
Redemption Date, sinking fund payment date, Stated Maturity or Maturity of any
Security shall not be a Business Day at any Place of Payment, then
(notwithstanding any other provision of this Indenture or of any Security or
coupon other than a provision in the Securities of any series which specifically
states that such provision shall apply in lieu of this Section) payment of
principal, premium, if any, or interest, if any, need not be made at such Place
of Payment on such date, but may be made on the next succeeding Business Day at
such Place of Payment with the same force and effect as if made on such date;
provided that no interest shall accrue on the amount so payable for the period
from and after such Interest Payment Date, Redemption Date, sinking fund payment
date, Stated Maturity or Maturity, as the case may be.
ARTICLE 2
SECURITY FORMS
Section 2.1. Forms Generally. The Securities of each series and the
coupons, if any, to be attached thereto shall be in substantially such form as
shall be established by or pursuant to a Board Resolution or in one or more
indentures supplemental hereto, in each case with such appropriate insertions,
omissions, substitutions and other variations as are required or permitted by
this Indenture and may have such letters, numbers or other marks of
identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange or Depositary
therefor or as may, consistently herewith, be determined by the officers
executing such Securities and coupons, if any, as evidenced by their execution
of the Securities and coupons, if any. If temporary Securities of any series are
issued as permitted by Section 3.4, the form thereof also shall be established
as provided in the preceding sentence. If the forms of Securities and coupons,
if any, of any series are established by, or by action taken pursuant to, a
Board Resolution, a copy of the Board Resolution together with an appropriate
record of any such action taken pursuant thereto, including a copy of the
approved form of Securities or coupons, if any, shall be certified by the
Secretary or an Assistant Secretary of the
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Company and delivered to the Trustee at or prior to the delivery of the Company
Order contemplated by Section 3.3 for the authentication and delivery of such
Securities.
Unless otherwise specified as contemplated by Section 3.1, Bearer
Securities shall have interest coupons attached.
The definitive Securities and coupons, if any, shall be printed,
lithographed or engraved on steel engraved borders or may be produced in any
other manner, all as determined by the officers executing such Securities and
coupons, if any, as evidenced by their execution of such Securities and coupons,
if any.
Section 2.2. Form of Trustee's Certificate of Authentication. The Trustee's
certificate of authentication shall be in substantially the following form:
This is one of the Securities of the series designated therein referred to
in the within-mentioned Indenture.
The Bank of New York
as Trustee
-------------------------
by Authorized Signatory
Section 2.3. Securities in Global Form. If Securities of or within a series
are issuable in whole or in part in global form, any such Security may provide
that it shall represent the aggregate or specified amount of Outstanding
Securities from time to time endorsed thereon and may also provide that the
aggregate amount of Outstanding Securities represented thereby may from time to
time be reduced or increased to reflect exchanges. Any endorsement of a Security
in global form to reflect the amount, or any increase or decrease in the amount,
or changes in the rights of Holders, of Outstanding Securities represented
thereby, shall be made in such manner and by such Person or Persons as shall be
specified therein or in the Company Order to be delivered to the Trustee
pursuant to Section 3.3 or 3.4. Subject to the provisions of Section 3.3 and, if
applicable, Section 3.4, the Trustee shall deliver and redeliver any security in
permanent global form in the manner and upon instructions given by the Person or
Persons specified therein or in the applicable Company Order. Any instructions
by the Company with respect to endorsement or delivery or redelivery of a
Security in global form shall be in writing but need not comply with Section 1.2
hereof and need not be accompanied by an Opinion of Counsel.
The provisions of the last paragraph of Section 3.3 shall apply to any
Security in global form if such Security was never issued and sold by the
Company and the Company delivers to the Trustee the Security in global form
together with written instructions (which need not comply with Section 1.2 and
need not be accompanied by an Opinion of Counsel) with regard to the reduction
in the principal amount of Securities represented thereby, together with the
written statement contemplated by the last paragraph of Section 3.3.
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Notwithstanding the provisions of Section 2.1, unless otherwise specified
as contemplated by Section 3.1, payment of principal of, premium, if any, and
interest, if any, on any Security in permanent global form shall be made to the
Person or Persons specified therein.
Section 2.4. Form of Legend for Securities in Global Form. Any Registered
Security in global form authenticated and delivered hereunder shall bear a
legend in substantially the following form with such changes as may be required
by the Depositary:
THIS SECURITY IS IN GLOBAL FORM WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A
NOMINEE OF A DEPOSITARY. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN
PART FOR SECURITIES IN CERTIFICATED FORM IN THE LIMITED CIRCUMSTANCES
DESCRIBED IN THE INDENTURE, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS
A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF
THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY
THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE
OF SUCH SUCCESSOR DEPOSITARY.
ARTICLE 3
THE SECURITIES
Section 3.1. Amount Unlimited; Issuable in Series. (a) The aggregate
principal amount of Securities which may be authenticated and delivered under
this Indenture is unlimited. The Securities may be issued from time to time in
one or more series.
(b) The following matters shall be established with respect to each
series of Securities issued hereunder (i) by a Board Resolution, (ii) by action
taken pursuant to a Board Resolution and (subject to Section 3.3) set forth, or
determined in the manner provided, in an Officers' Certificate or (iii) in one
or more indentures supplemental hereto:
(1) the title of the Securities of the series (which title shall
distinguish the Securities of the series from all other series of
Securities);
(2) any limit upon the aggregate principal amount of the Securities of
the series which may be authenticated and delivered under this Indenture
(which limit shall not pertain to (i) Securities authenticated and
delivered upon registration of transfer of, or in exchange for, or in lieu
of, other Securities of the series pursuant to Section 3.4, 3.5, 3.6, 8.6,
or 10.7 and (ii) any Securities which, pursuant to the last paragraph of
Section 3.3, are deemed never to have been authenticated and delivered
hereunder);
(3) the date or dates on which the principal of and premium, if any,
on the Securities of the series is payable or the method of determination
thereof;
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(4) the rate or rates at which the Securities of the series shall bear
interest, if any, or the method of calculating such rate or rates of
interest, the date or dates from which such interest shall accrue or the
method by which such date or dates shall be determined, the Interest
Payment Dates on which any such interest shall be payable and, with respect
to Registered Securities, the Regular Record Date, if any, for the interest
payable on any Registered Security on any Interest Payment Date;
(5) the place or places where the principal of, premium, if any, and
interest, if any, on Securities of the series shall be payable;
(6) the period or periods within which, the price or prices at which,
the currency or currencies (including currency unit or units) in which, and
the other terms and conditions upon which, Securities of the series may be
redeemed or otherwise purchased, in whole or in part, at the option of the
Company and, if other than as provided in Section 10, the manner in which
the particular Securities of such series (if less than all Securities of
such series are to be redeemed) are to be selected for redemption;
(7) the obligation, if any, and the limitations, if any, on the rights
of the Company to redeem or purchase Securities of the series pursuant to
any sinking fund or analogous provisions or upon the happening of a
specified event or at the option of a Holder thereof or at the Company's
option or otherwise, or to apply any purchases of Securities to any such
redemption, and, if any, the period or periods within which, the price or
prices at which, the application of purchases to redemptions, and the other
terms and conditions upon which Securities of the series shall be redeemed
or purchased, in whole or in part;
(8) if other than denominations of $1,000 and any integral multiple
thereof, if Registered Securities, and if other than denominations of
$5,000 and any integral multiple thereof, if Bearer Securities, the
denominations in which Securities of the series shall be issuable;
(9) if other than Dollars, the currency or currencies (including
currency unit or units) in which the principal of, premium, if any, and
interest, if any, on the Securities of the series shall be payable, or in
which the Securities of the series shall be denominated, and the particular
provisions applicable thereto in accordance with, in addition to, or in
lieu of the provisions of Section 3.12, and whether the Securities of the
series may be satisfied and discharged other than as provided in Article 4;
(10) if the payments of principal of, premium, if any, or interest, if
any, on the Securities of the series are to be made, at the election of the
Company or a Holder, in a currency or currencies (including currency unit
or units) other than that in which such Securities are denominated or
designated to be payable, the currency or currencies (including currency
unit or units) in which such payments are to be made, the terms and
conditions of such payments and the manner in which the exchange rate with
respect to such payments shall be determined, and the particular provisions
applicable thereto in accordance with, in addition to, or in lieu of the
provisions of Section 3.12, and whether
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the Securities of the series may be satisfied and discharged other than as
provided in Article 4;
(11) if the amount of payments of principal of, premium, if any, and
interest, if any, on the Securities of the series shall be determined with
reference to an index, formula or other method (which index, formula or
method may be based, without limitation, on a currency or currencies
(including currency unit or units) other than that in which the Securities
of the series are denominated or designated to be payable), the index,
formula or other method by which such amounts shall be determined;
(12) if other than the principal amount thereof, the portion of the
principal amount of such Securities of the series which shall be payable
upon declaration of acceleration thereof pursuant to Section 5.2 or the
method by which such portion shall be determined;
(13) if the principal amount payable at the Stated Maturity of any
Securities of the series will not be determinable as of any one or more
dates prior to the Stated Maturity, the amount which shall be deemed to be
the principal amount of such Securities as of any such date for any purpose
thereunder or hereunder, including the principal amount thereof which shall
be due and payable upon any Maturity other than the Stated Maturity or
which shall be deemed to be Outstanding as of any date prior to the Stated
Maturity (or, in any such case, the manner in which such amount deemed to
be the principal amount shall be determined);
(14) if other than as provided in Section 3.7, the Person to whom any
interest on any Registered Security of the series shall be payable and the
manner in which, or the Person to whom, any interest on any Bearer
Securities of the series shall be payable, and the extent to which, or the
manner in which (including any certification requirement and other terms
and conditions under which), any interest payable on a temporary or
permanent global Security on an Interest Payment Date will be paid if other
than in the manner provided in Section 2.3 and Section 3.4, as applicable;
(15) provisions, if any, granting special rights to the Holders of
Securities of the series upon the occurrence of such events as may be
specified or any provisions which may be related to rights of the Holders
to give any notice of acceleration, or to waive any past default or to
rescind and annul any declaration of acceleration and its consequences or
to institute or control any proceeding for any remedy with respect to
Securities of the series;
(16) any deletions from, modifications of or additions to the Events
of Default set forth in Section 5.1 or remedies set forth in Article 5 or
covenants of the Company set forth in Article 9 pertaining to the
Securities of the series;
(17) under what circumstances, if any, the Company will pay additional
amounts on the Securities of that series held by a Person who is not a U.S.
Person in respect of taxes or similar charges withheld or deducted and, if
so, whether the Company
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will have the option to redeem or otherwise purchase such Securities rather
than pay such additional amounts (and the terms of any such option);
(18) whether Securities of the series shall be issuable as Registered
Securities or Bearer Securities (with or without interest coupons), or
both, and any restrictions applicable to the offering, sale or delivery of
Bearer Securities and, if other than as provided in Section 3.5, the terms
upon which Bearer Securities of a series may be exchanged for Registered
Securities of the same series and vice versa;
(19) the date as of which any Bearer Securities of the series and any
temporary global Security representing Outstanding Securities of the series
shall be dated if other than the date of original issuance of the first
Security of the series to be issued;
(20) the forms of the Securities and coupons, if any, of the series;
(21) the applicability, if any, to the Securities of or within the
series of Sections 4.4 and 4.5, or such other means of defeasance or
covenant defeasance as may be specified for the Securities and coupons, if
any, of such series, and, if the Securities are payable in a currency other
than Dollars, whether, for the purpose of such defeasance or covenant
defeasance the term "Government Obligations" shall include obligations
referred to in the definition of such term which are not obligations of the
United States or an agency or instrumentality of the United States;
(22) if other than the Trustee, the identity of the Registrar and any
Paying Agent;
(23) the designation of the initial Exchange Rate Agent, if any;
(24) if the Securities of the series shall be issued in whole or in
part in global form (i) the Depositary for such global Securities, (ii) the
form of any legend in addition to or in lieu of that in Section 2.4 which
shall be borne by such global security, (iii) whether beneficial owners of
interests in any Securities of the series in global form may exchange such
interests for certificated Securities of such series and of like tenor of
any authorized form and denomination, and (iv) if other than as provided in
Section 3.5, the circumstances under which any such exchange may occur;
(25) whether Securities of the series are convertible into Common
Stock or Preferred Stock, and, if so, the class or series of capital stock
of the Company into which such Securities are convertible and the terms and
conditions upon which such conversion will be effected, including the
initial conversion price or conversion rate and other conversion
provisions; and
(26) any other terms of the series (which terms shall not be
inconsistent with the provisions of this Indenture and the Trust Indenture
Act) including any terms which may be required by or advisable under United
States laws or regulations or advisable (as determined by the Company) in
connection with the marketing of Securities of the series.
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(c) All Securities of any one series and coupons, if any, appertaining
to any Bearer Securities of such series shall be substantially identical except,
in the case of Registered Securities, as to denomination and except as may
otherwise be provided (i) by a Board Resolution, (ii) by action taken pursuant
to a Board Resolution and (subject to Section 3.3) set forth or determined in
the manner provided, in the related Officers' Certificate or (iii) in an
indenture supplemental hereto. All Securities of any one series need not be
issued at the same time and, unless otherwise provided, a series may be
reopened, without the consent of the Holders, for issuances of additional
Securities of such series.
(d) If any of the terms of the Securities of any series are
established by action taken pursuant to a Board Resolution, a copy of such Board
Resolution shall be certified by the Corporate Secretary or an Assistant
Secretary of the Company and delivered to the Trustee at or prior to the
delivery of the Officers' Certificate setting forth, or providing the manner for
determining, the terms of the Securities of such series, and an appropriate
record of any action taken pursuant thereto in connection with the issuance of
any Securities of such series shall be delivered to the Trustee prior to the
authentication and delivery thereof. With respect to Securities of a series
subject to a Periodic Offering, such Board Resolutions or Officers' Certificates
may provide general terms for Securities of such series and provide either that
the specific terms of particular securities of such series shall be specified in
a Company Order, or that such terms shall be determined by the Company, or one
or more of its agents designated in its Officers' Certificates, in accordance
with the Company Order, as contemplated by the first proviso of the third
paragraph of Section 3.3.
Section 3.2. Denominations. Unless otherwise provided as contemplated by
Section 3.1, any Registered Securities of a series shall be issuable in
denominations of $1,000 and any integral multiple thereof and any Bearer
Securities of a series shall be issuable in denominations of $5,000 and any
integral multiples thereof.
Section 3.3. Execution, Authentication, Delivery and Dating. Securities
shall be executed on behalf of the Company by an Officer and attested by a
second Officer. The signatures of any of these Officers on the Securities may be
manual or facsimile. The coupons, if any, of Bearer Securities shall bear the
facsimile signature of two Officers.
Securities and coupons bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company shall bind
the Company, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the authentication and delivery of such Securities or
did not hold such offices at the date of such Securities.
At any time and from time to time, the Company may deliver Securities,
together with any coupons appertaining thereto, of any series executed by the
Company to the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities, and the Trustee in accordance
with the Company Order shall authenticate and deliver such Securities; provided,
however, that in the case of Securities offered in a Periodic Offering, the
Trustee shall authenticate and deliver such Securities from time to time in
accordance with such other procedures (including, without limitation, the
receipt by the Trustee of oral or electronic instructions from the Company or
its duly authorized agents, promptly confirmed in
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writing) reasonably acceptable to the Trustee as may be specified by or pursuant
to a Company Order delivered to the Trustee prior to the time of the first
authentication of Securities of such series.
If the form or terms of the Securities of a series have been established by
or pursuant to one or more Board Resolutions as permitted by Sections 2.1 and
3.1, in authenticating such Securities and accepting the additional
responsibilities under this Indenture in relation to such Securities, the
Trustee shall be entitled to receive, and (subject to Section 315(a) through (d)
of the Trust Indenture Act) shall be fully protected in relying upon, an Opinion
of Counsel stating,
(1) if the forms of such Securities and any coupons have been
established by or pursuant to a Board Resolution as permitted by Section
2.1, that such forms have been established in conformity with the
provisions of this Indenture;
(2) if the terms of such Securities and any coupons have been
established by or pursuant to a Board Resolution as permitted by Section
3.1, that such terms have been, or in the case of Securities of a series
offered in a Periodic Offering, will be, established in conformity with the
provisions of this Indenture, subject in the case of Securities offered in
a Periodic Offering, to any conditions specified in such Opinion of
Counsel; and
(3) that such Securities together with any coupons appertaining
thereto, when authenticated and delivered by the Trustee and issued by the
Company in the manner and subject to any conditions specified in such
Opinion of Counsel, will constitute valid and binding obligations of the
Company, enforceable in accordance with their terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and other
similar laws of general applicability relating to or affecting the
enforcement of creditors' rights and to general equity principles and
except further as enforcement thereof may be limited by (A) requirements
that a claim with respect to any Securities denominated other than in
Dollars (or a Foreign Currency or currency unit judgment in respect of such
claim) be converted into Dollars at a rate of exchange prevailing on a date
determined pursuant to applicable law or (B) governmental authority to
limit, delay or prohibit the making of payments in Foreign Currencies or
currency units or payments outside the United States.
Notwithstanding that such form or terms have been so established, the Trustee
shall have the right to decline to authenticate such Securities if, in the
written opinion of counsel to the Trustee (which counsel may be an employee of
the Trustee) reasonably acceptable to the Company, the issue of such Securities
pursuant to this Indenture will adversely affect the Trustee's own rights,
duties or immunities under this Indenture or otherwise in a manner which the
Trustee reasonably determines, by action of its board of directors or trustees,
executive committee, or a trust committee of directors or trustees or vice
presidents, that such action would expose the Trustee to personal liability to
existing Holders. Notwithstanding the generality of the foregoing, the Trustee
will not be required to authenticate Securities denominated in a Foreign
Currency if the Trustee reasonably believes that it would be unable to perform
its duties with respect to such Securities.
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Notwithstanding the provisions of Section 3.1 and of the two preceding
paragraphs, if all of the Securities of any series are not to be issued at one
time, it shall not be necessary to deliver the Officers' Certificate otherwise
required pursuant to Section 3.1 or the Company Order and Opinion of Counsel
otherwise required pursuant to the two preceding paragraphs in connection with
the authentication of each Security of such series if such documents, with
appropriate modifications to cover such future issuances, are delivered at or
prior to the authentication upon original issuance of the first Security of such
series to be issued.
With respect to Securities of a series offered in a Periodic Offering, the
Trustee and all other Holders may rely upon the documents delivered pursuant to
Sections 2.1 and 3.1 and this Section, as applicable, in connection with the
first authentication of Securities of such series.
If the Company shall establish pursuant to Section 3.1 that the Securities
of a series are to be issued in whole or in part in global form, then the
Company shall execute and the Trustee shall, in accordance with this Section and
the Company Order with respect to such series, authenticate and deliver one or
more Securities in global form that (i) shall represent and shall be denominated
in an amount equal to the aggregate principal amount of the Outstanding
Securities of such series to be represented by such Security or Securities in
global form, (ii) shall be registered, if a Registered Security, in the name of
the Depositary for such Security or Securities in global form or the nominee of
such Depositary, (iii) shall be delivered by the Trustee to such Depositary or
pursuant to such Depositary's instruction and (iv) shall bear the legends set
forth in Section 4 and the terms determined by or pursuant to the Board
Resolution or supplemental indenture relating to such series.
Each Depositary designated pursuant to Section 3.1 for a Registered
Security in global form must, at the time of its designation and at all times
while it serves as Depositary, be a clearing agency registered under the
Securities Exchange Act of 1934 and any other applicable statute or regulation.
The Trustee shall have no responsibility to determine if the Depositary is so
registered. Each Depositary shall enter into an agreement with the Trustee
governing the respective duties and rights of such Depositary and the Trustee
with regard to Securities issued in global form.
Each Registered Security shall be dated the date of its authentication and
each Bearer Security shall be dated as of the date specified as contemplated by
Section 3.1.
No Security or coupon appertaining thereto shall be entitled to any
benefits under this Indenture or be valid or obligatory for any purpose until
authenticated by the manual signature of one of the authorized signatories of
the Trustee or an Authenticating Agent and no coupon shall be valid until the
Security to which it appertains has been so authenticated. Such signature upon
any Security shall be conclusive evidence, and the only evidence, that such
Security has been duly authenticated and delivered under this Indenture and is
entitled to the benefits of this Indenture. Except as permitted by Section 3.6
or 3.7, the Trustee shall not authenticate and deliver any Bearer Security
unless all appurtenant coupons for interest then matured have been detached and
cancelled.
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Notwithstanding the foregoing, if any Security shall have been
authenticated and delivered hereunder but never issued and sold by the Company,
and the Company shall deliver such Security to the Trustee for cancellation as
provided in Section 3.9 together with a written statement (which need not comply
with Section 1.2 and need not be accompanied by an Opinion of Counsel) stating
that such Security has never been issued and sold by the Company, for all
purposes of this Indenture such Security shall be deemed never to have been
authenticated and delivered hereunder and shall not be entitled to the benefits
of this Indenture.
Section 3.4. Temporary Securities. Pending the preparation of definitive
Securities of any series, the Company may execute and, upon Company Order, the
Trustee shall authenticate and deliver temporary Securities of such series which
are printed, lithographed, typewritten, mimeographed or otherwise produced, in
any authorized denomination, substantially of the tenor and form, with or
without coupons, of the definitive Securities in lieu of which they are issued
and with such appropriate insertions, omissions, substitutions and other
variations as the officers executing such Securities may determine, as
conclusively evidenced by their execution of such Securities and coupons, if
any. In the case of Securities of any series, such temporary Securities may be
in global form, representing all or a portion of the Outstanding Securities of
such series.
Except in the case of temporary Securities in global form, each of which
shall be exchanged in accordance with the provisions thereof, if temporary
Securities of any series are issued, the Company will cause definitive
Securities of such series to be prepared without unreasonable delay. After
preparation of definitive Securities of such series, the temporary Securities of
such series shall be exchangeable for definitive Securities of such series upon
surrender of the temporary Securities of such series at the office or agency of
the Company pursuant to Section 9.2 in a Place of Payment for such series,
without charge to the Holder. Upon surrender for cancellation of any one or more
temporary Securities of any series (accompanied by any unmatured coupons
appertaining thereto), the Company shall execute and the Trustee shall
authenticate and deliver in exchange therefor a like principal amount of
definitive Securities of the same series of authorized denominations and of like
tenor; provided, however, that no definitive Bearer Security shall be delivered
in exchange for a temporary Registered Security; and provided further that no
definitive Bearer Security shall be delivered in exchange for a temporary Bearer
Security unless the Trustee shall have received from the person entitled to
receive the definitive Bearer Security a certificate substantially in the form
approved in or pursuant to the Board Resolutions relating thereto and such
delivery shall occur only outside the United States. Until so exchanged, the
temporary Securities of any series shall in all respects be entitled to the same
benefits under this Indenture as definitive Securities of such series except as
otherwise specified as contemplated by Section 3.1.
Section 3.5. Registration, Transfer and Exchange. The Company shall cause
to be kept at the Corporate Trust Office of the Trustee or in any office or
agency to be maintained by the Company in accordance with Section 9.2 in a Place
of Payment a register (the "Register") in which, subject to such reasonable
regulations as it may prescribe, the Company shall provide for the registration
of Registered Securities and the registration of transfers of Registered
Securities. The Register shall be in written form or in any other form capable
of being converted into written form within a reasonable time. The Trustee is
hereby appointed "Registrar" for the
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purpose of registering Registered Securities and transfers of Registered
Securities as herein provided.
Upon surrender for registration of transfer of any Registered Security of
any series at the office or agency maintained pursuant to Section 9.2 in a Place
of Payment for that series, the Company shall execute, and the Trustee shall
authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Registered Securities of the same series, of any
authorized denominations and of a like aggregate principal amount containing
identical terms and provisions.
Bearer Securities or any coupons appertaining thereto shall be transferable
by delivery.
At the option of the Holder, Registered Securities of any series (except a
Registered Security in global form) may be exchanged for other Registered
Securities of the same series, of any authorized denominations and of a like
aggregate principal amount containing identical terms and provisions, upon
surrender of the Registered Securities to be exchanged at such office or agency.
Whenever any Registered Securities are so surrendered for exchange, the Company
shall execute, and the Trustee shall authenticate and deliver, the Registered
Securities which the Holder making the exchange is entitled to receive. Unless
otherwise specified as contemplated by Section 3.1, Bearer Securities may not be
issued in exchange for Registered Securities.
Unless otherwise specified as contemplated by Section 3.1, at the option of
the Holder, Bearer Securities of such series may be exchanged for Registered
Securities (if the Securities of such series are issuable in registered form) or
Bearer Securities (if Bearer Securities of such series are issuable in more than
one denomination and such exchanges are permitted by such series) of the same
series, of any authorized denominations and of like tenor and aggregate
principal amount, upon surrender of the Bearer Securities to be exchanged at any
such office or agency, with all unmatured coupons and all matured coupons in
default thereto appertaining. If the Holder of a Bearer Security is unable to
produce any such unmatured coupon or coupons or matured coupon or coupons in
default, such exchange may be effected if the Bearer Securities are accompanied
by payment in funds acceptable to the Company and the Trustee in an amount equal
to the face amount of such missing coupon or coupons, or the surrender of such
missing coupon or coupons may be waived by the Company and the Trustee if there
be furnished to them such security or indemnity as they may require to save each
of them and any Paying Agent harmless. If thereafter the Holder of such Security
shall surrender to any Paying Agent any such missing coupon in respect of which
such a payment shall have been made, such Holder shall be entitled to receive
the amount of such payment; provided, however, that, except as otherwise
provided in Section 9.2, interest represented by coupons shall be payable only
upon presentation and surrender of those coupons at an office or agency located
outside the United States. Notwithstanding the foregoing, in case any Bearer
Security of any series is surrendered at any such office or agency in exchange
for a Registered Security of the same series after the close of business at such
office or agency on (i) any Regular Record Date and before the opening of
business at such office or agency on the relevant Interest Payment Date, or (ii)
any Special Record Date and before the opening of business at such office or
agency on the related date for payment of Defaulted Interest, such Bearer
Security shall be surrendered without the coupon
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relating to such Interest Payment Date or proposed date of payment, as the case
may be (or, if such coupon is so surrendered with such Bearer Security, such
coupon shall be returned to the person so surrendering the Bearer Security), and
interest or Defaulted Interest, as the case may be, will not be payable on such
Interest Payment Date or proposed date for payment, as the case may be, in
respect of the Registered Security issued in exchange for such Bearer Security,
but will be payable only to the Holder of such coupon, when due in accordance
with the provisions of this Indenture.
Each Security issued in global form authenticated under this Indenture
shall be registered in the name of the Depositary designated for such series or
a nominee thereof and delivered to such Depositary or a nominee thereof or
custodian therefor, and each such Security issued in global form shall
constitute a single Security for all purposes of this Indenture.
Notwithstanding any other provision (other than the provisions set forth in
the eighth, ninth and tenth paragraphs of this Section) of this Section, unless
and until it is exchanged in whole or in part for Securities in certificated
form in the circumstances described below, a Security in global form
representing all or a portion of the Securities of a series may not be
transferred except as a whole by the Depositary for such series to a nominee of
such Depositary or by a nominee of such Depositary to such Depositary or another
nominee of such Depositary or by such Depositary or any such nominee to a
successor Depositary for such series or a nominee of such successor Depositary.
If at any time the Depositary for the Securities of a series notifies the
Company that it is unwilling or unable to continue as Depositary for the
Securities of such series or if at any time the Depositary for the Securities of
such series shall no longer be eligible under Section 3.3, the Company shall
appoint a successor Depositary with respect to the Securities of such series. If
a successor Depositary for the Securities of such series is not appointed by the
Company within 90 days after the Company receives such notice or becomes aware
of such ineligibility, the Company's election pursuant to Section 3.1(b)(24)
shall no longer be effective with respect to the Securities of such series and
the Company shall execute, and the Trustee, upon receipt of a Company Order for
the authentication and delivery of certificated Securities of such series of
like tenor, shall authenticate and deliver Securities of such series of like
tenor in certificated form, in authorized denominations and in an aggregate
principal amount equal to the principal amount of the Security or Securities of
such series of like tenor in global form in exchange for such Security or
Securities in global form.
The Company may at any time in its sole discretion determine that
Securities of a series issued in global form shall no longer be represented by
such a Security or Securities in global form. In such event the Company shall
execute, and the Trustee, upon receipt of a Company Order for the authentication
and delivery of certificated Securities of such series of like tenor, shall
authenticate and deliver, Securities of such series of like tenor in
certificated form, in authorized denominations and in an aggregate principal
amount equal to the principal amount of the Security or Securities of such
series of like tenor in global form in exchange for such Security or Securities
in global form.
If specified by the Company pursuant to Section 3.1 with respect to a
series of Securities, the Depositary for such series may surrender a Security in
global form of such series
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in exchange in whole or in part for Securities of such series in certificated
form on such terms as are acceptable to the Company and such Depositary.
Thereupon, the Company shall execute, and the Trustee shall authenticate and
deliver, without service charge,
(i) to each Person specified by such Depositary a new certificated
Security or Securities of the same series of like tenor, of any authorized
denomination as requested by such Person, in aggregate principal amount
equal to and in exchange for such Person's beneficial interest in the
Security in global form; and
(ii) to such Depositary a new Security in global form of like tenor in
a denomination equal to the difference, if any, between the principal
amount of the surrendered Security in global form and the aggregate
principal amount of certificated Securities delivered to Holders thereof.
Upon the exchange of a Security in global form for Securities in
certificated form, such Security in global form shall be cancelled by the
Trustee. Unless expressly provided with respect to the Securities of any series
that such Security may be exchanged for Bearer Securities, Securities in
certificated form issued in exchange for a Security in global form pursuant to
this Section shall be registered in such names and in such authorized
denominations as the Depositary for such Security in global form, pursuant to
instructions from its direct or indirect participants or otherwise, shall
instruct the Trustee. The Trustee shall deliver such Securities to the Persons
in whose names such Securities are so registered.
Whenever any Securities are surrendered for exchange, the Company shall
execute, and the Trustee shall authenticate and deliver, the Securities which
the Holder making the exchange is entitled to receive.
All Securities issued upon any registration of transfer or upon any
exchange of Securities shall be the valid obligations of the Company, evidencing
the same debt, and entitled to the same benefits under this Indenture, as the
Securities surrendered upon such registration of transfer or exchange.
Every Registered Security presented or surrendered for registration of
transfer or for exchange shall (if so required by the Company, the Registrar or
the Trustee) be duly endorsed, or be accompanied by a written instrument of
transfer in form satisfactory to the Company, the Registrar and the Trustee duly
executed by the Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or for any
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any registration or transfer or exchange of Securities, other than
exchanges pursuant to Section 3.4, 8.6 or 10.7 not involving any transfer.
The Company shall not be required (i) to issue, register the transfer of,
or exchange any Securities for a period beginning at the opening of business 15
days before any selection for redemption of Securities of like tenor and of the
series of which such Security is a part and ending at the close of business on
the earliest date on which the relevant notice of
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redemption is deemed to have been given to all Holders of Securities of like
tenor and of such series to be redeemed; (ii) to register the transfer of or
exchange any Registered Security selected for redemption, in whole or in part,
except the unredeemed portion of any Security being redeemed in part; or (iii)
to exchange any Bearer Security selected for redemption, except that such a
Bearer Security may be exchanged for a Registered Security of that series and
like tenor; provided that such Registered Security shall be simultaneously
surrendered for redemption.
The foregoing provisions relating to registration, transfer and exchange
may be modified, supplemented or superseded with respect to any series of
Securities by or pursuant to a Board Resolution or in one or more indentures
supplemental hereto.
Section 3.6. Replacement Securities. If a mutilated Security or a Security
with a mutilated coupon appertaining to it is surrendered to the Trustee,
together with, in proper cases, such security or indemnity as may be required by
the Company or the Trustee to save each of them harmless, the Company shall
execute and the Trustee shall authenticate and deliver a replacement Registered
Security, if such surrendered Security was a Registered Security, or a
replacement Bearer Security with coupons corresponding to the coupons
appertaining to the surrendered Security, if such surrendered Security was a
Bearer Security, of the same series and date of maturity, if the Trustee's
requirements are met.
If there shall be delivered to the Company and the Trustee (i) evidence to
their satisfaction of the destruction, loss or theft of any Security or Security
with a destroyed, lost or stolen coupon and (ii) such security or indemnity as
may be required by them to save each of them and any agent of either of them
harmless, then, in the absence of notice to the Company or the Trustee that such
Security or coupon has been acquired by a bona fide purchaser, the Company shall
execute and the Trustee shall authenticate and deliver in lieu of any such
destroyed, lost or stolen Security or in exchange for the Security to which a
destroyed, lost or stolen coupon appertains (with all appurtenant coupons not
destroyed, lost or stolen), a replacement Registered Security, if such Holder's
claim appertains to a Registered Security, or a replacement Bearer Security with
coupons corresponding to the coupons appertaining to the destroyed, lost or
stolen Bearer Security or the Bearer Security to which such lost, destroyed or
stolen coupon appertains, if such Holder's claim appertains to a Bearer
Security, of the same series and principal amount, containing identical terms
and provisions and bearing a number not contemporaneously outstanding with
coupons corresponding to the coupons, if any, appertaining to the destroyed,
lost or stolen Security.
In case any such mutilated, destroyed, lost or stolen Security or coupon
has become or is about to become due and payable, the Company in its discretion
may, instead of issuing a new Security or coupon, pay such Security or coupon;
provided, however, that payment of principal of and any premium or interest on
Bearer Securities shall, except as otherwise provided in Section 9.2, be payable
only at an office or agency located outside the United States and, unless
otherwise specified as contemplated by Section 3.1, any interest on Bearer
Securities shall be payable only upon presentation and surrender of the coupons
appertaining thereto.
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
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be imposed in relation thereto and any other expenses (including the fees and
expenses of the Trustee, its agents and counsel) connected therewith.
Every new Security of any series with its coupons, if any, issued pursuant
to this Section in lieu of any destroyed, lost or stolen Security, or in
exchange for a Security to which a destroyed, lost or stolen coupon appertains,
shall constitute an original additional contractual obligation of the Company,
whether or not the destroyed, lost or stolen Security and its coupon, if any, or
the destroyed, lost or stolen coupon, shall be at any time enforceable by
anyone, and shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Securities of that series and their
coupons, if any, duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities or coupons.
Section 3.7. Payment of Interest; Interest Rights Preserved. (a) Unless
otherwise provided as contemplated by Section 3.1 with respect to any series of
Securities, interest, if any, on any Registered Security which is payable, and
is punctually paid or duly provided for, on any Interest Payment Date shall be
paid to the Person in whose name that Security (or one or more Predecessor
Securities) is registered at the close of business on the Regular Record Date
for such interest at the office or agency maintained for such purpose pursuant
to Section 9.2; provided, however, that at the option of the Company, interest
on any series of Registered Securities that earn interest may be paid (i) by
check mailed to the address of the Person entitled thereto as it shall appear on
the Register of Holders of Securities of such series or (ii) at the expense of
the Company, by wire transfer to an account maintained by the Person entitled
thereto as specified in the Register of Holders of Securities of such series.
Unless otherwise provided as contemplated by Section 3.1 with respect to
any series of Securities, (i) interest, if any, on Bearer Securities shall be
paid only against presentation and surrender of the coupons for such interest
installments as are evidenced thereby as they mature and (ii) original issue
discount, if any, on Bearer Securities shall be paid only against presentation
and surrender of such Securities; in either case at the office of a Paying Agent
located outside the United States, unless the Company shall have otherwise
instructed the Trustee in writing, provided that any such instruction for
payment in the United States does not cause any Bearer Security to be treated as
a "registration-required obligation" under United States laws and regulations.
The interest, if any, on any temporary Bearer Security shall be paid, as to any
installment of interest evidenced by a coupon attached thereto, only upon
presentation and surrender of such coupon and, as to other installments of
interest, only upon presentation of such Security for notation thereon of the
payment of such interest. If at the time a payment of principal of, premium, if
any, or interest, if any, on a Bearer Security or coupon shall become due, the
payment of the full amount so payable at the office or offices of all the Paying
Agents outside the United States is illegal or effectively precluded because of
the imposition of exchange controls or other similar restrictions on the payment
of such amount in Dollars, then the Company may instruct the Trustee to make
such payments at a Paying Agent located in the United States, provided that
provision for such payment in the United States would not cause such Bearer
Security to be treated as a "registration-required obligation" under United
States laws and regulations.
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(b) Unless otherwise provided as contemplated by Section 3.1 with
respect to any series of Securities, any interest on Registered Securities of
any series which is payable, but is not punctually paid or duly provided for, on
any Interest Payment Date (herein called "Defaulted Interest") shall forthwith
cease to be payable to the Holders on the relevant Regular Record Date by virtue
of their having been such Holders, and such Defaulted Interest may be paid by
the Company, at its election in each case, as provided in clause (1) or (2)
below:
(1) The Company may elect to make payment of such Defaulted Interest
to the Persons in whose names such Registered Securities (or their
respective Predecessor Securities) are registered at the close of business
on a Special Record Date for the payment of such Defaulted Interest, which
shall be fixed in the following manner. The Company shall deposit with the
Trustee an amount of money equal to the aggregate amount proposed to be
paid in respect of such Defaulted Interest or shall make arrangements
satisfactory to the Trustee for such deposit prior to the date of the
proposed payment, such money when deposited to be held in trust for the
benefit the Persons entitled to such Defaulted Interest as in this clause
(1) provided. Thereupon the Trustee shall fix a Special Record Date for the
payment of such Defaulted Interest which shall be not more than 15 days and
not less than 10 days prior to the date of the proposed payment and not
less than 10 days after the receipt by the Trustee of the notice of the
proposed payment. The Trustee shall promptly notify the Company of such
Special Record Date and, in the name and at the expense of the Company,
shall cause notice of the proposed payment of such Defaulted Interest and
the Special Record Date therefor to be mailed, first-class postage prepaid,
to each Holder of such Registered Securities at his address as it appears
in the Register, not less than 10 days prior to such Special Record Date.
Notice of the proposed payment of such Defaulted Interest and the Special
Record Date therefor having been so mailed, such Defaulted Interest shall
be paid to the Persons in whose names such Registered Securities (or their
respective Predecessor Securities) are registered at the close of business
on such Special Record Date and shall no longer be payable pursuant to the
following clause (2).
(2) The Company may make payment of such Defaulted Interest to the
Persons in whose names such Registered Securities (or their respective
Predecessor Securities) are registered at the close of business on a
specified date in any other lawful manner not inconsistent with the
requirements of any securities exchange on which such Registered Securities
may be listed, and upon such notice as may be required by such exchange,
if, after notice given by the Company to the Trustee of the proposed
payment pursuant to this clause (2), such manner of payment shall be deemed
practicable by the Trustee.
(c) Subject to the foregoing provisions of this Section and Section
3.5, each Security delivered under this Indenture upon registration of transfer
of or in exchange for or in lieu of any other Security shall carry the rights to
interest accrued and unpaid, and to accrue, which were carried by such other
Security.
Section 3.8. Persons Deemed Owners. Prior to due presentment of any
Registered Security for registration of transfer, the Company, the Trustee and
any agent of the Company or the Trustee may treat the Person in whose name such
Registered Security is
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registered as the owner of such Registered Security for the purpose of receiving
payment of principal of, premium, if any, and (subject to Section 3.7) interest,
if any, on such Registered Security and for all other purposes whatsoever,
whether or not such Registered Security be overdue, and neither the Company, the
Trustee nor any agent of the Company or the Trustee shall be affected by notice
to the contrary.
The Company, the Trustee and an agent of the Company or the Trustee may
treat the bearer of any Bearer Security and the bearer of any coupon as the
absolute owner of such Bearer Security or coupon for the purpose of receiving
payment thereof or on account thereof and for all other purposes whatsoever,
whether or not such Bearer Security or coupon be overdue, and neither the
Company, the Trustee nor any agent of the Company or the Trustee shall be
affected by notice to the contrary.
