<PAGE>

          National Fire Insurance Company of Hartford and Continental
                         Casualty Company, CNA Plaza,
                              Chicago, IL  60685

Contract
Of Indemnity


We, the undersigned, (hereinafter referred to as the "Indemnitors") hereby
request National Fire Insurance Company of Hartford and Continental Casualty
Company CNA Plaza, Chicago, IL  60685 (the "Surety") to furnish the Bond
identified below (the "Bond") and as an inducement therefor, make the following
representations of fact, promises and agreements.

REPRESENTATIONS OF FACT:

     1. All of the Indemnitors are either principals with respect to the Bond or
        parents of or subsidiaries of, or affiliated with, such principals.

     2. Each of the Indemnitors has a substantial interest in the principals'
        obtaining the Bond, and it is understood that one of the purposes of
        this Contract of Indemnity is to induce the Surety to furnish the Bond.

     3. The Indemnitors have the full power and authority to execute, deliver
        and perform this Contract of Indemnity and to carry out the obligations
        stated herein.  The Indemnitors further acknowledge and agree that (a)
        the execution, delivery and performance of this Contract of Indemnity by
        such Indemnitors, (b) the compliance with the terms and provisions
        hereof, and (c) the carrying out of the obligations contemplated herein,
        do not, and will not, conflict with and will not result in a breach or
        violation of any terms, conditions or provisions of the charter
        documents or bylaws of such Indemnitors, or any law, governmental
        authority against Indemnitors, or any other agreement binding upon
        Indemnitors, or constitute a default hereunder.

PROMISES AND AGREEMENTS:  In consideration of the furnishing of the Bond by the
Surety and for other valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the Indemnitors hereby jointly and severally
promise and agree as follows:

     1. To pay or cause to be paid to the Surety all premiums for the Bond, as
        they fall due, until the Surety has been provided with evidence
        satisfactory to it and its counsel that the Bond has been duly
        discharged.

     2. To indemnify and exonerate the Surety and its successors, assigns,
        affiliates, associates, employees, agents and subsidiary companies from
        and against any and all loss, claim, demand, liability, cost, charge,
        suit, judgment and expense of any kind whatsoever, including, without
        limitation, all payments made under the Bond, all court costs and all
        counsel fees whether incurred before or after a final judgment
        (hereinafter referred to, collectively, as "Loss"), which any of them
        may incur or sustain directly or indirectly as a result of or in
        connection with the furnishing of, or performance under, the Bond, or
        the enforcement of this Contract of Indemnity.  To this end each of the
        Indemnitors covenants and agrees:
<PAGE>

       (a) To promptly reimburse the Surety upon demand for all sums paid on
           account of each Loss and that (1) originals or photocopies of claim
           drafts, or of payment records kept in the ordinary course of
           business, including computer printouts, verified by affidavit, shall
           be prima facie evidence of the fact and amount of such Loss, and (2)
           the Surety shall be entitled to reimbursement for any and all
           disbursements made by it in good faith, under the belief that it was
           liable, or that such disbursement was necessary or expedient. The
           Indemnitors waive, to the fullest extent allowed by applicable law,
           each and every right which they may have to contest any payment by
           Surety of any Loss.

       (b) If the Surety makes a demand pursuant to Section 2(a) above and the
           Indemnitors do not comply with such demand within five (5) days, the
           Indemnitors shall be liable to the Surety for interest on the unpaid
           amount of such demand at the highest rate (including any default
           rate) charged from time to time by any lender under the Credit
           Agreement (as defined in Section 12(b) below) or the highest rate
           allowed by applicable law, whichever is less.  It is the intent of
           the Surety that such interest shall at no time exceed any usury
           limitation imposed by applicable law with respect to the obligations
           of the Indemnitors hereunder.

       (c) The Indemnitors shall treat all premium information as confidential
           and shall not make public any premium information or disclose premium
           information to any other surety, except as may be required by law.

       (d) The Surety shall have the exclusive right to determine for itself and
           the Indemnitors whether any claim or suit brought against the Surety
           or  any principal upon the Bond shall be settled or defended, and its
           decision shall be binding and conclusive upon the Indemnitors.

