<PAGE>

                                                                  EXECUTION COPY




================================================================================



                              SECURITY AGREEMENT


                                    made by


                           FEDERAL-MOGUL CORPORATION


                        and certain of its Subsidiaries


                                  in favor of


                           WILMINGTON TRUST COMPANY

                    not individually but solely as Trustee


                         Dated as of December 29, 2000


================================================================================
<PAGE>

                               Table of Contents

<TABLE>
<CAPTION>
                                                                                        Page
                                                                                        ----
<S>                                                                                     <C>
Section 1.  DEFINED TERMS..............................................................    4
----------  -------------
      1.1   Definitions................................................................    4
      ---   -----------
      1.2   Other Definitional Provisions..............................................   11
      ---   -----------------------------

Section 2.  GRANTS OF SECURITY INTERESTS...............................................   11
----------  ----------------------------
      2.1   Grants of Security Interests...............................................   11
      ---   ----------------------------
      2.2   Limitation.................................................................   12
      ---   ----------
      2.3   Separate Security Interests................................................   12
      ---   ---------------------------

Section 3.  REPRESENTATIONS AND WARRANTIES.............................................   12
----------  ------------------------------
      3.1   Representations in the Credit Agreement....................................   12
      ---   ---------------------------------------
      3.2   Title; No Other Liens......................................................   12
      ---   ---------------------
      3.3   Perfected First and Second Priority Liens..................................   12
      ---   -----------------------------------------
      3.4   Jurisdiction of Organization; Chief Executive Office.......................   13
      ---   ----------------------------------------------------
      3.5   Inventory and Equipment....................................................   13
      ---   -----------------------
      3.6   Farm Products..............................................................   13
      ---   -------------
      3.7   Investment Property........................................................   13
      ---   -------------------
      3.8   Intellectual Property......................................................   13
      ---   ---------------------

Section 4.  COVENANTS..................................................................   14
----------  ---------
      4.1   Covenants in the Credit Agreement..........................................   14
      ---   ---------------------------------
      4.2   Delivery of Instruments, Certificated Securities and Chattel Paper.........   14
      ---   ------------------------------------------------------------------
      4.3   Maintenance of Insurance...................................................   14
      ---   ------------------------
      4.4   Payment of Obligations.....................................................   14
      ---   ----------------------
      4.5   Maintenance of Perfected Security Interests; Further Documentation.........   14
      ---   ------------------------------------------------------------------
      4.6   Changes in Locations, Name, etc............................................   15
      ---   -------------------------------
      4.7   Notices....................................................................   15
      ---   -------
      4.8   Investment Property........................................................   15
      ---   -------------------
      4.9   Intellectual Property......................................................   16
      ---   ---------------------

Section 5.  REMEDIAL PROVISIONS........................................................   17
----------  -------------------
      5.1   Investment Property........................................................   17
      ---   -------------------
      5.2   Proceeds to be Turned Over To Trustee......................................   18
      ---   -------------------------------------
      5.3   Application of Proceeds....................................................   18
      ---   -----------------------
      5.4   Code and Other Remedies....................................................   18
      ---   -----------------------
      5.5   Registration Rights........................................................   19
      ---   -------------------
      5.6   Waiver; Deficiency.........................................................   20
      ---   ------------------
      5.7   Certain Matters Relating to Receivables....................................   20
      ---   ---------------------------------------
      5.8   Automatic Release of Liens:  Limitation on Actions.........................   20
      ---   ---------------------------------------------------

Section 6.  THE TRUSTEE................................................................   22
----------  -----------
      6.1   Trustee's Appointment as Attorney-in-Fact, etc.............................   22
      ---   -----------------------------------------------
      6.2   Duty of Trustee............................................................   23
      ---   ---------------
      6.3   Execution of Financing Statements..........................................   23
      ---   ---------------------------------
      6.4   Authority of Trustee.......................................................   23
      ---   --------------------
</TABLE>

                                       i
<PAGE>

<TABLE>
<S>                                                                                      <C>
Section 7.  MISCELLANEOUS..............................................................  24
----------  -------------
      7.1   Amendments in Writing......................................................  24
      ---   ---------------------
      7.2   Notices....................................................................  24
      ---   -------
      7.3   No Waiver by Course of Conduct; Cumulative Remedies........................  24
      ---   ---------------------------------------------------
      7.4   Enforcement Expenses; Indemnification......................................  24
      ---   -------------------------------------
      7.5   Successors and Assigns.....................................................  25
      ---   ----------------------
      7.6   Counterparts...............................................................  25
      ---   ------------
      7.7   Severability...............................................................  25
      ---   ------------
      7.8   Section Headings...........................................................  25
      ---   ----------------
      7.9   Integration................................................................  25
      ---   -----------
      7.10  GOVERNING LAW..............................................................  25
      ----  -------------
      7.11  Submission To Jurisdiction; Waivers........................................  25
      ----  -----------------------------------
      7.12  Acknowledgements...........................................................  26
      ----  ----------------
      7.13  Additional Grantors........................................................  26
      ----  -------------------
      7.14  Releases...................................................................  26
      ----  --------
      7.15  WAIVER OF JURY TRIAL.......................................................  27
      ----  --------------------
</TABLE>