None of the Company, the Trustee or any agent of the Company or the Trustee
shall have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests of a
Security in global form, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests. Notwithstanding the
foregoing, with respect to any Security in global form, nothing herein shall
prevent the Company or the Trustee, or any agent of the Company or the Trustee,
from giving effect to any written certification, proxy or other authorization
furnished by any Depositary (or its nominee) as a Holder, with respect to such
Security in global form or impair, as between such Depositary and owners of
beneficial interests in such Security in global form, the operation of customary
practices governing the exercise of the rights of such Depositary (or its
nominee) as Holder of such Security in global form.
Section 3.9. Cancellation. The Company at any time may deliver Securities
and coupons to the Trustee for cancellation. The Registrar and any Paying Agent
shall forward to the Trustee any Securities and coupons surrendered to them for
replacement, for registration of transfer, or for exchange or payment. The
Trustee shall cancel all Securities and coupons surrendered for replacement, for
registration of transfer, or for exchange, payment, redemption or cancellation
and may, but shall not be required to, dispose of cancelled Securities and
coupons and issue a certificate of destruction to the Company. The Company may
not issue new Securities to replace Securities that it has paid or delivered to
the Trustee for cancellation, except as expressly permitted in the terms of
Securities for any particular series or as permitted pursuant to the terms of
this Indenture.
Section 3.10. Computation of Interest. Except as otherwise specified as
contemplated by Section 3.1, interest on the Securities of each series shall be
computed on the basis of a 360-day year of twelve 30-day months.
Section 3.11. CUSIP Numbers. The Company in issuing the Securities may use
"CUSIP" numbers (if then generally in use), and, in such case, the Trustee shall
use "CUSIP" numbers in notices of redemption as a convenience to Holders;
provided that any such notice may state that no representation is made as to the
correctness of such numbers either as printed on the Securities or as contained
in any notice of a redemption and that reliance may be placed only on the other
identification numbers printed on the Securities, and any such redemption shall
not be affected by any defect in or omission of such numbers.
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Section 3.12. Currency and Manner of Payment in Respect of Securities. (a)
Unless otherwise specified with respect to any Securities pursuant to Section
3.1, with respect to Registered Securities of any series not permitting the
election provided for in paragraph (b) below or the Holders of which have not
made the election provided for in paragraph (b) below, and with respect to
Bearer Securities of any series, except as provided in paragraph (d) below,
payment of the principal of, premium, if any, and interest, if any, on any
Registered or Bearer Security of such series will be made in the currency or
currencies or currency unit or units in which such Registered Security or Bearer
Security, as the case may be, is payable. The provisions of this Section 3.12
may be modified or superseded pursuant to Section 3.1 with respect to any
Securities.
(b) It may be provided pursuant to Section 3.1, with respect to Registered
Securities of any series, that Holders shall have the option, subject to
paragraphs (d) and (e) below, to receive payments of principal of, premium, if
any, or interest, if any, on such Registered Securities in any of the currencies
or currency units which may be designated for such election by delivering to the
Trustee (or the applicable Paying Agent) a written election with signature
guarantees and in the applicable form established pursuant to Section 3.1, not
later than the close of business on the Election Date immediately preceding the
applicable payment date. If a Holder so elects to receive such payments in any
such currency or currency unit, such election will remain in effect for such
Holder or any transferee of such Holder until changed by such Holder or such
transferee by written notice to the Trustee (or any applicable Paying Agent) for
such series of Registered Securities (but any such change must be made not later
than the close of business on the Election Date immediately preceding the next
payment date to be effective for the payment to be made on such payment date,
and no such change of election may be made with respect to payments to be made
on any Registered Security of such series with respect to which an Event of
Default has occurred or with respect to which the Company has deposited funds
pursuant to Article 4 or with respect to which a notice of redemption has been
given by or on behalf of the Company). Any Holder of any such Registered
Security who shall not have delivered any such election to the Trustee (or any
applicable Paying Agent) not later than the close of business on the applicable
Election Date will be paid the amount due on the applicable payment date in the
relevant currency or currency unit as provided in Section 3.12(a). The Trustee
(or the applicable Paying Agent) shall notify the Exchange Rate Agent as soon as
practicable after the Election Date of the aggregate principal amount of
Registered Securities for which Holders have made such written election.
(c) If the election referred to in paragraph (b) above has been provided
for with respect to any Registered Securities of a series pursuant to Section
3.1, then, unless otherwise specified pursuant to Section 3.1 with respect to
any such Registered Securities, not later than the fourth Business Day after the
Election Date for each payment date for such Registered Securities, the Exchange
Rate Agent will deliver to the Company a written notice specifying, in the
currency or currencies or currency unit or units in which Registered Securities
of such series are payable, the respective aggregate amounts of principal of,
premium, if any, and interest, if any, on such Registered Securities to be paid
on such payment date, and specifying the amounts in such currency or currencies
or currency unit or units so payable in respect of such Registered Securities as
to which the Holders of Registered Securities denominated in any currency or
currencies or currency unit or units shall have elected to be paid in another
currency or currency unit as provided in paragraph (b) above. If the election
referred to in paragraph (b)
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above has been provided for with respect to any Registered Securities of a
series pursuant to Section 3.1, and at least one Holder has made such election,
then, unless otherwise specified pursuant to Section 3.1, on the second Business
Day preceding such payment date the Company will deliver to the Trustee (or the
applicable Paying Agent) an Exchange Rate Officers' Certificate in respect of
the Dollar, Foreign Currency or Currencies, ECU or other currency unit payments
to be made on such payment date. Unless otherwise specified pursuant to Section
3.1, the Dollar, Foreign Currency or Currencies, ECU or other currency unit
amount receivable by Holders of Registered Securities who have elected payment
in a currency or currency unit as provided in paragraph (b) above shall be
determined by the Company on the basis of the applicable Market Exchange Rate in
effect on the second Business Day (the "Valuation Date") immediately preceding
each payment date, and such determination shall be conclusive and binding for
all purposes, absent manifest error.
(d) If a Conversion Event occurs with respect to a Foreign Currency, ECU or
any other currency unit in which any of the Securities are denominated or
payable otherwise than pursuant to an election provided for pursuant to
paragraph (b) above, then, with respect to each date for the payment of
principal of, premium, if any, and interest, if any, on the applicable
Securities denominated or payable in such Foreign Currency, ECU or such other
currency unit occurring after the last date on which such Foreign Currency, ECU
or such other currency unit was used (the "Conversion Date"), the Dollar shall
be the currency of payment for use on each such payment date (but such Foreign
Currency, ECU or such other currency unit that was previously the currency of
payment shall, at the Company's election, resume being the currency of payment
on the first such payment date preceded by 15 Business Days during which the
circumstances which gave rise to the Dollar becoming such currency no longer
prevail). Unless otherwise specified pursuant to Section 3.1, the Dollar amount
to be paid by the Company to the Trustee or any applicable Paying Agent and by
the Trustee or any applicable Paying Agent to the Holders of such Securities
with respect to such payment date shall be, in the case of a Foreign Currency
other than a currency unit, the Dollar Equivalent of the Foreign Currency or, in
the case of a Foreign Currency that is a currency unit, the Dollar Equivalent of
the Currency Unit, in each case as determined by the Exchange Rate Agent in the
manner provided in paragraph (f) or (g) below.
(e) Unless otherwise specified pursuant to Section 3.1, if the Holder of a
Registered Security denominated in any currency or currency unit shall have
elected to be paid in another currency or currency unit or in other currencies
as provided in paragraph (b) above, and (i) a Conversion Event occurs with
respect to any such elected currency or currency unit, such Holder shall receive
payment in the currency or currency unit in which payment would have been made
in the absence of such election and (ii) if a Conversion Event occurs with
respect to the currency or currency unit in which payment would have been made
in the absence of such election, such Holder shall receive payment in Dollars as
provided in paragraph (d) of this Section 3.12 (but, subject to any contravening
valid election pursuant to paragraph (b) above, the elected payment currency or
currency unit, in the case of the circumstances described in clause (i) above,
or the payment currency or currency unit in the absence of such election, in the
case of the circumstances described in clause (ii) above, shall, at the
Company's election, resume being the currency or currency unit of payment with
respect to Holders who have so elected, but only with respect to payments on
payment dates preceded by 15 Business Days during which the circumstances which
gave rise to such currency or currency unit, in the case of the circumstances
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described in clause (i) above, or the Dollar, in the case of the circumstances
described in clause (ii) above, as applicable, becoming the currency or currency
unit of payment, no longer prevail).
(f) The "Dollar Equivalent of the Foreign Currency" shall be determined by
the Exchange Rate Agent and shall be obtained for each subsequent payment date
by the Exchange Rate Agent by converting the specified Foreign Currency into
Dollars at the Market Exchange Rate on the Conversion Date.
(g) The "Dollar Equivalent of the Currency Unit" shall be determined by the
Exchange Rate Agent and, subject to the provisions of paragraph (h) below, shall
be the sum of each amount obtained by converting the Specified Amount of each
Component Currency (as each such term is defined in paragraph (h) below) into
Dollars at the Market Exchange Rate for such Component Currency on the Valuation
Date with respect to each payment.
(h) For purposes of this Section 3.12 the following terms shall have the
following meanings:
"Component Currency" shall mean any currency which, on the Conversion Date,
was a component currency of the relevant currency unit, including, but not
limited to, ECU.
"Election Date" shall mean the Regular Record Date for the applicable
series of Registered Securities as specified pursuant to Section 3.1 by which
the written election referred to in Section 3.12(b) may be made.
A "Specified Amount" of a Component Currency shall mean the number of units
of such Component Currency or fractions thereof which such Component Currency
represented in the relevant currency unit, including, but not limited to, ECU,
on the Conversion Date. If after the Conversion Date the official unit of any
Component Currency is altered by way of combination or subdivision, the
Specified Amount of such Component Currency shall be divided or multiplied in
the same proportion. If after the Conversion Date two or more Component
Currencies are consolidated into a single currency, the respective Specified
Amounts of such Component Currencies shall be replaced by an amount in such
single currency equal to the sum of the respective Specified Amounts of such
consolidated Component Currencies expressed in such single currency, and such
amount shall thereafter be a Specified Amount and such single currency shall
thereafter be a Component Currency. If after the Conversion Date any Component
Currency shall be divided into two or more currencies, the Specified Amount of
such Component Currency shall be replaced by specified amounts of such two or
more currencies, the sum of which, at the Market Exchange Rate of such two or
more currencies on the date of such replacement, shall be equal to the Specified
Amount of such former Component Currency and such amounts shall thereafter be
Specified Amounts and such currencies shall thereafter be Component Currencies.
If, after the Conversion Date of the relevant currency unit, including, but not
limited to, ECU, a Conversion Event (other than any event referred to above in
this definition of "Specified Amount") occurs with respect to any Component
Currency of such currency unit and is continuing on the applicable Valuation
Date, the Specified Amount of such Component Currency shall, for purposes of
calculating the Dollar Equivalent of the Currency Unit, be converted into
Dollars at the Market Exchange Rate in effect on the Conversion Date of such
Component Currency.
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All decisions and determinations of the Exchange Rate Agent regarding the
Dollar Equivalent of the Foreign Currency, the Dollar Equivalent of the Currency
Unit, the Market Exchange Rate and changes in the Specified Amounts as specified
above shall be in its sole discretion and shall, in the absence of manifest
error, be conclusive for all purposes and irrevocably binding upon the Company,
the Trustee (and any applicable Paying Agent) and all Holders of Securities
denominated or payable in the relevant currency, currencies or currency units.
The Exchange Rate Agent shall promptly give written notice to the Company and
the Trustee of any such decision or determination.
In the event that the Company determines in good faith that a Conversion
Event has occurred with respect to a Foreign Currency, the Company will promptly
give written notice thereof to the Trustee (or any applicable Paying Agent) and
to the Exchange Rate Agent (and the Trustee (or such Paying Agent) will promptly
thereafter give notice in the manner provided in Section 1.6 to the affected
Holders) specifying the Conversion Date. In the event the Company so determines
that a Conversion Event has occurred with respect to ECU or any other currency
unit in which Securities are denominated or payable, the Company will promptly
give written notice thereof to the Trustee (or any applicable Paying Agent) and
to the Exchange Rate Agent (and the Trustee (or such Paying Agent) will promptly
thereafter give notice in the manner provided in Section 1.6 to the affected
Holders) specifying the Conversion Date and the Specified Amount of each
Component Currency on the Conversion Date. In the event the Company determines
in good faith that any subsequent change in any Component Currency as set forth
in the definition of Specified Amount above has occurred, the Company will
similarly give written notice to the Trustee (or any applicable Paying Agent)
and to the Exchange Rate Agent and the Trustee (or such Paying Agent) will
similarly given written notice to the affected Holders.
The Trustee of the appropriate series of Securities shall be fully
justified and protected in relying and acting upon information received by it
from the Company and the Exchange Rate Agent and shall not otherwise have any
duty or obligation to determine the accuracy or validity of such information
independent of the Company or the Exchange Rate Agent.
Section 3.13. Appointment and Resignation of Exchange Rate Agent. (a)
Unless otherwise specified pursuant to Section 3.1, if and so long as the
Securities of any series (i) are denominated in a currency other than Dollars or
(ii) may be payable in a currency other than Dollars, or so long as it is
required under any other provision of this Indenture, then the Company will
maintain with respect to each such series of Securities, or as so required, at
least one Exchange Rate Agent. The Company will cause the Exchange Rate Agent to
make the necessary foreign exchange determinations at the time and in the manner
specified pursuant to Section 3.12 for the purpose of determining the applicable
rate of exchange and, if applicable, for the purpose of converting the issued
currency or currencies or currency unit or units into the applicable payment
currency or currency unit for the payment of principal, premium, if any, and
interest, if any, pursuant to Section 3.12.
(b) No resignation of the Exchange Rate Agent and no appointment of a
successor Exchange Rate Agent pursuant to this Section shall become effective
until the acceptance of appointment by the successor Exchange Rate Agent as
evidenced by a written
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instrument delivered to the Company and the Trustee of the appropriate series of
Securities accepting such appointment executed by the successor Exchange Rate
Agent.
(c) If the Exchange Rate Agent shall resign, be removed or become incapable
of acting, or if a vacancy shall occur in the office of the Exchange Rate Agent
for any cause, with respect to the Securities of one or more series, the
Company, by or pursuant to a Board Resolution, shall promptly appoint a
successor Exchange Rate Agent or Exchange Rate Agents with respect to the
Securities of that or those series (it being understood that any such successor
Exchange Rate Agent may be appointed with respect to the Securities of one or
more or all of such series and that, unless otherwise specified pursuant to
Section 3.1 at any time there shall only be one Exchange Rate Agent with respect
to the Securities of any particular series that are originally issued by the
Company on the same date and that are initially denominated and/or payable in
the same currency or currencies or currency unit or units).
ARTICLE 4
SATISFACTION, DISCHARGE AND DEFEASANCE
Section 4.1. Termination of Company's Obligations Under the Indenture. (a)
This Indenture shall upon a Company Request cease to be of further effect with
respect to Securities of or within any series and any coupons appertaining
thereto (except as to any surviving rights of registration of transfer or
exchange of such Securities and replacement of such Securities which may have
been lost, stolen or mutilated as herein expressly provided for) and the
Trustee, at the expense of the Company, shall execute proper instruments
acknowledging satisfaction and discharge of this Indenture with respect to such
Securities and any coupons appertaining thereto when
(1) either
(A) all such Securities previously authenticated and delivered and all
coupons appertaining thereto (other than (i) such coupons appertaining to Bearer
Securities surrendered in exchange for Registered Securities and maturing after
such exchange, surrender of which is not required or has been waived as provided
in Section 3.5, (ii) such Securities and coupons which have been destroyed, lost
or stolen and which have been replaced or paid, as provided in Section 3.6,
(iii) such coupons appertaining to Bearer Securities called for redemption and
maturing after the relevant Redemption Date, surrender of which has been waived
as provided in Section 10.6 and (iv) such Securities and coupons for whose
payment money has theretofore been deposited in trust or segregated and held in
trust by the Company and thereafter repaid to the Company or discharged from
such trust as provided in Section 9.3) have been delivered to the Trustee for
cancellation; or
(B) all Securities of such series and, in the case of (i) or (ii) below,
any coupons appertaining thereto not theretofore delivered to the Trustee for
cancellation
(i) have become due and payable, or
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(ii) will become due and payable at their Stated Maturity within one
year, or
(iii) if redeemable at the option of the Company, are to be called for
redemption within one year under arrangements satisfactory to the Trustee
for the giving of notice of redemption by the Trustee in the name, and at
the expense, of the Company, and the Company, in the case of (i), (ii) or
(iii) above, has irrevocably deposited or caused to be deposited with the
Trustee as trust funds in trust for the purpose an amount in the currency
or currencies or currency unit or units in which the Securities of such
series are payable, sufficient to pay and discharge the entire indebtedness
on such Securities and such coupons not theretofore delivered to the
Trustee for cancellation, for principal, premium, if any, and interest, if
any, with respect thereto, on the date of such deposit (in the case of
Securities which have become due and payable) or at the Stated Maturity or
Redemption Date, as the case may be;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that all conditions precedent herein provided
for relating to the satisfaction and discharge of this Indenture as to such
series have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the obligation
of the Company to the Trustee and any predecessor Trustee under Section 6.9, the
obligations of the Company to any Authenticating Agent under Section 6.14 and,
if money shall have been deposited with the Trustee pursuant to subclause (B) of
clause (1) of this Section, the obligations of the Trustee under Section 4.2 and
the last paragraph of Section 9.3 shall survive.
Section 4.2. Application of Trust Funds. Subject to the provisions of the
last paragraph of Section 9.3, all money deposited with the Trustee pursuant to
Section 4.1 shall be held in trust and applied by it, in accordance with the
provisions of the Securities, the coupons and this Indenture, to the payment,
either directly or through any Paying Agent (including the Company acting as its
own Paying Agent) as the Trustee may determine, to the Persons entitled thereto,
of the principal, premium, if any, and interest, if any, for whose payment such
money has been deposited with or received by the Trustee, but such money need
not be segregated from other funds except to the extent required by law.
Section 4.3. Applicability of Defeasance Provisions; Company's Option to
Effect Defeasance or Covenant Defeasance. If pursuant to Section 3.1 provision
is made for either or both of (i) defeasance of the Securities of or within a
series under Section 4.4 or (ii) covenant defeasance of the Securities of or
within a series under Section 4.5, then the provisions of such Section or
Sections, as the case may be, together with the provisions of Sections 4.6
through 4.9 inclusive, with such modifications thereto as may be specified
pursuant to Section 3.1 with respect to any Securities, shall be applicable to
such Securities and any coupons appertaining thereto, and the Company may at its
option by or pursuant to Board Resolution, at any time, with respect to such
Securities and any coupons appertaining thereto, elect to have Section 4.4 (if
applicable) or Section 4.5 (if applicable) be applied to such Outstanding
Securities and any coupons appertaining thereto upon compliance with the
conditions set forth below in this Article.
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Section 4.4. Defeasance and Discharge. Upon the Company's exercise of the
option specified in Section 4.3 applicable to this Section with respect to the
Securities of or within a series, the Company and the Guarantors shall be deemed
to have been discharged from its obligations with respect to such Securities and
any coupons appertaining thereto on and after the date the conditions set forth
in Section 4.6 are satisfied (hereinafter "defeasance"). For this purpose, such
defeasance means that the Company shall be deemed to have paid and discharged
the entire indebtedness represented by such Securities and any coupons
appertaining thereto which shall thereafter be deemed to be "Outstanding" only
for the purposes of Section 4.7 and the other Sections of this Indenture
referred to in clause (ii) of this Section, and to have satisfied all its other
obligations under such Securities and any coupons appertaining thereto and this
Indenture insofar as such Securities and any coupons appertaining thereto are
concerned (and the Trustee, at the expense of the Company, shall on a Company
Order execute proper instruments acknowledging the same), except the following,
which shall survive until otherwise terminated or discharged hereunder: (i) the
rights of Holders of such Securities and any coupons appertaining thereto to
receive, solely from the trust funds described in Section 4.6(a) and as more
fully set forth in such Section, payments in respect of the principal of,
premium, if any, and interest, if any, on such Securities or any coupons
appertaining thereto when such payments are due; (ii) the Company's and the
Guarantors' obligations with respect to such Securities under Sections 3.5, 3.6,
9.2 and 9.3 and with respect to the payment of additional amounts, if any,
payable with respect to such Securities as specified pursuant to Section
3.1(b)(16); (iii) the rights, powers, trusts, duties and immunities of the
Trustee hereunder and (iv) this Article 4. Subject to compliance with this
Article 4, the Company may exercise its option under this Section
notwithstanding the prior exercise of its option under Section 4.5 with respect
to such Securities and any coupons appertaining thereto. Following a defeasance,
payment of such Securities may not be accelerated because of an Event of
Default.
Section 4.5. Covenant Defeasance. Upon the Company's exercise of the option
specified in Section 4.3 applicable to this Section with respect to any
Securities of or within a series, the Company shall be released from its
obligations under Sections 7.1, 9.4 and 9.7 (and with respect to Section 9.6,
shall be required to certify only with respect to those covenants not defeased
pursuant to this Section 4.5) and, if specified pursuant to Section 3.1, its
obligations under any other covenant, with respect to such Securities and any
coupons appertaining thereto on and after the date the conditions set forth in
Section 4.6 are satisfied (hereinafter, "covenant defeasance"), and such
Securities and any coupons appertaining thereto shall thereafter be deemed to be
not "Outstanding" for the purposes of any direction, waiver, consent or
declaration or Act of Holders (and the consequences of any thereof) in
connection with Sections 7.1, 9.4 and 9.7 or such other covenant, but shall
continue to be deemed "Outstanding" for all other purposes hereunder. For this
purpose, such covenant defeasance means that, with respect to such Securities
and any coupons appertaining thereto, the Company may omit to comply with and
shall have no liability in respect of any term, condition or limitation set
forth in any such Section or such other covenant, whether directly or
indirectly, by reason of any reference elsewhere herein to any such Section or
such other covenant or by reason of reference in any such Section or such other
covenant to any other provision herein or in any other document and such
omission to comply shall not constitute a Default or an Event of Default under
Section 5.1(3) or 5.1(7), or otherwise, as the case may be, but, except as
specified above, the remainder of this Indenture and such Securities and any
coupons appertaining thereto shall be unaffected thereby.
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Section 4.6. Conditions to Defeasance or Covenant Defeasance. The following
shall be the conditions to application of Section 4.4 or Section 4.5 to any
Securities of or within a series and any coupons appertaining thereto:
(a) The Company shall have deposited or caused to be deposited irrevocably
with the Trustee (or another trustee satisfying the requirements of Section 6.12
who shall agree to comply with, and shall be entitled to the benefits of, the
provisions of Sections 4.3 through 4.9 inclusive and the last paragraph of
Section 9.3 applicable to the Trustee, for purposes of such Sections also a
"Trustee") as trust funds in trust for the purpose of making the payments
referred to in clauses (x) and (y) of this Section 4.6(a), specifically pledged
as security for, and dedicated solely to, the benefit of the Holders of such
Securities and any coupons appertaining thereto, with instructions to the
Trustee as to the application thereof, (A) money in an amount (in such currency,
currencies or currency unit or units in which such Securities and any coupons
appertaining thereto are then specified as payable at Maturity), or (B) if
Securities of such series are not subject to repayment at the option of Holders,
Government Obligations which through the payment of interest, if any, and
principal in respect thereof in accordance with their terms will provide, not
later than one day before the due date of any payment referred to in clause (x)
or (y) of this Section 4.6(a), money in an amount or (C) a combination thereof
in an amount sufficient, in the opinion of a nationally recognized firm of
independent certified public accountants expressed in a written certification
thereof delivered to the Trustee, to pay and discharge, and which shall be
applied by the Trustee to pay and (x) discharge the principal of, premium, if
any, and interest, if any, on such Securities and any coupons appertaining
thereto on the Maturity of such principal or installment of principal or
interest, if any, and (y) any mandatory sinking fund payments applicable to such
Securities on the day on which such payments are due and payable in accordance
with the terms of this Indenture and such Securities and any coupons
appertaining thereto. Before such a deposit the Company may make arrangements
satisfactory to the Trustee for the redemption or purchase of Securities at a
future date or dates in accordance with Article 10 which shall be given effect
in applying the foregoing.
(b) Such defeasance or covenant defeasance shall not result in a breach or
violation of, or constitute a Default or Event of Default under, this Indenture
or result in a breach or violation of, or constitute a default under, any other
material agreement or instrument to which the Company is a party or by which it
is bound, in each case, on the date of such deposit pursuant to Section 4.6(a).
(c) In the case of an election under Section 4.4, the Company shall have
delivered to the Trustee an Officers' Certificate and an Opinion of Counsel to
the effect that (i) the Company has received from, or there has been published
by, the Internal Revenue Service a ruling, or (ii) since the date of execution
of this Indenture, there has been a change in the applicable Federal income tax
law, in either case to the effect that, and based thereon such opinion shall
confirm that, the Holders of such Securities and any coupons appertaining
thereto will not recognize income, gain or loss for Federal income tax purposes
as a result of such defeasance and will be subject to Federal income tax on the
same amount and in the same manner and at the same times, as would have been the
case if such deposit, defeasance and discharge had not occurred.
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(d) In the case of an election under Section 4.5, the Company shall have
delivered to the Trustee an Opinion of Counsel to the effect that the Holders of
such Securities and any coupons appertaining thereto will not recognize income,
gain or loss for Federal income tax purposes as a result of such covenant
defeasance and will be subject to Federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such covenant
defeasance had not occurred.
(e) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent to the defeasance under Section 4.4 or the covenant defeasance under
Section 4.5 (as the case may be) have been complied with.
(f) No Default or Event of Default under Section 5.1(5) or 5.1(6) with
respect to such Securities and any coupons appertaining thereto shall have
occurred and be continuing during the period commencing on the date of such
deposit and ending on the 91st day after such date (it being understood that
this condition shall not be deemed satisfied until the expiration of such
period).
(g) Such Defeasance or Covenant Defeasance shall not result in the trust
arising from such deposit constituting an investment company within the meaning
of the Investment Company Act of 1940 unless such trust shall be registered
under such Act or exempt from registration thereunder.
(h) Such defeasance or covenant defeasance shall be effected in compliance
with any additional or substitute terms, conditions or limitations which may be
imposed on the Company in connection therewith as contemplated by Section 3.1.
Section 4.7. Deposited Money and Government Obligations to be Held in
Trust. Subject to the provisions of the last paragraph of Section 9.3, all money
and Government Obligations (or other property as may be provided pursuant to
Section 3.1) (including the proceeds thereof) deposited with the Trustee
pursuant to Section 4.6 in respect of any Securities of any series and any
coupons appertaining thereto shall be held in trust and applied by the Trustee,
in accordance with the provisions of such Securities and any coupons
appertaining thereto and this Indenture, to the payment, either directly or
through any Paying Agent (including the Company acting as its own Paying Agent)
as the Trustee may determine, to the Holders of such Securities and any coupons
appertaining thereto of all sums due and to become due thereon in respect of
principal, premium, if any, and interest, if any, but such money need not be
segregated from other funds except to the extent required by law.
Unless otherwise specified with respect to any Security pursuant to Section
3.1, if, after a deposit referred to in Section 4.6(a) has been made, (i) the
Holder of a Security in respect of which such deposit was made is entitled to,
and does, elect pursuant to Section 3.12(b) or the terms of such Security to
receive payment in a currency or currency unit other than that in which the
deposit pursuant to Section 4.6(a) has been made in respect of such Security, or
(ii) a Conversion Event occurs as contemplated in Section 3.12(d) or 3.12(e) or
by the terms of any Security in respect of which the deposit pursuant to Section
4.6(a) has been made, the indebtedness represented by such Security and any
coupons appertaining thereto shall be deemed
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to have been, and will be, fully discharged and satisfied through the payment of
the principal of, premium, if any, and interest, if any, on such Security as the
same becomes due out of the proceeds yielded by converting (from time to time as
specified below in the case of any such election) the amount or other property
deposited in respect of such Security into the currency or currency unit in
which such Security becomes payable as a result of such election or Conversion
Event based on the applicable Market Exchange Rate for such currency or currency
unit in effect on the second Business Day prior to each payment date, except,
with respect to a Conversion Event, for such currency or currency unit in effect
(as nearly as feasible) at the time of the Conversion Event.
Section 4.8. Repayment to Company. To the extent permitted by the Financial
Accounting Standards Board Statement of Financial Accounting Standards No. 76,
as amended or interpreted by the Financial Accounting Standards Board from time
to time, or any successor thereto ("Standard No. 76"), or to the extent
permitted by the Commission, the Trustee shall, from time to time, take one or
more of the following actions as specified in a Company Request: (a) retransfer,
reassign and deliver to the Company any securities deposited with the Trustee
pursuant to Section 4.6(a), provided that the Company shall, in substitution
therefor, simultaneously transfer, assign and deliver to the Trustee other
Governmental Obligations appropriate to satisfy the Company's obligations in
respect of the relevant Securities; and (b) the Trustee and Paying Agent shall
promptly pay to the Company upon Company Request any excess money or securities
held by them at any time, including, without limitation, any assets deposited
with the Trustee pursuant to Section 4.6(a) exceeding those necessary for the
purposes of Section 4.6(a). The Trustee shall not take the actions described in
subsections (a) and (b) of this Section 4.8 unless it shall have first received
a written report of Ernst & Young LLP, or another nationally recognized
independent public accounting firm, (i) expressing their opinion that the
contemplated action is permitted by Standard No. 76 or the Commission for
transactions accounted for as extinguishment of debt under the circumstances
described in paragraph 3.c of Standard No. 76 or any successor provision, and
(ii) verifying the accuracy, after giving effect to such action or actions, of
the computations which demonstrate that the amounts remaining to be earned on
the Government Obligations deposited with the Trustee pursuant to Section 4.6(a)
will be sufficient for purposes of Section 4.6(a).
Section 4.9. Indemnity for Government Obligations. The Company shall pay,
and shall indemnify the Trustee against, any tax, fee or other charge imposed on
or assessed against Government Obligations deposited pursuant to this Article or
the principal and interest, if any, and any other amount received on such
Government Obligations.
ARTICLE 5
DEFAULTS AND REMEDIES
Section 5.1. Events of Default. An "Event of Default" occurs with respect
to the Securities of any series if (whatever the reason for such Event of
Default and whether it shall be voluntary or involuntary or be effected by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
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(1) the Company defaults in the payment of interest on any Security of that
series or any coupon appertaining thereto or any additional amount payable with
respect to any Security of that series as specified pursuant to Section 3.1(b)
when the same becomes due and payable and such default continues for a period of
30 days;
(2) the Company defaults in the payment of the principal of or any premium on
any Security of that series when the same becomes due and payable at its
Maturity or on redemption or otherwise, or in the payment of a mandatory sinking
fund payment when and as due by the terms of the Securities of that series;
(3) the Company fails to comply in any material respect with any of its
agreements or covenants in, or any of the provisions of, this Indenture with
respect to any Security of that series (other than an agreement, covenant or
provision for which non-compliance is elsewhere in this Section specifically
dealt with), and such non-compliance continues for a period of 60 days after
there has been given by registered or certified mail, to the Company by the
Trustee or to the Company and the Trustee by the Holders of at least 25% in
principal amount of the Outstanding Securities of the series, a written notice
specifying such default or breach and requiring it to be remedied and stating
that such notice is a "Notice of Default" hereunder;
(4) a default under any mortgage, agreement, indenture or instrument under which
there may be issued, or by which there may be secured, guaranteed or evidenced
any Debt of the Company (including this Indenture) whether such Debt now exists
or shall hereafter be created, in an aggregate principal amount then outstanding
of $25,000,000 or more, which default (a) shall constitute a failure to pay any
portion of the principal of such Debt when due and payable after the expiration
of an applicable grace period with respect thereto or (b) shall result in such
Debt becoming or being declared due and payable prior to the date on which it
would otherwise become due and payable, and such acceleration shall not be
rescinded or annulled, or such Debt shall not be paid in full within a period of
30 days after there has been given, by registered or certified mail, to the
Company by the Trustee or to the Company and the Trustee by the Holders of at
least 25% in aggregate principal amount of the Outstanding Securities of that
series a written notice specifying such event of default and requiring the
Company to cause such acceleration to be rescinded or annulled or to pay in full
such Debt and stating that such notice is a "Notice of Default" hereunder; (it
being understood however, that the Trustee shall not be deemed to have knowledge
of such default under such agreement or instrument unless either (A) a
Responsible Officer of the Trustee shall have actual knowledge of such default
or (B) a Responsible Officer of the Trustee shall have received written notice
thereof from the Company, from any Holder, from the holder of any such
indebtedness or from the trustee under any such agreement or other instrument);
provided, however, that if such default under such agreement or instrument is
remedied or cured by the Company or waived by the holders of such indebtedness,
then the Event of Default hereunder by reason thereof shall be deemed likewise
to have been thereupon remedied, cured or waived without further action upon the
part of either the Trustee or any of such Holders; provided, further, that the
foregoing shall not apply to any secured Debt under which the obligee has
recourse (exclusive of recourse for ancillary matters such as environmental
indemnities, misapplication of funds, costs of enforcement and the
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like) only to the collateral pledged for repayment so long as the fair market
value of such collateral does not exceed 2% of Total Assets at the time of the
default;
(5) the Company, pursuant to or within the meaning of any Bankruptcy Law, (A)
commences a voluntary case or proceeding, (B) consents to the entry of an order
for relief against it in an involuntary case or proceeding, (C) consents to the
appointment of a Custodian of it or for all or substantially all of its
property, (D) makes a general assignment for the benefit of its creditors, (E)
makes an admission in writing of its inability to its debts generally as they
become due or (F) takes corporate action in furtherance of any such action;
(6) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that (A) is for relief against the Company, in an involuntary
case, (B) adjudges the Company as bankrupt or insolvent, or approves as properly
filed a petition seeking reorganization, arrangement, and adjustment or
composition of or in respect of the Company, or appoints a Custodian of the
Company, or for all or substantially all of its property, or (C) orders the
liquidation of the Company and the decree remains unstayed and in effect for 60
days; or
(7) any other Event of Default provided as contemplated by Section 3.1 with
respect to Securities of that series.
The Company shall deliver to the Trustee, as soon as practicable, written
notice in the form of an Officers' Certificate of any Default, its status and
what action the Company is taking or proposes to take with respect thereto.
As used in the Indenture, the term "Bankruptcy Law" means Title 11, U.S.
Code, or any similar federal or state bankruptcy, insolvency, reorganization or
other law for the relief of debtors. As used in the Indenture, the term
"Custodian" means any receiver, trustee, assignee, liquidator or similar
official under any Bankruptcy Law.
Section 5.2. Acceleration; Rescission and Annulment. If an Event of Default
with respect to the Securities of any series at the time Outstanding occurs and
is continuing, the Trustee or the Holders of at least 25% in aggregate principal
amount of all of the Outstanding Securities of that series by written notice to
the Company (and if given by the Holders, to the Trustee), may declare the
principal (or, if the Securities of that series are Original Issue Discount
Securities or Indexed Securities, such portion of the original principal amount
as may be specified in the terms of that series) of and accrued interest, if
any, on the Securities of that series to be due and payable and upon any such
declaration such principal (or, in the case of Original Issue Discount
Securities or Indexed Securities, such specified amount) and interest, if any,
shall be immediately due and payable.
At any time after such a declaration of acceleration with respect to
Securities of any series has been made and before a judgment or decree for
payment of the money due has been obtained by the Trustee as hereinafter in this
Article provided, the Holders of a majority in aggregate principal amount of the
Outstanding Securities of that series, by written notice to the Trustee, may
rescind and annul such declaration and its consequences if all existing Defaults
and
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Events of Default with respect to Securities of that series, other than the
non-payment of the principal of, premium, if any, and interest, if any, on
Securities of that series which have become due solely by such declaration of
acceleration, have been cured or waived as provided in Section 5.7. No such
rescission shall affect any subsequent default or impair any right consequent
thereon.
Section 5.3. Collection of Indebtedness and Suits for Enforcement by
Trustee. The Company covenants that if
(1) default is made in the payment of any interest on any Security or
coupon, if any, when such interest becomes due and payable and such default
continues for a period of 30 days, or
(2) default is made in the payment of the principal of (or premium, if any,
on) any Security at the Maturity thereof, the Company will, upon demand of
the Trustee, pay to it, for the benefit of the Holders of such Securities
or coupons, if any, the whole amount then due and payable on such
Securities for principal, premium, if any, and interest, if any, and, to
the extent that payment of such interest shall be legally enforceable,
interest on any overdue principal, premium, if any, and on any overdue
interest, if any, at the rate or rates prescribed therefor in such
Securities or coupons, if any, and, in addition thereto, such further
amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel.
If an Event of Default with respect to Securities of any series occurs and
is continuing, the Trustee may in its discretion proceed to protect and enforce
its rights and the rights of the Holders of Securities of such series by such
appropriate judicial proceedings as the Trustee shall deem most effectual to
protect and enforce any such rights, whether for the specific enforcement of any
covenant or agreement in this Indenture or in aid of the exercise of any power
granted herein, or to secure any other proper remedy including, without
limitation seeking recourse against any Guarantor.
Section 5.4. Trustee May File Proofs of Claim. The Trustee may file such
proofs of claim and other papers or documents and take such actions authorized
under the Trust Indenture Act as may be necessary or advisable in order to have
the claims of the Trustee and the Holders of Securities allowed in any judicial
proceedings relating to the Company (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 6.9.
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Section 5.5. 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 prosecuted and enforced by the Trustee, in its own name as an
express trust, without the possession of any of the Securities or the production
thereof in any proceeding relating thereto and any recovery of judgment shall,
after provision for the reasonable fees and expenses of the Trustee and its
counsel, be for the ratable benefit of the Holders of the Securities in respect
to which judgment was recovered.
Section 5.6. Delay or Omission Not Waiver. No delay or omission by the
Trustee or any Holder of any Securities to exercise any right or remedy accruing
upon an Event of Default shall impair any such right or remedy or constitute a
waiver of or acquiescence in any such Event of Default.
Section 5.7. Waiver of Past Defaults. In addition to the provisions of
Section 5.2 and except as otherwise provided as contemplated by Section 3.1, the
Holders of a majority in aggregate principal amount of Outstanding Securities of
any series by written notice to the Trustee may waive on behalf of the Holders
of all Securities of such series a past Default or Event of Default with respect
to that series and its consequences except (i) a Default or Event of Default in
the payment of the principal of, premium, if any, or interest, if any, on any
Security of such series or any coupon appertaining thereto or (ii) in respect of
a covenant or provision hereof which pursuant to Section 8.2 cannot be amended
or modified without the consent of the Holder of each Outstanding Security of
such series adversely affected. Upon any such waiver, such Default shall cease
to exist, and any Event of Default arising therefrom shall be deemed to have
been cured, for every purpose of this Indenture.
Section 5.8. Control by Majority. Except as otherwise provided as
contemplated by Section 3.1, the Holders of a majority in aggregate principal
amount of the Outstanding Securities of each series affected (with each such
series voting as a class) shall have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on it with respect to Securities of that
series; provided, however, that (i) the Trustee may refuse to follow any
direction that conflicts with law or this Indenture (ii) the Trustee may refuse
to follow any direction that is unduly prejudicial to the rights of the Holders
of Securities of such series not consenting or that would in the good faith
judgment of the Trustee have a substantial likelihood of involving the Trustee
in personal liability and (iii) the Trustee may take any other action deemed
proper by the Trustee which is not inconsistent with such direction. Prior to
the taking of any action hereunder, the Trustee shall be entitled to reasonable
indemnification satisfactory to the Trustee against all losses and expenses
caused by taking or not taking such action. This paragraph shall be in lieu of
Section 316(a)(1)(A) of the Trust Indenture Act and such Section 316(a)(1)(A) is
hereby expressly excluded from this Indenture, as permitted by the Trust
Indenture Act.