    3. This Contract of Indemnity shall apply to Bond number 929182983, dated
       December 29, 2000, issued on behalf of T&N Limited, Gasket Holdings
       Incorporated (d/b/a Flexitallic) and Ferodo America, Inc. as Principals
       and in favor of National Fire Insurance Company of Hartford and
       Continental Casualty Company, a copy of which is attached to this
       Contract of Indemnity, and to riders, endorsements, continuations,
       renewals, substitutions, increases or decreases in the penal sum, and
       reinstatements or replacements of the Bond, but not to any other bonds,
       undertakings, guarantees or other instruments of suretyship heretofore or
       hereafter issued by the Surety.

    4. If the Surety procures the execution of the Bond by other companies, or
       executes the Bond with co-sureties, or reinsures any portion of the Bond
       with reinsuring companies, then the terms and conditions of this Contract
       of Indemnity shall apply and operate for the benefit of such other
       companies, co-sureties and reinsurers as their interests may appear.

    5. Indemnitors acknowledge and agree that the obligations contained in this
       Contract of Indemnity are a material part of the consideration for the
       issuance of the Bond.
<PAGE>

   6.  The validity and effect of this Contract of Indemnity shall not be
       impaired by, the Surety shall incur no liability on account of, and the
       Indemnitors need not be notified of:

       (a) The Surety's consent or failure to consent to changes in the terms of
           the Bond or the obligation of performance secured by the Bond.

       (b) The taking, failing to take, or release of any security, collateral,
           indemnity agreement or similar instrument relating to the Bond.

       (c) The release by the Surety of any one or more of the Indemnitors.

       (d) Information which may come to the attention of the Surety which
           affects or might affect its rights and liabilities or those of the
           Indemnitors or any of them.

   7.  No Indemnitor shall have any right of indemnity or contribution or any
       right to seek collection of any outstanding obligation against any other
       Indemnitor or its property until all obligations of the Indemnitors to
       the Surety under this Contract of Indemnity have been satisfied in full.

   8.  The Indemnitors acknowledge and agree that their obligations hereunder
       will remain in full force and effect notwithstanding that one or more
       principals under the Bond may have been sold or dissolved or experienced
       a change of ownership or been otherwise altered in any way.

   9.  This Contract of Indemnity creates no obligations other than with
       respect to the Bond. Other bonds that the Surety may have issued or may
       in the future issue shall remain entitled to the benefit of any and all
       indemnity agreements other than this Contract of Indemnity, but shall not
       have the benefit of this Contract of Indemnity.

   10. The obligations created by this Contract of Indemnity are entitled to
       the benefit of liens upon certain assets of Federal-Mogul Corp. and the
       other Indemnitors pursuant to collateral documents dated on or about the
       date hereof, which liens are in favor of First Union National Bank, as
       trustee, Wilmington Trust Company, as trustee and ABN AMRO, as trustee,
       in each case for the benefit of various secured parties including the
       Surety.

   11. From and after the time of the withdrawal of T&N Limited from the
       Center For Claims Resolution ("CCR"), the Indemnitors shall use
       reasonable efforts to cause CCR to reduce proportionately the penal sums
       of the Bond and the bonds of the other Assurance Providers (as defined in
       the Bond). In the event of such a reduction, Schedule A to the Bond shall
       be adjusted as may be agreed to by the Surety, the Indemnitors and the
       obligee of the Bond.

   12. An Event of Default under this Contract of Indemnity ("Event of
       Default") shall exist if any of the following occurs:

       (a) the Surety shall make payment with respect to any Demand (as defined
           in the Bond);
<PAGE>

       (b) any amount owed by any Indemnitor under that certain Fourth Amended
           and Restated Credit Agreement, dated as of December 29, 2000, among
           Federal-Mogul Corporation, certain of its subsidiaries, the Lenders
           (as therein defined) and The Chase Manhattan Bank as Administrative
           Agent, as such credit agreement may be amended from time to time,
           (the "Credit Agreement") shall be declared or otherwise become due
           and payable prior to its maturity or regularly scheduled time for
           payment.

       (c) A failure to pay any premium on the Bond when such premium is due.

       (d) Any Security Document (as defined in the Credit Agreement) shall be
           amended in a matter prejudicial to the Surety without the consent of
           the Surety.

       (e) A breach of Section 13 of this Contract of Indemnity.

   13. The proceeds from (i) Asset Sales and (ii) Recovery Events (as such
       terms are defined in the Credit Agreement), in each case from and after
       December 29, 2000, shall not exceed $700,000,000 prior to January 1, 2002
       and $1,000,000,000 in the aggregate.  The Indemnitors agree to give the
       Surety 30 days prior written notice of any such Asset Sale which is
       expected to generate proceeds of $50,000,000 or more together with a
       reasonable description of such Asset Sale.  The Indemnitors acknowledge
       and agree that if this Section 13 is breached, the Surety will suffer
       irreparable damage for which money damages will not provide an adequate
       remedy.  The Surety shall be entitled to equitable relief (including
       specific performance) to enforce this Section 13.