SCHEDULES AND ANNEX
-------------------

Schedule 1     Notice Addresses
Schedule 2     [Reserved]
Schedule 3     Perfection Matters
Schedule 4     Jurisdictions of Organization and Chief Executive Offices
Schedule 5     Inventory and Equipment Locations
Schedule 6     Intellectual Property

Annex I        Assumption Agreement

                                      ii
<PAGE>

                              SECURITY AGREEMENT

          SECURITY AGREEMENT, dated as of December 29, 2000, made by each of the
signatories hereto (together with any other entity that may become a party
hereto as provided herein, the "Grantors"), in favor of WILMINGTON TRUST
                                --------
COMPANY, not individually but solely as Trustee (in such capacity, the

"Trustee") under the Trust Agreement, dated as of December 29, 2000 (as amended,
 -------
supplemented or otherwise modified from time to time, the "New Trust
                                                           ---------
Agreement"), among Federal-Mogul Corporation, a Michigan corporation (the
---------
"Company"), the Subsidiaries of the Company parties thereto and the Trustee.
 -------

                             W I T N E S S E T H:
                             - - - - - - - - - -

          WHEREAS, the Company is a party to the Third Amended and Restated
Credit Agreement, dated as of February 24, 1999 (as amended, supplemented or
otherwise modified from time to time, the "Existing Credit Agreement"), among
                                           -------------------------
the Company, each Foreign Subsidiary Borrower (such term and other capitalized
terms used in these recitals being used as defined in Section 1 hereof) party
thereto, the banks and other financial institutions from time to time party
thereto as lenders and The Chase Manhattan Bank, as Administrative Agent;

          WHEREAS, pursuant to the Fourth Amended and Restated Credit Agreement,
dated as of December 29, 2000 (as amended, modified, supplemented, extended or
renewed from time to time, including pursuant to any amendment and restatement
thereof, the "Credit Agreement"), among the Company, each Foreign Subsidiary
              ----------------
Borrower party thereto, the Lenders parties thereto and The Chase Manhattan
Bank, as Administrative Agent, the Existing Credit Agreement is being amended
and restated in its entirety, and the Lenders have agreed to make further
extensions of credit to the Borrowers thereunder;

          WHEREAS, certain of the Grantors are Surety Bond Account Parties, for
the account of which Surety Parties have issued Surety Bonds;

          WHEREAS, certain of the Grantors may enter into Hedge Agreements with
Lenders and Lender Affiliates, and certain of the Grantors may incur Cash
Management Obligations to Lenders and Lender Affiliates;

          WHEREAS, each Borrower is a member of an affiliated group of companies
that includes each other Grantor;

          WHEREAS, the proceeds of the extensions of credit under the Existing
Credit Agreement and the extensions of credit to be made under the Credit
Agreement have been or will be used in part to enable the Borrowers to make
valuable transfers to one or more of the other Grantors in connection with the
operation of their respective businesses;

          WHEREAS, the Borrowers and the other Grantors are engaged in related
businesses, and each Grantor will derive substantial direct and indirect benefit
from the making of the extensions of credit under the Credit Agreement, the
extension of the expiry dates of the Surety Bonds and the extensions of credit
by Lenders and Lender Affiliates in respect of Hedge Agreements and Cash
Management Obligations;

                                       3
<PAGE>

          WHEREAS, each Grantor other than the Company is a party to the
Domestic Subsidiary Guarantee pursuant to which such Grantor has guaranteed the
Borrowers' obligations under the Loan Documents;

          WHEREAS, each Grantor is a party to one or more Surety Bond
Guarantees, pursuant to which such Grantor has guaranteed obligations of one or
more Surety Bond Account Parties under Surety Bond Documents; and

          WHEREAS, it is a condition precedent to (a) the obligation of the
Lenders to agree to amend and restate the Existing Credit Agreement and to make
further extensions of credit to the Borrowers under the Credit Agreement, (b)
the obligations of the Surety Parties to extend the expiry date of the Surety
Bonds and (c) the willingness of Lenders and Lender Affiliates to enter into
Hedge Agreements and to permit Cash Management Obligations to be created, in
each case, that the Grantors shall have executed and delivered this Agreement to
the Trustee for the benefit of the Secured Parties;

          NOW, THEREFORE, in consideration of the premises and to induce the
Administrative Agent and the Lenders to enter into the Credit Agreement, to
induce the Lenders to make their respective extensions of credit to the
Borrowers under the Credit Agreement, to induce the Surety Parties to extend the
expiry dates of the Surety Bonds and to induce Lenders and Lender Affiliates to
enter into Hedge Agreements and to permit Cash Management Obligations to be
created, each Grantor hereby agrees with the Trustee, for the benefit of the
Secured Parties as follows:

                           SECTION 1.  DEFINED TERMS

       1.1  Definitions.  (a)  Unless otherwise defined herein, terms defined in
       ----------------
the Credit Agreement and used herein shall have the meanings given to them in
the Credit Agreement, and the following terms are used herein as defined in the
New York UCC: Accounts, Certificated Security, Chattel Paper, Documents,
Equipment, Farm Products, Instruments and Inventory.

       (b) The following terms shall have the following meanings:

               "Aggregate Unpaids":  as defined in the Purchase Agreement.
                -----------------

               "Agreement":  this Security Agreement, as the same may be
                ---------
amended, supplemented or otherwise modified from time to time.