Section 5.9. Limitation on Suits by Holders. No Holder of any Security of
any series or any coupons appertaining thereto shall have any right to institute
any proceeding, judicial or otherwise, with respect to this Indenture, or for
the appointment of a receiver or trustee, or for any other remedy hereunder,
unless:
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(1) the Holder has previously given written notice to the Trustee of a
continuing Event of Default with respect to the Securities of that series;
(2) the Holders of at least 25% in aggregate principal amount of the
Outstanding Securities of that series have made a written request to the
Trustee to institute proceedings in respect of such Event of Default in its
own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee indemnity
satisfactory to the Trustee against any loss, liability or expense to be,
or which may be, incurred by the Trustee in pursuing the remedy;
(4) the Trustee for 60 days after its receipt of such notice, request
and the offer of indemnity has failed to institute any such proceedings;
and
(5) during such 60 day period, the Holders of a majority in aggregate
principal amount of the Outstanding Securities of that series have not
given to the Trustee a direction inconsistent with such written request.
Except as otherwise provided as contemplated by Section 3.1, no one or more
Holders shall have any right in any manner whatever by virtue of, or by availing
of, any provision of this Indenture to affect, disturb or prejudice the rights
of any other of such Holders, or to obtain or to seek to obtain priority or
preference over any other of such Holders or to enforce any right under this
Indenture, except in the manner herein provided and for the equal and ratable
benefit of all of such Holders.
Section 5.10. Rights of Holders to Receive Payment. Notwithstanding any
other provision of this Indenture, but subject to Section 9.2, the right of any
Holder of a Security or coupon to receive payment of principal of, premium, if
any, and, subject to Sections 3.5 and 3.7, interest, if any, on the Security, on
or after the respective due dates expressed in the Security (or, in case of
redemption, on the redemption dates), and the right of any Holder of a coupon to
receive payment of interest due as provided in such coupon, or, subject to
Section 5.9, to bring suit for the enforcement of any such payment on or after
such respective dates, shall not be impaired or affected without the consent of
such Holder.
Section 5.11. Application of Money Collected. If the Trustee collects any
money pursuant to this Article, it shall pay out the money in the following
order, at the date or dates fixed by the Trustee and, in case of the
distribution of such money on account of principal, premium, if any, or
interest, if any, upon presentation of the Securities and the notation thereon
of the payment if only partially paid and upon surrender thereof if fully paid:
First: to the Trustee for amounts due under Section 6.9;
Second: to Holders of Securities and coupons in respect of which or for the
benefit of which such money has been collected for amounts due and unpaid on
such Securities for principal of, premium, if any, and interest, if any,
ratably, without preference or priority of any kind, according to the amounts
due and payable on such Securities for principal, premium, if any, and interest,
if any, respectively; and
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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 5.11. At least 15 days before such record date,
the Trustee shall mail to each Holder and the Company a notice that states the
record date, the payment date and the amount to be paid.
Section 5.12. Restoration of Rights and Remedies. If the Trustee or any
Holder has instituted any proceeding to enforce any right or remedy under this
Indenture and such proceeding has been discontinued or abandoned for any reason,
or has been determined adversely to the Trustee or to such Holder, then and in
every such case, subject to any determination in such proceeding, the Company,
the 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 5.13. Rights and Remedies Cumulative. Except as otherwise provided
with respect to the replacement or payment of mutilated, destroyed, lost or
stolen Securities in the last paragraph of Section 3.6, no right or remedy
herein conferred upon or reserved to the Trustee or the Holders is intended to
be exclusive of any other right or remedy, and every right and remedy shall, to
the extent permitted by law, be cumulative and in addition to every other right
and remedy given hereunder or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any existing right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
Section 5.14. Waiver of Usury, Stay or Extension Laws. 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 5.15. Undertaking for Costs. In any suit for the enforcement of any
right or remedy under this Indenture or in any suit against the Trustee for any
action taken or omitted by it as Trustee, a court in its discretion may require
the filing by any party litigant in the suit of an undertaking to pay the costs
of the suit, and the court in its discretion may assess reasonable costs,
including reasonable attorney's fees, against any party litigant in the suit
having due regard to the merits and good faith of the claims or defenses made by
the party litigant.
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ARTICLE 6
THE TRUSTEE
Section 6.1. Certain Duties and Responsibilities of the Trustee. (a) Except
during the continuance of an Event of Default, the Trustee's duties and
responsibilities under this Indenture shall be governed by Section 315(a) of the
Trust Indenture Act.
(b) In case an Event of Default has occurred and is continuing with respect
to the Securities of any series, the Trustee shall exercise the rights and
powers vested in it by this Indenture with respect to the Securities of such
series, and shall use the same degree of care and skill in their exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
his own affairs.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, 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 5.8
relating to the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power conferred upon
the Trustee, under the Indenture.
Section 6.2. Rights of Trustee. Subject to the provisions of the Trust
Indenture Act:
(a) The Trustee may conclusively rely and shall be protected in acting or
refraining from acting upon any document believed by it to be genuine and to
have been signed or presented by the proper party or parties. The Trustee need
not investigate any fact or matter stated in the document;
(b) Any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order (other than
delivery of any Security, together with any coupons appertaining thereto, to the
Trustee for authentication and delivery pursuant to Section 3.3 which shall be
sufficiently evidenced as provided therein) and any resolution of the Board of
Directors may be sufficiently evidenced by a Board Resolution;
(c) Whenever in the administration of this Indenture the Trustee shall deem
it desirable that a matter be proved or established prior to taking, suffering
or omitting any action hereunder, the Trustee (unless other evidence be herein
specifically prescribed) may, in the absence of bad faith on its part,
conclusively rely upon an Officers' Certificate;
(d) The Trustee may consult with counsel of its selection and the advice of
such counsel or any Opinion of Counsel shall be full and complete authorization
and protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon;
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(e) The Trustee may act through agents or attorneys and shall not be
responsible for the misconduct or negligence of any agent or attorney appointed
with due care;
(f) The Trustee shall not be liable for any action it takes or omits to
take in good faith which it believes to be authorized or within its rights or
powers;
(g) The Trustee shall not be required to expend or risk its own funds or
otherwise incur any financial liability in the performance of any of its duties
hereunder, or in the exercise of its rights or powers if it shall have
reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it;
(h) The Trustee shall not be bound to make any investigation into the facts
or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of indebtedness or other paper or document, but the
Trustee, in its discretion, may make such further inquiry or investigation into
such facts or matters as it may see fit, and, if the Trustee shall determine to
make such further inquiry or investigation it shall be entitled to examine the
books, records and premises of the Company, personally or by agent or attorney;
(i) The Trustee shall be under no obligation to exercise any of the rights
or powers vested in it by this Indenture at the request or direction of any of
the Holders pursuant to this Indenture, unless such Holders shall have offered
to the Trustee reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by it in compliance with such request or
direction;
(j) Whether or not therein expressly so provided, every provision of this
Indenture relating to the conduct or affecting the liability of or affording
protection to the Trustee shall be subject to the provisions of this Section
6.2;
(k) The rights, privileges, protections, immunities and benefits given to
the Trustee, including, without limitation, its right to be indemnified, are
extended to, and shall be enforceable by, the Trustee in each of its capacities
hereunder, and to each agent, custodian and other Person employed to act
hereunder.
Section 6.3. Trustee May Hold Securities. The Trustee, any Paying Agent,
any Registrar or any other agent of the Company in its in individual or any
other capacity, may become the owner or pledgee of Securities and coupons and,
subject to Sections 310(b) and 311 of the Trust Indenture Act, may otherwise
deal with the Company, an Affiliate of the Company or Subsidiary of the Company
with the same rights it would have if it were not Trustee, Paying Agent,
Registrar or such other agent.
Section 6.4. Money Held in Trust. Money held by the Trustee in trust
hereunder need not be segregated from other funds except to the extent required
by law. The Trustee shall be under no liability for interest on any money
received by it hereunder except as otherwise agreed upon in writing with the
Company.
Section 6.5. Trustee's Disclaimer. The recitals contained herein and in the
Securities, except the Trustee's certificate of authentication, shall be taken
as the statements of
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the Company, and the Trustee assumes no responsibility for their correctness.
The Trustee makes no representation as to the validity or adequacy of this
Indenture or the Securities or any coupon. The Trustee shall not be accountable
for the Company's use of the proceeds from the Securities or for monies paid
over to the Company pursuant to the Indenture.
Section 6.6. Notice of Defaults. If a Default occurs and is continuing with
respect to the Securities of any series and if it is actually known to a
Responsible Officer of the Trustee, the Trustee shall, within 90 days after it
occurs, transmit by mail to the Holders of Securities of such series, in the
manner and to the extent provided in Section 313(c) of the Trust Indenture Act,
notice of all Defaults known to it unless such Default shall have been cured or
waived; provided, however, that except in the case of a Default in payment on
the Securities of any series, the Trustee may withhold the notice if and so long
as the board of directors, the executive committee or a committee of its
Responsible Officers in good faith determines that withholding such notice is in
the interests of Holders of Securities of that series; and provided, further,
that in the case of any Default of the character specified in Section 5.1(3)
with respect to Securities of such series, no such notice to Holder shall be
given until at least 30 days after the occurrence thereof.
Section 6.7. Reports by Trustee to Holders. Within 60 days after each May
15 of each year commencing with the first May 15 after the first issuance of
Securities pursuant to this Indenture, the Trustee shall transmit by mail to all
Holders of Securities as provided in Section 313(C) of the Trust Indenture Act a
brief report dated as of such May 15 if required by and in compliance with
Section 313(A) of the Trust Indenture Act. A copy of each such report shall, at
the time of such transmission to Holders, be filed by the Trustee with each
stock exchange, if any, upon which the Securities are listed, with the
Commission and with the Company. The Company will promptly notify the Trustee
when the Securities are listed on, or delisted from, any stock exchange.
Section 6.8. Securityholder Lists. The Trustee shall preserve in as current
a form as is reasonably practicable the most recent list available to it of the
names and addresses of Holders of Securities of each series. If the Trustee is
not the Registrar, the Company shall furnish to the Trustee semiannually on or
before the last day of June and December in each year, and at such other times
as the Trustee may request in writing, a list, in such form and as of such date
as the Trustee may reasonably require containing all the information in the
possession or control of the Registrar, the Company or any of its Paying Agents
other than the Trustee as to the names and addresses of Holders of Securities of
each such series. If there are Bearer Securities of any series Outstanding, even
if the Trustee is the Registrar, the Company shall furnish to the Trustee such a
list containing such information with respect to Holders of such Bearer
Securities only.
Section 6.9. Compensation and Indemnity. (a) The Company shall pay to the
Trustee from time to time such reasonable compensation for its services as the
Company and the Trustee shall agree in writing from time to time. The Trustee's
compensation shall not be limited by any law on compensation of a trustee of an
express trust. The Company shall reimburse the Trustee upon request for all
reasonable out-of-pocket expenses incurred by it in connection with the
performance of its duties under this Indenture. Such expenses shall include the
reasonable compensation and expenses of the Trustee's agents and counsel.
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(b) The Company shall indemnify the Trustee or any Predecessor Trustee and
their agents for, and hold them harmless against, any loss or liability damage,
claim or reasonable expense including taxes (other than taxes based upon or
determined or measured by the income of the Trustee) incurred by it arising out
of or in connection with its acceptance or administration of the trust or trusts
hereunder, including the reasonable costs and expenses of defending itself
against any claim or liability in connection with the exercise or performance of
any of its powers or duties hereunder. The Trustee shall notify the Company
promptly of any claim for which it may seek indemnity. The Company shall defend
the claim and the Trustee shall cooperate in the defense. The Company need not
pay for any settlement made without its consent.
(c) The Company need not reimburse any expense or indemnify against any
loss, liability, damage or claim incurred by the Trustee through negligence or
bad faith or willful misconduct.
(d) To secure the payment obligations of the Company pursuant to this
Section, the Trustee shall have a lien prior to the Securities of any series on
all money or property held or collected by the Trustee, except that held in
trust to pay principal, premium, if any, and interest, if any, on particular
Securities.
When the Trustee incurs expenses or renders services in connection with an
Event of Default specified in Section 5.1(5) or Section 5.1(6), the expenses
(including the reasonable charges and expenses of its counsel) and the
compensation for the services are intended to constitute expenses of
administration under any applicable Federal or state bankruptcy, insolvency or
other similar law.
The provisions of this Section shall survive the termination of this
Indenture.
Section 6.10. Replacement of Trustee. (a) The resignation or removal of the
Trustee and the appointment of a successor Trustee shall become effective only
upon the successor Trustee's acceptance of appointment as provided in Section
6.11.
(b) The Trustee may resign at any time with respect to the Securities of
any series by giving written notice thereof to the Company.
(c) The Holders of a majority in aggregate principal amount of the
Outstanding Securities of any series may remove the Trustee with respect to that
series by so notifying the Trustee and the Company and may appoint a successor
Trustee for such series with the Company's consent.
(d) If at any time:
(1) the Trustee fails to comply with Section 310(b) of the Trust
Indenture Act after written request therefor by the Company or by any
Holder who has been a bona fide Holder of a Security for at least six
months; or
(2) the Trustee shall cease to be eligible under Section 6.12 of this
Indenture or Section 310(a) of the Trust Indenture Act and shall fail to
resign after written request
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therefor by the Company or by any Holder of a Security who has been a bona
fide Holder of a Security for at least six months; or
(3) the Trustee becomes incapable of acting, is adjudged a bankrupt or
an insolvent or a receiver or public officer takes charge of the Trustee or
its property or affairs for the purpose of rehabilitation, conservation or
liquidation, then, in any such case, (i) the Company by or pursuant to a
Board Resolution may remove the Trustee with respect to all Securities, or
(ii) subject to Section 315(e) of the Trust Indenture Act, any Holder who
has been a bona fide Holder of a Security for at least six months may, on
behalf of himself and all others similarly situated, petition any court of
competent jurisdiction for the removal of the Trustee with respect to all
Securities and the appointment of a successor Trustee or Trustees.
(e) If the instrument of acceptance by a successor Trustee required by
Section 6.11 shall not have been delivered to the Trustee within 30 days after
the giving of such notice of resignation or removal, the Trustee resigning or
being removed may petition any court of competent jurisdiction for the
appointment of a successor Trustee with respect to the Securities of such
series.
(f) If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, with respect to Securities of one or more
series, the Company, by or pursuant to a Board Resolution, shall promptly
appoint a successor Trustee with respect to the Securities of that or those
series (it being understood that any such successor Trustee may be appointed
with respect to the Securities of one or more or all of such series and that at
any time there shall be only one Trustee with respect to the Securities of any
particular series) and shall comply with the applicable requirements of Section
6.11. If, within one year after such resignation, removal or incapability, or
the occurrence of such vacancy, a successor Trustee with respect to the
Securities of any series shall be appointed by Act of the Holders of a majority
in principal amount of the Outstanding Securities of such series delivered to
the Company and the retiring Trustee, the successor Trustee so appointed shall,
forthwith upon its acceptance of such appointment in accordance with the
applicable requirements of Section 6.11, become the successor Trustee with
respect to the Securities of such series and to that extent supersede the
successor Trustee appointed by the Company. If no successor Trustee with respect
to the Securities of any series shall have been so appointed by the Company or
the Holders and accepted appointment in the manner required by Section 6.11, any
Holder who has been a bona fide Holder of a Security of such series for at least
six months may, on behalf of himself and all others similarly situated, petition
any court of competent jurisdiction for the appointment of a successor Trustee
with respect to the Securities of such series.
Section 6.11. Acceptance of Appointment by Successor. (a) In case of the
appointment hereunder of a successor Trustee with respect to all Securities,
every such successor Trustee shall execute, acknowledge and deliver to the
Company and to the retiring Trustee an instrument accepting such appointment.
Thereupon, the resignation or removal of the retiring Trustee shall become
effective, and the successor Trustee, without further act, deed or conveyance,
shall become vested with all the rights, powers and duties of the retiring
Trustee; but, on the request of the Company or the successor Trustee, such
retiring Trustee shall, upon payment of its charges, execute and deliver an
instrument transferring to such successor Trustee
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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.
(e) The Company shall give notice of each resignation and each removal of
the Trustee with respect to the Securities of any series and each appointment of
a successor Trustee with respect to the Securities of any series in the manner
provided for notices to the Holders of Securities in Section 1.6. Each notice
shall include the name of the successor Trustee with respect to the Securities
of such series and the address of its Corporate Trust Office.
Section 6.12. Eligibility; Disqualification. There shall at all times be a
Trustee hereunder which shall be eligible to act as Trustee under Section
310(a)(1) of the Trust Indenture Act and shall have a combined capital and
surplus of at least $75,000,000. If such corporation publishes reports of
condition at least annually, pursuant to law or the requirements of Federal,
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State, Territorial or District of Columbia supervising or examining authority,
then, for the purposes of this Section, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. If at any time the Trustee
shall cease to be eligible in accordance with the provisions of this Section, it
shall resign immediately in the manner and with the effect heretofore specified
in this Article.
Section 6.13. Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Trustee may be merged or converted or with which
it may be consolidated, or any corporation resulting from any merger, conversion
or consolidation to which the Trustee shall be a party, or any corporation
succeeding to all or substantially all the corporate trust business of the
Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Securities shall have been authenticated,
but not delivered, by the Trustee then in office, any successor by merger,
conversion or consolidation to such authenticating Trustee may adopt such
authentication and deliver the Securities so authenticated with the same effect
as if such successor Trustee had itself authenticated such Securities.
Section 6.14. Appointment of Authenticating Agent. The Trustee may appoint
an Authenticating Agent or Agents with respect to one or more series of
Securities which shall be authorized to act on behalf of the Trustee to
authenticate Securities of such series issued upon original issue, exchange,
registration of transfer or partial redemption thereof, and Securities so
authenticated shall be entitled to the benefits of this Indenture and shall be
valid and obligatory for all purposes as if authenticated by the Trustee
hereunder. Any such appointment shall be evidenced by an instrument in writing
signed by a Responsible Officer of the Trustee, a copy of which instrument shall
be promptly furnished to the Company. Wherever reference is made in this
Indenture to the authentication and delivery of Securities by the Trustee or the
Trustee's certificate of authentication, such reference shall be deemed to
include authentication and delivery on behalf of the Trustee by an
Authenticating Agent and a certificate of authentication executed on behalf of
the Trustee by an Authenticating Agent. Each Authenticating Agent shall be
acceptable to the Company and, except as may otherwise be provided pursuant to
Section 3.1, shall at all times be a bank or trust company or corporation
organized and doing business and in good standing under the laws of the United
States of America or of any State or the District of Columbia, authorized under
such laws to act as Authenticating Agent, having a combined capital and surplus
of not less than $25,000,000 and subject to supervision or examination by
Federal or State authorities. If such Authenticating Agent publishes reports of
condition at least annually, pursuant to law or the requirements of the
aforesaid supervising or examining authority, then for the purposes of this
Section, the combined capital and surplus of such Authenticating Agent shall be
deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. In case at any time an Authenticating Agent
shall cease to be eligible in accordance with the provisions of this Section,
such Authenticating Agent shall resign immediately in the manner and with the
effect specified in this Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation
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succeeding to the corporate agency or corporate trust business of an
Authenticating Agent, shall continue to be an Authenticating Agent, provided
such corporation shall be otherwise eligible under this Section, without the
execution or filing of any paper or further act on the part of the Trustee or
the Authenticating Agent.
An Authenticating Agent for any series of Securities may at any time resign
by giving written notice of resignation to the Trustee for such series and to
the Company. The Trustee for any series of Securities may at any time terminate
the agency of an Authenticating Agent by giving written notice of termination to
such Authenticating Agent and to the Company. Upon receiving such notice of
resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee for such series may appoint a successor
Authenticating Agent which shall be acceptable to the Company and shall give
notice of such appointment to all Holders of Securities of the series with
respect to which such Authenticating Agent will serve in the manner set forth in
Section 1.6. Any successor Authenticating Agent upon acceptance of its
appointment hereunder shall become vested with all the rights, powers and duties
of its predecessor hereunder, with like effect as if originally named as an
Authenticating Agent herein. No successor Authenticating Agent shall be
appointed unless eligible under the provisions of this Section.
The Company agrees to pay to each Authenticating Agent from time to time
reasonable compensation including reimbursement of its reasonable expenses for
its services under this Section.
If an appointment with respect to one or more series is made pursuant to
this Section, the Securities of such series may have endorsed thereon, in
addition to or in lieu of the Trustee's certificate of authentication, an
alternate certificate of authentication substantially in the following form:
This is one of the Securities of the series described in the
within-mentioned Indenture.
--------------------------
as Trustee
by --------------------------
as Authenticating Agent
by --------------------------
Authorized Signatory
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ARTICLE 7
CONSOLIDATION, MERGER OR SALE BY THE COMPANY
Section 7.1. Consolidation, Merger or Sale of Assets Permitted. The Company
shall not consolidate or merge with or into, or transfer or lease all or
substantially all of its assets to, any Person unless:
(1) the Person formed by or surviving any such consolidation or any merger
(if other than the Company), or to which such transfer or lease shall have been
made, is a corporation organized and existing under the laws of the United
States, any State thereof or the District of Columbia;
(2) the Person formed by or surviving any such consolidation or merger (if
other than the Company), or to which such transfer or lease shall have been
made, assumes by supplemental indenture all the obligations of the Company under
the Securities and this Indenture;
(3) immediately after giving effect to the transaction no Default or Event
of Default exists; and
(4) if, as a result of any such consolidation or merger or such conveyance,
transfer or lease, properties or assets of the Company would become subject to a
mortgage, pledge, lien, security interest or other encumbrance which would not
be permitted by the Securities of any series, the Company or such successor
Person, as the case may be, shall take such steps as shall be necessary
effectively to secure such Securities equally and ratably with all indebtedness
secured thereby.
The Company shall deliver to the Trustee prior to the proposed transaction
an Officers' Certificate to the foregoing effect and an Opinion of Counsel
stating that the proposed transaction and such supplemental indenture comply
with this Indenture and that all conditions precedent to the consummation of the
transaction under this Indenture have been met.
In the event of the assumption by a successor corporation as provided in
clause (2) above, such successor corporation shall succeed to and be substituted
for the Company hereunder and under the Securities with the same effect as if it
had been named hereunder and thereunder and any coupons appertaining thereto and
all such obligations of the Company shall terminate.
ARTICLE 8
SUPPLEMENTAL INDENTURES
Section 8.1. Supplemental Indentures Without Consent of Holders. Without
the consent of any Holders, the Company, when authorized by or pursuant to a
Board Resolution, the Guarantors and the Trustee at any time and from time to
time, may enter into indentures
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supplemental hereto, in form reasonably satisfactory to the Trustee, for any of
the following purposes:
(1) to evidence the succession of another corporation to the Company and
the assumption by any such successor of the covenants and obligations of the
Company herein and in the Securities; or
(2) to add to the covenants of the Company 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
(3) to add any additional Events of Default with respect to all or any
series of Securities (and if such Events of Default are to be for the benefit of
less than all series of Securities, stating that such Events of Default are
expressly included solely for the benefit of such series); or
(4) to add to or change any of the provisions of this Indenture to such
extent as shall be necessary to facilitate the issuance of Bearer Securities
(including, without limitation, to provide that Bearer Securities may be
registrable as to principal only) or to facilitate the issuance of Securities in
global form; or
(5) to add to, change or eliminate any of the provisions of this Indenture,
provided that any such addition, change or elimination shall become effective
only when there is no Security Outstanding of any series created prior to the
execution of such supplemental indenture which is entitled to the benefit of
such provision; or
(6) to secure the Securities; or
(7) to establish the form or terms of Securities of any series as permitted
by Sections 2.1 and 3.1; or
(8) to evidence and provide for the acceptance of appointment hereunder by
a successor Trustee with respect to the Securities of one or more series and to
add to or change any of the provisions of this Indenture as shall be necessary
to provide for or facilitate the administration of the trusts hereunder by more
than one Trustee, pursuant to the requirements of Section 6.11; or
(9) if allowed without penalty under applicable laws and regulations, to
permit payment in the United States (including any of the States and the
District of Columbia), its territories, its possessions and other areas subject
to its jurisdiction of principal, premium, if any, or interest, if any, on
Bearer Securities or coupons, if any; or
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(10) to correct or supplement any provision herein which may be
inconsistent with any other provision herein or to make any other provisions
with respect to matters or questions arising under this Indenture, provided such
action shall not adversely affect the interests of the Holders of Securities of
any series; or
(11) to cure an ambiguity or correct any mistake, provided such action
shall not adversely affect the interests of the Holders of Securities of any
series; or
(12) to add a Guarantor pursuant to Section 9.8 or remove a Guarantor in
respect of any series which, in accordance with the terms of this Indenture
applicable to the particular series, ceases to be liable in respect of its
Guarantee.
Section 8.2. Supplemental Indentures with Consent of Holders. With the
written consent of the Holders of a majority of the aggregate principal amount
of the Outstanding Securities of each series adversely affected by such
supplemental indenture, the Company, when authorized by or pursuant to a Board
Resolution, and the Trustee may enter into an indenture or indentures
supplemental hereto to add any provisions to or to change or eliminate any
provisions of this Indenture or of any other indenture supplemental hereto or to
modify the rights of the Holders of such Securities; provided, however, that
without the consent of the Holder of each Outstanding Security affected thereby,
a supplemental indenture under this Section may not:
(1) change the Stated Maturity of the principal of, or premium, if
any, on, or any installment of principal of or premium, if any, or
interest, if any, on, any Security, or reduce the principal amount thereof
or the rate of interest thereon or any premium payable upon the redemption,
repurchase or repayment thereof, or change the manner in which the amount
of any principal thereof or premium, if any, or interest, if any, thereon
is determined or reduce the amount of the principal of any Original Issue
Discount Security or Indexed Security that would be due and payable upon a
declaration of acceleration of the Maturity thereof pursuant to Section
5.2, or change the Place of Payment where or the currency in which any
Security or any premium or the interest thereon is payable, or impair the
right to institute suit for the enforcement of any such payment on or after
the Stated Maturity thereof (or, in the case of redemption, on or after the
Redemption Date);
(2) reduce the percentage in principal amount of the Outstanding
Securities of such series affected thereby, the consent of whose Holders is
required for any such supplemental indenture, or the consent of whose
Holders is required for any waiver (of compliance with certain provisions
of this Indenture or certain defaults hereunder and their consequences)
provided for in this Indenture;
(3) waive a default in the payment of principal of, premium, if any,
or interest, if any, on, any Security of such Series;
(4) change any obligation of the Company to maintain an office or
agency in the places and for the purposes specified in Section 9.2; or
(5) make any change in Section 5.7 or this 8.2(a) except to increase
any percentage or to provide that certain other provisions of this
Indenture cannot be
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modified or waived without the consent of the Holders of each Outstanding
Security of such series affected thereby.
A supplemental indenture which changes or eliminates any covenant or other
provision of this Indenture, which has expressly been included solely for the
benefit of one or more particular series of Securities, or which modifies the
rights of the Holders of Securities of such series with respect to such covenant
or other provision, shall be deemed not to affect the rights under this
Indenture of the Holders of Securities of any other series.
It is not necessary under this Section 8.2 for the Holders to consent to
the particular form of any proposed supplemental indenture, but it is sufficient
if they consent to the substance thereof.
Upon the request of the Company, accompanied by an Officers' Certificate
and a Board Resolution authorizing the execution of any such supplemental
indenture, and upon the filing with the Trustee of evidence of the consent of
Holders as aforesaid, the Trustee shall join with the Company in the execution
of such supplemental indenture unless such supplemental indenture affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise, in
which case the Trustee may, but shall not be obligated to, enter into such
supplemental indenture.
Section 8.3. Compliance with Trust Indenture Act. Every amendment to this
Indenture or the Securities of one or more series shall be set forth in a
supplemental indenture that complies with the Trust Indenture Act as then in
effect.
Section 8.4. Execution of Supplemental Indentures. In executing, or
accepting the additional trusts created by, any supplemental indenture permitted
by this Article or the modification thereby of the trusts created by this
Indenture, the Trustee shall be entitled to receive, and shall be fully
protected in relying upon, an Opinion of Counsel stating that the execution of
such supplemental indenture is authorized or permitted by this Indenture. The
Trustee may, but shall not be obligated to, enter into any such supplemental
indenture which affects the Trustee's own rights, duties or immunities under
this Indenture or otherwise.
Section 8.5. Effect of Supplemental Indentures. Upon the execution of any
supplemental indenture under this article, this Indenture shall be modified in
accordance therewith and such supplemental indenture shall form a part of this
Indenture for all purposes; and every Holder of Securities theretofore or
thereafter authenticated and delivered hereunder and of any coupon appertaining
thereto shall be bound thereby.
Section 8.6. Reference in Securities to Supplemental Indentures.
Securities, including any coupons, of any series authenticated and delivered
after the execution of any supplemental indenture pursuant to this Article may,
and shall if required by the Trustee, bear a notation in form approved by the
Trustee as to any matter provided for in such supplemental indenture. If the
Company shall so determine, new Securities including any coupons of any series
so modified as to conform, in the opinion of the Trustee and the Company, to any
such supplemental indenture may be prepared and executed by the Company and
authenticated and
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delivered by the Trustee in exchange for Outstanding Securities including any
coupons of such series.
ARTICLE 9
COVENANTS
Section 9.1. Payment of Principal, Premium, if any, and Interest, if any.
The Company covenants and agrees for the benefit of the Holders of each series
of Outstanding Securities that it will duly and punctually pay the principal of,
premium, if any, and interest, if any, on the Securities of that series in
accordance with the terms of the Securities of such series, any coupons
appertaining thereto and this Indenture. An installment of principal, premium,
if any, or interest, if any, shall be considered paid on the date it is due if
the Trustee or Paying Agent holds on that date money designated for and
sufficient to pay the installment.
Section 9.2. Maintenance of Office or Agency. If Securities of a series are
issued as Registered Securities, the Company will maintain in each Place of
Payment for any series of Securities an office or agency where Securities of
that series may be presented or surrendered for payment, where Securities of
that series may be surrendered for registration of transfer or exchange and
where notices and demands to or upon the Company in respect of the Securities of
that series and this Indenture may be served. If Securities of a series are
issuable as Bearer Securities, the Company will maintain, (i) subject to any
laws or regulations applicable thereto, an office or agency in a Place of
Payment for that series which is located outside the United States where
Securities of that series and related coupons may be presented and surrendered
for payment; provided, however, that if the Securities of that series are listed
on The International Stock Exchange of the United Kingdom and the Republic of
Ireland Limited, the Luxembourg Stock Exchange or any other stock exchange
located outside the United States and such stock exchange shall so require, the
Company will maintain a Paying Agent for the Securities of that series in
London, Luxembourg or any other required city located outside the United States,
as the case may be, so long as the Securities of that series are listed on such
exchange, and (ii) subject to any laws or regulations applicable thereto, an
office or agency in a Place of Payment for that series which is located outside
the United States, where Securities of that series may be surrendered for
exchange and where notices and demands to or upon the Company in respect of the
Securities of that series and this Indenture may be served. The Company will
give prompt written notice to the Trustee of the location, and any change in the
location, of any such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the Corporate Trust Office of the Trustee, and the
Company hereby appoints the Trustee as its agent to receive all such
presentations, surrenders, notices and demands.
Unless otherwise specified as contemplated by Section 3.1, no payment of
principal, premium or interest on Bearer Securities shall be made at any office
or agency of the Company in the United States, by check mailed to any address in
United States, by transfer to an account located in the United States or upon
presentation or surrender in the United States of a Bearer Security or coupon
for payment, even if the payment would be credited to an account
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located outside the United States; provided, however, that, if the Securities of
a series are denominated and payable in Dollars, payment of principal of and any
premium or interest on any such Bearer Security shall be made at the office of
the Company's Paying Agent located within the United States, if (but only if)
payment in Dollars of the full amount of such principal, premium or interest, as
the case may be, at all offices or agencies outside the United States maintained
for the purpose by the Company in accordance with this Indenture is illegal or
effectively precluded by exchange controls or other similar restrictions. The
Company may also from time to time designate one or more other offices or
agencies where the Securities (including coupons, if any) of one or more series
may be presented or surrendered for any or all such purposes and may from time
to time rescind such designations; provided, however, that no such designation
or rescission shall in any manner relieve the Company of its obligation to
maintain an office or agency in each Place of Payment for Securities (including
coupons, if any) of any series for such purposes. The Company will give prompt
written notice to the Trustee of any such designation or rescission and of any
change in the location of any such other office or agency.
Unless otherwise specified as contemplated by Section 3.1, the Trustee
shall initially serve as Paying Agent.
Section 9.3. Money for Securities Payments to be Held in Trust; Unclaimed
Money. If the Company or any Guarantor shall at any time act as its own Paying
Agent with respect to any series of Securities, it will, on or before each due
date of the principal of, premium, if any, or interest, if any, on any of the
Securities of that series, segregate and hold in trust for the benefit of the
Persons entitled thereto a sum sufficient to pay the principal, premium, if any,
or interest so becoming due until such sums shall be paid to such Persons or
otherwise disposed of as herein provided and will promptly notify the Trustee in
writing of its action or failure so to act.
The Company will cause each Paying Agent for any series of Securities other
than the Trustee to execute and deliver to the Trustee an instrument in which
such Paying Agent shall agree with the Trustee, subject to the provisions of
this Section, that such Paying Agent will:
(1) hold all sums held by it for the payment of the principal of,
premium, if any, or interest, if any, on Securities of that series in trust
for the benefit of the Persons entitled thereto until such sums shall be
paid to such Persons or otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company or any
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
(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the satisfaction
and discharge or defeasance of this Indenture or for any other purpose, pay, or
by Company Order
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direct any Paying Agent to pay, to the Trustee all sums held in trust by the
Company or such Paying Agent, such sums to be held by the Trustee upon the same
terms as those upon which such sums were held by the Company or such Paying
Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying
Agent shall be released from all further liability with respect to such money.
Any money deposited with the Trustee or any Paying Agent, or then held by
the Company, in trust for the payment of any principal, premium or interest on
any Security of any series and remaining unclaimed for two years after such
principal, premium, if any, or interest, if any, has become due and payable
shall be paid to the Company on Company Request or (if then held by the Company)
shall be discharged from such trust, unless otherwise required by certain
provisions of applicable law; and the Holder of such Security and coupon, if
any, shall thereafter, as an unsecured general creditor, look only to the
Company for payment thereof, and all liability of the Trustee or such Paying
Agent with respect to such trust money, and all liability of the Company as
trustee thereof, shall thereupon cease; provided, however, that the Trustee or
such Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in a newspaper published in
the English language, customarily published on each Business Day and of general
circulation in The City of New York, or cause to be mailed to such Holder,
notice that such money remains unclaimed and that, after a date specified
therein, which shall not be less than 30 days from the date of such publication,
any unclaimed balance of such money then remaining will be repaid to the
Company.
Section 9.4. Corporate Existence. Subject to Article 7, the Company will at
all times do or cause to be done all things necessary to preserve and keep in
full force and effect its corporate existence and its rights and franchises;
provided that nothing in this Section 9.4 shall prevent the abandonment or
termination of any right or franchise of the Company if, in the opinion of the
Company, such abandonment or termination is in the best interests of the Company
and does not materially adversely affect the ability of the Company to fulfill
its obligations hereunder.
Section 9.5. Reports by the Company. The Company covenants:
(a) to file with the Trustee, within 30 days after the Company is
required to file the same with the Commission, copies of the annual reports
and of the information, documents and other reports (or copies of such
portions of any of the foregoing as the Commission may from time to time by
rules and regulations prescribe) which the Company may be required to file
with the Commission pursuant to Section 13 or section 15(d) of the
Securities Exchange Act of 1934, as amended; or, if the Company is not
required to file information, documents or reports pursuant to either of
such sections, then to file with the Trustee and the Commission, in
accordance with rules and regulations prescribed from time to time by the
Commission, such of the supplementary and periodic information, documents
and reports which may be required pursuant to Section 13 of the Securities
Exchange Act of 1934, as amended, in respect of a security listed and
registered on a national securities exchange as may be prescribed from time
to time in such rules and regulations;
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(b) to file with the Trustee and the Commission, in accordance with
the rules and regulations prescribed from time to time by the Commission,
such additional information, documents and reports with respect to
compliance by the Company with the conditions and covenants provided for in
this Indenture, as may be required from time to time by such rules and
regulations; and
(c) to transmit to all Holders of Securities, within 30 days after the
filing thereof with the Trustee, in the manner and to the extent provided
in section 313(c) of the Trust Indenture Act, such summaries of any
information, documents and reports required to be filed by the Company
pursuant to subsections (a) and (b) of this Section 9.5, as may be required
by rules and regulations prescribed from time to time by the Commission.
Delivery of such reports, information and documents to the Trustee is for
informational purposes only and the Trustee's receipt of such shall not
constitute constructive notice of any information contained therein or
determinable from information contained therein, including information
concerning the Company's compliance with any of its covenants hereunder,
provided that the foregoing shall not relieve the Trustee of any of its
responsibilities hereunder.
Section 9.6. Annual Review Certificate; Notice of Defaults or Events of
Default. (a) The Company covenants and agrees to deliver to the Trustee, within
120 days after the end of each fiscal year of the Company (beginning with
respect to Securities of any series with the fiscal year next following the
issue date of such series of Securities), a certificate from the principal
executive officer, principal financial officer or principal accounting officer
as to his or her knowledge of the Company's compliance with all conditions and
covenants under this Indenture. For purposes of this Section 9.6, such
compliance shall be determined without regard to any period of grace or
requirement of notice provided under this Indenture.
(b) The Company covenants and agrees to deliver to the Trustee, within a
reasonable time after the Company becomes aware of the occurrence of a Default
or an Event of Default of the character specified in Section 5.1(4) hereof,
written notice of the occurrence of such Default or Event of Default.
Section 9.7. Books of Record and Account. The Company will keep proper
books of record and account, either on a consolidated or individual basis. The
Company shall cause its books of record and account to be examined either on a
consolidated or individual basis, by one or more firms of independent public
accountants not less frequently than annually. The Company shall prepare its
financial statements in accordance with generally accepted accounting
principles.
ARTICLE 10
REDEMPTION
Section 10.1. Applicability of Article. Securities (including coupons, if
any) of any series which are redeemable before their Stated Maturity, whether at
the option of the Holder thereof or the Company, shall be redeemable in
accordance with their terms and (except as
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otherwise specified as contemplated by Section 3.1 for Securities of any series)
in accordance with this Article.
Section 10.2. Election to Redeem Notice to Trustee. The election of the
Company to redeem any Securities, including coupons, if any, shall be evidenced
by or pursuant to a Board Resolution. In the case of any redemption at the
election of the Company of less than all the Securities or coupons, if any, of
any series, the Company shall, at least 60 days prior to the Redemption Date
fixed by the Company (unless a shorter notice shall be satisfactory to the
Trustee), notify the Trustee of such Redemption Date and Redemption Price, of
the principal amount of Securities of such series to be redeemed and, if
applicable, of the tenor of the Securities to be redeemed. In the case of any
redemption of Securities (i) prior to the expiration of any restriction on such
redemption provided in the terms of such Securities or elsewhere in this
Indenture or (ii) pursuant to an election of the Company which is subject to a
condition specified in the terms of such Securities, the Company shall furnish
the Trustee with an Officers' Certificate evidencing compliance with such
restriction or condition.
Section 10.3. Selection of Securities to be Redeemed. Unless otherwise
specified as contemplated by Section 3.1, if less than all the Securities
(including coupons, if any) of a series with the same terms are to be redeemed,
the Trustee, not more than 45 days prior to the Redemption Date, shall select
the Securities of the series to be redeemed in such manner as the Trustee shall
deem fair and appropriate and which may provide for the selection for redemption
of a portion of the principal amount of any Security of such series, provided
that the unredeemed portion of the principal amount of any Security shall be in
an authorized denomination (which shall not be less than the minimum authorized
denomination) for such Security. The Trustee shall make the selection from
Securities of the series that are Outstanding and that have not previously been
called for redemption and may provide for the selection for redemption of
portions (equal to the minimum authorized denomination for Securities, including
coupons, if any, of that series or any integral multiple thereof) of the
principal amount of Securities, including coupons, if any, of such series of a
denomination larger than the minimum authorized denomination for Securities of
that series. The Trustee shall promptly notify the Company in writing of the
Securities selected by the Trustee for redemption and, in the case of any
Securities selected for partial redemption, the principal amount thereof to be
redeemed. If the Company shall so direct, Securities registered in the name of
the Company, any Affiliate of the Company or any Subsidiary of the Company
thereof shall not be included in the Securities selected for redemption.