   14. Surety shall have the exclusive right for itself and the Indemnitors to
       determine in good faith whether any claim or suit upon the Bond shall, on
       the basis of liability, expediency or otherwise, be paid, compromised,
       defended or appealed.

   15. The undersigned authorize Surety to join any and all of the undersigned
       as parties defendant in any action, regardless of venue, brought against
       Surety on account of the Bond, and to enforce the obligations hereunder
       directly against any of the undersigned without the necessity of first
       proceeding against any principal of the Bond.

   16. The Indemnitors fully and unequivocally consent and agree that there is
       no obligation of Surety to extend or to renew the Bond or to provide any
       additional or further financial accommodations or forbearance of any kind
       or nature whatsoever.

   17. Any defect in the execution hereof by any of the undersigned, or the
       invalidity of any provision of this Contract of Indemnity by reason of
       the laws of any state or for any other reason shall not render the other
       provisions hereof invalid.

   18. All parties agree that any photocopied, faxed, microfilmed, scanned or
       electronically digitized copy of this Contract of Indemnity or the Bond
       (including any counterpart signature pages thereto) shall be as effective
       as the original for all purposes.
<PAGE>

   19. Separate suits may be brought under this Contract of Indemnity as causes
       of action accrue, and the pendency or termination of any such suits shall
       not bar any subsequent action by Surety.

   20. The Indemnitors shall pay or cause to be paid all reasonable legal fees
       and expenses of the Surety incurred in connection with the issuance of
       the Bond.

   21. The Surety hereby agrees it will instruct (it being understood that such
       obligation to instruct shall include an obligation to instruct the
       Trustee or any other Person to cease any contrary action) the Trustee
       that holds a security interest in the Receivables Subsidiary that neither
       the Trustee nor any other Person, directly or indirectly, shall exercise
       any right or remedy or take any action under this Agreement, the
       applicable Trust Agreement and/or the Domestic Pledge Agreement
       (including, but not limited to, any rights, remedies or actions pursuant
       to Section 5 of the Domestic Pledge Agreement and/or the appointment of
       the Trustee as an attorney-in-fact pursuant to the Domestic Pledge
       Agreement) with respect to the Pledged Stock listed in Schedule 1 of the
       Domestic Pledge Agreement relating to the Receivables Subsidiary or any
       of its successors in interest at any time prior to the date on which all
       Aggregate Unpaids (as such term is defined in the Purchase Agreement)
       have been paid in full in cash in accordance with the terms of the
       Transaction Documents (as such term is defined in the Purchase
       Agreement), which payment shall be confirmed in writing by the Blue Ridge
       Agent and the Falcon Agent. Each of the Blue Ridge Agent and the Falcon
       Agent shall be a third party beneficiary with respect to this Section. So
       long as the stock of the Receivables Subsidiary or any of its successors
       in interest is pledged to secure the obligations of the Indemnitors
       hereunder, this Section 21 shall not be amended, modified or supplemented
       without the prior written consent of the Blue Ridge Agent and the Falcon
       Agent, which consent shall be at the sole discretion of the Blue Ridge
       Agent and the Falcon Agent, and the provisions of this Section 21 shall
       be contained in any agreement that amends and restates this Contact of
       Indemnity. Terms used in this Section and not defined shall have the
       respective meanings ascribed to them in the Credit Agreement.

   22. The Indemnitors agree to provide to the Surety the same notices as
       Federal-Mogul Corp. is required to provide to the Administrative Agent
       under Section 10.6 of the Credit Agreement.

   23. This Contract of Indemnity shall inure to the benefit of the Surety, its
       successors and assigns, and shall be binding upon the Indemnitors and
       their respective successors and assigns.

EACH INDEMNITOR HAS READ THIS CONTRACT OF INDEMNITY CAREFULLY. THERE ARE NO
SEPARATE AGREEMENTS OR UNDERSTANDINGS WHICH IN ANY WAY LESSEN THE OBLIGATION OF
ANY INDEMNITOR AS ABOVE SET FORTH.

     [Rest of page intentionally left blank; next page is signature page.]
<PAGE>

IN WITNESS WHEREOF, the Indemnitors have executed this Contract of Indemnity
this 29th, December, 2000.