               "Blue Ridge":  Blue Ridge Asset Funding Corporation.
                ----------

               "Blue Ridge Agent":  Wachovia Bank, N.A. and its successors and
                ----------------
assigns.

               "Cash Management Obligations": all obligations and liabilities of
                ---------------------------
the Company and its Subsidiaries (whether directly or as a guarantor) owed to
any Lender, any Lender Affiliate or the Administrative Agent arising under or in
connection with treasury, depositary and cash management services or
arrangements or in connection with any automated clearinghouse transfer of funds
services or arrangements.

               "Collateral":  with respect to each Grantor, all of the following
                ----------
in which such Grantor now has or may hereafter acquire any right, title or
interest: all Accounts, Chattel Paper, Documents, Equipment, General
Intangibles, Instruments, Intellectual Property, Inventory, Investment Property,
all other personal property, whether tangible or intangible, not described above
in this definition, all books

                                       4
<PAGE>

and records pertaining to any of the foregoing and, to the extent not otherwise
included in the foregoing, all Proceeds and products of any and all of the
foregoing and all collateral, guarantees and other supporting obligations given
by any Person with respect to any of the foregoing; provided, that Collateral
                                                    --------
shall in any event not include (i) any assets in which a security interest
exists at any time under any Pledge Agreement or (ii) any Excluded Assets.

          "Contract": with respect to any Excluded Receivable, any and all
           --------
instruments, bills of lading, invoices or other writings which evidence such
Excluded Receivable or the goods underlying such Excluded Receivable and all
other agreements pursuant to which goods or services are ordered from or
provided by the applicable Originator.

          "Copyright Licenses":  any written agreement naming any Grantor as
           ------------------
licensor or licensee (including, without limitation, those listed in Schedule
                                                                     --------
6), granting any right under any Copyright, including, without limitation, the
-
grant of rights to manufacture, distribute, exploit and sell materials derived
from any Copyright.

          "Copyrights":  (i) all copyrights arising under the laws of the United
           ----------
States, whether registered or unregistered and whether published or unpublished
(including, without limitation, those listed in Schedule 6), all registrations
                                                ----------
and recordings thereof, and all applications in connection therewith, including,
without limitation, all registrations, recordings and applications in the United
States Copyright Office, and (ii) the right to obtain all renewals thereof.

          "Credit Agreement Obligations":  the collective reference to (a) the
           ----------------------------
unpaid principal of and interest on the Loans, the Reimbursement Obligations and
all other obligations and liabilities of the Borrowers to the Administrative
Agent or any Lender (including, without limitation, interest accruing at the
then applicable rate provided in the Credit Agreement after the maturity of the
Loans outstanding thereunder and interest accruing at the then applicable rate
provided in the Credit Agreement after the filing of any petition in bankruptcy,
or the commencement of any insolvency, reorganization or like proceeding,
relating to any Borrower, whether or not a claim for post-filing or post-
petition interest is allowed in such proceeding), whether direct or indirect,
absolute or contingent, due or to become due, or now existing or hereafter
incurred, which may arise under, out of, or in connection with, the Credit
Agreement, this Agreement, any Notes, any Letter of Credit or any other Loan
Document or any other document made, delivered or given in connection therewith,
(b) all obligations and liabilities of the Company or any of its Subsidiaries to
any Lender or Lender Affiliate (including, without limitation, interest accruing
at the then applicable rate provided in any Secured Hedge Agreement after the
maturity of any amount payable thereunder and interest accruing at the then
applicable rate provided in any Secured Hedge Agreement after the filing of any
petition in bankruptcy, or the commencement of any insolvency, reorganization or
like proceeding, relating to the Company or any of its Subsidiaries, whether or
not a claim for post-filing or post-petition interest is allowed in such
proceeding), whether direct or indirect, absolute or contingent, due or to
become due, or now existing or hereafter incurred, which may arise under, out
of, or in connection with, any Secured Hedge Agreement or any document made,
delivered or given in connection therewith, and (c) all Cash Management
Obligations, in each case whether the obligations and liabilities described in
any of the foregoing clauses (a), (b) or (c) are on account of principal,
interest, reimbursement obligations, fees, indemnities, costs, expenses or
otherwise (including, without limitation, all fees and disbursements of counsel
to the Administrative Agent or to the Lenders or Lender Affiliates that are
required to be paid by the Company or any of its Subsidiaries pursuant to the
terms of any of the foregoing agreements).

          "Deposit Account":  as defined in the Uniform Commercial Code of any
           ---------------
applicable jurisdiction and, in any event, including, without limitation, any
demand, time, savings, passbook or like account maintained with a depositary
institution.

                                       5
<PAGE>

          "Excluded Assets":  collectively (a) any contract, General Intangible,
           ---------------
Copyright License, Patent License or Trademark License ("Intangible Assets"), in
                                                         -----------------
each case to the extent the grant by the relevant Grantor of a security interest
pursuant to this Agreement in such Grantor's right, title and interest in such
Intangible Asset (i) is prohibited by any contract, agreement, instrument or
indenture governing such Intangible Asset, (ii) would give any other party to
such contract, agreement, instrument or indenture the right to terminate its
obligations thereunder or (iii) is permitted only with the consent of another
party, if such consent has not been obtained; provided, that any Receivable or
                                              --------
any money or other amounts due or to become due under any such contract,
agreement, instrument or indenture shall not be Excluded Assets; (b) all
Securitization Assets; (c) all Deposit Accounts; (d) all Vehicles; (e) all
Capital Stock and Intellectual Property of any Excluded Joint Venture; and (f)
all Proceeds and products of any of the foregoing.