For purposes of this Indenture, unless the context otherwise requires, all
provisions relating to the redemption of Securities (including coupons, if any)
shall relate, in the case of any Securities (including coupons, if any) redeemed
or to be redeemed only in part, to the portion of the principal amount of such
Securities (including coupons, if any) which has been or is to be redeemed.
Section 10.4. Notice of Redemption. Unless otherwise specified as
contemplated by Section 3.1, notice of redemption shall be given in the manner
provided in Section 1.6 not less than 30 days nor more than 60 days prior to the
Redemption Date to the Holders of the Securities to be redeemed.
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All notices of redemption shall state:
(1) the Redemption Date;
(2) the Redemption Price;
(3) if less than all the Outstanding Securities of a series are to be
redeemed, the identification (and in the case of partial redemption, the
principal amounts) of the particular Security or Securities to be redeemed;
(4) in case any Security is to be redeemed in part only, the notice which
relates to such Security shall state that on and after the Redemption Date, upon
surrender of such Security, the Holder will receive, without a charge, a new
Security or Securities of authorized denominations for the principal amount
thereof remaining unredeemed;
(5) the Place or Places of Payment where such Securities, together in the
case of Bearer Securities with all coupons appertaining thereto, if any,
maturing after the Redemption Date, are to be surrendered for payment for the
Redemption Price;
(6) that Securities of the series called for redemption and all unmatured
coupons, if any, appertaining thereto must be surrendered to the Paying Agent to
collect the Redemption Price;
(7) that, on the Redemption Date, the Redemption Price will become due and
payable upon each such Security, or the portion thereof, to be redeemed and, if
applicable, that interest thereon will cease to accrue on and after said date;
(8) that the redemption is for a sinking fund, if such is the case;
(9) that unless otherwise specified in such notice, Bearer Securities of
any series, if any, surrendered for redemption must be accompanied by all
coupons maturing subsequent to the Redemption Date or the amount of any such
missing coupon or coupons will be deducted from the Redemption Price, unless
security or indemnity satisfactory to the Company, the Trustee and any Paying
Agent is furnished; and
(10) the CUSIP number, if any, of the Securities.
Notice of redemption of Securities to be redeemed shall be given by the
Company or, at the Company's request, by the Trustee in the name and at the
expense of the Company.
Section 10.5. Deposit of Redemption Price. On or prior to any Redemption
Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if
the Company is acting as its own Paying Agent, segregate and hold in trust as
provided in Section 9.3) an amount of money in the currency or currencies
(including currency unit or units) in which the Securities of such series are
payable (except as otherwise specified pursuant to Section 3.1 for the
Securities of such series) sufficient to pay on the Redemption Date the
Redemption Price of, and (unless the Redemption Date shall be an Interest
Payment Date) interest accrued to the Redemption Date on, all Securities or
portions thereof which are to be redeemed on that date.
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Unless any Security by its terms prohibits any sinking fund payment
obligation from being satisfied by delivering and crediting Securities
(including Securities redeemed otherwise than through a sinking fund), the
Company may deliver such Securities to the Trustee for crediting against such
payment obligation in accordance with the terms of such Securities and this
Indenture or as otherwise specified as contemplated by Section 3.1.
Section 10.6. Securities Payable on Redemption Date. Notice of redemption
having been given as aforesaid, the Securities so to be redeemed shall, on the
Redemption Date, become due and payable at the Redemption Price therein
specified, and from and after such date (unless the Company shall default in the
payment of the Redemption Price and accrued interest) such Securities shall
cease to bear interest and the coupons for any such interest appertaining to any
Bearer Security so to be redeemed, except to the extent provided below, shall be
void. Except as provided in the next succeeding paragraph, upon surrender of any
such Security, including coupons, if any, for redemption in accordance with said
notice, such Security shall be paid by the Company at the Redemption Price,
together with accrued interest to the Redemption Date; provided, however, that
installments of interest on Bearer Securities whose Stated Maturity is on or
prior to the Redemption Date shall be payable only at an office or agency
located outside the United States and its possessions (except as otherwise
provided in Section 9.2) and, unless otherwise specified as contemplated by
Section 3.1, only upon presentation and surrender of coupons for such interest;
and provided, further that, unless otherwise specified as contemplated by
Section 3.1, installments of interest on Registered Securities whose Stated
Maturity is on or prior to the Redemption Date shall be payable to the Holders
of such Securities, or one or more Predecessor Securities, registered as such at
the close of business on the relevant Record Dates according to their terms and
the provisions of Section 3.7.
If any Bearer Security surrendered for redemption shall not be accompanied
by all appurtenant coupons maturing after the Redemption Date, such Bearer
Security may be paid after deducting from the Redemption Price an amount equal
to the face amount of all such missing coupons, or the surrender of such missing
coupon or coupons may be waived by the Company and the Trustee if there be
furnished to them such security or indemnity as they may require to save each of
them and any Paying Agent harmless. If thereafter the Holder of such Bearer
Security shall surrender to the Trustee or any Paying Agent any such missing
coupon in respect of which a deduction shall have been made from the Redemption
Price, such Holder shall be entitled to receive the amount so deducted;
provided, however, that interest represented by coupons shall be payable only at
an office or agency located outside of the United States (except as otherwise
provided pursuant to Section 9.2) and, unless otherwise provided as contemplated
by Section 3.1, only upon presentation and surrender of those coupons.
If any Security called for redemption shall not be so paid upon surrender
thereof for redemption, the principal (and premium, if any) shall, until paid,
bear interest from the Redemption Date at the rate prescribed therefor in the
Security.
Section 10.7. Securities Redeemed in Part. Upon surrender of a Security
that is redeemed in part at any Place of Payment therefor (with, if the Company
or the Trustee so requires, due endorsement by, or a written instrument of
transfer in form satisfactory to the Company and the Trustee duly executed by,
the Holder thereof or his attorney duly authorized in writing), the Company and
the Guarantors shall execute and the Trustee shall authenticate and
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deliver to the Holder of that Security, without service charge a new Security or
Securities of the same series, having the same form, terms and Stated Maturity,
in any authorized denomination equal in aggregate principal amount to the
unredeemed portion of the principal amount of the Security surrendered.
ARTICLE 11
SINKING FUNDS
Section 11.1. Applicability of Article. The provisions of this Article
shall be applicable to any sinking fund for the retirement of Securities of a
series except as otherwise specified as contemplated by Section 3.1 for
Securities of such series.
The minimum amount of any sinking fund payment provided for by the terms of
Securities of any series is herein referred to as a "mandatory sinking fund
payment", and any payment in excess of such minimum amount provided for by the
terms of Securities of any series is herein referred to as an "optional sinking
fund payment". If provided for by the terms of Securities of any series, the
cash amount of any sinking fund payment may be subject to reduction as provided
in Section 11.2. Each sinking fund payment shall be applied to the redemption of
Securities of any series as provided for by the terms of the Securities of such
series.
Section 11.2. Satisfaction of Sinking Fund Payments with Securities. The
Company (i) may deliver Outstanding Securities of a series (other than any
previously called for redemption) together, in the case of Bearer Securities of
such series, with all unmatured coupons appertaining thereto and (ii) may apply
as a credit Securities of a series which have been redeemed either at the
election of the Company pursuant to the terms of such Securities or through the
application of permitted optional sinking fund payments pursuant to the terms of
such Securities, or (iii) may apply Securities of a series previously cancelled
or delivered to the Trustee for cancellation pursuant to Section 3.9 in each
case in satisfaction of all or any part of any sinking fund payment with respect
to the Securities of such series required to be made pursuant to the terms of
such Securities as provided for by the terms of such series; provided that such
Securities have not been previously so credited. Such Securities shall be
received and credited for such purpose by the Trustee at the Redemption Price
specified in such Securities for redemption through operation of the sinking
fund and the amount of such sinking fund payment shall be reduced accordingly.
Section 11.3. Redemption of Securities for Sinking Fund. Not less than 60
days prior to each sinking fund payment date for any series of Securities, the
Company will deliver to the Trustee an Officers' Certificate specifying the
amount of the next ensuing sinking fund payment for that series pursuant to the
terms of that series, the portion thereof, if any, which is to be satisfied by
payment of cash and the portion thereof, if any, which is to be satisfied by
delivering and crediting Securities of that series pursuant to Section 11.2 and
will also deliver to the Trustee any Securities to be so delivered. Not less
than 30 days before each such sinking fund payment date the Trustee shall select
the Securities to be redeemed upon such sinking fund payment date in the manner
specified in Section 10.3 and cause notice of the redemption thereof
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to be given in the name of and at the expense of the Company in the manner
provided in Section 10.4. Such notice having been duly given, the redemption of
such Securities shall be made upon the terms and in the manner stated in
Sections 10.6 and 10.7.
ARTICLE 12
GUARANTEES
Section 12.1. Guarantees. (a) Subject to the provisions of this Article 12,
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,
(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 12 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
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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;
(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 5, 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.
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Section 12.2 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 12.3. 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 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 12 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 12, result in the
Obligations of such Guarantor under its Guarantee not constituting a fraudulent
transfer or conveyance under applicable federal or state law.
Section 12.4. Releases of Guarantees. (a) If the Securities are
defeased in accordance with the terms of Article 4 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 4 hereof,
subject to the conditions stated therein.
(b) In the event an entity that is a Guarantor ceases to be a
guarantor under the Senior Credit Agreement, as amended (or any other
credit agreement renewing, refunding, replacing, restating, refinancing or
extending the Senior Credit Agreement), 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 12.
Section 12.5. 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
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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 1.5 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 6.2 hereof as if all references therein to the Company were
references to such Guarantor.
Section 12.6. Additional Guarantors. The Company shall cause each
subsidiary of the Company that becomes a guarantor under the Senior Credit
Agreement, as amended (or any other credit agreement renewing, refunding,
replacing, restating, refinancing or extending the Senior Credit Agreement),
after the Date of the 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).
* * *
This Indenture may be executed in any number of counterparts, each of which
shall be an original, but such counterparts shall together constitute but one
instrument.
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:
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FEDERAL-MOGUL GLOBAL INC.
by: --------------------------------------
Name:
Title:
FEDERAL-MOGUL U.K. HOLDINGS INC.
by: --------------------------------------
Name:
Title:
CARTER AUTOMOTIVE COMPANY, INC.
by: --------------------------------------
Name:
Title:
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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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FEL-PRO CHEMICAL PRODUCTS L.P.
by: FEL-PRO MANAGEMENT CO.
by: ---------------------------------
Name:
Title:
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THE BANK OF NEW YORK, as Trustee
by: --------------------------------------
Name:
Title:
<PAGE>
FIRST SUPPLEMENTAL INDENTURE
to
INDENTURE
dated as of June 29, 1998
among
FEDERAL-MOGUL CORPORATION
as Issuer,
THE GUARANTORS PARTY HERETO FROM TIME TO TIME
as Guarantors
and
THE BANK OF NEW YORK
as Trustee
Dated as of June 30, 1998
$1,000,000,000
7 1/2% Notes due July 1, 2004
7 3/4% Notes due July 1, 2006
7 7/8% Notes due July 1, 2010
<PAGE>
FIRST SUPPLEMENTAL INDENTURE, dated as of June 30, 1998 among Federal-Mogul
Corporation, a Michigan corporation, as issuer (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").
RECITALS
The Company and the Guarantors have duly executed and delivered an
Indenture (as such may be amended, supplemented or modified from time to time,
the "Indenture") dated as of June 29, 1998, providing for the issuance from time
to time of its unsecured debentures, notes or other evidences of indebtedness
("Securities") to be issued in one or more series.
The Company has authorized the issuance of three separate series of
Securities designated as the Company's 7 1/2% Notes due July 1, 2004 (the "7
1/2% Notes"), 7 3/4 Notes due July 1, 2006 (the "7 3/4% Notes")and 7 7/8% Notes
due July 1, 2010 (the "7 7/8% Notes," together with the 7 1/2% Notes and the 7
3/4% Notes, the "Notes"), respectively, in the aggregate principal amount of
$250,000,000 in the case of the 7 1/2% Notes, $400,000,000 in the case of the 7
3/4% Notes, and $350,000,000 in the case of the 7 7/8% Notes, each series to be
guaranteed by each of the Guarantors, on the terms set forth herein.
Section 8.1 of the Indenture provides that the Company, the Guarantors and
the Trustee may at any time and from time to time enter into one or more
indentures supplemental to the Indenture to establish, among other things, the
form and terms of Securities of any series as permitted by Section 3.1 of the
Indenture.
All things necessary to make this First Supplemental Indenture a valid
agreement of the Company and the Guarantors, in accordance with its terms, have
been done.
For and in consideration of the premises and the purchase of the Notes by
the Holders thereof, it is mutually covenanted and agreed as follows for the
equal and ratable benefit of the Holders of the Notes:
ARTICLE 1
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.1. Definitions. (a) For all purposes of this First Supplemental
Indenture, except as otherwise expressly provided or unless the context
otherwise requires:
1. the terms defined in this Article have the meanings assigned to them in
this Article and include the plural as well as the singular;
2. all other terms used herein which are defined in the Trust Indenture
Act, either directly or by reference therein, have the meanings assigned to them
therein;
3. all accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with generally accepted accounting principles;
and
<PAGE>
4. the words "herein", "hereof" and "hereunder" and other words of similar
import refer to this First Supplemental Indenture as a whole and not to any
particular Article, Section or other subdivision.
"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 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.
"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 Supplemental 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.
"DTC" means The Depositary Trust Company.
"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 the Indenture.
"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
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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 primary 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 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.
"Issue Date" means the date of the original issuance of the Notes.
"Principal Property" shall mean the principal manufacturing facilities
owned by the Company or a Restricted Subsidiary located in the United States,
except such as the Board of 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.
"Restricted Subsidiary" means any consolidated Subsidiary that owns any
Principal Property.
"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.
"Senior Credit Agreement" means the Second Amended and Restated Credit
Agreement among Federal-Mogul Corporation, The Chase Manhattan Bank as Agent and
the lenders thereunder, dated as of December 18, 1997, as amended.
Section 1.2. Headings. The Article and Section headings herein are for
convenience only and shall not affect the constriction hereof.
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Section 1.3. Successors and Assigns. This First Supplemental Indenture
shall be binding upon the Company and the Guarantors and their respective
successors and assigns and shall inure to the benefit of the Trustee and the
Holders and, in the event of any transfer or assignment of rights by any Holder
or the Trustee, the rights and privileges conferred upon that party in the
Indenture and this First Supplemental Indenture and in the Notes shall
automatically extend to and be vested in such transferee or assignee, all
subject to the conditions of the Indenture. This First Supplemental Indenture
shall be binding upon the Trustee and its successors and assigns.
Section 1.4. Ratification of Indenture; Supplemental Indentures Part of
Indenture. Except as expressly amended hereby, the Indenture is in all respects
ratified and confirmed and all the terms, conditions and provisions thereof
shall remain in full force and effect. This First Supplemental Indenture shall
form a part of the Indenture for all purposes, and every Holder of Notes
heretofore or hereafter authenticated and delivered shall be bound hereby.
Section 1.5. Governing Law. THIS FIRST SUPPLEMENTAL INDENTURE, THE NOTES
AND THE GUARANTEES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK.
Section 1.6. Counterparts. This First Supplemental Indenture may be
executed in any number of counterparts and by telecopier, each of which shall be
an original, but such counterparts shall together constitute but one and the
same instrument.
ARTICLE 2
SCOPE AND TERMS OF THIS FIRST SUPPLEMENTAL INDENTURE
Section 2.1. Scope. (a) The changes, modifications and supplements to the
Indenture effected by this First Supplemental Indenture shall only be applicable
with respect to, and govern the terms of, the Notes issued by the Company and
guaranteed by the Guarantors, which shall be limited in original aggregate
principal amount to $250,000,000, in the case of the 7 1/2% Notes, $400,000,000,
in the case of the 7 3/4% Notes, and $350,000,000, in the case of the 7 7/8%
Notes, and shall not apply to any other Securities that may be issued under the
Indenture unless a supplemental indenture with respect to such other Securities
specifically incorporates such changes, modifications and supplements.
(b) Pursuant to this First Supplemental Indenture, there is hereby created
and designated three series of Securities under the Indenture entitled 7 1/2%
Notes due July 1, 2004, 7 3/4% Notes due July 1, 2006 and 7 7/8% Notes due July
1, 2010. The 7 1/2% Notes, the 7 3/4% Notes and the 7 7/8% Notes shall be in the
forms of Exhibits A-1, A-2 and A-3 hereto, respectively. The Notes shall be
guaranteed by each of the Guarantors as provided in such form and in the
Indenture. The Notes shall be issuable as Registered Securities and shall bear
interest as provided in Exhibits A-1, A-2 and A-3 hereto.
2.2. Terms of the 7 1/2% Notes. The 7 1/2% Notes shall have a Stated
Maturity of July 1, 2004. The 7 1/2% Notes shall be issued in denominations of
$1,000 and integral multiples of $1,000. The 7 1/2% Notes shall bear interest
from the Issue Date; the Interest
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Payment Dates for the 7 1/2% Notes shall be July 1 and January 1 of each year,
commencing January 1, 1999, and the Regular Record Dates with respect to such
Interest Payment Dates shall be the preceding June 15 and December 15,
respectively. The 7 1/2% Notes shall be redeemable as provided in the form of 7
1/2% Notes attached hereto as Exhibit A-1. The defeasance and covenant
defeasance provisions of Article 4 of the Indenture shall be applicable to the 7
1/2% Notes. The covenants in Article 3 of this First Supplemental Indenture
shall be subject to covenant defeasance as provided in Section 4.5 of the
Indenture.
2.3. Terms of the 7 3/4% Notes. The 7 3/4% Notes shall have a Stated
Maturity of July 1, 2006. The 7 3/4% Notes shall be issued in denominations of
$1,000 and integral multiples of $1,000. The 7 3/4% Notes shall bear interest
from the Issue Date; the Interest Payment Dates for the 7 3/4% Notes shall be
July 1 and January 1 of each year, commencing January 1, 1999, and the Regular
Record Dates with respect to such Interest Payment Dates shall be the preceding
June 15 and December 15, respectively. The 7 3/4% Notes shall be redeemable as
provided in the form of 7 3/4% Notes attached hereto as Exhibit A-2. The
defeasance and covenant defeasance provisions of Article 4 of the Indenture
shall be applicable to the 7 3/4% Notes. The covenants in Article 3 of this
First Supplemental Indenture shall be subject to covenant defeasance as provided
in Section 4.5 of the Indenture.
2.4. Terms of the 7 7/8% Notes. The 7 7/8% Notes shall have a Stated
Maturity of July 1, 2010. The 7 7/8% Notes shall be issued in denominations of
$1,000 and integral multiples of $1,000. The 7 7/8% Notes shall bear interest
from the Issue Date; the Interest Payment Dates for the 7 7/8% Notes shall be
July 1 and January 31 of each year, commencing January 1, 1999, and the Regular
Record Dates with respect to such Interest Payment Dates shall be the preceding
June 15 and December 15, respectively. The 7 7/8% Notes shall be redeemable as
provided in the form of 7 7/8% Notes attached hereto as Exhibit A-3. The
defeasance and covenant defeasance provisions of Article 4 of the Indenture
shall be applicable to the 7 7/8% Notes. The covenants in Article 3 of this
First Supplemental Indenture shall be subject to covenant defeasance as provided
in Section 4.5 of the Indenture.
2.5. Payment of Principal and Interest. Principal and interest on the Notes
will be payable, the transfer of the Notes will be registrable and the Notes may
be presented for exchange at the office or agency of the Company maintained for
such purpose (which will initially be at the corporate trust office of the
Trustee located at c/o The Bank of New York, 101 Barclay Street, New York, New
York 10286). So long as the Notes are represented by Global Notes, the interest
payable on the Notes will be paid to Cede & Co., the nominee of the Depositary,
or its registered assigns as the registered owner of such Global Notes, by wire
transfer of immediately available funds on each applicable Interest Payment
Date. If any of the Notes are no longer represented by a Global Note, payment of
interest may, at the option of the Company, be made by check mailed to the
address of the person entitled thereto. No service change will be made for any
transfer of exchange of Notes, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith.
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<PAGE>
ARTICLE 3
COVENANTS
Section 3.1. Limitation on Liens. So long as the Notes 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 the Indenture or thereafter acquired, without making
effective provision, and the Company in such case will make or cause to be made
effective provision, whereby all Notes (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
Notes) 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 the 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, or,
in addition to Mortgages contemplated by clause (iii) below, Mortgages on
any Principal Property, shares of stock or Indebtedness existing at the
time of acquisition thereof (including acquisition through merger or
consolidation);
(iii) 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;
(iv) Mortgages on any Principal Property, shares of stock or
Indebtedness to secure Indebtedness to the Company or to a Restricted
Subsidiary;
(v) 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
7
<PAGE>
Mortgages (including Mortgages incurred in connection with pollution
control, industrial revenue, Title XI maritime financings or similar
financings), or other Mortgages in connection with the issuance of
tax-exempt industrial revenue bonds;
(vi) Mortgages existing as of the date of the Indenture;
(vii) 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;
(viii) 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
(ix) 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 (viii), 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 (ix) 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 3.2 below) which
would not be permitted by either clause (i) or (ii) of the first paragraph under
Section 3.2 below, would not exceed 20% of Consolidated Assets.
Section 3.2. Limitation on Sale and Lease-Back Transactions. So long as the
Notes 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 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 (i) the Company or such Restricted
Subsidiary would be entitled pursuant to Section 3.1 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
8
<PAGE>
and ratably securing the Notes, or (ii) 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 Notes or other Funded Indebtedness; provided, however, that any
such retirement of Notes shall be made in accordance with the Indenture; and
provided, further, that the amount to be applied to such retirement of Notes or
other Funded Indebtedness shall be reduced by an amount equal to the sum of (a)
an amount equal to the principal amount of any Notes delivered within 365 days
after the effective date of such Sale and Lease-Back Transaction to the Trustee
for retirement and cancellation, and (b) 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,
(i) 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 Notes 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 (ix) under Section
3.1 above), does not exceed 20% of Consolidated Assets; and
(ii) the Company or any Restricted Subsidiary may, at any time, enter
into a Sale and Lease-Back Transaction with respect to any or all of the
following properties: its plant located in Mooresville, Indiana and its
Precision Forged Products Division facilities located in Gallipolis, Ohio;
Plymouth, Michigan; and Romulus, Michigan.
ARTICLE 4
BOOK-ENTRY SECURITY
Section 4.1. The Notes will be Registered Securities represented by one or
more securities in global form that will be deposited with, or on behalf of, DTC
in its capacity as Depositary and registered in the name of Cede & Co., the
nominee of DTC. Unless and until exchanged in whole or in part for a certificate
issued in definitive registered form, the global security or securities may not
be transferred except as a whole (i) by DTC to a nominee of DTC, (ii) by a
nominee of DTC to DTC or another nominee of DTC or (iii) by DTC or any such
nominee to a successor Depositary or a nominee of such successor Depositary.
IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental
Indenture to be duly executed as of the day and year first above written.
9
<PAGE>
FEDERAL-MOGUL CORPORATION
by: -----------------------------------
Name:
Title:
FEDERAL-MOGUL DUTCH HOLDINGS INC.,
as Guarantor
by: -----------------------------------
Name:
Title:
FEDERAL-MOGUL GLOBAL INC., as Guarantor
by: -----------------------------------
Name:
Title:
FEDERAL-MOGUL U.K. HOLDINGS INC.,
as Guarantor
by: -----------------------------------
Name:
Title:
CARTER AUTOMOTIVE COMPANY, INC.,
as Guarantor
by: -----------------------------------
Name:
Title:
FEDERAL MOGUL VENTURE CORPORATION,
as Guarantor
by: -----------------------------------
Name:
Title:
10
<PAGE>
FEDERAL-MOGUL WORLD WIDE, INC.,
as Guarantor
by: -----------------------------------
Name:
Title:
FEDERAL-MOGUL GLOBAL PROPERTIES, INC.,
as Guarantor
by: -----------------------------------
Name:
Title:
FELT PRODUCTS MFG. CO., as Guarantor
by: -----------------------------------
Name:
Title:
FEL-PRO MANAGEMENT CO., as Guarantor
by: -----------------------------------
Name:
Title:
FEL-PRO CHEMICAL PRODUCTS L.P.,
as Guarantor
by: FEL-PRO MANAGEMENT CO., as General Partner
by: ------------------------------
Name:
Title:
11
<PAGE>
THE BANK OF NEW YORK, as Trustee
by: -----------------------------------
Name:
Title:
12
<PAGE>
================================================================================
================================================================================
AMENDED AND RESTATED
RECEIVABLES SALE AND CONTRIBUTION AGREEMENT
Dated as of July 1, 1999
Between
FEDERAL-MOGUL CORPORATION,
as Parent
and
FEDERAL-MOGUL FUNDING CORPORATION,
as Buyer
================================================================================
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
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..........................................5
Section 1.6 Characterization.............................................6
ARTICLE II. REPRESENTATIONS AND WARRANTIES.....................................6
Section 2.1 Parent's Representations and Warranties......................6
ARTICLE III. CONDITIONS OF PURCHASES..........................................10
Section 3.1 Conditions Precedent to Initial Purchase....................10
Section 3.2 Conditions Precedent to All Purchases.......................10
ARTICLE IV. COVENANTS 11
Section 4.1 Affirmative Covenants of Parent.............................10
Section 4.2 Negative Covenants of Parent................................15
ARTICLE V. ADMINISTRATION AND COLLECTION......................................16
Section 5.1 Designation of Sub-Servicer.................................16
ARTICLE VI. EVENTS OF PURCHASE AND SALE TERMINATION...........................17
Section 6.1 Events of Purchase and Sale Termination.....................17
Section 6.2 Remedies....................................................18
ARTICLE VII. INDEMNIFICATION..................................................19
Section 7.1 Indemnities by the Parent...................................19
Section 7.2 Other Costs and Expenses....................................20
ARTICLE VIII. MISCELLANEOUS...................................................20
Section 8.1 Waivers and Amendments......................................20
Section 8.2 Notices.....................................................21
Section 8.3 Protection of Buyer's Interests.............................21
Section 8.4 Confidentiality.............................................22
Section 8.5 Bankruptcy Petition.........................................22
Section 8.6 Limitation of Liability.....................................23
Section 8.7 CHOICE OF LAW...............................................23
Section 8.8 CONSENT TO JURISDICTION.....................................23
Section 8.9 WAIVER OF JURY TRIAL........................................23
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<PAGE>
Section 8.10 Binding Effect; Assignability...............................24
Section 8.11 Subordination...............................................24
Section 8.12 Integration; Survival of Terms..............................24
Section 8.13 Counterparts; Severability..................................24
exhibit I DEFINITIONS........................................................26
exhibit ii CHIEF EXECUTIVE OFFICE OF THE PARENT; LOCATIONS OF RECORDS;
TRADE NAMES; FEDERAL EMPLOYER IDENTIFICATION NUMBER......35
EXHIBIT III COLLECTION ACCOUNTS..............................................36
EXHIBIT IV [RESERVED]........................................................38
EXHIBIT V FORM OF COLLECTION ACCOUNT AGREEMENT...............................39
EXHIBIT VI CREDIT POLICIES...................................................40
EXHIBIT VII [RESERVED].......................................................48
EXHIBIT VIII FORM OF SETTLEMENT DATE STATEMENT...............................49
EXHIBIT IX FORM OF SUBSCRIPTION AGREEMENT....................................50
EXHIBIT X FORM OF SUBORDINATED NOTE..........................................56
SCHEDULE A ...................................................................61
ii
<PAGE>
THIS AMENDED AND RESTATED RECEIVABLES SALE AND CONTRIBUTION AGREEMENT,
dated as of July 1, 1999, is by and between FEDERAL-MOGUL CORPORATION, a
Michigan corporation (the "Parent" or "Federal-Mogul") and FEDERAL-MOGUL FUNDING
CORPORATION, a Michigan corporation (the "Buyer"), which amends and restates the
Amended and Restated Receivables Sale and Contribution Agreement, dated as of
April 19, 1999, by and among Federal-Mogul, CARTER AUTOMOTIVE COMPANY, INC., a
Delaware corporation ("Carter"), FEDERAL-MOGUL CANADA LIMITED, a Canadian
corporation ("Federal-Mogul Canada"), FEDERAL-MOGUL IGNITION COMPANY, a Delaware
corporation, and the Buyer, which amended and restated the Receivables Sale and
Contribution Agreement, dated as of November 20, 1998, by and among
Federal-Mogul, Carter, Federal-Mogul Canada and 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 Parent now owns, and from time to time hereafter will own,
Receivables. The Parent wishes to sell and assign to the Buyer, and the
Buyer wishes to purchase from the Parent, all of the Parent's right, title
and interest in and to its Receivables now owned and existing and hereafter
arising.
The Parent and the Buyer believe that it is in their mutual best
interests for the Parent 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 the
Parent's right, title and interest in and to its Receivables existing on
such date and all Related Security and Collections associated therewith.
The Parent and the Buyer intend the transactions contemplated hereby
to be true sales of its Receivables from the Parent to the Buyer, providing
the Buyer with the full benefits of ownership of such Receivables, and the
Parent and the Buyer do not intend these transactions to be, or for any
purpose to be characterized as, loans from the Buyer to the Parent.
Upon each purchase of Receivables from the Parent, the Buyer will sell
undivided interests therein and in the associated Related Security and
Collections pursuant to that certain Amended and Restated Receivable
Interest Purchase Agreement dated as of July 1, 1999 (as the same may from
time to time hereafter be amended, supplemented, restated or otherwise
modified, the "Purchase Agreement") among the Buyer, as seller,
Federal-Mogul, as Servicer, Falcon Asset Securitization Corporation
("Falcon") and International Securitization Corporation ("ISC"), as
Conduits, 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,
ISC 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, the Parent 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 the
Parent, all of the Parent'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 the Parent be obligated to sell,
any Receivable arising after the Termination Date; provided, further, that in no
event shall the Buyer be obligated to purchase, or the Parent be obligated to
sell, any Receivable arising on or after the date that the related Originator
ceases to be a wholly-owned subsidiary of Federal-Mogul. On the date of the
initial Purchase, the Buyer shall acquire all of the Parent'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 the Parent'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 the Parent in
connection with each Purchase hereunder is conditioned upon and subject to the
Parent'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 the Parent deliver, and the Parent 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) (for non-tax purposes), which sales are (for
non-tax purposes) 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 the Parent; provided, however, that (i) the Parent shall be
liable to the Buyer for all representations, warranties and covenants made by
the Parent individually and as Sub-Servicer, pursuant to the terms of the
Transaction Documents to which the Parent and the Sub-Servicer is a party, and
(ii) such sale (for non-tax purposes) does not constitute and is not intended to
result in an assumption by the Buyer or any assignee thereof of any obligation
of the Parent, any other Originator or any other Person arising in connection
with the Receivables, the related Contracts and/or other Related Security or any
other obligations of the Parent or any other Originator. In view of the
intention of the parties hereto that the Purchases of Receivables made hereunder
shall constitute sales (for non-tax purposes) of such Receivables rather than
loans secured thereby, on or prior to the date hereof the Parent agrees to mark,
and shall cause each other Originator 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
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<PAGE>
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), the
Parent shall execute and file, and shall cause each other Originator to 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 Parent on the date of such initial Purchase,
and shall be paid to the Parent 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, a portion of such funds shall be offset by
amounts owed by the Parent 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 $14,250,000, and
(ii) the balance 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 the Parent 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 the Parent to the Buyer
hereunder and which have become due but remain unpaid) and shall be paid to the
Parent 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 the Parent 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 delivery of
immediately available funds to the Parent;
second, by borrowing from the Parent a subordinated revolving loan
(each, a "Subordinated Loan") from the Parent 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
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<PAGE>
third, unless the Parent 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, the Parent
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, the Parent shall not be obligated
to (but may, at its option): (i) sell Receivables to the Buyer, or (ii)
contribute Receivables to the Buyer's capital pursuant to clause third in
Section 1.2(b) unless the Parent reasonably determines that the Purchase Price
therefor shall 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 the Parent as
payments toward the Purchase Price of Receivables sold or to be sold by the
Parent to the Buyer during such Collection Period. Although amounts shall be
paid directly to the Parent on a daily basis in accordance with the first
sentence of this paragraph, settlement of the Purchase Price between the Buyer
and the Parent 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 Date Statement for the Collection Period
then most recently ended. In addition to such other information as may be
included therein, each Settlement Date 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 the
Parent 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 the Parent 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 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) the amount of any capital contribution made by the
Parent 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 the Parent 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.
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<PAGE>
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 the case of Federal-Mogul, 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 Parent 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 Parent 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 Parent designated from time to time by the Parent or as otherwise
directed by the Parent. 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.
Section 1.5 Transfer of Records.
(a) In connection with the Purchases of Receivables hereunder, the Parent
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, the Parent
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 the Parent to account for its Receivables, to the extent
necessary to administer its Receivables, whether such software is owned by the
Parent or is owned by others and used by the Parent under license agreements
with respect thereto, provided that should the consent of any licensor of the
Parent to such grant of the license described herein be required, the Parent
hereby agrees that upon the
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request of the Buyer (or the Agent as the Buyer's assignee), the Parent 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) The Parent (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 the Parent 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 the Parent to
the Buyer of Receivables hereunder shall be characterized as a secured loan and
not a sale (for non-tax purposes), 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 (for non-tax purposes) thereof, the
Parent hereby grants to the Buyer a duly perfected security interest in all of
the Parent'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.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES
Section 2.1 Parent's Representations and Warranties. The Parent hereby
represents and warrants, individually and in its capacity as the Sub-Servicer,
to the Buyer and its assigns that:
(a) Corporate Existence and Power. The Parent and each other Originator is
a corporation or limited liability company duly organized or formed and validly
existing and in good standing under the laws of the State of its incorporation
or formation and has, in all material respects, full corporate or limited
liability company 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 Parent and each other 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.
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(c) Due Authorization; No Conflict. The execution and delivery of the
Transaction Documents to which the Parent and each other 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 the Parent or such
Originator is a party or by which it or its properties are bound. The execution
and delivery of the Transaction Documents to which the Parent or each other
Originator is a party, the performance of the transactions contemplated thereby
and the fulfillment of the terms thereof which are applicable to the Parent or
such Originator, will not conflict with or violate any material Requirements of
Law applicable to the Parent or 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 the Parent and each other 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 the Parent and each
other Originator is a party have been duly executed and delivered by the Parent
and such Originator and constitute the legal, valid and binding obligations of
the Parent and such Originator enforceable against the Parent and 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 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 the Parent's knowledge, threatened, against or affecting the
Buyer, the Parent or any other Originator, or any of the respective properties
of the Buyer, the Parent or any other Originator, in or before any court,
arbitrator or other body, which are reasonably likely to have a Material Adverse
Effect. The Parent and each other 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 the
Parent, any other 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 the Parent, any other
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
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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 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 U and
Regulation X) or any similar rule of any other Governmental Authority.
(i) Good Title; Perfection. Immediately prior to each Purchase hereunder,
the Parent 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 the Parent and the offices where the Parent 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. The Parent's Federal Employer
Identification Number is correctly set forth on Exhibit II.
(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) the Parent and each other 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 Parent and each other
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. The
Parent and each other 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.
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(l) Names. In the past five years, the Parent 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, the Parent, each
other Originator and the Sub-Servicer has complied in all material respects with
the Credit Policies.
(n) Payments to Parent. With respect to each Receivable sold to the Buyer
under this Agreement, the Buyer has given reasonably equivalent value to the
Parent 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 the Parent 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. ss.ss. 101 et seq.), as amended.
(o) Ownership of the Buyer. The Parent 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. Neither the Parent nor any other Originator
is an "investment company" within the meaning of the Investment Company Act of
1940, as amended from time to time, or any successor statute.
(q) Purpose. The Parent has determined that, from a business viewpoint, the
sale of Receivables to the Buyer contemplated hereby is in the best interest of
the Parent.
(r) Financial Statements; Material Adverse Effect. The consolidated
financial statements of the Parent and its consolidated Subsidiaries dated March
31, 1999 furnished by the Parent 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 Parent and its consolidated Subsidiaries as of such
date and for the period ended on such date. Since March 31, 1999, 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 Parent or any other 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, the
Parent and each other Originator shall be deemed to have knowledge of all facts
attributable to the Plan administrator designated pursuant to ERISA.
(t) Year 2000 Problem. The Parent has reviewed its operations, and has
caused each other Originator to review its operations with a view to assessing
whether its
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business and the business of each other Originator 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,
the Parent has no reason to believe that a Material Adverse Effect will occur
with respect to its business or operations or the business and operations of
each other Originator 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 Parent that such statements are
then true):
(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 Parent. Until the date this Agreement
shall terminate in accordance with its terms, the Parent hereby covenants,
individually and in its capacity as Sub-Servicer, that:
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(a) Financial Reporting and other Information. The Parent shall maintain,
and shall cause each other Originator to 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 the Parent, an audit report
not qualified for anything under the control of the Parent, 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 the
Parent 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 Parent 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 Parent, for the Parent and its Subsidiaries,
consolidated unaudited balance sheets as at the close of each such period
and consolidated profit and loss and 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. The Parent 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 the Parent 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 Parent 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.
(b) Notices. The Parent shall 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:
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(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 Parent becomes aware.
(ii) Litigation. The institution of any litigation, arbitration
proceeding or governmental proceeding against the Parent or any of its
Subsidiaries, or to which the Parent 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 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 412 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 Services, a division of The
McGraw Hill Companies, Inc., 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
with respect to the Parent or any of its Subsidiaries, which could
reasonably be expected to have a Material Adverse Effect (collectively,
"Labor Actions").
(c) Compliance with Laws. The Parent shall comply, and shall cause each
other Originator to 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. The Parent shall furnish, and shall cause each other Originator
to 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. The Parent shall, and shall cause each other
Originator, 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 the Parent or such Originator relating to Receivables and the Related
Security, including, without limitation, the related Contracts, and (ii) to
visit the offices and properties of the Parent or such Originator for the
purpose of examining such materials described in clause (i) above, and to
discuss matters relating to the Parent's or such Originator's financial
condition or the Receivables and the Related Security or the Parent's or such
Originator's performance hereunder or under any other
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Transaction Document to which it is a party or the Parent's or such Originator's
performance under the Contracts with any of the officers or employees of the
Parent or such Originator having knowledge of such matters.
(e) Keeping and Marking of Records and Books.
(i) The Parent shall maintain and implement, and shall cause each
other Originator 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 Parent shall give, and shall
cause each other Originator to 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) The Parent shall, and shall cause each other Originator to, (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. The Parent shall, and
shall cause each other Originator to, 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. The Parent shall, and shall cause each other
Originator to, pay when due any taxes payable in connection with the
Receivables.
(g) Ownership Interest. The Parent 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. The Parent 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
the Parent and each other Originator. Therefore, from and after the date of
execution and delivery of this Agreement, the Parent shall take, and shall cause
each other Originator to take, all reasonable steps, including, without
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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 the Parent, each other Originator
and any Affiliates thereof and not just a division of the Parent or any other
Originator. Without limiting the generality of the foregoing and in addition to
the other covenants set forth herein, the Parent (i) shall not, and shall cause
each other Originator not to, 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 the Parent and the Buyer on an arm's-length
basis and in a manner consistent with the procedures set forth in U.S. Treasury
Regulations ss.ss. 1.1502-33(d) and 1.1552-1.
(i) Collections. The Parent shall instruct, and shall cause each other
Originator to 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, the Parent shall cause, and shall cause each
other Originator to 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, the Parent 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 the Parent or any other
Originator, the Parent shall remit, and shall cause each other Originator 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 Parent shall itself hold, and shall cause each
other Originator to hold, such Collections in trust, for the exclusive benefit
of the Buyer and its assigns. In the case of any remittances received by the
Parent or any other 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, the
Parent 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 of the
Purchase Agreement, the Agent, as assignee of the Buyer, may request that the
Parent or any other Originator, and the Parent thereupon promptly shall direct,
or shall cause any other applicable Originator 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
Parent shall not deposit or otherwise credit, and shall cause each other
Originator not to deposit or credit, to the New Concentration Account any cash
or payment item other than Collections. Alternatively, the Agent may request
that the Parent or any other Originator, and the Parent thereupon promptly shall
direct, or shall cause any other applicable Originator to 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.