ATTEST:                                      T&N LIMITED
                                             (98-0207360)

                                                  /s/ James Zamoyski
                                             -------------------------------
/s/ James D. Keller                          Name:  James Zamoyski
----------------------------                 Title: ________________________


ATTEST:                                      GASKET HOLDINGS INC.
                                                  (06 787139)

                                                  /s/ James Zamoyski
                                             -------------------------------
/s/ James D. Keller                          Name:  James Zamoyski
----------------------------                 Title: ________________________


ATTEST:                                      FERODO AMERICA, INC.
                                             (52-1225489)

                                                  /s/ James Zamoyski
                                             -------------------------------
/s/ James D. Keller                          Name:  James Zamoyski
----------------------------                 Title: ________________________



ATTEST:                                      F-M UK HOLDING LIMITED
                                             (98-0188349)

                                                  /s/ David A. Bozynski
                                             -------------------------------
/s/ James D. Keller                          Name:  David A. Bozynski
----------------------------                 Title: ________________________


ATTEST:                                           /s/ James Zamoyski
                                             -------------------------------
/s/ James D. Keller                          Name:  James Zamoyski
----------------------------                 Title: Director
<PAGE>

               `              FEDERAL-MOGUL CORPORATION
                              (38-0533580)
                              CARTER AUTOMOTIVE COMPANY, INC.
                              (43-1374271)
                              FEDERAL-MOGUL AVIATION, INC.
                              (76-0554121)
                              FEDERAL-MOGUL DUTCH HOLDINGS INC.
                              (38-3399272)
                              FEDERAL-MOGUL GLOBAL INC.
                              (38-3399269)
                              FEDERAL-MOGUL IGNITION COMPANY
                              (34-4203131)
                              FEDERAL-MOGUL PRODUCTS, INC.
                              (43-1130207)
                              FEDERAL-MOGUL U.K. HOLDINGS INC.
                              (38-3399273)
                              FEDERAL-MOGUL VENTURE CORPORATION
                              (38-2938561)
                              FEDERAL-MOGUL WORLD WIDE, INC.
                              (38-3010848)
                              FEDERAL-MOGUL GLOBAL PROPERTIES, INC.
                              (38-3394578)
                              FELT PRODUCTS MFG. CO.
                              (38-3437889)
                              AE GOETZE FB INC.
                              (38-3301939)
                              BRAKE ACQUISITION INC.
                              (38-3270243)
                              FEDERAL-MOGUL AFTERMARKET OF
                              CANADA INC. (38-6066458)
                              FEDERAL-MOGUL CAMSHAFTS, INC.
                              (38-2437174)
                              FEDERAL-MOGUL CAROLINA, INC.
                              (75-2043967)
                              FEDERAL-MOGUL ENGINEERED BEARINGS, INC.
                              (34-1669750)
                              FEDERAL-MOGUL FLOWERY BRANCH, L.L.C.
                              (58-2244577)
                              FEDERAL-MOGUL LAGRANGE, INC.
                              (58-2139078)
                              FEDERAL-MOGUL PISTON RINGS, INC.
                              (38-2200604)
                              FEDERAL-MOGUL POWERTRAIN, INC.
                              (38-2719472)
                              FEDERAL-MOGUL RPB, INC.
                              (38-2964191)
<PAGE>

                              FEDERAL-MOGUL SEALING SYSTEMS, INC.
                              (63-1052282)
                              FEDERAL-MOGUL SINTERED PRODUCTS --
                               WAUPUN INC. (31-1580616)
                              FEDERAL-MOGUL SINTERED PRODUCTS, INC.
                              (54-1027445)
                              FEDERAL-MOGUL SOUTH BEND, INC.
                              (51-0291959)
                              FEDERAL-MOGUL SYSTEMS PROTECTION
                               GROUP, INC.
                              (23-0402320)
                              FEDERAL-MOGUL TECHNOLOGY INC.
                              (38-3228564)
                              FERODO TECHNICAL CENTER INC.
                              (38-3247493)
                              MCCORD SEALING, INC.
                              (63-1070618)
                              T&N INDUSTRIES INC.
                              (22-2183324)
                              WEYBURN ACQUISITION CORPORATION
                              (38-3309173)


ATTEST:

/s/ Douglas H. Williams                      /s/ Scott Argersinger
------------------------------               -----------------------------
                                             Name:  Scott Argersinger
                                             Title: Authorized Representative