          "Excluded Receivables": all U.S. dollar-denominated and all Canadian
           --------------------
dollar-denominated accounts receivable shown on the records of an Originator as
of the date hereof, and from time to time thereafter, arising from the sale of
merchandise rendered by an Originator in the ordinary course of business.

          "Existing Accounts Receivable Financing Program":  the collective
           ----------------------------------------------
reference to (i) the Purchase Agreement; (ii) the Fourth Amended and Restated
Receivables Sale and Contribution Agreement dated as of June 26, 2000, between
the Receivables Subsidiary, as the purchaser, and the Company, as the seller;
(iii) the First Amended and Restated Receivables Purchase Agreement dated as of
June 26, 2000, among the Company, as the purchaser, and certain of its
Affiliates, each as a seller; and (iv) all other documents entered into in
connection with any of the foregoing, as each of the foregoing are amended,
restated, supplemented, renewed, refinanced or otherwise modified from time to
time.

          "Existing Credit Agreement":  as defined in the recitals hereto.
           -------------------------

          "Falcon":  Falcon Asset Securitization Corporation.
           ------

          "Falcon Agent":  Bank One, NA and its successors and assigns.
           ------------

          "First Priority Interests":  as defined in Section 2.1(a).
           ------------------------

          "First Priority Secured Obligations":  without duplication, (a) with
           ----------------------------------
respect to the Company, all Credit Agreement Obligations owing (i) under the
Credit Agreement and the other Loan Documents to the Lenders in respect of the
New Money Facilities in an aggregate principal amount not exceeding $375,000,000
and (ii) to any Lender, or any Lender Affiliate, in respect of any Specified
Hedge Agreement; provided, that the maximum amount of First Priority Secured
                 --------
Obligations relating to any Specified Hedge Agreement shall not exceed the Hedge
Agreement Cap Amount relating to such Specified Hedge Agreement and (b) with
respect to each Subsidiary Grantor, such Grantor's Guarantor Credit Agreement
Obligations owing (i) under the Subsidiary Guarantee and the other Loan
Documents to the Lenders in respect of the New Money Facilities in an aggregate
principal amount not exceeding $375,000,000 and (ii) to any Lender, or any
Lender Affiliate, in respect of any Specified Hedge Agreement; provided, that
                                                               --------
the maximum amount of First Priority Secured Obligations relating to any
Specified Hedge Agreement shall not exceed the Hedge Agreement Cap Amount
relating to such Specified Hedge Agreement.

          "General Intangibles":  all "general intangibles" as such term is
           -------------------
defined in Article 9 of the New York UCC and, in any event, including, without
limitation, with respect to any Grantor, all contracts, agreements, instruments
and indentures in any form, and portions thereof, to which such Grantor is a
party or under which such Grantor has any right, title or interest or to which
such Grantor or

                                       6
<PAGE>

any property of such Grantor is subject, as the same may from time to time be
amended, supplemented or otherwise modified, including, without limitation, (i)
all rights of such Grantor to receive moneys due and to become due to it
thereunder or in connection therewith, (ii) all rights of such Grantor to
damages arising thereunder and (iii) all rights of such Grantor to perform and
to exercise all remedies thereunder.

          "Guarantor Credit Agreement Obligations":  with respect to any
           --------------------------------------
Subsidiary Grantor, all obligations and liabilities of such Grantor which may
arise under or in connection with the Subsidiary Guarantee or any other Loan
Document to which such Grantor is a party, in each case whether on account of
guarantee obligations, reimbursement obligations, fees, indemnities, costs,
expenses or otherwise (including, without limitation, all fees and disbursements
of counsel to the Administrative Agent or the Lenders that are required to be
paid by such Grantor pursuant to the terms of any Loan Document).

          "Guarantor Surety Bond Obligations":  with respect to any Grantor, all
           ---------------------------------
obligations and liabilities of such Grantor which may arise under or in
connection with any Surety Bond Guarantee to which such Grantor is a party, in
each case whether on account of guarantee obligations, reimbursement
obligations, fees, indemnities, costs, expenses or otherwise (including, without
limitation, all fees and disbursements of counsel to the relevant Surety Party
that are required to be paid by such Grantor pursuant to the terms of any Surety
Bond Document).

          "Hedge Agreement Basket Amount":  initially, $5,000,000, as such
           -----------------------------
amount may be increased pursuant to Section 15.19 of the Credit Agreement.

          "Hedge Agreement Cap Amount":  in respect of any Specified Hedge
           --------------------------
Agreement, an amount equal to the amount of the Hedge Agreement Basket Amount
allocated to such Specified Hedge Agreement in the manner provided in Section
15.19 of the Credit Agreement.

          "Intellectual Property":  the collective reference to all rights,
           ---------------------
priorities and privileges relating to intellectual property arising under the
laws of the United States, including, without limitation, the Copyrights, the
Copyright Licenses, the Patents, the Patent Licenses, the Trademarks and the
Trademark Licenses, and all rights to sue at law or in equity for any
infringement or other impairment thereof, including the right to receive all
proceeds and damages therefrom.