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(j) ERISA. The Parent shall make, and shall cause each other Originator to
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. The Parent shall take all reasonable actions, and
shall cause each other Originator to 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, the Parent shall provide, and shall cause
each other Originator to provide, Agent with substantiation reasonably
acceptable to Agent as to the Parent's or 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 Parent. Until the date this Agreement
shall terminate in accordance with its terms, the Parent hereby covenants,
individually and in its capacity as Sub-Servicer, that:
(a) Name Change, Offices, Records and Books of Accounts. The Parent shall
not, and shall cause each Originator not to, 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 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. The Parent shall 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
the Parent 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 the Parent 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. The Parent shall not,
and shall cause each other Originator not to, 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), the Parent, 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.
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(d) Sales, Liens, Etc. The Parent shall not, and shall cause each
Originator not to, 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 the
Parent shall defend, and shall cause each other Originator to 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 the Parent or such
Originator.
(e) Accounting for Purchases. The Parent shall 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 the Parent 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 Related Security by the
Parent 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. The Parent 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.
(g) Amendments and Waivers. The Parent shall not, and shall not permit any
other Originator to, amend, modify, supplement, restate, or waive any provision
of, the Receivables Purchase Agreement without the written consent of the Buyer
or the Agent (as the assignee of the Borrower).
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 Date
Statement for the related Collection Period.
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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 the Parent, the
Sub-Servicer or any other Originator, and, in the case of an Involuntary
Insolvency Event concerning the Parent, the Sub-Servicer or any other Originator
shall have continued undischarged or unstayed for a period of 60 days;
(b) Failure on the part of the Parent, the Sub-Servicer or any other
Originator, 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 Date
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 the Parent, the Sub-Servicer or any other
Originator, 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 Parent, the Sub-Servicer or
such Originator, 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 Parent, Sub-Servicer, or such Originator as
applicable;
(e) Any representation or warranty made by the Parent, the Sub-Servicer or
any other Originator 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 Parent, the
Sub-Servicer or such Originator by the Buyer or the Agent, or (B) the date on
which the Parent, the Sub-Servicer or such Originator 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 Parent, any
other Originator or any of their 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 the Parent, any other Originator or any of their
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 the Parent, any other
Originator or any of their Subsidiaries, or the PBGC
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shall institute proceedings to terminate any Plan of the Parent, any other
Originator or any of their 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 the Parent, any other Originator or any of their
Subsidiaries taken as a whole to pay any Indebtedness in excess of $10,000,000
in aggregate principal amount ("Material Debt") when due; or the default by the
Parent, any other Originator or any of their 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 Parent,
any other Originator or any of their 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 the
Parent; 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 respect to the Parent or any other 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 the Parent; provided, further, that the provisions of
this Section 6.2 shall not be applicable if any Event of Purchase and Sale
Termination occurs with respect to any Originator (other than Federal-Mogul) or
a group of Originators (other than Federal-Mogul) that individually or as a
group have Receivables with aggregate Outstanding Balances (determined as of the
date of the applicable Event of Purchase and Sale Termination) of less than 5.0%
of the Outstanding Balances of all the Receivables as of such date, and the
Buyer and the Agent receive written notice from Federal-Mogul within 3 days of
the date of the occurrence of such Event of Purchase and Sale Termination that
Federal-Mogul shall promptly terminate the Receivables Purchase Agreement with
respect to such Originator or such group of Originators and such termination
promptly occurs. For purposes of the immediately preceding sentence, an Event of
Purchase and Sale Termination shall be deemed to have occurred with respect to a
"group of Originators" if any Event of Purchase and Sale Termination occurs with
respect to two or more Originators within any period of time. 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.
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ARTICLE VII.
INDEMNIFICATION
Section 7.1 Indemnities by the Parent. Without limiting any other rights
which the Buyer may have hereunder or under applicable law, the Parent 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 the Parent, such
Sub-Servicer or any other Originator (or any officers of the Parent, such
Sub-Servicer or any other Originator) under or in connection with this
Agreement, any other Transaction Document, any Settlement Date Statement or
any other information or report delivered by the Parent, such Sub-Servicer
or any other Originator pursuant hereto or thereto, which shall have been
false or incorrect when made or deemed made;
(ii) the failure by the Parent, such Sub-Servicer or any other
Originator to comply with any applicable law, rule or regulation with
respect to any Receivable or Contract sold 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 the Parent, such Sub-Servicer or any other
Originator 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 giving rise to
such Receivable or the furnishing or failure to furnish such merchandise or
services;
(vi) the commingling by the Parent 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 the Parent or any other Originator
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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 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 Date Statement to any Receivable
sold to the Buyer or serviced by the Sub-Servicer hereunder, as applicable,
as an Eligible Receivable, which Receivable as of the date it was sold to
the Buyer and as of the date of the Settlement Date 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 sum of (A) (x) Capital
divided by (y) 1 minus the Aggregate Reserve Percentage and (B) the
Contractual Dilution Balance.
excluding, however, the following:
(b) 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;
(c) 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
(d) 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. The Parent 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 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 the Parent 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
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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 Parent and the Buyer and, to the
extent required under the Purchase Agreement, the Agent and 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) The Parent agrees, and shall cause each other Originator to agree, 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 the Parent and each other Originator to,
notify the Obligors of Receivables, at any time following the replacement of the
Parent as Sub-Servicer and at the Parent'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 the Parent 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 the Parent or such Sub-Servicer, as applicable, on demand. The
Parent 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 the Parent and such Sub-Servicer (i)
to execute on behalf of the Parent 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.
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Section 8.4 Confidentiality.
(a) The Parent and each Sub-Servicer shall, and the Parent shall cause each
other Originator to, 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, Falcon
and ISC 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 the Parent, each Sub-Servicer and their
respective officers and employees may disclose such information to each other
Originator, the Parent's, such Sub-Servicer's or such other Originator's
external accountants and attorneys and as required by any applicable law or
order of any judicial or administrative proceeding. In addition, the Parent, the
Sub-Servicer and each Originator 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, the Parent and each
Sub-Servicer hereby consents, and the Parent shall cause each other Originator
to consent, to the disclosure of any nonpublic information with respect to it
(i) to the Buyer, the Agent, the Investors, Falcon or ISC 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 ISC 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) The Parent 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 indebtedness of Falcon and/or ISC, it shall not institute, or
join any other Person in instituting, against Falcon and/or ISC, 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) The Parent 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 shall 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.
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Section 8.6 Limitation of Liability. Except with respect to any claim
arising out of the willful misconduct or gross negligence of Falcon, ISC, the
Agent or any Investor, no claim may be made by the Parent, the Sub-Servicer or
any other Person against Falcon, ISC, 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 Parent 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. THE PARENT 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 THE PARENT PURSUANT TO
THIS AGREEMENT AND THE PARENT 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 THE PARENT IN THE COURTS OF ANY OTHER JURISDICTION
WHEREIN ANY ASSETS OF THE PARENT MAY BE LOCATED. ANY JUDICIAL PROCEEDING BY THE
PARENT 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 AGREEMENT OR ANY DOCUMENT EXECUTED BY THE PARENT PURSUANT TO THIS AGREEMENT
SHALL BE BROUGHT ONLY IN A COURT IN NEW YORK, NEW YORK.
Section 8.9 WAIVER OF JURY TRIAL. THE PARENT 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 THE
PARENT PURSUANT TO THIS AGREEMENT OR THE RELATIONSHIP ESTABLISHED HEREUNDER OR
THEREUNDER.
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Section 8.10 Binding Effect; Assignability. This Agreement shall be binding
upon and inure to the benefit of the Parent, the Buyer and their respective
successors and permitted assigns (including any trustee in bankruptcy). The
Parent may not 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 the Parent. Without limiting the
foregoing, the Parent 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. The Parent 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 the Parent agrees to cooperate fully with the Agent and the
Servicer in the exercise of such rights and remedies. The Parent 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 the
Parent 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. The Parent 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.
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.
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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.
Parent and Sub-Servicer:
FEDERAL-MOGUL CORPORATION,
as Parent 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
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) 354-7700
Fax: (248) 354-6746
Receivables Sale Agreement
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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 Reserve Percentage" shall have the meaning specified in the
Purchase Agreement.
"Aggregate Unpaids" has the meaning set forth in the Purchase Agreement.
"Agreement" means this Amended and Restated 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.
Receivables Sale Agreement
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"Change of Control" shall have the meaning set forth in the Purchase
Agreement.
"Code" means the Internal Revenue Code of 1986, 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 Parent 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.
"Contractual Dilution Balance" shall have the meaning specified in the
Purchase Agreement.
"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, provided that each Originator may
have Credit Policies with certain immaterial variations from the credit and
collection policies attached hereto in Exhibit VI.
"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.
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"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. The Parent 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 the Parent
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 preliminary
statements to this Agreement and includes such entity's successors and assigns
(but does not include the Falcon Investors as assignees under Section 3.06 of
the Purchase Agreement).
"Federal-Mogul" means Federal-Mogul Corporation, a Michigan corporation,
and its successors and permitted assigns.
"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
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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 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.
"ISC" shall have the meaning assigned to that term in the preliminary
statements to this Agreement and includes such entity's successors and assigns
(but does not include the ISC Investors as assignees under Section 3.11 of 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 Receivables Balance" shall have the meaning specified in the Purchase
Agreement.
"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
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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.
"Originator" means each of (a) Federal-Mogul; (b) Federal-Mogul Canada
Limited; (c) Federal-Mogul Piston Rings, Inc.; (d) Federal-Mogul Flowery Branch,
LLC; (e) Federal-Mogul Powertain, Inc.; (f) Federal-Mogul Sealing Systems, Inc.;
(g) Federal-Mogul Carolina, Inc.; (h) Federal-Mogul South Bend, Inc., (i)
Federal-Mogul LaGrange, Inc.; (j) Federal-Mogul Sintered Products, Inc.; (k)
Federal-Mogul Sintered Products-Waupun, Inc.; (l) Federal-Mogul Engineered
Bearings, Inc.; (m) Federal-Mogul Camshafts, Inc.; (n) Federal-Mogul Aviation,
Inc.; (o) Federal-Mogul Ignition Company; (p) Federal-Mogul Products, Inc.; (q)
Federal-Mogul System Protection Group, Inc.; 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.
"Parent" means Federal-Mogul Corporation, a Michigan corporation, and its
successors and assigns.
"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.
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"Purchase" means a purchase by the Buyer of the Receivables and the Related
Security and all Collections and other proceeds thereof from the Parent 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 the Parent 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.
"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, the Receivables Purchase Agreement, 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 an Originator or
any subsidiary, and from time to time thereafter, arising from the sale of
merchandise rendered by an Originator 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.
"Receivables Purchase Agreement" means the Receivables Purchase Agreement,
dated as of July 1, 1999, between the Parent, as purchaser, and the other
Originators, as Sellers, as amended, modified or supplemented from time to time.
"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 Bank One, Michigan or such other bank as the Agent
shall designate with the consent of the Buyer.
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"Related Security" means, with respect to any Receivable:
(i) all of the Parent'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 Parent'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 Parent; and
(vi) all proceeds of any of the foregoing.
"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 $14,250,000.
"Required Investors" shall have the meaning specified 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
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Business Day, the next succeeding Business Day, and any other Business Day
designated by the Agent.
"Settlement Date 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 5.1(b).
"Stock Lift" shall mean an account receivable, or portion thereof, as to
which any Originator 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.
"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 Parent.
"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 the Parent 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, the Receivables Purchase Agreement and all other instruments,
documents and agreements executed and delivered by the Parent and each other
Originator in connection herewith.
"UCC" means the Uniform Commercial Code as from time to time in effect in
the specified jurisdiction.
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"Year 2000 Problem" means any significant risk that computer hardware or
software used in the business or operations of any Originator 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.
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EXHIBIT II
CHIEF EXECUTIVE OFFICE OF THE PARENT; LOCATIONS OF RECORDS;
TRADE NAMES; FEDERAL EMPLOYER IDENTIFICATION NUMBER
FEDERAL-MOGUL CORPORATION
Chief Executive Office and 26555 Northwestern Highway
Location of Records Southfield, MI 48034
Trade Names, Assumed Names and Federal-Mogul Corporation
Former Names Federal-Mogul Ignition Company
Champion Spark Plug Co.
Federal-Mogul Chesterfield Inc.
Cooper Automotive Products, Inc.
Federal-Mogul Automotive Company
Cooper Automotive Company
Federal-Mogul A&S Company
Cooper A&S Company
Federal-Mogul Interamericana, Ltd.
Champion Interamericana, Ltd.
Federal Employer Identification Number 38-0533580
Receivables Sale Agreement
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EXHIBIT III
COLLECTION ACCOUNTS
Bank/Lox Box Location Account # Box #
- - --------------------- --------- -----
Comerica Bank 1000013027 148901 and 30401
P.O. Box
Detroit, MI 48275-3265
BANK ONE CORPORATION 200011003677 771327
Dept. 771327
A E Goetze Inc.
P.O. Box 77000
Detroit, MI 48277-1327
BANK ONE CORPORATION 182953 771128
Dept. 771128
Supermet Inc.
P.O. Box 77000
Detroit, MI 48277-1128
First National Bank of Chicago 59-36047 730113
PO Box 730113
Dallas, TX 75373-0113
First National Bank of Chicago 55-56872 73696
P.O. Box 73696
Chicago, IL 60673-7696
First Maryland National Bank 171-8376-9 N/A
25 S Charles
Baltimore, MD 21201
First Maryland National Bank 184-8841-1 64899
AE Goetze LaGrange
P.O. Box 64899
Baltimore, MD 21264-4899
First Maryland National Bank 179-8459-5 64011
Deva Engineered Bearings
P.O. Box 64011
Baltimore, MD 21264-4011
Receivables Sale Agreement
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Bank/Lox Box Location Account # Box #
- - --------------------- --------- -----
Comerica Bank
Bank of America 7304749 96347
Comtech Manufacturing Co.
96347 Collection Center Dr.
Chicago, IL 60693
Bank of America 7311095 99543
Glacier Clevite Heavywall Bearings
99543 Collections Center Drive
Chicago IL 60693
Comerica 185068964 108901
Glacier Clevite Heavywall Bearings
P. O. Box 6700
Detroit, MI 48267-1089
Bank of America 7710925 98966
Weyburn Bartel Inc.
98966 Collections Center Dr.
Chicago IL 60693
Comerica 185068964 109001
Department 109001
Weyburn Bartel Inc.
P. O. Box 6700
Detroit, MI 48267-1090
Nations BankUS 3750324114 100220
P.O. Box 100220
Atlanta, GA 30384-0220
Nations BankUS 3750324114 277964
P.O. Box 277964
Atlanta, GA 30384-7964
Nations BankUS 3750324114 277969
P.O. Box 277969
Atlanta, GA 30384-7969
Royal Bank of Canada to be provided to be provided
to be provided
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EXHIBIT IV
[RESERVED]
Receivables Sale Agreement
38
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EXHIBIT V
FORM OF COLLECTION ACCOUNT AGREEMENT
[See Exhibit B to Receivables Interest Purchase Agreement]
Receivables Sale Agreement
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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.
Receivables Sale Agreement
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INTRODUCTION
CENTRALIZED SOUTHFIELD ENVIRONMENT
o Supporting the Following
o OEM--United States
o Aftermarket--United States
o Aftermarket--Canada
o Specific Responsibilities
o Credit approval
o Collection
o Receivable management
o Billing--NAA only
o Dispute resolution
o Department Organization Chart
o 85 total employees
o 5 part-time/associate
o 80 full-time company employees (74% 4-year degrees)
o Software Utilized
o CARMS--receivable management
o Lotus Notes--communication and dispute management
o Maxretriever--document management
o UPS--proof of deliveries
o PRC--scanner utilization
o Internally developed--AMS, MAPS, STRAP
o Aggressive Reengineering Initiative
o Relentless pursuit of superior customer service
o Eliminate deductions
o Continuous investigation of electronic options in our daily operations
o Review of document delivery options for invoices and statements
o Resolve customer inquiries with one call methodology
o Investigation of order to cash possibilities at manufacturing plants
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CREDIT POLICY AND PROCEDURE
o Determination of Credit Limits
o Credit limits are set at approximately 2.5 times estimated month sales
for new accounts.
o 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.
o New Account Procedure
o 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)
o 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.
o Levels of Credit Granting Approval
o 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.
o Increases in credit for current customers are reviewed by the Credit
Analyst.
o Use of Security Documents and Personal Guarantees
o 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.
o 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.
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o Training of Credit Granting Personnel
o 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
o Credit Files
o 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)
o These files are kept in a central location in the Customer Financial
Services Department
o 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
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o Payment Terms
o Standard terms for OEM customers are either net 10th and net 25th prox
or net 30 days on the date in the month in which the product is
shipped. For net 10th and net 25th prox, if the product is shipped in
the first 15 days of the month, payment is due by the 10th day of the
following month. If shipped later in the month, payment is due by the
25th day of the following month. Customers are sent an invoice or an
ASN for each shipment.
o Standard terms for the FM Aftermarket and Retail are based on a
shipping month of the 26th to the 25th and qualify for a 2% prompt
payment discount if the invoice is paid by the 10th of the following
month, otherwise, full payment for the Aftermarket is due by the 25th
of the following month and for Retail, full payment is due the 25th of
the 2nd month following. Gasket, ignition, chassis and brake terms in
general are 2% 2nd 10th net 25th prox. In addition, there are
negotiated terms for Retailers and selected buying groups which can
range from 2% 2nd 10th to net 90 days.
o Determinants of Price
o Prices for the Aftermarket are published on product line price sheets.
o 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.
o Cash In Advance/Cash On Account
o 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
o Notes Receivable
o Used at the Credit Analyst's discretion and reviewed monthly for
payment. As of May, 1999 month end, there were 4 open Notes Receivable
for a total of $463,604.45.
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CREDIT AND COLLECTION
o Account Maintenance
o 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).
o Action lists are reviewed by credit analysts for resolution.
o Summary past due reports are generated on a monthly basis and are
reviewed by the analysts for credit restriction. oCredit analysts
continue follow up by making timely collection calls to customers on
past due invoices until payment is received.
o Sales is contacted to assist with collection of past due items and the
resolution of customer disputes.
o 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.
o 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.
o Collection Agencies / Bankruptcies
o 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.
o Accounts that have filed for bankruptcy are moved to a separate credit
manager code for follow-up and are written off quarterly.
45
<PAGE>
AFTERMARKET - CUSTOMER BASE OVERVIEW
o Number of Aftermarket and Retail Accounts
o 5,548 active Aftermarket accounts
o 187 active Retail accounts
o Product Portfolio
o Powertrain Systems - power cylinder systems, engine bearings, pistons,
piston rings, piston pins, piston liners, connecting rods, bushings,
washers, spark plugs, ignition wires and cables, ignition coils, and
ceramic insulators.
o Sealing Systems - total engine sealing, total transmission sealing,
total axle sealing, cylinder head gaskets, ancillary gaskets, dynamic
seals, bonded pistons, wiper products, heat shields, noise and
vibration sealing systems.
o General Products - camshafts, brake and friction products, chassis
products, driveline products, fuel pumps, carburetors, emission
control products, strobes, marker lights, reflective tape, sintered
products, and systems protection products.
o Method of Order Placement and Shipment
o Orders can be placed electronically via EDI or through Federal-Mogul's
Customer Service/Order Entry via phone or fax.
o 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.
o Customer Operations
o 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.
o Retail customers buy product for resale in their own company owned
store. Examples are CSK Automotive, Advance and AutoZone.
46
<PAGE>
ORIGINAL EQUIPMENT MARKET AND EXPORT OVERVIEW
o OE Export Customer Base
o 1,344 active OEM accounts
o 208 active Export accounts
o Customer Operations
o OE & Export customers consist primarily of automotive, heavy duty
vehicle, farm equipment and industrial equipment manufacturers.
o Major customers include Ford, General Motors and Chrysler.
o Product Portfolio
o Powertrain Systems - power cylinder systems, engine bearings, pistons,
piston rings, piston pins, piston liners, connecting rods, bushings,
washers, spark plugs, ignition wires and cables, ignition coils, and
ceramic insulators.
o Sealing Systems - total engine sealing, total transmission sealing,
total axle sealing, cylinder head gaskets, ancillary gaskets, dynamic
seals, bonded pistons, wiper products, heat shields, noise and
vibration sealing systems.
o General Products - camshafts, brake and friction products, chassis
products, driveline products, fuel pumps, carburetors, emission
control products, strobes, marker lights, reflective tape, sintered
products, and system protection products.
o Order Process
o Decentralized customer service - one at each of our plant locations.
o 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.
o Smaller OEM's send purchase orders in advance with date required.
Purchase orders reviewed at plant before orders are scheduled.
47
<PAGE>
ACCOUNTS RECEIVABLE DILUTIONS
o Cash Discount
o 1.8% of NAA Sales Doubtful Accounts
o Written off quarterly as approved by the department manager
o Continual follow up until financial conclusion
o Credit Memos
o Stocklift returns
o Obsolescence returns
o 30 day returns
o Warranty
o Price
o Policy allowance
o Checks Issued
o Rebates for volume incentives
o Invoices/Statements
o The invoices generated from a plant sale can be mailed or sent
electronically through EDI
o The Aftermarket invoices that are not sent via EDI are mailed at least
weekly.
o Monthly statements are sent to customers based on the 25th or
month-end cutoff based on the customer.
o Reconciliations
o A monthly reconciliation is completed of CARMS to the General Ledger
balance.
o Typical reconciliation items can be cash or billings due to different
closing schedules.
EXHIBIT VII
[RESERVED]
Receivables Sale Agreement
48
<PAGE>
EXHIBIT VIII
FORM OF SETTLEMENT DATE STATEMENT
[See Exhibit C to the Receivable Interest Purchase Agreement]
Receivables Sale Agreement
49
<PAGE>
EXHIBIT IX
FORM OF SUBSCRIPTION AGREEMENT
---------
STOCKHOLDER AND SUBSCRIPTION AGREEMENT
THIS STOCKHOLDER AND SUBSCRIPTION AGREEMENT (this "Agreement"), dated as of
July 1, 1999, is entered into by and between Federal-Mogul Funding Corporation,
a Michigan corporation ("SPC"), and Federal-Mogul Corporation, a Michigan
corporation ("Parent"). This Agreement supercedes any and all stockholder and
subscription agreements previously entered into by and between SPC and the
Parent. Except as otherwise specifically provided herein, capitalized terms used
in this Agreement have the meanings ascribed thereto in the Amended and Restated
Receivables Sale and Contribution Agreement dated as of even date herewith
between the Parent 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, International Securitization
Corporation, certain financial institutions party thereto as "Investors,"
and The First National Bank of Chicago, as the "Agent," have entered into
an Amended and Restated 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.
Receivables Sale Agreement
50
<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 $14,250,000 (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.
(f) The issuance of the Shares by SPC hereunder is legally permitted
by all laws and regulations to which SPC is subject.
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<PAGE>
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:
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
52
<PAGE>
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.
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
53
<PAGE>
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. This Agreement supercedes all stockholder and
subscription agreements previously entered into by and between SPC and Parent.
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.
54
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first above written.
SPC PARENT
FEDERAL-MOGUL FUNDING CORPORATION, FEDERAL-MOGUL CORPORATION,
a Michigan corporation a Michigan corporation
By: ___________________________________ By:_________________________
Name: Name:
Title: Title:
55
<PAGE>
EXHIBIT X
FORM OF SUBORDINATED NOTE
---------
SUBORDINATED NOTE
July 1, 1999
1. Note. FOR VALUE RECEIVED, the undersigned, FEDERAL-MOGUL FUNDING
CORPORATION, a Michigan corporation ("SPC"), hereby unconditionally promises to
pay to the order of FEDERAL-MOGUL CORPORATION, a Michigan corporation
("Parent"), 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) Parent 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 Parent to SPC pursuant to and in accordance
with the terms of that certain Amended and Restated Receivables Sale and
Contribution Agreement dated as of July 1, 1999 between Parent 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. Parent 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 Parent to make any
such entry or any error therein shall expand, limit or affect the obligations of
SPC hereunder.
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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 Amended and Restated Receivable Interest Purchase Agreement
dated as of July 1, 1999 by and among SPC, Federal-Mogul Corporation, Falcon
Asset Securitization Corporation, International 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, Parent 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) Parent 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 Parent 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 Parent in
violation of the immediately preceding sentence, Parent 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 "CP Costs" or "Yield" accruing under the
Purchase Agreement after the commencement of any such proceeding, whether or not
any or all of such CP Costs or Yield is an allowable claim in any such
proceeding) before Parent 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.
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
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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
58
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8. Waivers. All parties hereto, whether as makers, endorsers, or otherwise,
severally waive presentment for payment, demand, protest and notice of dishonor.
Parent 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 Parent without the prior written
consent of the Agent, and any such attempted transfer shall be void.
FEDERAL-MOGUL FUNDING CORPORATION
By: _____________________________
Name:
Title:
59
<PAGE>
Schedule
to
SUBORDINATED NOTE
SUBORDINATED LOANS AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
Amount of Amount Unpaid
Subordinated of Principal Notation
Date Loan Principal Paid Balance made by
- - ------------------- ------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
- - ------------------- ------------------- ------------------- ------------------- -------------------
- - ------------------- ------------------- ------------------- ------------------- -------------------
- - ------------------- ------------------- ------------------- ------------------- -------------------
- - ------------------- ------------------- ------------------- ------------------- -------------------
- - ------------------- ------------------- ------------------- ------------------- -------------------
- - ------------------- ------------------- ------------------- ------------------- -------------------
- - ------------------- ------------------- ------------------- ------------------- -------------------
- - ------------------- ------------------- ------------------- ------------------- -------------------
- - ------------------- ------------------- ------------------- ------------------- -------------------
- - ------------------- ------------------- ------------------- ------------------- -------------------
- - ------------------- ------------------- ------------------- ------------------- -------------------
- - ------------------- ------------------- ------------------- ------------------- -------------------
- - ------------------- ------------------- ------------------- ------------------- -------------------
- - ------------------- ------------------- ------------------- ------------------- -------------------
- - ------------------- ------------------- ------------------- ------------------- -------------------
- - ------------------- ------------------- ------------------- ------------------- -------------------
</TABLE>
60
<PAGE>
SCHEDULE A
LIST OF CLOSING DOCUMENTS
List of Participants
Participant Abbreviation
----------- ------------
Federal-Mogul Corporation FMC
Federal-Mogul Canada Limited FM Canada
Federal-Mogul Piston Rings, Inc. FM Piston
Federal-Mogul Flowery Branch, LLC FM Flowery
Federal-Mogul Powertrain, Inc. FM Powertrain
Federal-Mogul Sealing Systems, Inc. FM Sealing
Federal-Mogul Carolina, Inc. FM Carolina
Federal-Mogul South Bend, Inc. FM South Bend
Federal-Mogul LaGrange, Inc. FM LaGrange
Federal-Mogul Sintered Products, Inc. FM Sintered
Federal-Mogul Sintered Products - Waupun, Inc. FM Waupun
Federal-Mogul System Protection Group, Inc. FM System
Federal-Mogul Engineered Bearings, Inc. FM Engineered
Federal-Mogul Camshafts, Inc. FM Camshafts
Federal-Mogul Aviation, Inc. FM Aviation
Federal-Mogul Ignition Company "Blazer" FM Blazer
Federal-Mogul Products, Inc. "Moog" FM Moog
Federal-Mogul Funding Corporation FMFC
Falcon Asset Securitization Corporation Falcon
International Securitization Corporation ISC
Financial Institutions Investors
First National Bank of Chicago Agent
Baker & McKenzie B&M
Brown & Wood B&W
Latham & Watkins L&W
61
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Index of Closing Documents
Document Tab No. Responsibility
-------- ------- --------------
STEP I - Sale from the Originators to FMC
Receivables Purchase Agreement 1.1 B&W
Subordinated Note executed by FMC in
favor of each Originator (other than 2.1 B&W
FMC)
Secretary's Certificate for each 3.0 B&W
Originator (other than FMC), as to
organizational document certified by,
and good standing certificate issued by,
Secretary of State of the State of
incorporation, By-Laws, resolutions and
specimen signatures:
FM Canada 3.1 B&W
FM Piston 3.2 B&W
FM Flowery 3.3 B&W
FM Powertrain 3.4 B&W
FM Sealing 3.5 B&W
FM Carolina 3.6 B&W
FM South Bend 3.7 B&W
FM LaGrange 3.8 B&W
FM Sintered 3.9 B&W
FM Waupun 3.10 B&W
FM System 3.11 B&W
FM Engineered 3.12 B&W
FM Camshafts 3.13 B&W
FM Aviation 3.14 B&W
FM Blazer 3.15 B&W
62
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Document Tab No. Responsibility
-------- ------- --------------
FM Moog 3.16 B&W
Officer's Certificate of each Originator 4.0 B&W
(other than FMC), dated as of July 1,
1999 Re: No Event of Purchase and Sale
Termination or Potential Event of
Purchase and Sale Termination, and
absence of Material Adverse Effect since
March 31, 1999.
FM Canada 4.1 B&W
FM Piston 4.2 B&W
FM Flowery 4.3 B&W
FM Powertrain 4.4 B&W
FM Sealing 4.5 B&W
FM Carolina 4.6 B&W
FM South Bend 4.7 B&W
FM LaGrange 4.8 B&W
FM Sintered 4.9 B&W
FM Waupun 4.10 B&W
FM System 4.11 B&W
FM Engineered 4.12 B&W
FM Camshafts 4.13 B&W
FM Aviation 4.14 B&W
FM Blazer 4.15 B&W
FM Moog 4.16 B&W
UCC-1 Financing Statement to be filed in 5.0 L&W
connection with Receivables Purchase
Agreement, each Originator (other than
FMC) as debtor, FMC as secured party and
FMFC as assignee:
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Document Tab No. Responsibility
-------- ------- --------------
FM Canada 5.1 L&W
- Ontario
FM Piston 5.2 L&W
- Secretary of State of Michigan
- Secretary of State of Wisconsin
FM Flowery 5.3 L&W
- Hall County (Georgia)
FM Powertrain 5.4 L&W
- Secretary of State of Minnesota
- Secretary of State of Ohio
- Morgan County
FM Sealing 5.5 L&W
- Secretary of State of Alabama
FM Carolina 5.6 L&W
- Secretary of State of South Carolina
FM South Bend 5.7 L&W
- Secretary of State of Indiana
FM LaGrange 5.8 L&W
- Troup County (Georgia)
FM Sintered 5.9 L&W
- Secretary of State of Ohio
- Montgomery County
FM Waupun 5.10 L&W
- Secretary of State of Wisconsin
FM System 5.11 L&W
- Secretary of State of Pennsylvania
- Chester County
FM Engineered 5.12 L&W
- Secretary of State of Ohio
- Stark County
- Summit County
FM Camshafts 5.13 L&W
- Secretary of State of Michigan
64
<PAGE>
Document Tab No. Responsibility
-------- ------- --------------
FM Aviation 5.14 L&W
- Secretary of State of South Carolina
FM Blazer 5.15 L&W
- Secretary of State of Illinois
FM Moog 5.16 L&W
- Secretary of State of Missouri
- St. Louis City
UCC-3 Financing Statement FMFC as 6.0 L&W
secured party and Agent as assignee
FM Canada 6.1 L&W
- Ontario
FM Piston 6.2 L&W
- Secretary of State of Michigan
- Secretary of State of Wisconsin
FM Flowery 6.3 L&W
- Hall County (Georgia)
FM Powertrain 6.4 L&W
- Secretary of State of Minnesota
- Secretary of State of Ohio
- Morgan County
FM Sealing 6.5 L&W
- Secretary of State of Alabama
FM Carolina 6.6 L&W
- Secretary of State of South Carolina
FM South Bend 6.7 L&W
- Secretary of State of Indiana
FM LaGrange 6.8 L&W
- Troup County (Georgia)
FM Sintered 6.9 L&W
- Secretary of State of Ohio
- Montgomery County
65
<PAGE>
Document Tab No. Responsibility
-------- ------- --------------
FM Waupun 6.10 L&W
- Secretary of State of Wisconsin
FM System 6.11 L&W
- Secretary of State of Pennsylvania
- Chester County
FM Engineered 6.12 L&W
- Secretary of State of Ohio
- Stark County
- Summit County
FM Camshafts 6.13 L&W
- Secretary of State of Michigan
FM Aviation 6.14 L&W
- Secretary of State of South Carolina
FM Blazer 6.15 L&W
- Secretary of State of Illinois
FM Moog 6.16 L&W
- Secretary of State of Missouri
- St. Louis City
UCC Lien and Related Searches for each 7.0 B&W
Originator (other than FMC)
FM Canada 7.1 B&W
- Ontario
FM Piston 7.2 B&W
- Secretary of State of Michigan
- Kent County
- Secretary of State of Wisconsin
- Marathon County
- Manitowoc County
FM Flowery 7.3 B&W
- Secretary of State of Georgia (Central Index)
- Hall County
66
<PAGE>
Document Tab No. Responsibility
-------- ------- --------------
FM Powertrain 7.4 B&W
- Secretary of State of Minnesota
- Wabasha County
- Goodhue County
- Secretary of State of Ohio
- Morgan County
FM Sealing 7.5 B&W
- Secretary of State of Alabama
- Limestone County
FM Carolina 7.6 B&W
- Secretary of State of South Carolina
- Sumter County
FM South Bend 7.7 B&W
- Secretary of State of Indiana
- St. Joseph County
FM LaGrange 7.8 B&W
- Secretary of State of Georgia (Central Index)
- Troup County
FM Sintered 7.9 B&W
- Secretary of State of Ohio
- Montgomery County
FM Waupun 7.10 B&W
- Secretary of State of Wisconsin
- Dodge County
- Fond du Lac County
FM System 7.11 B&W
- Secretary of State of Pennsylvania
- Chester County
FM Engineered 7.12 B&W
- Secretary of State of Ohio
- Stark County
- Summit County
FM Camshafts 7.13 B&W
- Secretary of State of Michigan
- Ottawa County
67
<PAGE>
Document Tab No. Responsibility
-------- ------- --------------
FM Aviation 7.14 B&W
- Secretary of State of South Carolina
- Pickens County
FM Blazer 7.15 B&W
- Secretary of State of Illinois
- Cook County
FM Moog 7.16 B&W
- Secretary of State of Missouri
- St. Louis County
- St. Louis City
STEP II - Sale from FMC to FMFC
Amended and Restated Receivables Sale 8.1 L&W
and Contribution Agreement ("Receivables
Sale Agreement").
Stockholder and Subscription Agreement 9.1 L&W
Subordinated Note executed by FMC 10.1 L&W
Secretary's Certificate of FMC, as to 11.1 B&W
good standing certificate issued by, and
Certificate of Incorporation certified
by, Secretary of State of Michigan,
By-Laws, resolutions and specimen
signatures.
Officer's Certificate of FMC Re: No 12.1 B&W
Event of Purchase and Sale Termination
or Potential Event of Purchase and Sale
Termination, and absence of Material
Adverse Effect since March 31, 1999.
UCC-3 Financing Statement to be filed in 13.1 L&W
connection with Receivables Sale
Agreement, FMC as debtor and FMFC as
secured party and Agent, as Assignee:
- Secretary of State of Michigan
UCC Lien and Related Searches for the FMC 14.1 B&W
- Secretary of State of Michigan
- Oakland County
68
<PAGE>
Document Tab No. Responsibility
-------- ------- --------------
STEP III - Sale from FMFC to Falcon, ISC and the Investors
Amended and Restated Receivables 15.1 L&W
Interest Purchase Agreement (the
"Receivables Interest Purchase
Agreement")
Fee Letter 16.1 L&W
Investor Fee Letter 17.1 L&W
Secretary's Certificate of FMFC, as to 18.1 B&W
good standing certificate issued by, and
Certificate of Incorporation certified
by, Secretary of State of Michigan,
By-Laws, resolutions and specimen
signatures.
Officer's Certificate of FMFC Re: No 19.1 B&W
Amortization Event or Potential
Amortization Event, and absence of
Material Adverse Effect since March 31,
1999.
Certificate Re: B&W True 20.1 B&W
Sale/Nonconsolidation Opinion signed by
each of the Originators (other than FMC)
(Step I)
FMC Certificate Re: B&W True 22.1 B&W
Sale/Nonconsolidation Opinion (Step II)
FMFC Certificate Re: B&W True 21.1 B&W
Sale/Nonconsolidation Opinion (Step II)
True Sale/Nonconsolidation Opinion of 22.1 B&W
B&W (Step I and Step II).