          "Investment Property": all "investment property" as such term is
           -------------------
defined in Article 9 of the New York UCC (other than any investment property in
which a security interest exists under any Pledge Agreement).

          "Issuers":  the collective reference to each issuer of any Investment
           -------
Property.

          "New Money Facilities":  the collective reference to the Supplemental
           --------------------
Revolving Credit Facility and the Tranche C Term Loans.

          "New Trust Agreement":  as defined in the preamble hereto.
           -------------------

          "New York UCC":  the Uniform Commercial Code as from time to time in
           ------------
effect in the State of New York.

          "1994 Indenture":  the Indenture, dated as of August 12, 1994, between
           --------------
the Company and U.S. Bank Trust National Association, as successor to
Continental Bank, as trustee, as amended, supplemented or otherwise modified
from time to time.

                                       7
<PAGE>

          "1998 Supplemental Indenture":  the First Supplemental Indenture,
           ---------------------------
dated June 30, 1998, to the Indenture, dated as of June 29, 1998, among the
Company, certain of its subsidiaries, and The Bank of New York, as trustee, as
amended, supplemented or otherwise modified from time to time.

          "1999 Indenture":  the Indenture, dated as of January 20, 1999, among
           --------------
the Company, certain of its subsidiaries, and The Bank of New York, as trustee,
as amended, supplemented or otherwise modified from time to time.

          "Notice of Acceleration":  as defined in the New Trust Agreement.
           ----------------------

          "Originator": each of (a) the Company, (b) Federal-Mogul Canada Ltd.,
           ----------
(c) Federal-Mogul Piston Rings, Inc., (d) Federal-Mogul Flowery Branch, LLC, (e)
Federal-Mogul Powertrain 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 Systems Protection Group, Inc. and (r) each other Subsidiary of the
Company which may from time to time hereafter be added as an originator under
and pursuant to the terms of the Existing Accounts Receivable Financing Program.

          "Other Collateral":  all Collateral other than Restricted Collateral.
           ----------------

          "Other Secured Obligations":  all Secured Obligations other than First
           -------------------------
Priority Secured Obligations.

          "Patent License":  all agreements, whether written or oral, providing
           --------------
for the grant by or to any Grantor of any right to manufacture, use or sell any
invention covered in whole or in part by a Patent, including, without
limitation, any of the foregoing referred to in Schedule 6.
                                                ----------

          "Patents":  (i) all letters patent of the United States, all reissues
           -------
and extensions thereof and all goodwill associated therewith, including, without
limitation, any of the foregoing referred to in Schedule 6, (ii) all
                                                ----------
applications for letters patent of the United States and all divisions,
continuations and continuations-in-part thereof, including, without limitation,
any of the foregoing referred to in Schedule 6, and (iii) all rights to obtain
                                    ----------
any reissues or extensions of the foregoing.

          "Pledge Agreements":  as defined in the Credit Agreement.
           -----------------

          "Proceeds":  all "proceeds" as such term is defined in Article 9 of
           --------
the New York UCC and, in any event, shall include, without limitation, all
dividends or other income from the Investment Property, collections thereon or
distributions or payments with respect thereto.

          "Purchase Agreement":  the Fifth Amended and Restated Receivable
           ------------------
Interest Purchase Agreement, dated as of December 27, 2000, among the
Receivables Subsidiary, as the seller, the Company, as the servicer, Blue Ridge
and Falcon, as purchasers, the financial institutions from time to time party
thereto, as investors, Bank One, NA, as the administrative agent and as agent
for Falcon, and Wachovia Bank, N.A., as agent for Blue Ridge, as amended,
modified, supplemented or amended and restated from time to time.

          "Receivable":  any right to payment for goods sold or leased or for
           ----------
services rendered, whether or not such right is evidenced by an Instrument or
Chattel Paper and whether or not it has been earned by performance (including,
without limitation, any Account).

                                       8
<PAGE>

          "Related Security": with respect to any Excluded Receivable, (i) all
           ----------------
of each Grantor's interest, if any, in any goods the sale of which gave rise to
such Excluded Receivable; (ii) all other security interests or liens and
property subject thereto from time to time, purporting to secure payment of such
Excluded Receivable, whether pursuant to the Contract related to such Excluded
Receivable or otherwise, together with all financing statements and security
agreements describing any collateral securing such Excluded Receivable; (iii)
all guaranties, insurance and other agreements or arrangements of whatever
character from time to time supporting or securing payment of such Excluded
Receivable whether pursuant to the Contract related to such Excluded Receivable
or otherwise; (iv) all of each Grantor's right, title and interest in, to and
under the Contract executed in connection with such Excluded Receivable or
otherwise for the benefit of any Grantor; (v) 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 Excluded Receivable, any of the items
described in this definition with respect to such Excluded Receivable or any
Person obligated to make payments pursuant to the Contract related to such
Excluded Receivable; and (vi) all proceeds of the foregoing.

          "Restricted Collateral":  all Collateral constituting "any Principal
           ---------------------
Property owned by the Company or any Restricted Subsidiary or shares of capital
stock or evidence of Indebtedness of any Restricted Subsidiary" within the
meaning of (i) Section 10.9 of the 1994 Indenture, (ii) Section 3.8 of the 1999
Indenture or (iii) Section 3.1 of the 1998 Supplemental Indenture.

          "Restricted Collateral Secured Obligations":  at any time, Secured
           -----------------------------------------
Obligations that may be secured by the Restricted Collateral without creating a
requirement pursuant to Section 10.9 of the 1994 Indenture, Section 3.1 of the
1998 Supplemental Indenture or Section 3.8 of the 1999 Indenture to cause the
securities outstanding under any such Indenture to be equally and ratably
secured by such Restricted Collateral.

          "Second Priority Interests":  as defined in Section 2.1(d).
           -------------------------

          "Secured Hedge Agreements":  the collective reference to (a) the
           ------------------------
Specified Hedge Agreements and (b) any Hedge Agreements outstanding on the date
hereof and listed on Schedule X to the Credit Agreement.

          "Secured Obligations":  (a) with respect to the Company, the
           -------------------
collective reference to (i) the Credit Agreement Obligations, (ii) its Surety
Bond Obligations, and (iii) the Trustee Fees (as defined in the New Trust
Agreement); and (b) with respect to each Subsidiary Grantor, the collective
reference to (i) such Grantor's Guarantor Credit Agreement Obligations, (ii)
such Grantor's Guarantor Surety Bond Obligations, (iii) such Grantor's Surety
Bond Obligations and (iv) the Trustee Fees (as defined in the New Trust
Agreement).

          "Secured Parties":  collectively (i) the Surety Parties, (ii) the
           ---------------
Lenders (including Lender Affiliates, to the extent such Lender Affiliates hold
Secured Obligations) and the Administrative Agent and (iii) the Trustee.

          "Securities Act":  the Securities Act of 1933, as amended.
           --------------

          "Securitization Assets": (i) all Securitized Receivables; (ii) all
           ---------------------
Related Security with respect to all Securitized Receivables; (iii) all cash
collections and other cash proceeds of Securitized Receivables, including,
without limitation, cash proceeds of all Related Security with respect to all
Securitized Receivables; (iv) each concentration account, depositary account,
lock-box account or similar account in which any cash collections or cash
proceeds described in the preceding clause (iii) are

                                       9
<PAGE>

collected or deposited and all balances, checks, money orders and other
instruments from time to time therein; (v) all documentation evidencing the
Existing Accounts Receivable Financing Program.

          "Securitized Receivables": all Excluded Receivables that have been
           -----------------------
sold, transferred or assigned to Federal-Mogul Funding Corporation pursuant to
the Existing Accounts Receivable Financing Program (or any replacement thereof
permitted by the Credit Agreement).

          "Specified Hedge Agreement":  any Hedge Agreement that (i) is entered
           -------------------------
into after the Trust Effective Date by the Company or any Domestic Subsidiary of
the Company with any Lender or any Lender Affiliate and (ii) is designated as a
Specified Hedge Agreement in the manner provided in Section 15.19 of the Credit
Agreement.

          "Subsidiary Grantors":  the collective reference to each Grantor other
           -------------------
than the Company.

          "Surety Bond":  each of the Surety Bonds described on Schedule IX to
           -----------
the Credit Agreement and any amendment or replacement of any thereof that does
not increase the amount, or shorten the maturity, of any thereof.

          "Surety Bond Account Party":  in respect of each Surety Bond, the
           -------------------------
Company or its Subsidiary or Subsidiaries for the account of which such Surety
Bond was issued, as specified on Schedule IX to the Credit Agreement.

          "Surety Bond Documents":  in respect of each Surety Bond, (i) such
           ---------------------
Surety Bond and the related Contract of Indemnity, as any of the foregoing may
be amended or replaced, provided, that such amendment or replacement does not
                        --------
increase the amount of any Surety Bond or shorten the maturity thereof and (ii)
any Surety Bond Guarantee related to such Surety Bond.

          "Surety Bond Guarantee":  any guarantee or contract of indemnity
           ---------------------
executed and delivered by any Grantor to any Surety Party with respect to
obligations owing by the Company or any Subsidiary in respect of any Surety
Bond, including, without limitation, the Contracts of Indemnity dated December
29, 2000, as the same may from time to time be amended, modified, supplemented,
extended or renewed.

          "Surety Bond Obligations":  in respect of any Surety Bond, (i) the
           -----------------------
obligation of the Surety Bond Account Party for the account of which such Surety
Bond was issued to reimburse the Surety Party which issued such Surety Bond for
any payments made by such Surety Party from time to time under such Surety Bond,
together with any interest, fees, indemnities or other amounts payable by such
Surety Bond Account Party pursuant to the terms of the Surety Bond Documents
relating to such Surety Bond (including, without limitation, to the extent
provided by such Surety Bond Documents, interest accruing at the then applicable
rate provided in such Surety Bond Documents after the maturity of such
reimbursement obligations and interest accruing at the then applicable rate
provided in such instruments after the filing of any petition in bankruptcy, or
the commencement of any insolvency, reorganization or like proceeding, relating
to such Surety Bond Account Party, whether or not a claim for post-filing or
post-petition interest is allowed in such proceeding) and (ii) any Guarantor
Surety Bond Obligations with respect to such Surety Bond.