Corporate Opinion of B&W (including 23.1 B&W
perfection and priority), counsel to
Originators, FMC and FMFC (Step I, Step
II and Step III)
Corporate Opinion of in-house (including 24.1 B&W
perfection and priority), counsel to
Originators, FMC and FMFC (Step I, Step
II and Step III)
Corporate Opinion of B&M, Canadian 25.1 B&W/B&M
counsel for FM Canada (Step I)
69
<PAGE>
Document Tab No. Responsibility
-------- ------- --------------
UCC-3 Financing Statement to be filed in 26.1 L&W
connection with Receivables Interest
Purchase Agreement, FMFC as debtor and
Agent as secured party:
- Secretary of State of Michigan
UCC Lien and Related Searches for FMFC 27.1 B&W
- Secretary of State of Michigan
- Oakland County
Collection Account Agreements: 28.0
Comerica Bank 28.1 L&W/Agent/B&W
Bank One Corporation Acct. 28.2 L&W/Agent/B&W
First National Bank of Chicago Acct. 28.3 L&W/Agent/B&W
First Maryland National Bank Acct. 28.4 L&W/Agent/B&W
Bank of America Acct. 28.5 L&W/Agent/B&W
Nations BankUS Acct. 28.6 L&W/Agent/B&W
Royal Bank of Canada 28.7 L&W/Agent/B&W
70
<PAGE>
EXECUTION COPY
$450,000,000
AMENDED AND RESTATED
RECEIVABLE INTEREST PURCHASE AGREEMENT
Dated as of July 1, 1999
Among
FEDERAL-MOGUL FUNDING CORPORATION,
as Seller,
FEDERAL-MOGUL CORPORATION
as Servicer,
FALCON ASSET SECURITIZATION CORPORATION
and
INTERNATIONAL SECURITIZATION CORPORATION,
as purchasers,
THE FINANCIAL INSTITUTIONS FROM TIME TO TIME PARTY HERETO,
as Investors,
and
THE FIRST NATIONAL BANK OF CHICAGO,
as Agent
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
ARTICLE I. DEFINITIONS
<S> <C>
Section 1.01 Defined Terms.................................................................................2
Section 1.02 Other Definitional Provisions................................................................23
ARTICLE II. PURCHASE ARRANGEMENTS; PAYMENTS AND COLLECTIONS;
CONDUIT FUNDING
Section 2.01 Purchase Facility............................................................................23
Section 2.02 Increases....................................................................................23
Section 2.03 Decreases....................................................................................24
Section 2.04 Payment Requirements.........................................................................24
Section 2.05 Payments.....................................................................................24
Section 2.06 Collections Prior to Amortization............................................................25
Section 2.07 Collections Following Amortization...........................................................25
Section 2.08 Application of Collections...................................................................26
Section 2.09 Payment Recission............................................................................26
Section 2.10 Clean Up Call................................................................................26
Section 2.11 CP Costs.....................................................................................27
Section 2.12 CP Costs Payments............................................................................27
Section 2.13 Calculation of CP Costs......................................................................27
ARTICLE III. INVESTOR FUNDING LIQUIDITY FACILITY
Section 3.01 Investors' Funding...........................................................................27
Section 3.02 Yield Payments...............................................................................27
Section 3.03 Selection and Continuation of Tranche Periods................................................27
Section 3.04 Investors' Discount Rates....................................................................28
Section 3.05 Suspension of the LIBO Rate..................................................................28
Section 3.06 Transfer to Falcon Investors.................................................................28
Section 3.07 Transfer Price Reduction Yield...............................................................29
Section 3.08 Payments to Falcon...........................................................................29
Section 3.09 Limitation on Commitment to Purchase from Falcon.............................................29
Section 3.10 Defaulting Falcon Investors..................................................................29
Section 3.11 Transfer to ISC Investors....................................................................30
Section 3.12 Transfer Price Reduction Yield...............................................................30
Section 3.13 Payments to ISC..............................................................................30
Section 3.14 Limitation on Commitment to Purchase from ISC................................................31
Section 3.15 Defaulting ISC Investors.....................................................................31
</TABLE>
i
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<TABLE>
<S> <C>
ARTICLE IV. REPRESENTATIONS AND WARRANTIES
Section 4.01 Seller Representations and Warranties........................................................31
Section 4.02 Investor Representations and Warranties......................................................35
ARTICLE V. CONDITIONS OF PURCHASES
Section 5.01 Conditions Precedent to Initial Purchase.....................................................36
Section 5.02 Conditions Precedent to All Purchases and Reinvestments......................................36
ARTICLE VI. COVENANTS OF THE SELLER
Section 6.01 Affirmative Covenants of Seller..............................................................37
(a) Notices..........................................................................................38
(b) Compliance with Laws.............................................................................38
(c) Audits; Inspection Rights........................................................................38
(d) Keeping and Marking of Records and Books.........................................................38
(a) Compliance with Invoices and Credit Policies; Taxes..............................................38
(b) Purchase of Receivables from the Originators.....................................................39
(c) Ownership Interest...............................................................................39
(d) Payment to Federal-Mogul.........................................................................39
(e) Performance and Enforcement of Sale Agreement....................................................39
(f) Purchasers' Reliance.............................................................................39
(a) Collections......................................................................................40
(b) Minimum Net Worth................................................................................41
(c) Year 2000 Problems...............................................................................41
Section 6.02 Negative Covenants of Seller.................................................................41
(a) Name Change, Offices, Records and Books of Accounts..............................................41
(b) Change in Payment Instructions to Obligors.......................................................42
(a) Modifications to Credit Policies.................................................................42
(b) Sales, Liens, Etc................................................................................42
(c) Nature of Business; Other Agreements; Other Indebtedness.........................................42
(d) Amendments to Sale Agreement.....................................................................43
(e) Amendments to Corporate Documents................................................................43
(f) Merger...........................................................................................43
(g) Restricted Junior Payments.......................................................................43
ARTICLE VII. SERVICING, ADMINISTRATION AND COLLECTION OF THE RECEIVABLES
Section 7.01 Designation of Servicer......................................................................44
Section 7.02 Duties of Servicer...........................................................................44
Section 7.03 Collection Notices...........................................................................45
Section 7.04 Responsibilities of the Seller...............................................................46
Section 7.05 Settlement Date Statements...................................................................46
Section 7.06 Quarterly Servicer's Certificate.............................................................46
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Section 7.07 Weekly Report and Distribution...............................................................46
Section 7.08 Reporting Covenants of the Servicer..........................................................47
(a) Financial Reporting..............................................................................47
(i) Annual Reporting.............................................................................47
(ii)Quarterly Reporting..........................................................................47
(iii) Securities and Exchange Commission Filings.................................................47
(b) Notices..........................................................................................47
Section 7.09 Inspection Rights............................................................................48
Section 7.10 Credit Policies..............................................................................48
Section 7.11 Servicing Compensation.......................................................................48
ARTICLE VIII. AMORTIZATION EVENTS
Section 8.01 Amortization Events..........................................................................48
ARTICLE IX. INDEMNIFICATION
Section 9.01 Indemnities by the Seller....................................................................51
Section 9.02 Increased Cost and Reduced Return............................................................53
Section 9.03 Costs and Expenses Relating to this Agreement................................................54
Section 9.04 Taxes........................................................................................54
ARTICLE X. THE AGENT
Section 10.01 Authorization and Action.....................................................................55
Section 10.02 Delegation of Duties.........................................................................56
Section 10.03 Exculpatory Provisions.......................................................................56
Section 10.04 Reliance by Agent............................................................................56
Section 10.05 Non-Reliance on Agent and Other Purchasers...................................................57
Section 10.06 Reimbursement and Indemnification............................................................57
Section 10.07 Agent in its Individual Capacity.............................................................57
Section 10.08 Successor Agent..............................................................................57
ARTICLE XI. ASSIGNMENTS; PARTICIPATIONS
Section 11.01 Assignments..................................................................................58
Section 11.02 Participations...............................................................................59
ARTICLE XII. MISCELLANEOUS
Section 12.01 Waivers and Amendments.......................................................................59
Section 12.02 Notices......................................................................................60
Section 12.03 Ratable Payments.............................................................................61
Section 12.04 Protection of Ownership Interests of the Agent on behalf of the Purchasers...................61
Section 12.05 Confidentiality..............................................................................62
Section 12.06 Bankruptcy Petition..........................................................................62
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
Section 12.07 Limitation of Liability......................................................................63
Section 12.08 CHOICE OF LAW................................................................................63
Section 12.09 CONSENT TO JURISDICTION......................................................................63
Section 12.10 WAIVER OF JURY TRIAL.........................................................................63
Section 12.11 Integration; Survival of Terms...............................................................64
Section 12.12 Counterparts; Severability...................................................................64
Section 12.13 First Chicago Roles..........................................................................64
Section 12.14 Characterization.............................................................................64
Section 12.15 Acknowledgments..............................................................................65
EXHIBIT A FORM OF PURCHASE NOTICE
EXHIBIT B FORM OF COLLECTION ACCOUNT AGREEMENT
EXHIBIT C FORM OF SETTLEMENT DATE STATEMENT
EXHIBIT D PRINCIPAL PLACES OF BUSINESS, CHIEF EXECUTIVE OFFICE, OFFICES
FOR RECORDS, FEDERAL EMPLOYEE IDENTIFICATION NUMBER
EXHIBIT E COLLECTION BANKS AND COLLECTION ACOUNTS
EXHIBIT F FORM OF COMPLIANCE CERTIFICATE
EXHIBIT G CREDIT POLICIES
EXHIBIT H FORM OF REDUCTION NOTICE
SCHEDULE A CONDITIONS PRECEDENT TO INITIAL PURCHASE
</TABLE>
iv
<PAGE>
THIS AMENDED AND RESTATED RECEIVABLE INTEREST PURCHASE AGREEMENT, dated as
of July 1, 1999, 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"), INTERNATIONAL SECURITIZATION CORPORATION, a Delaware
corporation ("ISC" and, together with Falcon, each individually the "Conduit,"
and collectively the "Conduits"), THE FINANCIAL INSTITUTIONS LISTED FROM TIME TO
TIME ON THE SIGNATURE PAGES HERETO AS INVESTORS and THE FIRST NATIONAL BANK OF
CHICAGO, as Agent (the "Agent"), amends and restates the Amended and Restated
Receivable Interest Purchase Agreement dated as of April 19, 1999, among the
Seller, the Servicer, Falcon, the Financial Institutions listed on the signature
pages thereto as Investors, and the Agent, which amended and restated the
Receivable Interest Purchase Agreement dated as of November 20, 1998, among the
Seller, the Servicer, Falcon, the Financial Institutions listed on the signature
pages thereto as Investors, and the Agent.
PRELIMINARY STATEMENTS
WHEREAS, the Seller desires to transfer and assign Receivable Interests to
the Agent for the benefit of the Conduits or the Investors (as defined herein)
from time to time;
WHEREAS, on the terms and subject to the conditions hereinafter set forth,
the Conduits may, in their absolute and sole discretion, purchase Receivable
Interests from the Seller from time to time and, in the event the Conduits do
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
the Conduits with respect to Receivable Interests purchased by the Conduits;
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 the Conduits 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:
<PAGE>
ARTICLE I.
DEFINITIONS
Section 1.01. Defined Terms. As used in this Agreement, the following terms
shall have the following meanings:
"Accrual Period" means each calendar month, provided that the initial
Accrual Period hereunder means the period from (and including) the Closing Date
to (and including) the last day of the calendar month thereafter.
"Adjusted Liquidity Price" means, in determining the Falcon Transfer Price
or the ISC Transfer Price for any Receivable Interest, an amount equal to:
RI x [ (i) DC + (ii) NDR/1.045]
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.
Each of the foregoing shall be determined from the most recent Settlement
Date 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
2
<PAGE>
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.
"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 Reduction" has the meaning assigned to such term in Section
2.03.
"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 CP Costs or Yield, as applicable, 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 Amended and Restated 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)
$450,000,000.
"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.
3
<PAGE>
"Broken Funding Costs" means for any Receivable Interest which: (i) has its
Capital reduced without compliance by the Seller with the notice requirements
hereunder or (ii) does not become subject to an Aggregate Reduction following
the delivery of any Reduction Notice or (iii) is assigned under Article III or
terminated prior to the date on which it was originally scheduled to end; an
amount equal to the excess, if any, of (A) the CP Costs or Yield (as applicable)
that would have accrued during the remainder of the Tranche Periods or the
tranche periods for Commercial Paper determined by the Agent to relate to such
Receivable Interest (as applicable) subsequent to the date of such reduction or
termination (or in respect of clause (ii) above, the date such Aggregate
Reduction was designated to occur pursuant to the Reduction Notice) of the
Capital of such Receivable Interest if such reduction, assignment or termination
had not occurred or such Reduction Notice had not been delivered, over (B) the
sum of (x) to the extent all or a portion of such Capital is allocated to
another Receivable Interest, the amount of CP Costs or Yield actually accrued
during the remainder of such period on such Capital for the new Receivable
Interest, and (y) to the extent such Capital is not allocated to another
Receivable Interest, the income, if any, actually received during the remainder
of 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 Seller the amount of such excess. All
Broken Funding Costs shall be due and payable hereunder upon demand.
"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, (A) the Purchase
Price of such Receivable Interest, minus (B) 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 in accordance with the terms and conditions of
this Agreement; provided that such Capital shall be restored (in accordance with
Section 2.09 hereof) in the amount of any Collections or other payments so
received and applied if at any time the distribution of such Collections or
payments are rescinded, returned or refunded for any reason.
"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,
4
<PAGE>
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 July 1, 1999.
"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.
"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.
"Commercial Paper" means promissory notes of the Conduits issued by the
Conduits in the commercial paper market.
"Commitment" means collectively the Falcon Commitment and the ISC
Commitment.
"Conduit" has the meaning assigned to that term in the preamble to this
Agreement.
"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.
5
<PAGE>
"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 Costs" means, for each day, the sum of (i) discount accrued on Pooled
Commercial Paper on such day, plus (ii) any and all accrued commissions in
respect of placement agents and Commercial Paper dealers, and issuing and paying
agent fees incurred, in respect of such Pooled Commercial Paper for such day,
plus (iii) other costs associated with funding small or odd-lot amounts with
respect to all receivable purchase facilities which are funded by Pooled
Commercial Paper for such day, minus (iv) any accrual of income net of expenses
received on such day from investment of collections received under all
receivable purchase facilities funded substantially with Pooled Commercial
Paper, minus (v) any payment received on such day net of expenses in respect of
Broken Funding Costs related to the prepayment of any Receivables Interest of
any Conduit pursuant to the terms of any receivable purchase facilities funded
substantially with Pooled Commercial Paper. In addition to the foregoing costs,
if the Seller shall request any Incremental Purchase during any period of time
determined by the Agent in its sole discretion to result in incrementally higher
CP Costs applicable to such Incremental Purchase, the Capital associated with
any such Incremental Purchase shall, during such period, be deemed to be funded
by a Conduit in a special pool (which may include capital associated with other
receivable purchase facilities) for purposes of determining such additional CP
Costs applicable only to such special pool and charged each day during such
period against such Capital.
"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 the Seller shall
have been deemed to
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have received as a Collection of a Receivable. The Seller shall be deemed to
have received a Collection in full of a Receivable if at any time (i) the
Outstanding Balance of any such Receivable is either (x) reduced as a result of
any defective or rejected goods or services, any discount or any adjustment or
otherwise by the Seller (other than cash Collections on account of the
Receivables) or (y) reduced or cancelled 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) or (ii) the representations or
warranties in Sections 4.01(i), (j), (l), (n) or (o) are no longer true with
respect to any Receivable. The Seller hereby agrees to pay all Deemed
Collections immediately to the Servicer for application in accordance with the
terms and conditions hereof.
"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.
"Delinquency Ratio" means, as of any Report Date, the percentage equivalent
of a fraction, (i) the numerator of which is the sum of (x) 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 (y) the Placed Accounts
Balance, and (ii) 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.
"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 (i.e. cash
discounts related to prompt payments) 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 Rate" means, the LIBO Rate or the Base Rate, as applicable, with
respect to each Receivable Interest of the Investors; provided, however, that
from and after the occurrence of an Amortization Event, the Discount Rate shall
be the Base Rate.
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"Eligible Originator" means Federal-Mogul and each other Originator at any
time while it is wholly-owned by Federal-Mogul; provided, however, any such
Person shall not be an Eligible Originator (i) upon the occurrence of an
Insolvency Event with respect to such Person, or (ii) such Person is not on the
credit and accounts receivable management system and has not been audited by the
Agent on or prior to March 31, 2000.
"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 (provided that for purposes of any reporting and/or
calculations hereunder Canadian dollars shall be reflected as U.S. dollars
based upon the Bloomberg exchange rate used for Federal-Mogul's month end
accounting close); or is related to an original equipment manufacturer
export and is denominated in U.S. dollars;
(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) with respect to Receivables for the related Obligor which
represent in the aggregate 3.00% or more of the Pool Balance, there are no
offset arrangements with respect to such Obligor;
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(13) the contract for the Receivable represents all or a part of the
sales price of merchandise, insurance and services within the meaning of
ss. 3(c)(5) of the Investment Company Act of 1940, as amended; and
(14) the Receivable has not been materially extended, modified or
"written up";
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.
"Facility Account" means the Seller's Account No. ___-_________ at First
Chicago.
"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 2.10, (iii)
any date selected by the Seller on not less than 30 days' prior written notice
to the Agent; provided that such date should not be between Settlement Periods,
and provided further 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 Falcon Investors as assignees under Section 3.06).
"Falcon Acquisition Amount" means, on the date of any purchase by the
Falcon Investors from Falcon of Receivable Interests pursuant to Section 3.06:
(a) with respect to each Falcon Investor other than Bank One, Michigan, the
lesser of (i) such Falcon Investor's Pro Rata
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Share of the Falcon Transfer Price and (ii) such Falcon Investor's unused Falcon
Commitment, and (b) with respect to Bank One, Michigan, the difference between
(i) the Falcon Transfer Price and (ii) the aggregate amount payable by all other
Falcon Investors on such date pursuant to clause (a) above.
"Falcon Commitment" means, for each Falcon Investor, the commitment of such
Falcon 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 Falcon Investor's name on the signature pages
of this Agreement, as such amount may be modified in accordance with the terms
hereof.
"Falcon Defaulting Investor" shall have the meaning assigned to such term
in Section 3.10.
"Falcon Investors" means the financial institutions listed on the signature
pages of this Agreement under the heading "Falcon Investors" and their
respective successors and assigns.
"Falcon Non-Defaulting Investor" shall have the meaning assigned to such
term in Section 3.10.
"Falcon Purchase Limit" means, collectively, the aggregate of the Falcon
Commitments of the Falcon Investors hereunder (which aggregate amount is
$250,000,000 as of the date of this Agreement).
"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 Falcon
Investors pursuant to Section 3.06, 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 CP Costs for such Receivable
Interests.
"Falcon Transfer Price Deficit" has the meaning assigned to that term in
Section 3.10.
"Falcon Transfer Price Reduction" means in connection with the assignment
of a Receivable Interest by Falcon to the Agent for the benefit of the Falcon
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
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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.
"Federal-Mogul" means Federal-Mogul Corporation, a Michigan corporation,
and its successors in interest to the extent permitted hereunder.
"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 among the Seller, the Agent and the Conduits 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:
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(a) 7.0%, and
(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 any Conduit.
"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 any Conduit.
"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
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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.
"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.
"Investor Fee Letter" means that certain letter agreement dated as of the
date hereof, among the Seller, the Agent and the financial institutions parties
thereto, as amended or modified and in effect from time to time.
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"Investors" means, collectively, the Falcon Investors and the ISC
Investors.
"ISC" 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 ISC Investors as assignees under Section 3.11).
"ISC Acquisition Amount" means, on the date of any purchase by the ISC
Investors from ISC of Receivable Interests pursuant to Section 3.11: (a) with
respect to each ISC Investor other than Bank One, Michigan, the lesser of (i)
such ISC Investor's Pro Rata Share of the ISC Transfer Price and (ii) such ISC
Investor's unused ISC Commitment, and (b) with respect to Bank One, Michigan,
the difference between (i) the ISC Transfer Price and (ii) the aggregate amount
payable by all other ISC Investors on such date pursuant to clause (a) above.
"ISC Commitment" means, for each ISC Investor, the commitment of such ISC
Investor to purchase its Pro Rata Share of Receivable Interests from (i) the
Seller and (ii) ISC, such Pro Rata Share not to exceed, in the aggregate, the
amount set forth opposite such ISC Investor's name on the signature pages of
this Agreement, as such amount may be modified in accordance with the terms
hereof.
"ISC Defaulting Investor" shall have the meaning assigned to such term in
Section 3.15.
"ISC Investors" means the financial institutions listed on the signature
pages of this Agreement under the heading "ISC Investors" and their respective
successors and assigns.
"ISC Non-Defaulting Investor" shall have the meaning assigned to such term
in Section 3.15.
"ISC Purchase Limit" means, collectively, the aggregate of the ISC
Commitments of the ISC Investors hereunder (which aggregate amount is
$200,000,000 as of the date of this Agreement).
"ISC Residual" means the sum of the ISC Transfer Price Reductions.
"ISC Transfer Price" means, with respect to the assignment by ISC of one or
more Receivable Interests to the Agent for the benefit of the ISC Investors
pursuant to Section 3.11, 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 CP Costs for such Receivable Interests.
"ISC Transfer Price Deficit" has the meaning assigned to that term in
Section 3.15.
"ISC Transfer Price Reduction" means in connection with the assignment of a
Receivable Interest by ISC to the Agent for the benefit of the ISC Investors,
the positive
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difference between (i) the Capital of such Receivable Interest and (ii) the
Adjusted Liquidity Price for such Receivable Interest.
"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 maximum
aggregate reserve requirement (including all basic, supplemental, marginal or
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 (expressed as a
decimal), applicable to such Tranche Period plus (ii) 0.75% per annum. The LIBO
Rate shall be rounded, if necessary, to the next higher 1/16 of 1%.
"Liquidity Termination Date" means June 28, 2000, 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)
9.0% 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 Balance as of such Report Date and (b) $15,800,000.
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"Monthly Servicing Fee" shall have the meaning specified in Section 7.11.
"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).
"Obligations" shall have the meaning assigned to such term in Section 2.05.
"Obligor" means a Person obligated to make payments pursuant to an invoice.
"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) 3.0% 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 7%
Ford 7%
General Motors 7%
Auto Zone 7%
Genuine Parts 6%
Canadian Receivables 6%
OEM Export Receivables 5%
"Originator" means each of (a) Federal-Mogul; (b) Federal-Mogul Canada
Limited; (c) Federal-Mogul Piston Rings, Inc.; (d) Federal-Mogul Flowery Branch,
LLC; (e) Federal-Mogul Powertain, Inc.; (f) Federal-Mogul Sealing Systems, Inc.;
(g) Federal-Mogul Carolina, Inc.; (i) Federal-Mogul South Bend, Inc., (j)
Federal-Mogul LaGrange, Inc.; (k) Federal-Mogul Sintered Products, Inc.; (l)
Federal-Mogul Sintered Products-Waupun, Inc.; (m) Federal-Mogul Engineered
Bearings, Inc.; (n) Federal-Mogul Camshafts, Inc.; (o) Federal-Mogul Aviation,
Inc.; (p) Federal-Mogul Ignition Company; (q) Federal-Mogul Products, Inc.; (r)
Federal-Mogul Systems Protection Group, Inc.; 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.
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"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.
"PBGC" means the Pension Benefit Guaranty Corporation created under Section
4002(a) of ERISA or any successor thereto.
"Placed Accounts Balance" means the aggregate Outstanding Balance of any
Receivables that have been moved to a separate credit manager code in accordance
with the Credit Policies.
"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.
"Pool Balance" means, as of the time of determination thereof, the
aggregate Outstanding Balance of all Receivables owned by the Seller at such
time.
"Pooled Commercial Paper" means Commercial Paper notes of each Conduit
subject to any particular pooling arrangement by such Conduit, but excluding
Commercial Paper issued by such Conduit for a tenor and in an amount
specifically requested by any Person in connection with any agreement effected
by such Conduit.
"Potential Amortization Event" means an event which, with the passage of
time or the giving of notice, or both, would constitute an Amortization Event.
"Pro Rata Share" means, for each Investor, the Commitment of such Investor
divided by the related Purchase Limit, adjusted as necessary to give affect to
the application of the terms of Sections 3.06, 3.10, 3.11 and 3.15.
"Program Fee" shall have the meaning specified in the Fee Letter.
"Proposed Reduction Date" has the meaning assigned to that term in Section
2.03.
"Purchase Limit" means (i) the aggregate of the Falcon Purchase Limit and
the ISC Purchase Limit (which aggregate amount is $450,000,000 as of the date of
this Agreement); (ii) with respect to Falcon, the Falcon Purchase Limit; and
(iii) with respect to ISC, the ISC Purchase Limit, in each case, as applicable.
"Purchase Date" means the date of the sale by Seller, and the purchase by
the Conduits or the Agent on behalf of the Investors, of any Receivables
Interests hereunder.
"Purchase Notice" shall have the meaning specified in Section 2.02.
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"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 sum of (i)
(x) Capital divided by (y) 1 minus the Aggregate Reserve Percentage, and
(ii) the Contractual Dilution Balance.
"Purchaser" means Falcon, ISC 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 CP Costs or Yield, as applicable, 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 Broken Funding
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 other Originator, and from time to time thereafter, arising from the sale of
merchandise by Federal-Mogul or any other 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 (computed as set below) associated with a designated amount of Capital,
Discount Rate and Tranche Period selected pursuant to the terms and conditions
hereof 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 of such undivided interest, (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
---------------------------------------------
AVR - AR
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where:
C = the Capital of such Receivable Interest.
AVR = the Available Receivables.
AR = the Aggregate Reserves.
"Receivables Purchase Agreement" means the Receivables Purchase Agreement
dated as of the Closing Date by and between Federal-Mogul, as Purchaser, and the
other Originators, as sellers, as amended, modified or supplemented from time to
time.
"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 Notice" has the meaning assigned to such term in Section 2.03.
"Reduction Percentage" means, for any Receivable Interest acquired by the
Investors from the related Conduit 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 or the ISC Transfer Price Reduction, as applicable, for
such Receivable Interest and the denominator of which is the Capital of such
Receivable Interest.
"Reference Bank" means Bank One, Michigan 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.
"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,
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(v) all of the Seller's right, title and interest in, to and under the
Sale Agreement and the Receivables Purchase Agreement and, with respect to
such Agreement, 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.
"Required Investors" means, collectively at any time, Investors with
Commitments in excess of 66 2/3% of the Purchase Limit.
"Required Notice Period" means the number of days required notice set forth
below applicable to the Aggregate Reduction indicated below:
Aggregate Reduction Required Notice Period
------------------- ----------------------
LESS THAN$100,000,000 two Business Days
$100,000,000 to $250,000,000 five Business Days
MORE THAN$250,000,000 ten Business Days
"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).
"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 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 Amended and Restated Receivables Sale
and Contribution Agreement of even date herewith between the Seller, as
purchaser, and Federal-
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Mogul, as seller, 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, (1) the twentieth
(20th) day of each month or, if such day is not a Business Day, the next
succeeding Business Day or (2) the last day of the Relevant Tranche Period in
respect of each Receivable Interest of the Investors, and (b) from and after the
earlier to occur of (i) an Amortization Event or (ii) the Facility Termination
Date, (x) the twentieth (20th) day of each month or, if such day is not a
Business Day, the next succeeding Business Day, (y) the last day of the Relevant
Tranche Period in respect of each Receivable Interest of the Investors and (z)
or any other Business Day designated by the Agent.
"Settlement Date 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.
"Settlement Period" means (A) in respect of each Receivable Interest of a
Conduit, the immediately preceding Accrual Period, and (B) in respect of each
Receivable Interest of the Investors, the entire Tranche Period of such
Receivable Interest.
"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 9.04.
"Term" means, with respect to each Investor's Commitment, June 28, 2000.
"Terminating Tranche" has the meaning set forth in Section 3.03(b).
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"Tranche Period" means, with respect to any Receivable Interest held by an
Investor:
(a) if Yield for such Receivable Interest is calculated on the basis
of the LIBO Rate, a period of one, two, three or six 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; or
(b) if Yield for such Receivable Interest is calculated on the basis
of the Base Rate, a period commencing on a Business Day selected by the
Seller and agreed to by the Agent, provided no such period shall exceed 30
days.
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 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, the Investor Fee Letter, each Collection
Agreement, each Collection Notice, the Receivables Purchase Agreement 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
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occurring after December 31, 1999, will not function at least as effectively and
reliably as in the case of dates or time periods occurring before January 1,
2000.
"Yield" means for each respective Tranche Period relating to Receivable
Interests of the Investors, an amount equal to the product of the applicable
Discount Rate for each Receivable Interest multiplied by the Capital of such
Receivable Interest for each day elapsed during such Tranche Period, annualized
on a 360 day basis.
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.
PURCHASE ARRANGEMENTS; PAYMENTS AND COLLECTIONS;
CONDUIT FUNDING
Section 2.01 Purchase Facility. Upon the terms and subject to the
conditions hereof, the Seller may, at its option, sell and assign Receivable
Interests to the Agent for the benefit of each Conduit or the Investors. In
accordance with the terms and conditions set forth herein, each Conduit may, at
its option, instruct the Agent to purchase on behalf of such Conduit or if such
Conduit shall decline to purchase, the Agent shall purchase, on behalf of the
related Investors, Receivable Interests from time to time in an aggregate amount
not to exceed each Conduit's applicable Purchase Limit during the period from
the date hereof to but not including the Facility Termination Date.
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 Increases. The Seller shall provide the Agent with at least
three Business Days' prior notice in a form set forth as Exhibit A hereto of
each Incremental Purchase
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(a "Purchase Notice"). Each Purchase Notice shall be subject to Section 5.02
and, except as set forth below, shall be irrevocable and shall specify the
requested Purchase Price (which shall not be less than $2,000,000) and date of
purchase (which, in the case of any Incremental Purchase (after the initial
purchase hereunder), shall only be on a Settlement Date) and, in the case of an
Incremental Purchase to be funded by the Investors, the requested Discount Rate
and Tranche Period. Following receipt of a Purchase Notice, the Agent shall
determine whether each Conduit agrees to make the purchase. If any Conduit
declines to make a proposed purchase, the Seller may cancel the Purchase Notice
or, in the absence of such a cancellation, the Incremental Purchase of the
Receivable Interest shall be made by the related Investors. On the date of each
Incremental Purchase, upon satisfaction of the applicable conditions precedent
set forth in Article V, each Conduit or the Investors, as applicable, shall
deposit to the Facility Account, in immediately available funds, no later than
12:00 noon (Chicago time), an amount equal to (i) in the case of each Conduit,
the aggregate Purchase Price of the Receivable Interests such Conduit is then
purchasing or (ii) in the case of an Investor, such Investor's Pro Rata Share of
the aggregate Purchase Price of the Receivable Interests the related Investors
are purchasing.
Section 2.03 Decreases. The Seller shall provide the Agent with prior
written notice, substantially in the form of Exhibit H, in conformity with the
Required Notice Period of any reduction of Capital from Collections requested by
the Seller (a "Reduction Notice"). Such Reduction Notice shall designate (i) the
date (the "Proposed Reduction Date") upon which any such reduction of Capital
shall occur (which date shall give effect to the applicable Required Notice
Period), and (ii) the aggregate amount of Capital to be reduced which shall be
applied ratably to the Receivable Interests of each Conduit and the Investors in
accordance with the amount of Capital (if any) owing to each Conduit, on the one
hand, and the amount of Capital (if any) owing to the Investors (ratably, based
on their respective Pro Rata Shares), on the other hand (the "Aggregate
Reduction"). Only one (1) Reduction Notice shall be outstanding at any time.
Notwithstanding the foregoing, the Aggregate Reduction shall not be made if the
Facility Termination Date shall have occurred for any reason on or prior to the
Proposed Reduction Date.
Section 2.04 Payment Requirements. All amounts to be paid or deposited by
the Seller pursuant to any provision of this Agreement shall be paid or
deposited in accordance with the terms hereof no later than 11:00 a.m. (Chicago
time) on the day when due in immediately available funds, and if not received
before 11:00 a.m. (Chicago time) shall be deemed to be received on the next
succeeding Business Day. If such amounts are payable to a Purchaser they shall
be paid to the Agent, for the account of such Purchaser, at One First National
Plaza, Chicago, Illinois 60670 until otherwise notified by the Agent. Upon
notice to the Seller, the Agent may debit the Facility Account for all amounts
due and payable hereunder. All computations of Yield, per annum fees calculated
as part of any CP Costs, 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. 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.
Section 2.05 Payments. Notwithstanding any limitation on recourse contained
in this Agreement, the Seller shall immediately pay to the Agent when due, for
the account of the
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relevant Purchaser or Purchasers on a full recourse basis, (i) such fees as set
forth in the Fee Letter (which fees shall be sufficient to pay all fees owing to
the Investors), (ii) all amounts payable as Deemed Collections (which shall be
applied to reduce outstanding Capital hereunder in accordance with Section 2.06
and 2.07), (iii) all amounts payable pursuant to Article IX, if any, (iv) all
Servicer costs and expenses in connection with servicing, administering and
collecting the Receivables, (v) all Broken Funding Costs and (vi) all Default
Fees (collectively, the "Obligations"). If any Person fails to pay any of the
Obligations when due, such Person agrees to pay, on demand, the Default Fee in
respect thereof until paid. Notwithstanding the foregoing, no provision of this
Agreement or the Fee Letter shall require the payment or permit the collection
of any amounts hereunder in excess of the maximum permitted by applicable law.
If at any time the Seller receives any Collections or is deemed to receive any
Collections, the Seller shall immediately pay such Collections or Deemed
Collections to the Servicer 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 2.06 Collections Prior to Amortization. Prior to the Facility
Termination Date, any Collections received by the Servicer (after the initial
purchase of a Receivable Interest hereunder and on or prior to the Facility
Termination Date of such Receivable Interest) shall be set aside and held in
trust by the Servicer for the payment of any accrued and unpaid Aggregate
Unpaids. If at any time any Collections are received by the Servicer prior to
the Facility Termination Date, the Seller hereby requests and the Purchasers
hereby agree to make, simultaneously with such receipt, a reinvestment (each a
"Reinvestment") with that portion of each and every Collection received by the
Servicer that is part of any Receivable Interest, such that after giving effect
to such Reinvestment, the amount of Capital of such Receivable Interest
immediately after such receipt and corresponding Reinvestment shall be equal to
the amount of Capital immediately prior to such receipt, but after giving effect
to any reduction of Capital pursuant to Section 2.03 and reduction in Purchase
Limit pursuant to section 2.01 to be effected on such date. On each Settlement
Date prior to the occurrence of the Facility Termination Date, the Servicer
shall remit to the Agent's account the amounts set aside during the related
Settlement Period and apply such amounts (if not previously paid in accordance
with Section 2.05) to reduce unpaid CP Costs, Yield and other Obligations. If
such CP Costs, Yield and other Obligations shall be reduced to zero, any
additional Collections received by the Servicer shall (i) if applicable, be
remitted to the Agent's account no later than 11:00 a.m. (Chicago time) to the
extent required to fund any Aggregate Reduction on such Settlement Date and (ii)
thereafter be remitted from the Servicer to the Seller on such Settlement Date.
Section 2.07 Collections Following Amortization. On the Facility
Termination Date and on each day thereafter, the Servicer shall set aside and
hold in trust, for the holder of each Receivable Interest, all Collections
received on such day and an additional amount of Collections for the payment of
any accrued and unpaid Obligations owed by the Seller and not previously paid by
the Seller in accordance with Section 2.05. On and after the Facility
Termination Date, the Servicer shall, at any time upon the request from time to
time by (or pursuant to standing instructions from) the Agent (i) remit to the
Agent's account the amounts set
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aside pursuant to the preceding sentence, and (ii) apply such amounts to reduce
the Capital associated with each such Receivable Interest and any other
Aggregate Unpaids.
Section 2.08 Application of Collections. If there shall be insufficient
funds on deposit for the Servicer to distribute funds in payment in full of the
aforementioned amounts pursuant to Section 2.06 or 2.07 (as applicable), the
Servicer shall distribute funds:
first, to the payment of the Servicer's reasonable out-of-pocket costs
and expenses in connection with servicing, administering and collecting the
Receivables if the Seller or one of its Affiliates is not then acting as
the Servicer,
second, to the reimbursement of the Agent's costs of collection and
enforcement of this Agreement,
third, ratably to the payment of all accrued and unpaid fees under the
Fee Letter, CP Costs and Yield,
fourth, (if applicable) in reduction of Capital of the Receivable
Interests,
fifth, for the ratable payment of all other unpaid Obligations,
provided that to the extent such Obligations relate to the payment of
Servicer costs and expenses when the Seller or one of its Affiliates is
acting as the Servicer, such costs and expenses shall not be paid until
after the payment in full of all other Obligations, and
sixth, after the Aggregate Unpaids have been indefeasibly reduced to
zero, to the Seller.
Collections applied to the payment of Aggregate Unpaids shall be
distributed in accordance with the aforementioned provisions, and, giving effect
to each of the priorities set forth in this Section 2.08, shall be shared
ratably (within each priority) among the Agent and the Purchasers in accordance
with the amount of such Aggregate Unpaids owing to each of them in respect of
each such priority.
Section 2.09 Payment Recission. No payment of any of the Aggregate Unpaids
shall be considered paid or applied hereunder to the extent that, at any time,
all or any portion of such payment or application is rescinded by application of
law or judicial authority, or must otherwise be returned or refunded for any
reason. The Seller shall remain obligated for the amount of any payment or
application so rescinded, returned or refunded, and shall promptly pay to the
Agent (for application to the Person or Persons who suffered such recission,
return or refund) the full amount thereof, plus the Default Fee from the date of
any such recission, return or refunding.
Section 2.10 Clean Up Call. In addition to the Seller's rights pursuant to
Section 2.03, the Seller shall have the right (after providing written notice to
the Agent in accordance with the Required Notice Period), at any time following
the reduction of the Capital
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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. The purchase price in respect thereof shall be an amount
equal to the Aggregate Unpaids through the date of such repurchase, payable in
immediately available funds. Such repurchase shall be without representation,
warranty or recourse of any kind by, on the part of, or against any Purchaser or
the Agent.
Section 2.11 CP Costs. The Seller shall pay CP Costs with respect to the
Capital associated with each Receivable Interest of each Conduit for each day
that any Capital in respect of such Receivable Interest is outstanding. Each
Receivable Interest funded substantially with Pooled Commercial Paper shall
accrue CP Costs each day on a pro rata basis, based upon the percentage share
the Capital in respect of such Receivable Interest represents in relation to all
assets held by each Conduit and funded substantially with Pooled Commercial
Paper.
Section 2.12 CP Costs Payments. On each Settlement Date, the Seller shall
pay to the Agent (for the benefit of each Conduit) an aggregate amount equal to
all accrued and unpaid CP Costs in respect of the Capital associated with all
Receivable Interests of such Conduit for the immediately preceding Accrual
Period in accordance with this Article II.
Section 2.13 Calculation of CP Costs. On or prior to the fifth Business Day
immediately preceding each Settlement Date, each Conduit shall calculate the
aggregate amount of CP Costs for the applicable Accrual Period and shall notify
the Seller of such aggregate amount.
ARTICLE III.
INVESTOR FUNDING LIQUIDITY FACILITY
Section 3.01 Investors' Funding. Each Receivable Interest of the Investors
shall accrue Yield for each day during its Tranche Period at either the LIBO
Rate or the Base Rate in accordance with the terms and conditions hereof. Until
the Seller gives notice to the Agent of another Discount Rate in accordance with
Section 3.04, the initial Discount Rate for any Receivable Interest transferred
to the Investors pursuant to the terms and conditions hereof shall be the Base
Rate. If the Investors acquire by assignment from the related Conduit any
Receivable Interest pursuant to this Article III, each Receivable Interest so
assigned shall each be deemed to have a new Tranche Period commencing on the
date of any such assignment.
Section 3.02 Yield Payments. On the Settlement Date for each Receivable
Interest of the Investors, the Seller shall pay to the Agent (for the benefit of
the Investors) an aggregate amount equal to the accrued and unpaid Yield for the
entire Tranche Period of each such Receivable Interest in accordance with
Article II hereof.
Section 3.03 Selection and Continuation of Tranche Periods.
(a) With consultation from (and approval by) the Agent, the Seller shall
from time to time request Tranche Periods for the Receivable Interests of the
Investors, provided that,
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if at any time the Investors shall have a Receivable Interest, the Seller shall
always request Tranche Periods such that at least one Tranche Period shall end
on each Settlement Date.
(b) The Seller or the Agent may, effective on the last day of a Tranche
Period (the "Terminating Tranche") for any Receivable Interest, divide any such
Receivable Interest into multiple Receivable Interests or combine any such
Receivable Interest with one or more other Receivable Interests which either
have a Terminating Tranche ending on such day or are newly created on such day,
provided, in no event may a Receivable Interest of any Conduit be combined with
a Receivable Interest of the Investors.
Section 3.04 Investors' Discount Rates. The Seller may select the LIBO Rate
or the Base Rate for each Receivable Interest of the Investors. The Seller shall
by 11:00 a.m. (Chicago time): (i) at least three (3) Business Days prior to the
expiration of any Terminating Tranche with respect to which the LIBO Rate is
being requested as a new Discount Rate and (ii) at least one (1) Business Day
prior to the expiration of any Terminating Tranche with respect to which the
Base Rate is being requested as a new Discount Rate, give the Agent irrevocable
notice of the new Discount Rate for the Receivable Interest associated with such
Terminating Tranche.
Section 3.05 Suspension of the LIBO Rate.
(a) If any Investor notifies the Agent that it has determined that funding
its Pro Rata Share of the Receivable Interests of such Investor 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, (ii) such LIBO Rate
does not accurately reflect the cost of acquiring or maintaining a Receivable
Interest at such LIBO Rate or (iii) the Reference Bank shall have determined
(which determination shall be conclusive and binding on the Seller) that, by
reason of circumstances affecting the relevant market, adequate and reasonable
means do not exist for determining the LIBO Rate, then the Agent shall suspend
the availability of such LIBO Rate and require the Seller to select the Base
Rate for any Receivable Interest accruing Yield at such LIBO Rate.
Section 3.06 Transfer to Falcon Investors. Each Falcon Investor hereby
agrees, subject to Section 3.09, 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
such assignment by Falcon shall be made pro rata among the Falcon Investors,
provided, however, that Falcon may at any time and from time to time, in its
sole and absolute discretion, make any such assignment to any Affected Investor
on a non-pro rata basis. Each Falcon Investor shall, no later than 1:00 p.m.
(Chicago time) on the date of such assignment, pay in immediately available
funds to the Agent at an account designated by the Agent, for the benefit of
Falcon, its Falcon Acquisition Amount. Unless a Falcon Investor has notified the
Agent that it does not intend to pay its Falcon Acquisition Amount, the Agent
may assume that
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such payment has been made and may, but shall not be obligated to, make the
amount of such payment available to Falcon in reliance upon such assumption.
Falcon hereby sells and assigns to the Agent for the ratable benefit of the
Falcon 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 3.07 Transfer Price Reduction Yield. If the Adjusted Liquidity
Price is included in the calculation of the Falcon Transfer Price for any
Receivable Interest, each Falcon Investor agrees that the Agent shall pay to
Falcon the Reduction Percentage of any Yield received by the Agent with respect
to such Receivable Interest.