          "Surety Party":  in respect of each Surety Bond, the entity which
           ------------
issued such Surety Bond, as specified on Schedule IX to the Credit Agreement and
any Person issuing any replacement of such Surety Bond that does not increase
the amount, or shorten the maturity, thereof, provided, that the Company shall
                                              --------
have delivered to the Trustee the name of such Person and any other relevant
information with respect thereto requested by the Trustee.

                                      10
<PAGE>

          "Trademark License":  any agreement, whether written or oral,
           -----------------
providing for the grant by or to any Grantor of any right to use any Trademark,
including, without limitation, any of the foregoing referred to in Schedule 6.
                                                                   ----------

          "Trademarks":  (i) all trademarks, trade names, corporate names,
           ----------
company names, business names, fictitious business names, trade styles, service
marks, logos and other source or business identifiers, and all goodwill
associated therewith, now existing or hereafter adopted or acquired, all
registrations and recordings thereof, and all applications in connection
therewith, whether in the United States Patent and Trademark Office or in any
similar office or agency of the United States or any State thereof, or
otherwise, and all common-law rights related thereto, including, without
limitation, any of the foregoing referred to in Schedule 6, and (ii) the right
                                                ----------
to obtain all renewals thereof.

          "Transaction Documents":  as defined in the Purchase Agreement.
           ---------------------

          "Trust Effective Date":  as defined in the New Trust Agreement.
           --------------------

          "Trust Security Documents":  as defined in the New Trust Agreement.
           ------------------------

          "Vehicles":  all cars, trucks, trailers, construction and earth moving
           --------
equipment and other vehicles covered by a certificate of title law of any state
and all tires and other appurtenances to any of the foregoing.

    1.2   Other Definitional Provisions.  (a)  The words "hereof," "herein",
          -----------------------------
"hereto" 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 and Schedule references are to this Agreement unless
otherwise specified.

    (b) The meanings given to terms defined herein shall be equally applicable
to both the singular and plural forms of such terms.

    (c) Where the context requires, terms relating to the Collateral or any part
thereof, when used in relation to a Grantor, shall refer to such Grantor's
Collateral or the relevant part thereof.

                   SECTION 2.  GRANTS OF SECURITY INTERESTS

    2.1   Grants of Security Interests.  (a)  Subject to Section 2.1(e), each
          ----------------------------
Grantor hereby grants to the Trustee, as security for such Grantor's Secured
Obligations in respect of the First Priority Secured Obligations, a first
priority security interest (collectively, the "First Priority Interests") in all
                                               ------------------------
right, title and interest of such Grantor in all Collateral, whether now
existing or hereafter acquired.

    (b) Subject to Section 2.1(e), each Grantor hereby grants to the Trustee, as
security for such Grantor's Other Secured Obligations outstanding on the date
hereof (but not incurred on the date hereof), a security interest in all right,
title and interest of such Grantor in all Collateral, whether now existing or
hereafter acquired.

    (c) Subject to Section 2.1(e), each Grantor hereby grants to the Trustee, as
security for such Grantor's Other Secured Obligations incurred on or after the
date hereof, a security interest in all right, title and interest of such
Grantor in all Collateral, whether now existing or hereafter acquired.

                                      11
<PAGE>

        (d) The security interests granted in Section 2.1(b) and Section 2.1(c)
(collectively, the "Second Priority Interests") are junior in priority to the
                    -------------------------
First Priority Interests.

        (e) Anything herein or in any other Loan Document, Surety Bond Documents
or Trust Security Documents to the contrary notwithstanding, the security
interests granted pursuant to this Section, to the extent such security
interests relate to Restricted Collateral, shall secure only Restricted
Collateral Secured Obligations.

     2.2       Limitation.  Anything herein or in any other Loan Documents,
     --------------------
Surety Bond Documents, Trust Security Documents or documents relating to Hedge
Agreements or Cash Management Obligations to the contrary notwithstanding, the
maximum amount of Secured Obligations secured pursuant hereto or pursuant to any
other Loan Document, Surety Bond Document or Trust Security Document by the
assets owned by any Subsidiary Grantor shall in no event exceed the amount which
can be so secured under applicable federal and state laws relating to the
insolvency of debtors.

     2.3       Separate Security Interests.  The security interests created
     -------------------------------------
pursuant to each of Section 2.1(a), Section 2.1(b) and Section 2.1(c) are
separate and distinct security interests in the Collateral.

                  SECTION 3.  REPRESENTATIONS AND WARRANTIES

               To induce the Administrative Agent and the Lenders to enter into
the Credit Agreement and to induce the Lenders to make their respective
extensions of credit to the Borrowers thereunder, to induce the Surety Parties
to extend the expiry date of the Surety Bonds, and to induce the Lenders and
Lender Affiliates to enter into Hedge Agreements and to permit Cash Management
Obligations to be incurred, each Grantor hereby represents and warrants to the
Secured Parties that:

     3.1       Representations in the Credit Agreement.  In the case of each
     -------------------------------------------------
Subsidiary Grantor, the representations and warranties set forth in Article VIII
of the Credit Agreement, as they relate to such Grantor or to the Loan Documents
to which such Grantor is a party, each of which is hereby incorporated herein by
reference, are true and correct in all material respects, and the Trustee and
each Secured Party shall be entitled to rely on each of them as if they were
fully set forth herein, provided that each reference in each such representation
and warranty to the Company's knowledge shall, for the purposes of this Section
3.1, be deemed to be a reference to such Grantor's knowledge.