Section 3.08 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 Falcon Investors equals the Falcon Residual, each Falcon Investor hereby
agrees that the Agent shall not distribute to the Falcon Investors and shall
immediately remit to Falcon any Yield, 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 Falcon Investors.
Section 3.09 Limitation on Commitment to Purchase from Falcon.
Notwithstanding anything to the contrary in this Agreement, no Falcon Investor
shall have any obligation to purchase any Receivable Interest from Falcon,
pursuant to Section 3.06 or otherwise, if:
(i) Falcon shall have voluntarily commenced any proceeding or filed
any petition under any bankruptcy, insolvency or similar law seeking the
dissolution, liquidation or reorganization of Falcon or taken any corporate
action for the purpose of effectuating any of the foregoing; or
(ii) involuntary proceedings or an involuntary petition shall have
been commenced or filed against Falcon by any Person under any bankruptcy,
insolvency or similar law seeking the dissolution, liquidation or
reorganization of Falcon and such proceeding or petition shall have not
been dismissed.
Section 3.10 Defaulting Falcon Investors. If one or more Falcon Investors
defaults in its obligation to pay its Falcon Acquisition Amount pursuant to
Section 3.06 (each such Falcon Investor shall be called a "Falcon 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 Falcon Investor other than the Falcon Defaulting Investors (a "Falcon
Non-Defaulting Investor") shall promptly pay to the Agent, in immediately
available funds, an amount equal to the lesser of (x) such Falcon Non-Defaulting
Investor's proportionate share (based upon the relative Falcon Commitments of
the Falcon Non-Defaulting Investors) of the Falcon Transfer Price Deficit and
(y) the unused portion of such Falcon Non-Defaulting Investor's Falcon
Commitment. A Falcon Defaulting Investor shall forthwith upon demand pay
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to the Agent for the account of the Falcon Non-Defaulting Investors all amounts
paid by each Falcon Non-Defaulting Investor on behalf of such Falcon Defaulting
Investors, together with interest thereon, for each day from the date a payment
was made by a Falcon Non-Defaulting Investor until the date such Falcon
Non-Defaulting Investor has been paid such amounts in full, at a rate per annum
equal to the Federal Funds Effective Rate plus two percent (2%). In addition,
without prejudice to any other rights that Falcon may have under applicable law,
each Falcon Defaulting Investor shall pay to Falcon forthwith upon demand, the
difference between such Falcon Defaulting Investor's unpaid Falcon Acquisition
Amount and the amount paid with respect thereto by the Falcon Non-Defaulting
Investors, together with interest thereon, for each day from the date of the
Agent's request for such Falcon Defaulting Investor's Falcon Acquisition Amount
pursuant to Section 3.06 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 two
percent (2%).
Section 3.11 Transfer to ISC Investors. Each ISC Investor hereby agrees,
subject to Section 3.14, that immediately upon written notice from ISC delivered
on or prior to the Liquidity Termination Date, it shall acquire by assignment
from ISC, without recourse or warranty, its Pro Rata Share of one or more of the
Receivable Interests of ISC as specified by ISC. Each such assignment by ISC
shall be made pro rata among the ISC Investors, provided, however, that ISC may
at any time and from time to time, in its sole and absolute discretion, make any
such assignment to any Affected Investor on a non-pro rata basis. Each ISC
Investor shall, no later than 1:00 p.m. (Chicago time) on the date of such
assignment, pay in immediately available funds to the Agent at an account
designated by the Agent, for the benefit of ISC, its ISC Acquisition Amount.
Unless an ISC Investor has notified the Agent that it does not intend to pay its
ISC 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
ISC in reliance upon such assumption. ISC hereby sells and assigns to the Agent
for the ratable benefit of the ISC Investors, and the Agent hereby purchases and
assumes from ISC, effective upon the receipt by ISC of the ISC Transfer Price,
the Receivable Interests of ISC which are the subject of any transfer pursuant
to this Article III.
Section 3.12 Transfer Price Reduction Yield. If the Adjusted Liquidity
Price is included in the calculation of the ISC Transfer Price for any
Receivable Interest, each ISC Investor agrees that the Agent shall pay to ISC
the Reduction Percentage of any Yield received by the Agent with respect to such
Receivable Interest.
Section 3.13 Payments to ISC. In consideration for the reduction of the ISC
Transfer Prices by the ISC Transfer Price Reductions, effective only at such
time as the aggregate amount of the Capital of the Receivable Interests of the
ISC Investor equals the ISC Residual, each ISC Investor hereby agrees that the
Agent shall not distribute to the ISC Investors and shall immediately remit to
ISC any Yield, 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 ISC Investors.
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Section 3.14 Limitation on Commitment to Purchase from ISC. Notwithstanding
anything to the contrary in this Agreement, no ISC Investor shall have any
obligation to purchase any Receivable Interest from ISC, pursuant to Section
3.11 or otherwise, if:
(i) ISC shall have voluntarily commenced any proceeding or filed any
petition under any bankruptcy, insolvency or similar law seeking the
dissolution, liquidation or reorganization of ISC or taken any corporate
action for the purpose of effectuating any of the foregoing; or
(ii) involuntary proceedings or an involuntary petition shall have
been commenced or filed against ISC by any Person under any bankruptcy,
insolvency or similar law seeking the dissolution, liquidation or
reorganization of ISC and such proceeding or petition shall have not been
dismissed.
Section 3.15 Defaulting ISC Investors. If one or more ISC Investors
defaults in its obligation to pay its ISC Acquisition Amount pursuant to Section
3.11 (each such ISC Investor shall be called an "ISC Defaulting Investor" and
the aggregate amount of such defaulted obligations being herein called the "ISC
Transfer Price Deficit"), then upon notice from the Agent, each ISC Investor
other than the ISC Defaulting Investors (a "ISC Non-Defaulting Investor") shall
promptly pay to the Agent, in immediately available funds, an amount equal to
the lesser of (x) such ISC Non-Defaulting Investor's proportionate share (based
upon the relative ISC Commitments of the ISC Non-Defaulting Investors) of the
ISC Transfer Price Deficit and (y) the unused portion of such ISC Non-Defaulting
Investor's ISC's Commitment. An ISC Defaulting Investor shall forthwith upon
demand pay to the Agent for the account of the ISC Non-Defaulting Investors all
amounts paid by each ISC Non-Defaulting Investor on behalf of such ISC
Defaulting Investor, together with interest thereon, for each day from the date
a payment was made by an ISC Non-Defaulting Investor until the date of such ISC
Non-Defaulting Investor has been paid such amounts in full, at a rate per annum
equal to the Federal Fund Effective Rate plus two percent (2%). In addition,
without prejudice to any other rights that ISC may have under applicable law,
each ISC Defaulting Investor shall pay to ISC forthwith upon demand, the
difference between such ISC Defaulting Investor's unpaid ISC 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 ISC Defaulting Investor's ISC Acquisition Amount pursuant to
Section 3.11 until the date the requisite amount is paid to ISC in full, at a
rate per annum equal to the Federal Funds Effective Rate plus two percent (2%).
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:
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(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).
(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
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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 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 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 Federal-Mogul 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 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.
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(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 Federal-Mogul. With respect to each Receivable transferred
to the Seller, the Seller has given reasonably equivalent value to Federal-Mogul
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
Federal-Mogul of any Receivable is or may be voidable under any Section of the
Federal Bankruptcy Reform Act of 1978 (11 U.S.C. ss.ss. 101 et seq.), as
amended.
(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.
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(q) Not an Investment Company. The Seller 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.
(r) Purpose. The Seller has determined that, from a business viewpoint, the
purchase of Receivables and related interests from Federal-Mogul 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 sum of (i) (x) Capital divided by (y) 1 minus the Aggregate Reserve
Percentage, and (ii) the Contractual Dilution Balance.
(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 material law,
rule or regulation applicable to it, (iii) any restrictions under any material
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.
(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
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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 Sections 3.06 and
3.11) 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 Date
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
(c) the Agent shall have received such other approvals, opinions or
documents as it may reasonably request.
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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 Services, a division of The
McGraw-Hill Companies, Inc. 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 the Conduits, 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.
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(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.
(ii) 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.
(iii) 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.
(a) 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
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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.
(b) 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.
(c) 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.
(d) Payment to Federal-Mogul. With respect to any Receivable purchased by
the Seller from Federal-Mogul, 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
Federal-Mogul in respect of the purchase price for such Receivable.
(e) 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.
(f) 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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(iv) maintain its own separate books and records and bank accounts;
(v) 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;
(vi) at all times have at least one member of its Board of Directors
who is an Independent Director;
(vii) 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;
(viii) not commingle its assets with assets of any other Person
(except as contemplated by the Transaction Documents);
(ix) conduct its business in its own name;
(x) maintain separate financial statements;
(xi) pay its own liabilities only out of its own funds;
(xii) maintain an arm's length relationship with its Affiliates;
(xiii) pay the salaries of its own employees, if any;
(xiv) 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;
(xv) allocate fairly and reasonably any overhead for shared office
space;
(xvi) use separate stationery, invoices and checks;
(xvii) 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);
(xviii) correct any known misunderstanding regarding its separate
identity;
(xix) maintain adequate capital in light of its contemplated business
purposes; and
(xx) 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;
(a) 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
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segregated lock-box or other Collection Account listed on Exhibit E, each of
which is subject to 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.
(b) Minimum Net Worth. The Seller shall at all times maintain total assets
which exceed its total liabilities by not less than $14,250,000.
(c) 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
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Records are kept unless it shall have: (i) given the Agent at least 45 days
prior notice thereof (or 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:
(ii) written notice of such addition, termination or change, and
(iii) 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.
(a) 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.
(b) 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.
(c) 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 Federal-Mogul thereunder for the
purchase of Receivables from Federal-Mogul 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.
(d) 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.
(e) 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.
(f) 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.
(g) 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.
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ARTICLE VII.
SERVICING, ADMINISTRATION AND COLLECTION OF THE RECEIVABLES
Section 7.01 Designation of Servicer. (a) 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.
(b) Without the prior written consent of the Agent and the Required
Investors, Federal-Mogul shall not be permitted to delegate any of its duties or
responsibilities as Servicer to any Person other than the other Originators. If
at any time the Agent shall designate as Servicer any Person other than
Federal-Mogul, all duties and responsibilities theretofore delegated by
Federal-Mogul to any other Originator may, at the discretion of the Agent, be
terminated forthwith on notice given by the Agent to Federal-Mogul and to the
Seller.
(c) Notwithstanding the foregoing subsection (b), (i) Federal-Mogul shall
be and remain primarily liable to the Agent and the Purchasers for the full and
prompt performance of all duties and responsibilities of the Servicer hereunder
and (ii) the Agent and the Purchasers shall be entitled to deal exclusively with
Federal-Mogul in matters relating to the discharge by the Servicer of its duties
and responsibilities hereunder. The Agent and the Purchasers shall not be
required to give notice, demand or other communication to any Person other than
Federal-Mogul in order for communication to the Servicer and its sub-servicer or
other delegate with respect thereto to be accomplished. Federal-Mogul, at all
times that it is the Servicer, shall be responsible for providing any
sub-servicer or other delegate of the Servicer with any notice given to the
Servicer under this Agreement.
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
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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 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
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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 Date Statements. On or prior to the Report Date,
the Servicer will provide to the Agent a Settlement Date 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 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"). On each Weekly Settlement Date the Agent,
in accordance with the Weekly Report delivered by the Servicer, shall make a
distribution to the Purchasers. The amounts to be distributed on each Weekly
Settlement Date shall be a pro rata portion of the
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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 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
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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, modification or
supplement and Exhibit G shall be deemed to be amended by such amendment,
modification or supplement.
Section 7.11 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 2.08 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 VIII.
AMORTIZATION EVENTS
Section 8.01 Amortization Events. If any one or more of the following
events (each, an "Amortization Event") shall occur:
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(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, the Servicer or any other Originator, as applicable,
to make any payment or deposit required by the terms of any of the
Transaction Documents;
(c) Settlement Date Statements. Failure on the part of the Servicer to
deliver a Settlement Date 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,
Federal-Mogul or any other Originator, 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, Federal-Mogul or such Originator, 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, Federal-Mogul or such
Originator, as applicable;
(e) Material Misrepresentations. Any representation or warranty made
by the Seller, Federal-Mogul or any other Originator 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, Federal-Mogul or such Originator, 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;
(f) Investment Company. The Seller or any Originator shall become an
"investment company" within the meaning of the Investment Company Act;
(g) Delinquency Ratio. The Delinquency Ratio for any two consecutive
Collection Periods is a rate equal to or greater than 7.00%;
(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
5.50%;
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(i) Dilution Ratio. The average Dilution Ratio for any three consecutive
Collection Periods is a rate equal to or greater than 4.50%;
(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;
(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;
(n) A final judgment shall have been entered against the Seller or one or
more final judgments shall be entered against any 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;
(o) Any Plan of the Seller or 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 the Seller or any Originator or
any of its Subsidiaries, or the PBGC shall institute proceedings to terminate
any Plan of the Seller or any 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;
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, provided however, that the provisions of
this sentence should not be applicable if any Amortization Event occurs with
respect to any Originator or a group of Originators (other than Federal-Mogul)
that individually or as a group have originated less than 5.0% of the aggregate
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Outstanding Balances of all Eligible Receivables as of the date of such
Amortization Event, and the Agent receives notice from the Seller within 3 days
of the occurrence of such Amortization Event, that the Receivables originated by
such Originator or such group of Originators with respect to which the
Amortization Event occurred (i) shall not constitute Eligible Receivables as of
the date of such Amortization Event, and (ii) the Seller shall not purchase any
Receivables from Federal-Mogul pursuant to the Sale Agreement that have been
originated by such Originator or group of Originators. For purposes of the
immediately preceding sentence, an Amortization Event shall be deemed to have
occurred with respect to a "group of Originators" if any Amortization Event
occurs with respect to two or more Originators within any period of time.
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.
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 on 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,
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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 Date 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;
(i) 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;
(ii) RESERVED;
(iii) 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;
(iv) the commingling of Collections of Receivables at any time with
other funds;
(v) 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;
(vi) 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
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and suit on the grounds of sovereignty or otherwise from any legal action,
suit or proceeding; or
(vii) 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 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.
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Section 9.03 Costs and Expenses Relating to this Agreement. The Seller
shall pay to the Agent, Falcon and/or ISC 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 and/or ISC'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, ISC and/or the Agent (which such counsel
may be employees of Falcon, ISC or the Agent) with respect thereto and with
respect to advising Falcon, ISC 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 the Conduits or any Investor shall be made free and clear of and
without deduction for any and all present or 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 any Conduit or such Investor
by any of (i) the United States or any State thereof, (ii) the state
jurisdiction under the laws of which any Conduit 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 any Conduit 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 the Conduits 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
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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 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
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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 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, ISC 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
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cases, be fully protected in acting, or in refraining from acting, in accordance
with a respect of Falcon, ISC 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 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
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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 any Conduit of all of its rights under, interest in,
title to and obligations under this Agreement to the applicable Investors
pursuant to Section 3.06 or Section 3.11 or to any other Person, and upon such
assignment, such Conduit shall be released from its obligations so assigned.
Further, the Seller and each Investor hereby agree that any assignee of any
Conduit of this Agreement or all or any of the Receivable Interests of such
Conduit shall have all of the rights and benefits under this Agreement as if the
term "Conduit" explicitly referred to such party, and no such assignment shall
in any way impair the rights and benefits of the Conduits 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
the related Conduit shall be required prior to the effectiveness of any such
assignment. 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 the applicable Conduit, an enforceability
opinion in form and substance satisfactory to the Agent and the applicable
Conduit. 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 the related Conduit 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 the related Conduit, 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 Yield owing to the Investors and all accruing but
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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 the related Conduit its Falcon Acquisition
Amounts or ISC 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, the Conduits
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. 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). The Conduits, the Seller, the Agent, and 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 CP Costs or Yield, as applicable, (or any component
thereof), (C) reduce any fee payable to the Agent for the benefit of the
Purchasers or extend the time for payment thereof, (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
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assignment or transfer by the Seller of any of its rights and obligations
under this Agreement, (G) change the definition of "Eligible Receivable,"
"Floating Dilution Ratio" "Dilution Reserve", "Discount Reserve," "Loss
Reserve Percentage," "Aggregate Reserve Percentage," or "Obligor
Overconcentration", (H) amend or modify Section 2.08 hereof or (I) amend or
modify any defined term (or any defined term used directly or indirectly in
such defined term) used in clauses (A) through (H) 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
increase the Purchase Limit and/or add additional Persons as Investors hereunder
and revise the definitions of "Available Funding Amount", "Purchase Limit", "ISC
Purchase Limit", "Falcon Purchase Limit" and any other definition in order to
increase the Purchase Limit and (ii) without the consent of the Seller, the
Agent, the Required Investors and the Conduits 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 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
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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, whether by 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 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.
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<PAGE>
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.
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
or ISC, it will not institute against, or join any other Person in instituting
against, Falcon or ISC any bankruptcy,
62
<PAGE>
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 the Conduits, the
Agent or any Investor, no claim may be made by the Seller, the Servicer or any
other Person against the Conduits, 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 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,
63
<PAGE>
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
the Conduits, (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 the
Conduits (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 the Conduits, the giving of notice to the Agent
of a mandatory purchase pursuant to Sections 3.06 and 3.11.
Section 12.14 Characterization.
(a) It is the intention of the parties hereto that, except for tax
purposes, each purchase hereunder shall constitute an absolute and irrevocable
sale (for non-tax purposes), 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 (for
non-tax purposes) of a Receivable Interest 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 (for
non-tax purposes) 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.
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<PAGE>
(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 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, the Receivables Purchase Agreement, 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.
It is the intention of all parties hereto that each purchase hereunder
shall be characterized as a secured loan for income tax purposes. It is the
intention of all parties hereto that each party will act in a manner consistent
with the treatment of each purchase as a secured loan for income tax purposes.
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]
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:
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<PAGE>
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
Agent: THE FIRST NATIONAL BANK OF CHICAGO,
as Agent
By:____________________________________
Name:
Title:
Address for Notices:
Receivables Interest Purchase Agreement
<PAGE>
The First National Bank of Chicago
Mail Code IL1-0079
One First National Plaza
Chicago, Illinois 60670-0079
Attention: Garrett Ahitow
Phone: (312) 732-5844
Fax: (312) 732-4487
The Conduits: 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: Garrett Ahitow
Fax: (312) 732-5844
Phone: (312) 732-2566
Receivables Interest Purchase Agreement
<PAGE>
INTERNATIONAL SECURITIZATION CORPORATION
By: _____________________________
Authorized Signatory
Address for Notices:
International Securitization Corporation
c/o The First National Bank of Chicago
Asset-Backed Finance
One First National Plaza
Chicago, Illinois 60670-0079
Attention: Garrett Ahitow
Fax: (312) 732-5844
Phone: (312) 732-2566
Receivables Interest Purchase Agreement
<PAGE>
Falcon Investors:
Commitment BANK ONE, MICHIGAN
$10,000,000 By:_______________________________
Name:
Title:
Address for Notices:
Bank One, Michigan
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
$100,000,000 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 60663
Attention: Michael Petix
Phone: (312) 444-1313
Fax: (312) 444-1192
Receivables Interest Purchase Agreement
<PAGE>
Commitment LLOYDS TSB BANK PLC
$35,000,000 By: ________________________________
Authorized Agent
Address for Notices:
Lloyds TSB Bank Plc
575 Fifth Avenue
17th Floor
New York, NY 10017
Attention: Amy Vespasiano
Phone: (212) 930-8931
Fax: (212) 930-5098
Commitment CREDIT AGRICOLE INDOSUEZ
$30,000,000 By: ________________________________
Authorized Agent
By: ________________________________
Authorized Agent
Address for Notices:
Credit Agricole Indosuez
55 East Monroe Street
Suite 4700
Chicago, IL 60603
Attention: Eric Robison
Phone: (312) 917-7532
Fax: (312) 372-3455
Receivables Interest Purchase Agreement
<PAGE>
Commitment BANQUE NATIONALE DE PARIS
$25,000,000 By: ________________________________
Authorized Agent
Address for Notices:
Banque Nationale de Paris
209 South La Salle
5th Floor
Chicago, IL 60603
Attention: Rosalie Hawley
Phone: (312) 977-2203
Fax: (312) 977-1380
Commitment THE BANK OF NEW YORK
$25,000,000 By:________________________________
Authorized Agent
Address for Notices:
The Bank of New York
1 Wall Street
22nd Floor
New York, NY 10286
Attention: William Barnum
Phone: (212) 635-1019
Fax: (212) 635-6434
Receivables Interest Purchase Agreement
<PAGE>
Commitment THE BANK OF NOVA SCOTIA
$25,000,000 By:________________________________
Address for Notices:
The Bank of Nova Scotia
600 Peachtree Street, N.E.
Suite 2700
Atlanta, Georgia 30308
Attention: Demetria January
Phone: (404) 877-1578
Fax: (404) 888-8998
ISC Investors:
Commitment BANK ONE, MICHIGAN
$200,000,000 By:_______________________________
Name:
Title:
Address for Notices:
Bank One, Michigan
611 Woodward Avenue
Detroit, Michigan 48226
Attention: Alison K. Dolin
Phone: (313) 225-3182
Fax: (313) 225-4533
Receivables Interest Purchase Agreement
<PAGE>
Exhibit A
Form of Purchase Notice
[Date]
The First National Bank of Chicago,
as Agent for the Purchasers parties
to the Receivables Purchase Agreement
referred to below
One First National Plaza
Mail Code Il1-0079
Chicago, Illinois 60670
Attention: Asset-Backed Finance
Gentlemen:
The undersigned, Federal-Mogul Funding Corporation, refers to the Amended
and Restated Receivables Interest Purchase Agreement, dated as of July 1, 1999
(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"), International Securitization
Corporation ("ISC"), certain financial institutions from time to time parties
thereto, as Investors, and The First National Bank of Chicago, as Agent for
FALCON, ISC and such financial institutions, 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 $ amount] [ISC $ amount] [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 [LIBOR] [Base] Rate. (If Purchasers are the Investors).
<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):
(A) the representations and warranties set forth in Section 4.01 of the
Receivables Purchase Agreement are correct on and as of such date, as though
made on and as of such date;
(B) 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
(C) 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:
Receivavbles Interest Purchase Agreement
<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").
_________________________ (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 July 1, 1999, the Existing
Account be retitled in the name of "Federal-Mogul Funding Corporation (so
retitled, the "Lock-Box Account") for the purposes of certain Amended and
Restated Receivables Interest Purchase Agreement dated as of July 1, 1999 among
SPC, as seller, Federal-Mogul Corporation, as servicer, Falcon Asset
Securitization Corporation, as a conduit, International Securitization
Corporation as a conduit, the financial institutions from time to time a party
thereto, as investors, and The First National Bank of Chicago, as agent.
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
<PAGE>
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
Mail Code IL1-0079
One First National Plaza
Chicago, Illinois 60670-0079
Attention: Garrett Ahitow
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 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.
Receivavbles Interest Purchase Agreement
<PAGE>
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
Receivavbles Interest Purchase Agreement
<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
Receivavbles Interest Purchase Agreement
<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 MORE 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 Other Ineligible Receivables ____________
Eligible Receivables ____________
Receivavbles Interest Purchase Agreement
<PAGE>
Excess Concentrations ____________
Net Receivables Balance
Contractual Dilution ____________
Available Receivables
Aggregate Reserve Percentage
Aggregate Reserves ____________
Available Funding Amount
(max $450 MM)
IV. Early Amortization Events
Delinquency Ratio Trigger
- greater than or equal to 7.00% for two consecutive months
Prior
Current Month
------- -----
MORE THAN 60 dpd/Total
- - ---------------------------------------------------
Early Amortization? No
- - ---------------------------------------------------
Loss-to-Liquidation Ratio Trigger
- 3-month rolling average greater than or equal to 5.50%
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 4.50%
Prior 2 months 3-month
Current Month Prior Average
------- ----- ----- -------
NAA Credit Memos
OEM Credit Memos
Dilutive adjustments
Pool Balance
Dilution Ratio
- - ---------------------------------------------------
Early Amortization?
- - ---------------------------------------------------
Receivavbles Interest Purchase Agreement
<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/CP Costs due
Net credit to FMFC Concentration Account
Net paydown due Falcon
Net paydown due ISC
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.
To: International Securitization Corporation, account
# ________________ at ____________, ABA
#______________________ reference Federal-Mogul
Funding Corp.
Receivavbles Interest Purchase Agreement
<PAGE>
Other wiring instructions:
[insert]
The undersigned hereby represents and warrants that the foregoing is a true and
accurate accounting in accordance with the Amended and Restated Receivable
Interest Purchase Agreement dated as of July 1, 1999, as amended, modified,
supplemented or restated from time to time (the "Agreement") and that all
representations and warranties are restated and reaffirmed with the exception
that, information pertaining to months prior to May 1999 may contain good faith
estimates and proforma numbers, which the undersigned believes to be accurate in
all material respects for the purposes of calculating the financial ratios
required under the Agreement.
_________________________________
Thomas Martin
Assistant Treasurer
Receivavbles Interest Purchase Agreement
<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
Bank/Lox Box Location Account # Box #
Comerica Bank 1000013027 148901 and 30401
P.O. Box
Detroit, MI 48275-3265
BANK ONE CORPORATION 200011003677 771327
Dept. 771327
A E Goetze Inc.
P.O. Box 77000
Detroit, MI 48277-1327
BANK ONE CORPORATION 182953 771128
Dept. 771128
Supermet Inc.
P.O. Box 77000
Detroit, MI 48277-1128
First National Bank of Chicago 59-36047 730113
PO Box 730113
Dallas, TX 75373-0113
First National Bank of Chicago 55-56872 73696
P.O. Box 73696
Chicago, IL 60673-7696
First Maryland National Bank 171-8376-9 N/A
25 S Charles
Baltimore, MD 21201
First Maryland National Bank 184-8841-1 64899
AE Goetze LaGrange
P.O. Box 64899
Baltimore, MD 21264-4899
First Maryland National Bank 179-8459-5 64011
Deva Engineered Bearings
P.O. Box 64011
Baltimore, MD 21264-4011
<PAGE>
Bank of America 7304749 96347
Comtech Manufacturing Co.
96347 Collection Center Dr.
Chicago, IL 60693
Bank of America 7311095 99543
Glacier Clevite Heavywall Bearings
99543 Collections Center Drive
Chicago IL 60693
Comerica 185068964 108901
Glacier Clevite Heavywall Bearings
P. O. Box 6700.
Detroit, MI 48267-1089
Bank of America 7710925 98966
Weyburn Bartel Inc
98966 Collections Center Dr.
Chicago IL 60693
Comerica 185068964 109001
Department 109001
Weyburn Bartel Inc
P. O. Box 6700
Detroit, MI 48267-1090
Nations BankUS 3750324114 100220
P.O. Box 100220
Atlanta, GA 30384-0220
Nations BankUS 3750324114 277964
P.O. Box 277964
Atlanta, GA 30384-7964
Nations BankUS 3750324114 277969
P.O. Box 277969
Atlanta, GA 30384-7969
Royal Bank of Canada to be provided to be provided
to be provided
Receivavbles Interest Purchase Agreement
<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 Amended
and Restated Receivables Interest Purchase Agreement dated as of July 1, 1999,
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 (as amended, modified, supplemented or
restated from time to time, 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.
<PAGE>
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
- - -- Dispute resolution
- - - Department Organization Chart
- - -- 85 total employees
- - -- 5 part-time/associate
- - -- 80 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
3
<PAGE>
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.
- - - 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
(MORE THAN $150,000) or when a customer's financial condition is
deteriorating.
4
<PAGE>
- - - 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
5
<PAGE>
- - - Payment Terms
-- Standard terms for OEM customers are either net 10th and net 25th prox
or net 30 days on the date in the month in which the product is
shipped. For net 10th and net 25th prox, if the product is shipped in
the first 15 days of the month, payment is due by the 10th day of the
following month. If shipped later in the month, payment is due by the
25th 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 26th to the 25th and qualify for a 2% prompt
payment discount if the invoice is paid by the 10th of the following
month, otherwise, full payment for the Aftermarket is due by the 25th
of the following month and for Retail, full payment is due the 25th of
the 2nd month following. Gasket, ignition, chassis and brake terms in
general are 2% 2nd 10th net 25th prox. In addition, there are
negotiated terms for Retailers and selected buying groups which can
range from 2% 2nd 10th 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 May, 1999 month end, there were 4 open Notes Receivable
for a total of $463,604.45.
6
<PAGE>
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.
-- 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.
7
<PAGE>
AFTERMARKET - CUSTOMER BASE OVERVIEW
- - - Number of Aftermarket and Retail Accounts
-- 5,548 active Aftermarket accounts
-- 187 active Retail accounts
- - - Product Portfolio
-- Powertrain Systems - power cylinder systems, engine bearings, pistons,
piston rings, piston pins, piston liners, connecting rods, bushings,
washers, spark plugs, ignition wires and cables, ignition coils, and
ceramic insulators.
-- Sealing Systems - total engine sealing, total transmission sealing,
total axle sealing, cylinder head gaskets, ancillary gaskets, dynamic
seals, bonded pistons, wiper products, heat shields, noise and
vibration sealing systems.
-- General Products - camshafts, brake and friction products, chassis
products, driveline products, fuel pumps, carburetors, emission
control products, strobes, marker lights, reflective tape, sintered
products, and systems protection products.
- - - 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.
8
<PAGE>
ORIGINAL EQUIPMENT MARKET AND EXPORT OVERVIEW
- - - OE Export Customer Base
-- 1,344 active OEM accounts
-- 208 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 Portfolio
-- Powertrain Systems - power cylinder systems, engine bearings, pistons,
piston rings, piston pins, piston liners, connecting rods, bushings,
washers, spark plugs, ignition wires and cables, ignition coils, and
ceramic insulators.
-- Sealing Systems - total engine sealing, total transmission sealing,
total axle sealing, cylinder head gaskets, ancillary gaskets, dynamic
seals, bonded pistons, wiper products, heat shields, noise and
vibration sealing systems.
-- General Products - camshafts, brake and friction products, chassis
products, driveline products, fuel pumps, carburetors, emission
control products, strobes, marker lights, reflective tape, sintered
products, and system protection products.
- - - 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.
9
<PAGE>
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
- - - 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 25th 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.
10
<PAGE>
Exhibit H
Form of REDUCTION Notice
[Date]
The First National Bank of Chicago,
as Agent for the Purchasers parties
to the Receivables Purchase Agreement
referred to below
Mail IL1-0079
One First National Plaza
Chicago, Illinois 60670
Attention: Asset-Backed Finance
Gentlemen:
The undersigned, Federal-Mogul Funding Corporation, refers to the Amended
and Restated Receivables Interest Purchase Agreement, dated as of July 1, 1999
(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"), International Securitization
Corporation ("ISC"), certain financial institutions from time to time parties
thereto, as Investors and The First National Bank of Chicago, as Agent for
FALCON, ISC and such financial institutions, and hereby gives you notice,
irrevocably, pursuant to Section 2.03 of the Receivables Purchase Agreement that
the undersigned hereby requests a reduction of Capital under the Receivables
Purchase Agreement, and in that connection sets forth below the information
relating to such reduction (the "Proposed Reduction") as required by Section
2.03 of the Receivables Purchase Agreement:
(vi) The Proposed Reduction Date is _________, ____.
(vii) The Aggregate Reduction is $____________. The Falcon share of
the Aggregate Reduction is $______________. The ISC share of the Aggregate
Reduction is $____________.
The undersigned hereby certifies that the following statements are true on
the date hereof, and will be true on the date of the Proposed Reduction (before
and after giving effect to the Proposed Reduction):
(A) the representations and warranties set forth in Section 4.01 of the
Receivables Purchase Agreement are correct on and as of such date, as though
made on and as of such date;
<PAGE>
(B) no event has occurred, or would result from the Proposed Reduction that
will constitute an Amortization Event, and no event has occurred and is
continuing, or would result from such Proposed Reduction, that would constitute
a Potential Amortization Event; and
(C) 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>
SCHEDULE A
LIST OF CLOSING DOCUMENTS
List of Participants
Participant Abbreviation
----------- ------------
Federal-Mogul Corporation FMC
Federal-Mogul Canada Limited FM Canada
Federal-Mogul Piston Rings, Inc. FM Piston
Federal-Mogul Flowery Branch, LLC FM Flowery
Federal-Mogul Powertrain, Inc. FM Powertrain
Federal-Mogul Sealing Systems, Inc. FM Sealing
Federal-Mogul Carolina, Inc. FM Carolina
Federal-Mogul South Bend, Inc. FM South Bend
Federal-Mogul LaGrange, Inc. FM LaGrange
Federal-Mogul Sintered Products, Inc. FM Sintered
Federal-Mogul Sintered Products - Waupun, Inc. FM Waupun
Federal-Mogul System Protection Group, Inc. FM System
Federal-Mogul Engineered Bearings, Inc. FM Engineered
Federal-Mogul Camshafts, Inc. FM Camshafts
Federal-Mogul Aviation, Inc. FM Aviation
Federal-Mogul Ignition Company "Blazer" FM Blazer
Federal-Mogul Products, Inc. "Moog" FM Moog
Federal-Mogul Funding Corporation FMFC
Falcon Asset Securitization Corporation Falcon
International Securitization Corporation ISC
Financial Institutions Investors
First National Bank of Chicago Agent
Baker & McKenzie B&M
Brown & Wood B&W
Latham & Watkins L&W
<PAGE>
Index of Closing Documents
<TABLE>
<CAPTION>
Document Tab No. Responsibility
-------- ------- --------------
<S> <C> <C>
STEP I - Sale from the Originators to FMC
Receivables Purchase Agreement 1.1 B&W
Subordinated Note executed by FMC in favor of each
Originator (other than FMC) 2.1 B&W
Secretary's Certificate for each Originator (other than
FMC), as to 3.0 B&W
organizational document certified by, and good standing certificate
issued by, Secretary of State of the State of incorporation, By-Laws,
resolutions and specimen signatures:
FM Canada 3.1 B&W
FM Piston 3.2 B&W
FM Flowery 3.3 B&W
FM Powertrain 3.4 B&W
FM Sealing 3.5 B&W
FM Carolina 3.6 B&W
FM South Bend 3.7 B&W
FM LaGrange 3.8 B&W
FM Sintered 3.9 B&W
FM Waupun 3.10 B&W
FM System 3.11 B&W
FM Engineered 3.12 B&W
FM Camshafts 3.13 B&W
FM Aviation 3.14 B&W
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Document Tab No. Responsibility
-------- ------- --------------
<S> <C> <C>
FM Blazer 3.15 B&W
FM Moog 3.16 B&W
Officer's Certificate of each Originator (other than FMC), dated as of 4.0 B&W
July 1, 1999 Re: No Event of Purchase and Sale Termination or
Potential Event of Purchase and Sale Termination, and absence of
Material Adverse Effect since March 31, 1999.
FM Canada 4.1 B&W
FM Piston 4.2 B&W
FM Flowery 4.3 B&W
FM Powertrain 4.4 B&W
FM Sealing 4.5 B&W
FM Carolina 4.6 B&W
FM South Bend 4.7 B&W
FM LaGrange 4.8 B&W
FM Sintered 4.9 B&W
FM Waupun 4.10 B&W
FM System 4.11 B&W
FM Engineered 4.12 B&W
FM Camshafts 4.13 B&W
FM Aviation 4.14 B&W
FM Blazer 4.15 B&W
FM Moog 4.16 B&W
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Document Tab No. Responsibility
-------- ------- --------------
<S> <C> <C>
UCC-1 Financing Statement to be filed in connection with Receivables 5.0 L&W
Purchase Agreement, each Originator (other than FMC) as debtor, FMC as
secured party and FMFC as assignee:
FM Canada 5.1 L&W
- Ontario
FM Piston 5.2 L&W
- Secretary of State of Michigan
- Secretary of State of Wisconsin
FM Flowery 5.3 L&W
- Hall County (Georgia)
FM Powertrain 5.4 L&W
- Secretary of State of Minnesota
- Secretary of State of Ohio
- Morgan County
FM Sealing 5.5 L&W
- Secretary of State of Alabama
FM Carolina 5.6 L&W
- Secretary of State of South Carolina
FM South Bend 5.7 L&W
- Secretary of State of Indiana
FM LaGrange 5.8 L&W
- Troup County (Georgia)
FM Sintered 5.9 L&W
- Secretary of State of Ohio
- Montgomery County
FM Waupun 5.10 L&W
- Secretary of State of Wisconsin
FM System 5.11 L&W
- Secretary of State of Pennsylvania
- Chester County
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Document Tab No. Responsibility
-------- ------- --------------
<S> <C> <C>
FM Engineered 5.12 L&W
- Secretary of State of Ohio
- Stark County
- Summit County
FM Camshafts 5.13 L&W
- Secretary of State of Michigan
FM Aviation 5.14 L&W
- Secretary of State of South Carolina
FM Blazer 5.15 L&W
- Secretary of State of Illinois
FM Moog 5.16 L&W
- Secretary of State of Missouri
- St. Louis City
UCC-3 Financing Statement FMFC as secured party and
Agent as assignee 6.0 L&W
FM Canada 6.1 L&W
- Ontario
FM Piston 6.2 L&W
- Secretary of State of Michigan
- Secretary of State of Wisconsin
FM Flowery 6.3 L&W
- Hall County (Georgia)
FM Powertrain 6.4 L&W
- Secretary of State of Minnesota
- Secretary of State of Ohio
- Morgan County
FM Sealing 6.5 L&W
- Secretary of State of Alabama
FM Carolina 6.6 L&W
- Secretary of State of South Carolina
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Document Tab No. Responsibility
-------- ------- --------------
<S> <C> <C>
FM South Bend 6.7 L&W
- Secretary of State of Indiana
FM LaGrange 6.8 L&W
- Troup County (Georgia)
FM Sintered 6.9 L&W
- Secretary of State of Ohio
- Montgomery County
FM Waupun 6.10 L&W
- Secretary of State of Wisconsin
FM System 6.11 L&W
- Secretary of State of Pennsylvania
- Chester County
FM Engineered 6.12 L&W
- Secretary of State of Ohio
- Stark County
- Summit County
FM Camshafts 6.13 L&W
- Secretary of State of Michigan
FM Aviation 6.14 L&W
- Secretary of State of South Carolina
FM Blazer 6.15 L&W
- Secretary of State of Illinois
FM Moog 6.16 L&W
- Secretary of State of Missouri
- St. Louis City
UCC Lien and Related Searches for each Originator
(other than FMC) 7.0 B&W
FM Canada 7.1 B&W
- Ontario
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Document Tab No. Responsibility
-------- ------- --------------
<S> <C> <C>
FM Piston 7.2 B&W
- Secretary of State of Michigan
- Kent County
- Secretary of State of Wisconsin
- Marathon County
- Manitowoc County
FM Flowery 7.3 B&W
- Secretary of State of Georgia (Central Index)
- Hall County
FM Powertrain 7.4 B&W
- Secretary of State of Minnesota
- Wabasha County
- Goodhue County
- Secretary of State of Ohio
- Morgan County
FM Sealing 7.5 B&W
- Secretary of State of Alabama
- Limestone County
FM Carolina 7.6 B&W
- Secretary of State of South Carolina
- Sumter County
FM South Bend 7.7 B&W
- Secretary of State of Indiana
- St. Joseph County
FM LaGrange 7.8 B&W
- Secretary of State of Georgia (Central Index)
- Troup County
FM Sintered 7.9 B&W
- Secretary of State of Ohio
- Montgomery County
FM Waupun 7.10 B&W
- Secretary of State of Wisconsin
- Dodge County
- Fond du Lac County
</TABLE>
<PAGE>
7
<TABLE>
<CAPTION>
Document Tab No. Responsibility
-------- ------- --------------
<S> <C> <C>
FM System 7.11 B&W
- Secretary of State of Pennsylvania
- Chester County
FM Engineered 7.12 B&W
- Secretary of State of Ohio
- Stark County
- Summit County
FM Camshafts 7.13 B&W
- Secretary of State of Michigan
- Ottawa County
FM Aviation 7.14 B&W
- Secretary of State of South Carolina
- Pickens County
FM Blazer 7.15 B&W
- Secretary of State of Illinois
- Cook County
FM Moog 7.16 B&W
- Secretary of State of Missouri
- St. Louis County
- St. Louis City
STEP II - Sale from FMC to FMFC
Amended and Restated Receivables Sale and Contribution Agreement 8.1 L&W
("Receivables Sale Agreement").
Stockholder and Subscription Agreement 9.1 L&W
Subordinated Note executed by FMC 10.1 L&W
Secretary's Certificate of FMC, as to good standing certificate issued 11.1 B&W
by, and Certificate of Incorporation certified by, Secretary of State
of Michigan, By-Laws, resolutions and specimen signatures.
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Document Tab No. Responsibility
-------- ------- --------------
<S> <C> <C>
Officer's Certificate of FMC Re: No Event of Purchase and Sale 12.1 B&W
Termination or Potential Event of Purchase and Sale Termination, and
absence of Material Adverse Effect since March 31, 1999.
UCC-3 Financing Statement to be filed in connection with Receivables 13.1 L&W
Sale Agreement, FMC as debtor and FMFC as secured party and Agent, as
Assignee:
- Secretary of State of Michigan
UCC Lien and Related Searches for the FMC 14.1 B&W
- Secretary of State of Michigan
- Oakland County
STEP III - Sale from FMFC to Falcon, ISC and the Investors
Amended and Restated Receivables Interest Purchase Agreement (the 15.1 L&W
"Receivables Interest Purchase Agreement")
Fee Letter 16.1 L&W
Investor Fee Letter 17.1 L&W
Secretary's Certificate of FMFC, as to good standing certificate 18.1 B&W
issued by, and Certificate of Incorporation certified by, Secretary of
State of Michigan, By-Laws, resolutions and specimen signatures.
Officer's Certificate of FMFC Re: No Amortization Event or Potential 19.1 B&W
Amortization Event, and absence of Material Adverse Effect since March 31, 1999.
Certificate Re: B&W True Sale/Nonconsolidation Opinion signed by each 20.1 B&W
of the Originators (other than FMC) (Step I)
FMC Certificate Re: B&W True Sale/Nonconsolidation Opinion (Step II) 22.1 B&W
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Document Tab No. Responsibility
-------- ------- --------------
<S> <C> <C>
FMFC Certificate Re: B&W True Sale/Nonconsolidation Opinion (Step II) 21.1 B&W
True Sale/Nonconsolidation Opinion of B&W (Step I and Step II). 22.1 B&W
Corporate Opinion of B&W (including perfection and priority), counsel 23.1 B&W
to Originators, FMC and FMFC (Step I, Step II and Step III)
Corporate Opinion of in-house (including perfection and priority), 24.1 B&W
counsel to Originators, FMC and FMFC (Step I, Step II and Step III)
Corporate Opinion of B&M, Canadian counsel for FM Canada (Step I) 25.1 B&W/B&M
UCC-3 Financing Statement to be filed in connection with Receivables 26.1 L&W
Interest Purchase Agreement, FMFC as debtor and Agent as secured party:
- Secretary of State of Michigan
UCC Lien and Related Searches for FMFC 27.1 B&W
- Secretary of State of Michigan
- Oakland County
Collection Account Agreements: 28.0
Comerica Bank 28.1 L&W/Agent/B&W
Bank One Corporation Acct. 28.2 L&W/Agent/B&W
First National Bank of Chicago Acct. 28.3 L&W/Agent/B&W
First Maryland National Bank Acct. 28.4 L&W/Agent/B&W
Bank of America Acct. 28.5 L&W/Agent/B&W
Nations BankUS Acct. 28.6 L&W/Agent/B&W
Royal Bank of Canada 28.7 L&W/Agent/B&W
</TABLE>
10
<PAGE>
FEDERAL-MOGUL CORPORATION
SUPPLEMENTAL KEY EXECUTIVE PENSION PLAN
EFFECTIVE JANUARY 1, 1999
July, 1999
<PAGE>
TABLE OF CONTENTS
ARTICLE PAGE
- - ------- ----
Article I. Definitions 1
Article II. Eligibility and Participation 3
Article III. Retirement Benefits 4
Article IV. Vesting 5
Article V. Payment of Benefits 6
Article VI. Change of Control 7
Article VII. Administration 9
Article VIII. Miscellaneous 10
Appendix A A-1
Appendix B B-1
July, 1999
2
<PAGE>
FEDERAL-MOGUL CORPORATION
SUPPLEMENTAL KEY EXECUTIVE PENSION PLAN
This is the Federal-Mogul Corporation Supplemental Key Executive Pension
Plan (the "Plan"), as adopted effective January 1, 1999. The Plan is intended to
provide selected executives of Federal-Mogul Corporation (the "Corporation")
with target retirement benefits based upon (1) the executive's average earnings
for the three consecutive years in his last five years of service during which
his Compensation was the highest, and (2) the executive's number of years of
service with the Corporation (not in excess of 20) and, if benefits under a
qualified or non-qualified defined benefit plan maintained by a predecessor
employer are taken into account under this Plan, with the predecessor employer.
The target benefit is to be offset by other retirement benefits provided by the
Corporation, including the Corporation's qualified and non-qualified defined
benefit retirement plans, and, if applicable, benefits provided by a predecessor
employer under a qualified or non-qualified defined benefit plan.
This Plan is intended to qualify as an unfunded plan maintained by the
Corporation primarily for the purpose of providing deferred compensation for a
select group of management or highly compensated employees as described in
sections 201(2), 301(3), and 401(1) of the Employee Retirement Income Security
Act of 1974, as amended.
ARTICLE I. DEFINITIONS
The following terms shall have the following meanings when used in this
Plan, unless the context clearly requires otherwise:
1.1 "Accrued Benefit" means the accrued benefit of the Participant
expressed in terms of an annual single life annuity payable at his Normal
Retirement Date, determined under Section 3.1 based upon his Years of
Service and Final Average Compensation, reduced by certain retirement
benefits to which he is entitled.
1.2 "Actuarial Equivalent" means the equivalent actuarial value
calculated using the interest and mortality assumptions in use by the Cash
Balance Plan at the time actuarial equivalence is determined, and such
additional actuarial assumptions as the Committee may establish in its
discretion.
1.3 "Annuity Starting Date" means the first day of the first month for
which an amount is payable as an annuity or any other form of benefit
payment.
1.4 "Beneficiary" means the Participant's lawful spouse as designated
by the Participant in the manner prescribed by the Committee to receive a
Participant's benefits under the Plan in the event of his death prior to
full payment of the benefits due him.
1.5 "Board" means the board of directors of the Corporation. -----
1.6 "Cash Balance Plan" means the Federal-Mogul Corporation Personal
Retirement Account Plan for Salaried Employees, a qualified plan under
section 401(a) of the Code.
1.7 "Change of Control" shall have the meaning set forth in Section
6.2.1.
1.8 "Code" means the Internal Revenue Code of 1986, as amended.
July, 1999
<PAGE>
1.9 "Committee" means the Compensation Committee of the Board of
Directors.
1.10 "Compensation" means the amount of the Employee's annual base
salary as of January 1 of a Plan Year, including any amounts that would be
paid to the Employee but for the Employee's election under a qualified cash
or deferred arrangement under section 401(k) of the Code, a cafeteria plan
under section 125 of the Code, or any non-qualified deferred compensation
plan maintained by the Corporation, plus any declared bonus payable to the
Employee under the Corporation's annual incentive plan for services
performed during the Plan Year, regardless of whether paid to the Employee
during such Plan Year or during a subsequent Plan Year. Except as otherwise
provided in the preceding sentence, Compensation shall not include any
allocations or contributions by the Corporation under this Plan or any
other plan or plans for the benefit of its employees, including any
severance plan or agreement, incentive payments (other than declared bonus
amounts paid or payable under the annual incentive plan), fringe benefits
(whether or not a fringe benefit within the meaning of the Code), or any
amounts identified by the Corporation as expense allowances or
reimbursements, regardless of whether such amounts are treated as wages
under the Code.
1.11 "Corporation" means the Federal-Mogul Corporation, a Michigan
corporation, and its successors.
1.12 "Early Retirement Date" means the date a Participant reaches age
55, provided that he has completed at least five Years of Service, or any
date thereafter on which a Participant who has completed at least five
Years of Service elects to retire before he reaches his Normal Retirement
Date.
1.13 "Effective Date" means January 1, 1999.
1.14 "Employee" means an officer or other executive employee of the
Corporation.
1.15 "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
1.16 "Excess SERP" means the Federal-Mogul Corporation Supplemental
Executive Retirement Agreement, a non-qualified deferred compensation plan
maintained by the Corporation effective as of January 1, 1989.
1.17 "Final Average Compensation" means the Participant's average
Compensation during the three consecutive Plan Years that he has earned the
highest Compensation in his last five Years of Service or his total period
of employment, if shorter.
1.18 "Good Cause" means the commission of any of the following acts by
an Employee: (1) fraud in connection with the Employee's service; (2)
embezzlement or theft of Corporation funds or property; or (3) other
criminal activity in connection with the Employee's service.
1.19 "Good Reason" shall have the meaning set forth in Section 6.2.2.
1.20 "Normal Retirement Date" means the date a Participant reaches age
62.
1.21 "Participant" means an Employee who becomes a Participant as
provided in Section 2.1.
1.22 "Plan" means this Federal-Mogul Corporation Supplemental Key
Executive Pension Plan, as it may be amended from time to time.
July, 1999
2
<PAGE>
1.23 "Plan Year" means the calendar year. The initial Plan Year is the
1999 calendar year.
1.24 "Predecessor Employer" means an entity that employed a
Participant prior to such Participant's employment with the Corporation,
provided that either (i) substantially all of the stock or assets of such
entity were acquired by the Corporation or (ii) such entity is otherwise
designated by the Board as a Predecessor Employer, as set forth on Appendix
A.
1.25 "Predecessor Employer Plan" means a qualified or non-qualified
defined benefit plan or retirement agreement maintained by a Predecessor
Employer.
1.26 "Severance Plan" means the Federal-Mogul Corporation Severance
Plan for Salaried Employees, an employee welfare benefit plan as defined in
section 3(1) of ERISA, or any other severance arrangement maintained by the
Corporation for the benefit of the Employee.
1.27 "Total and Permanent Disability" means a physical or mental
disability that entitles the Participant to receive benefits under a
long-term disability plan or other arrangement maintained by the
Corporation.
1.28 "Year of Service" means:
a) each Plan Year or, for years before the Effective Date, each
calendar year, during which an Employee is employed for at least
one hour in each month of that year by the Corporation;
b) each full Plan Year during which the Participant is deemed
pursuant to Section 6.1.1 to have been employed by the
Corporation; and
c) each calendar year during which the Employee was employed by a
Predecessor Employer, as set forth on Appendix A, provided,
however, that, except as otherwise set forth on Appendix A, such
years shall not be taken into account for purposes of the vesting
of the Participant's Accrued Benefit in accordance with Section
4.1.
Notwithstanding the foregoing, no Years of Service shall be taken into
account more than once. Credit for one-twelfth (1/12) of one Year of
Service shall be given for each month of service during which the Employee
is employed for at least one hour in any year for which the Employee does
not receive credit for a full Year of Service.
ARTICLE II. ELIGIBILITY AND PARTICIPATION
2.1 Participation. An Employee shall become a Participant upon his
nomination by the Chief Executive Officer of the Corporation and his approval
for participation by the Committee. An Employee shall begin to participate in
the Plan as of the latest of the following dates: (a) the Effective Date; (b)
the first day of the month following his date of hire; or (c) the date approved
by the Committee for his participation. Employees who have been approved as
Participants are listed on Appendix A.
July, 1999
3
<PAGE>
2.2 Cessation of Participation. A Participant shall cease to be a
Participant on the earlier of the date of his termination of employment for any
reason or the date the Committee determines that he shall no longer be a
Participant. No such determination shall be made by the Board following a Change
of Control. A Participant whose participation is terminated shall nevertheless
continue to vest in his Accrued Benefit under Article IV and to remain entitled
to receive the vested portion of his Accrued Benefit in accordance with Article
V.
ARTICLE III. RETIREMENT BENEFITS
3.1 Normal Retirement Benefit. Upon retirement at his Normal Retirement
Date, a Participant shall be entitled to an Accrued Benefit equal to:
3.1.1 Fifty percent (50%) of his Final Average Compensation,
multiplied by a fraction (not to exceed 1.0 in decimal form), the
numerator of which is the number of his Years of Service, and the
denominator of which is twenty (20), reduced by:
3.1.2 the sum of "A" plus "B" plus "C", where:
"A" equals the Actuarial Equivalent of the Participant's accrued
benefit under the Cash Balance Plan, expressed in terms of an annual
single life annuity as of his Normal Retirement Date;
"B" equals the Actuarial Equivalent of the Participant's account
balance under the Excess SERP, expressed in terms of an annual single
life annuity as of his Normal Retirement Date; and
"C" equals the Actuarial Equivalent of the Participant's accrued
benefit under a Predecessor Employer Plan, expressed in terms of an
annual single life annuity as of his Normal Retirement Date.
3.2 Early Retirement Benefit. If a Participant retires on an Early
Retirement Date with the consent of the Chief Executive Officer of the
Corporation, he shall be entitled to receive a benefit equal to his Accrued
Benefit, based upon his Years of Service and Final Average Compensation
determined as of his actual retirement date, reduced by one-half percent (0.5%)
for each month by which his Annuity Starting Date precedes his Normal Retirement
Date. The consent of the Chief Executive Officer of the Corporation to such
retirement shall not be required with respect to (i) a retirement by the Chief
Executive Officer of the Corporation or (ii) a retirement by any Participant
after a Change of Control.
3.3 Late Retirement Benefit. If a Participant retires after his Normal
Retirement Date, he shall be entitled to receive his Accrued Benefit determined
under Section 3.1, based upon his Years of Service and Final Average
Compensation determined as of his actual retirement date. The amounts to be
offset under Section 3.1.2 shall be the dollar amounts determined as of his
Normal Retirement Date.
July, 1999
4
<PAGE>
3.4 Disability Benefit. If the Participant incurs a Total and Permanent
Disability, he shall be entitled to receive a benefit equal to his Accrued
Benefit, based upon his Years of Service and Final Average Compensation
determined as of the date he terminates employment due to such disability,
reduced as described in Section 3.2, and, if distribution is made before the
Participant attains age 55, further reduced using the assumptions described in
Section 1.2. In no case will the benefit be reduced by greater than 50%.
3.5 Death Benefit. If the Participant dies while employed by the
Corporation, his Beneficiary shall be entitled to receive a benefit equal to his
Accrued Benefit, based upon his Years of Service and Final Average Compensation
determined as of his date of death, reduced as described in Section 3.2 and, if
distribution is made before the Participant would have attained age 55, further
reduced using the assumptions described in Section 1.2.
3.6 Vested Termination Benefit. If a Participant's employment terminates
with the consent of the Chief Executive Officer of the Corporation for any
reason other than termination due to retirement on or after his Early or Normal
Retirement Date, termination due to death, termination due to Total and
Permanent Disability, or termination by the Corporation for Good Cause, and such
Participant's Accrued Benefit is vested on the date of such termination of
employment pursuant to Section 4.1 or 6.1, he shall be entitled to receive a
benefit equal to his Accrued Benefit, based upon his Years of Service and Final
Average Compensation as of the date of his termination of employment, reduced as
described in Section 3.2. The consent of the Chief Executive Officer of the
Corporation to such termination shall not be required with respect to (i) a
termination of employment by the Chief Executive Officer of the Corporation or
(ii) a termination of employment by any participant after a Change of Control.
3.7 Other Termination of Employment. Notwithstanding anything else in this
Article III to the contrary, if the Participant's employment terminates for any
reason other than retirement on or after his Early or Normal Retirement Date,
death or Total and Permanent Disability prior to the vesting of his Accrued
Benefit under Article IV or VI, or if the Participant's employment is terminated
by the Corporation for Good Cause, his Accrued Benefit shall be forfeited.
ARTICLE IV. VESTING
4.1 Vesting at Normal Retirement Date or Based on Age and Years of Service.
Subject to Sections 4.3 and 6.1, a Participant's interest in his Accrued Benefit
shall become 100% vested when the Participant reaches his Normal Retirement Date
while employed by the Corporation, or, in the alternative, when the Participant
has completed at least five Years of Service with the Corporation and reached
age 55. For purposes of vesting, years of employment with a previous employer do
not count, except as otherwise set forth on Appendix A.
4.2 Vesting Based on Total and Permanent Disability or Death. A
Participant's interest in his Accrued Benefit shall in any case become 100%
vested if, while employed by the Corporation, he sustains a Total and Permanent
Disability or he dies.
4.3 Forfeitures. Notwithstanding Section 4.1, if a Participant's employment
is terminated by the Corporation for Good Cause, he shall forfeit his Accrued
Benefit. In addition, subject to Section 6.1, if a Participant's employment
terminates other than on account of death or Total and Permanent
July, 1999
5
<PAGE>
Disability before he has completed five Years of Service and reached age 55 or
reached his Normal Retirement Date, he shall forfeit his Accrued Benefit.
ARTICLE V. PAYMENT OF BENEFITS
5.1 Payment of Accrued Benefit upon Retirement. Upon retirement on or after
his Early or Normal Retirement Date, a Participant shall be entitled to receive
his Accrued Benefit, as adjusted under Section 3.2, if applicable. Such benefit
shall begin to be paid as soon as administratively practicable following the
Participant's retirement, unless, if the Participant elects to retire before his
Normal Retirement Date, he makes an election in writing to defer payment until
his Normal Retirement Date at the same time that he elects a form of benefit
payment under Section 5.2.
5.2 Election of Benefit Form. A Participant shall receive his Accrued
Benefit in the form of a single life annuity unless, not later than six months
before the Participant's anticipated Annuity Starting Date, the Participant
selects a form of payment for his Accrued Benefit (as adjusted under Section
3.2, if applicable) in any Actuarial Equivalent annuity form from among the
Actuarial Equivalent annuity forms made available by the Committee. The election
shall be in writing and made on the form prescribed by the Committee. Payment
shall be made in accordance with the Participant's election or as otherwise
provided in this Section. Such election shall be irrevocable.
5.3 Disability Benefit. As soon as administratively practicable following
the Committee's determination that the Participant has suffered a Total and
Permanent Disability, the Participant shall receive the disability benefit
described in Section 3.4 in the form of a single life annuity.
5.4 Death Benefit. Unless an alternative annuity form was elected under
Section 5.2, in the event of a Participant's death while he is employed by the
Corporation, the Participant's Beneficiary shall receive the death benefit
described in Section 3.5 in the form of a single life annuity. If a Participant
dies after his Annuity Starting Date and the Participant had elected, pursuant
to Section 5.2, an annuity providing for a survivor benefit, his Beneficiary
shall receive such survivor benefit in accordance with such election. Payment
shall be made as soon as administratively practicable following the death of the
Participant.
5.5 Deferred Vested Benefit. If a Participant's employment terminates for
any reason other than termination due to retirement on or after his Early or
Normal Retirement Date, termination due to death, termination due to Total and
Permanent Disability or termination by the Corporation for Good Cause, and such
Participant's Accrued Benefit is vested on the date of such termination of
employment pursuant to Section 4.1 or 6.1, he shall receive the vested
termination benefit described in Section 3.6 in the form of a single life
annuity as soon as administratively practicable following his termination of
employment. Notwithstanding the preceding sentence, in the event the
Participant's employment is terminated by the Corporation other than for Good
Cause, he shall be entitled to receive the termination benefit described in
Section 3.6 in the form of a single life annuity as soon as administratively
practicable following the date payments to him under the Severance Plan
terminate or, if he has elected to receive payment from the Severance Plan in
the form of a single lump sum, the date payments from the Severance Plan would
have terminated had they been made in an installment form. The Participant may
elect to defer the payment of such benefit pursuant to Section 5.1 and may elect
an optional form of payment pursuant to Section 5.2.
July, 1999
6
<PAGE>
ARTICLE VI. CHANGE OF CONTROL
6.1 Change of Control Benefit. If, following a Change of Control, the
Participant's employment is terminated by the Corporation other than for Good
Cause or by the Participant for Good Reason, then the provisions of this Section
6.1 shall apply.
6.1.1 Deemed Employment. If the Participant has completed fewer than five
Years of Service with the Corporation as of the date of such termination of
employment, the Participant will be deemed for all purposes of this Plan,
including the calculation of his Accrued Benefit, his eligibility for an early
retirement benefit pursuant to Section 3.2 and the vesting of his Accrued
Benefit pursuant to Section 4.1, to have been employed by the Corporation for
five full Plan Years and thus to have completed five Years of Service.
6.1.2 Deemed Attainment of Age 55 for Vesting Purposes. If the Participant
has not attained 55 years of age as of the date of such termination of
employment, the Participant will be deemed for purposes of the vesting of his
Accrued Benefit pursuant to Section 4.1 to have attained age 55. The payment of
such Participant's Accrued Benefit will commence as soon as administratively
practicable following the date on which the Participant actually attains age 55,
and will be subject to adjustment in accordance with Section 3.2 to reflect
payment prior to the date the Participant attains age 62, unless the Participant
makes an election in writing to defer payment until his Normal Retirement Date
at the same time that he elects a form of benefit payment under Section 5.2.
6.2 Definitions.
6.2.1 "Change of Control." For purposes of this Plan, "Change of Control"
means:
a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of
20% or more of either (i) the then outstanding shares of common stock of
the Corporation (the "Outstanding Company Common Stock") or (ii) the
combined voting power of the then outstanding voting securities of the
Corporation entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however, that for
purposes of this subsection (a), the following acquisitions shall not
constitute a Change of Control: (i) any acquisition directly from the
Corporation, (ii) any acquisition by the Corporation, (iii) any acquisition
by any employee benefit plan (or related trust) sponsored or maintained by
the Corporation or any corporation controlled by the Corporation or (iv)
any acquisition by any corporation pursuant to a transaction which complies
with clauses (i), (ii) and (iii) of subsection (c) of this Section 6.2.1;
or
b) Individuals who, as of the Effective Date, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided,
July, 1999
7
<PAGE>
however, that any individual becoming a director subsequent to the date
hereof whose election, or nomination for election by the Corporation's
shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though
such individual were a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of office occurs
as a result of an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened solicitation
of proxies or consents by or on behalf of a Person other than the Board; or
c) Consummation of a reorganization, merger or consolidation or sale
or other disposition of all or substantially all of the assets of the
Corporation (a "Business Combination"), in each case, unless, following
such Business Combination, (i) all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own, directly
or indirectly, more than 50% of, respectively, the then outstanding shares
of common stock and the combined voting power of the then outstanding
voting securities entitled to vote generally in the election of directors,
as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as a result
of such transaction owns the Corporation or all or substantially all of the
Corporation's assets either directly or through one or more subsidiaries)
in substantially the same proportions as their ownership, immediately prior
to such Business Combination of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (ii) no Person
(excluding any corporation resulting from such Business Combination or any
employee benefit plan (or related trust) of the Corporation or such
corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership
existed prior to the Business Combination and (iii) at least a majority of
the members of the board of directors of the corporation resulting from
such Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
d) Approval by the shareholders of the Corporation of a complete
liquidation or dissolution of the Corporation.
6.2.2 "Good Reason." For purposes of this Plan, "Good Reason" means:
a) the assignment to the Participant of any duties inconsistent in any
material respect with the Participant's position (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities held, exercised or assigned at any time during the 120-day
period immediately prior to a Change of Control, or any other action by the
Corporation which results in a diminution in such position, authority,
duties or responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and which is
remedied by the Corporation promptly after receipt of notice thereof given
by the Participant;
July, 1999
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<PAGE>
b) any failure by the Corporation to provide the Participant with the
compensation and benefits described in Appendix B hereto, other than an
isolated, insubstantial or inadvertent failure not occurring in bad faith
and which is remedied by the Corporation promptly after receipt of notice
thereof given by the Participant;
c) the Corporation's requiring the Participant to be based atany
office or location other than (i) the office or location where the
Participant was based immediately prior to the Change of Control or (ii)
any office or location less than 35 miles from such location, or the
Corporation's requiring the Participant to travel on Corporation business
to a substantially greater extent than required immediately prior to the
Change of Control;
d) any purported termination by the Corporation of the Participant's
employment otherwise than as expressly permitted by the employment
agreement, if any, between the Participant and the Corporation; or
e) any failure by the Corporation to comply with and satisfy Section
8.10 of this Plan.
For purposes of this Section 6.2.2, any good faith determination of "Good
Reason" made by the Participant shall be conclusive.
ARTICLE VII. ADMINISTRATION
7.1 Plan Interpretation. The Committee shall have the authority to
interpret the Plan and to determine the amount, time, and form of payment of
benefits and other issues arising in the administration of the Plan. Any
construction or interpretation of the Plan and any determination of fact in
administering the Plan made in good faith by the Committee shall be final and
conclusive for all Plan purposes.
7.2 Claims Procedure.
7.2.1 Initial Determination. Upon presentation to the Committee of a
claim for benefits under the Plan within 180 days after the date the
claimant believes payment should have commenced, the Committee shall make a
determination of the validity thereof. If the determination is adverse to
the claimant, the Committee shall furnish to the claimant within 90 days
after the receipt of the claim a written notice setting forth the
following:
a) the specific reason or reasons for the denial;
b) specific references to pertinent provisions of the Plan on which
the denial is based;
c) a description of any additional material or information necessary
for the claimant to perfect the claim and an explanation of why
such material or information is necessary; and
July, 1999
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<PAGE>
d) appropriate information as to the steps to be taken if the
claimant wishes to submit his claim for review.
7.2.2 Appeal Procedure. In the event of a denial of a claim, the
claimant or his duly authorized representative may appeal such denial to
the Committee for a full and fair review of the adverse determination. The
claimant's request for review must be in writing and made to the Committee
within 90 days after receipt by the claimant of the written notification
described in Section 7.2.1; provided, however, that such 90-day period
shall be extended if circumstances so warrant. The claimant or his duly
authorized representative may submit issues and comments in writing which
shall be given full consideration by the Committee in its review. The
Committee may, in its sole discretion, conduct a hearing. A request for a
hearing made by the claimant will be given full consideration. At such
hearing, the claimant shall be entitled to appear and present evidence and
be represented by counsel.
7.2.3 Decision on Appeal. A decision on a request for review shall be
made by the Committee not later than 60 days after receipt of the request;
provided, however, in the event of a hearing or other special
circumstances, such decision shall be made not later than 120 days after
receipt of such request. If it is necessary to extend the period of time
for making a decision beyond 60 days after the receipt of the request, the
claimant shall be notified in writing of the extension of time prior to the
beginning of such extension. The Committee's decision on review shall state
in writing the specific reasons and references to the Plan provisions on
which it is based. Such decision shall be promptly provided to the
claimant.
ARTICLE VIII. MISCELLANEOUS
8.1 No Effect on Employment Rights. Nothing contained herein will confer
upon any Participant the right to be retained in the service of the Corporation
nor limit the right of the Corporation to discharge any Participant.
8.2 Funding. The Corporation may establish a grantor trust for the purpose
of funding benefits under this Plan. Any trust so created shall conform to the
terms of the model trust provided by the Internal Revenue Service as described
in Revenue Procedure 92-64. Notwithstanding the establishment of such trust, it
is the intention of the Corporation and the Participants that the Plan shall be
unfunded for tax purposes and for purposes of Title I of ERISA. The Plan
constitutes a mere promise by the Corporation to make payments in the future. To
the extent that any Participant or any other person acquires a right to receive
a payment under this Plan, such right shall be no greater than the right of any
unsecured general creditor of the Corporation.
8.3 Spendthrift Provisions. No benefit payable under the Plan shall be
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance, domestic relations order or charge prior to actual receipt
thereof by the payee; and any attempt so to anticipate, alienate, sell,
transfer, assign, pledge, encumber or charge prior to such receipt shall be
void; and the Corporation shall not be liable in any manner for or subject to
the debts, contracts, liabilities, engagements or torts of any person entitled
to any benefit under the Plan.
July, 1999
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<PAGE>
8.4 Governing Law. The Plan is established under and will be construed
according to the law of the State of Michigan, without regard to its conflict of
laws provisions, to the extent that such laws are not preempted by ERISA and
valid regulations promulgated thereunder.
8.5 Integrated Agreement. This Plan constitutes the entire agreement and
understanding between the Corporation and the Participants with respect to the
provision of non-qualified retirement benefits to the Participants in excess of
those available to the Participants under the Excess SERP or any other written
agreement between the Participant and the Corporation as to retirement benefits
that preceded the Participant's participation in the Plan.
8.6 Incapacity of Recipient. In the event a Participant is declared
incompetent and a conservator or other person legally charged with the care of
the person or the estate of such Participant is appointed, any benefits under
the Plan to which the Participant is entitled shall be paid to the conservator
or other person legally charged with the care of such Participant. Except as
provided in the preceding sentence, should the Committee, in its discretion,
determine that a Participant is unable to manage his personal affairs, the
Committee may make distributions to any person for the benefit of the
Participant, provided the Committee makes a reasonable good faith judgment that
such person shall expend the funds so distributed for the benefit of the
Participant. Any such payment shall constitute a discharge of the Plan's
obligation to the Participant to the extent of such payment.
8.7 Taxes. Any taxes imposed upon a Participant shall be the sole
responsibility of the Participant. The Corporation shall have the right to
deduct from the Participant's Compensation or any payment made pursuant to this
Plan any federal, state, local or other taxes required to be deducted or
withheld from such Compensation or payment, as the Committee may determine in
its sole discretion.
8.8 Severability. In the event any provision of this Plan is invalid, in
whole or in part, the remaining provisions of this Plan are unaffected and will
remain in full force and effect.
8.9 Amendment or Termination. The Board reserves the right to amend or
terminate this Plan by or pursuant to action of the Board or the Committee when,
in the sole opinion of the Board, or the Committee, an amendment or termination
is advisable. Any amendment or termination shall be made pursuant to a
resolution of the Board and shall be effective as of the date of the resolution.
No amendment or termination (i) shall directly or indirectly deprive the
Participant of all or any portion of the Participant's Accrued Benefit
considered to be accrued under the Plan before the date of such amendment or
termination, or (ii) shall be effected following a Change of Control to the
extent that such amendment or termination would adversely affect any rights to
which a Participant may become entitled under Section 6.1 if such Participant's
employment were thereafter terminated.
8.10 Successors. This Plan shall be binding upon the Corporation and its
successors and assigns. The Corporation will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Corporation to assume
expressly and agree to perform the Corporation's obligations set forth in this
Plan in the same manner and to the same extent as the Corporation would be
required to perform such obligations if no such succession had taken place.
July, 1999
11
<PAGE>
8.11 Construction. The masculine shall indicate the feminine and the
singular the plural, unless the context clearly requires otherwise.
To record its adoption of the Plan, Federal-Mogul Corporation has caused
its authorized officers to affix its name and seal this __ day of
_________________, 1999.
[CORPORATE SEAL] FEDERAL-MOGUL
CORPORATION
By: ________________________
Title:
Attest: ______________________
Title:
July, 1999
12
<PAGE>
Appendix A
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------
Years of Service for
Years of Service for Purposes of Benefit
Participation Purposes of Vesting Calculation as of
Participant Date as of Participation Date Participation Date
- - -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Richard A. Snell 1/1/99 -- --
- - -------------------------------------------------------------------------------------------
Gordon A. Ulsh 1/1/99 -- 14
- - -------------------------------------------------------------------------------------------
Alan C. Johnson 1/1/99 -- 29
- - -------------------------------------------------------------------------------------------
Wilhelm A. Schmelzer 1/1/99 -- 29
- - -------------------------------------------------------------------------------------------
Thomas W. Ryan 1/1/99 -- --
- - -------------------------------------------------------------------------------------------
Richard P. Randazzo 1/1/99 -- --
- - -------------------------------------------------------------------------------------------
James J. Zamoyski 1/1/99 -- 22
- - -------------------------------------------------------------------------------------------
</TABLE>
- - ----------
* Years of Service include service with a Predecessor Employer as follows:
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------
Years of Service with
Years of Service with Predecessor Employer
Predecessor Predecessor Employer for Purposes of
Participant Employer for Purposes of Vesting Benefit Calculation
- - -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- - -------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------
</TABLE>
April 1999
A-1
<PAGE>
Appendix B
DESCRIPTION OF COMPENSATION AND BENEFITS
SOLELY FOR PURPOSES OF DETERMINING GOOD REASON
(i) Base Salary. Annual base salary ("Annual Base Salary") paid at a
monthly rate at least equal to twelve times the highest monthly base salary paid
or payable, including any base salary which has been earned but deferred, to the
Participant by the Corporation and its affiliated companies in respect of the
twelve-month period immediately preceding the month in which the Change of
Control occurs, as such Annual Base Salary may be increased following the Change
of Control.
(ii) Annual Bonus. For each fiscal year ending after the Change of Control,
an annual bonus (the "Annual Bonus") in cash at least equal to the Participant's
highest bonus, including any bonus or portion thereof which has been earned but
deferred, under the Corporation's 1977 Supplemental Compensation Plan, as
amended and restated, or any comparable bonus under any predecessor or successor
plan, for the last three full fiscal years prior to the Change of Control
(annualized in the event that the Participant was not employed by the
Corporation for the whole of such fiscal year); provided, that if the
Participant's highest bonus for one or more of such fiscal years is determined
pursuant to the terms of the Corporation's Economic Value Added (EVA) Plan (the
"EVA Plan"), and the Participant's bonus declared pursuant to the EVA Plan for
such fiscal year is higher than the Participant's bonus paid pursuant to the EVA
Plan for such fiscal year, the Participant's highest bonus for such fiscal year
shall be the Participant's bonus declared for such fiscal year; and, provided
further, that each such Annual Bonus shall be paid no later than the end of the
third month of the fiscal year next following the fiscal year for which the
Annual Bonus is awarded, unless the Participant shall elect to defer the receipt
of such Annual Bonus.
(iii) Incentive, Savings and Retirement Plans. Participation in all
incentive, savings and retirement plans, practices, policies and programs
applicable generally to other peer Participants of the Corporation and its
affiliated companies, which plans, practices, policies and programs provide the
Participant with incentive opportunities (measured with respect to both regular
and special incentive opportunities, to the extent, if any, that such
distinction is applicable), savings opportunities and retirement benefit
opportunities, in each case, no less favorable, in the aggregate, than the most
favorable of those provided by the Corporation and its affiliated companies for
the Participant under such plans, practices, policies and programs as in effect
at any time during the 120-day period immediately preceding the Change of
Control or if more favorable to the Participant, those provided generally at any
time after the Change of Control to other peer executives of the Corporation and
its affiliated companies.
July 1999
B-1
<PAGE>
(iv) Welfare Benefit Plans. Participation by the Participant and/or the
Participant's family, as the case may be, in, and receipt of, all benefits under
welfare benefit plans, practices, policies and programs provided by the
Corporation and its affiliated companies (including, without limitation,
medical, prescription, dental, disability, employee life, group life, accidental
death and travel accident insurance plans and programs) to the extent applicable
generally to other peer executives of the Corporation and its affiliated
companies, which plans, practices, policies and programs provide the Participant
with benefits which are no less favorable, in the aggregate, than the most
favorable of such plans, practices, policies and programs in effect for the
Participant at any time during the 120-day period immediately preceding the
Change of Control or, if more favorable to the Participant, those provided
generally at any time after the Change of Control to other peer executives of
the Corporation and its affiliated companies.
(v) Expenses. Prompt reimbursement for all reasonable expenses incurred by
the Participant in accordance with the most favorable policies, practices and
procedures of the Corporation and its affiliated companies in effect for the
Participant at any time during the 120-day period immediately preceding the
Change of Control or, if more favorable to the Participant, as in effect
generally at any time thereafter with respect to other peer executives of the
Corporation and its affiliated companies.
(vi) Fringe Benefits. Fringe benefits, including, without limitation, tax
and financial planning services, payment of club dues, and, if applicable, use
of an automobile and payment of related expenses, in accordance with the most
favorable plans, practices, programs and policies of the Corporation and its
affiliated companies in effect for the Participant at any time during the
120-day period immediately preceding the Change of Control or, if more favorable
to the Participant, as in effect generally at any time thereafter with respect
to other peer executives of the Corporation and its affiliated companies.
(vii) Office and Support Staff. An office or offices of a size and with
furnishings and other appointments, and exclusive personal secretarial and other
assistance, at least equal to the most favorable of the foregoing provided to
the Participant by the Corporation and its affiliated companies at any time
during the 120-day period immediately preceding the Change of Control or, if
more favorable to the Participant, as provided generally at any time thereafter
with respect to other peer executives of the Corporation and its affiliated
companies.
(viii) Vacation. Paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Corporation and its affiliated companies
as in effect for the Participant at any time during the 120-day period
immediately preceding the Change of Control or, if more favorable to the
Participant, as in effect generally at any time thereafter with respect to other
peer executives of the Corporation and its affiliated companies.
F-M Supplemental Key Executive Pension Plan
July 1999
B-2
<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, 1999, are as follows:
<TABLE>
<CAPTION>
Percentage of
Voting Stock Owned
Jurisdiction directly and indirectly
Name of Subsidiary of Incorporation by Federal-Mogul
------------------ ---------------- ----------------
<S> <C> <C>
Federal-Mogul Canada, Ltd. Canada 100%
Federal-Mogul, S.A. France 100%
Federal-Mogul Holdings Deutschland GmbH Germany 100%
Federal-Mogul Weisbaden GmbH Germany 100%
Federal-Mogul Burscheid GmbH Germany 100%
Federal-Mogul Ignition SpA Italy 100%
Federal-Mogul Cuorgne, S.p.A. Italy 100%
Federal-Mogul Aftermarket Italia SRL Italy 100%
Federal-Mogul Holding SRL 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 Limited 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%
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 Owned
Jurisdiction directly and indirectly
Name of Subsidiary of Incorporation by Federal-Mogul
------------------ ---------------- ----------------
<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 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the registration statements
(33-55135, 33-54717, 333-56725, 333-53853, 333-67805 and 333-74661) on Form S-3,
the registration statement (333-81943) on Form S-4, and the registration
statements (333-38961, 33-54301, 33-51403, 33-32429, 33-32323, 33-30171 and
2-93179) on Form S-8 of our report dated February 16, 2000, with respect to the
consolidated financial statements and schedule of Federal-Mogul Corporation, the
consolidated financial statements of Federal-Mogul Ignition Company (and the
Cooper Automotive division of Cooper Industries, Inc., its predecessor) and the
consolidated financial statements of Federal-Mogul Products, Inc. (and the Moog
Automotive division of Cooper Industries, Inc., its predecessor), all of which
are included in Federal-Mogul Corporation's Annual Report on Form 10-K for the
year ended December 31, 1999.
/s/ Ernst and Young LLP
Detroit, Michigan
March 15, 2000
<PAGE>
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, 1999, hereby
nominates, constitutes and appoints James J. Zamoyski and David M. Sherbin, 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 23rd day of February, 2000.
/s/ RICHARD A. SNELL
-----------------------------
Richard A. Snell
Chairman of the Board, Chief
Executive Officer, President and
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, Jr.
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>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 65
<SECURITIES> 0
<RECEIVABLES> 584
<ALLOWANCES> 69
<INVENTORY> 884
<CURRENT-ASSETS> 2,027
<PP&E> 3,045
<DEPRECIATION> 541
<TOTAL-ASSETS> 9,945
<CURRENT-LIABILITIES> 1,783
<BONDS> 3,020
0
42
<COMMON> 352
<OTHER-SE> 1,682
<TOTAL-LIABILITY-AND-EQUITY> 9,945
<SALES> 6,488
<TOTAL-REVENUES> 6,488
<CGS> 4,709
<TOTAL-COSTS> 1,024
<OTHER-EXPENSES> 21
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 274
<INCOME-PRETAX> 460
<INCOME-TAX> 181
<INCOME-CONTINUING> 279
<DISCONTINUED> 0
<EXTRAORDINARY> (23)
<CHANGES> (13)
<NET-INCOME> 243
<EPS-BASIC> 3.44
<EPS-DILUTED> 3.16
</TABLE>