     3.2       Title; No Other Liens.  Except for the security interest granted
     -------------------------------
to the Trustee for the benefit of the Secured Parties pursuant to this Agreement
and the other Liens permitted to exist on the Collateral by the Credit
Agreement, such Grantor owns or has rights in each item of its Collateral free
and clear of any and all Liens or claims of others. No financing statement or
other public notice with respect to all or any part of the Collateral is on file
or of record in any public office, except such as have been filed in favor of
the Trustee, for the benefit of the Secured Parties, pursuant to this Agreement
or as are permitted by the Credit Agreement.

     3.3       Perfected First and Second Priority Liens.  The security
     ---------------------------------------------------
interests granted pursuant to this Agreement (a) upon completion of the filings
and other actions specified on Schedule 3 (which, in the case of all filings and
                               ----------
other documents referred to on said Schedule, have been delivered to the Trustee
in completed and duly executed form) will constitute valid perfected security
interests in all of the Collateral in favor of the Trustee, for the benefit of
the Secured Parties, as collateral security for the relevant Secured
Obligations, enforceable in accordance with the terms hereof against all
creditors of such Grantor and any Persons purporting to purchase any Collateral
from such Grantor and (b) (i) in the case of the First Priority Interests, are
prior to all other Liens on the Collateral in existence on the date hereof
except

                                      12
<PAGE>

for Liens permitted by the Credit Agreement which have priority over the Liens
on the Collateral by operation of law, and (ii) in the case of the Second
Priority Interests, are prior to all other Liens on the Collateral in existence
on the date hereof except for the First Priority Interests and except for Liens
permitted by the Credit Agreement which have priority over the Liens on the
Collateral by operation of law; provided, that no representations are made with
                                --------
respect to the requirements of any laws of any jurisdiction other than the
United States or any State thereof.

     3.4   Jurisdiction of Organization; Chief Executive Office.  On the date
     ----------------------------------------------------------
hereof, such Grantor's jurisdiction of organization and the location of such
Grantor's chief executive office or sole place of business are specified on
Schedule 4.
----------

     3.5   Inventory and Equipment.  On the date hereof, the Inventory and the
     -----------------------------
Equipment owned by each Grantor (other than mobile goods) are kept at the
locations specified for such Grantor on Schedule 5.
                                        ----------

     3.6   Farm Products.  None of the Collateral constitutes, or is the
     -------------------
Proceeds of, Farm Products.

     3.7   Investment Property.  Such Grantor is the record and beneficial owner
     -------------------------
of, and has good and marketable title to, the Investment Property pledged by it
hereunder, free of any and all Liens or options in favor of, or claims of, any
other Person, except the security interest created by this Agreement.

     3.8   Intellectual Property. (a) Schedule 6 lists all Intellectual Property
     ---------------------------      ----------
consisting of United States Patents, Trademarks and Copyrights, applications for
United States Patents, and applications for registration of United States
Trademarks and Copyrights, and each Patent License, Trademark License and
Copyright License in respect of which the annual license payment is greater than
$250,000, in each case owned by such Grantor in its own name (or in the name of
a predecessor entity or in a prior name) on the date hereof.

     (b) On the date hereof, all material Intellectual Property is valid,
subsisting, unexpired and enforceable, has not been abandoned and to such
Grantor's knowledge does not infringe the intellectual property rights of any
other Person.

     (c) Except as set forth in Schedule 6, on the date hereof, none of the
                                ----------
Intellectual Property is the subject of any material licensing or franchise
agreement pursuant to which such Grantor is the licensor or franchisor.

     (d) No holding, decision or judgment has been rendered by any Governmental
Authority which would limit, cancel or question the validity of, or such
Grantor's rights in, any Intellectual Property in any respect that could
reasonably be expected to have a Material Adverse Effect.

     (e) Except for routine Intellectual Property enforcement proceedings
conducted in the ordinary course of business, no action or proceeding is
pending, or, to the knowledge of such Grantor, threatened, on the date hereof
(i) seeking to limit, cancel or question the validity of any Intellectual
Property or such Grantor's ownership interest therein, or (ii) which, if
adversely determined, would have a material adverse effect on the value of any
Intellectual Property.

                                      13
<PAGE>

                             SECTION 4.  COVENANTS

          Each Grantor covenants and agrees with the Trustee and the Secured
Parties that, from and after the date of this Agreement until the Secured
Obligations shall have been paid in full, the Commitments shall have terminated
and no Letters of Credit or Surety Bonds remain outstanding:

     4.1  Covenants in the Credit Agreement.  In the case of each Subsidiary
     --------------------------------------
Grantor, such Grantor shall take, or shall refrain from taking, as the case may
be, each action that is necessary to be taken or not taken, as the case may be,
so that no Default or Event of Default is caused by the failure to take such
action or to refrain from taking such action by such Grantor or any of its
Subsidiaries.

     4.2  Delivery of Instruments, Certificated Securities and Chattel Paper. If
     -----------------------------------------------------------------------
any amount payable under or in connection with any of the Collateral shall be or
become evidenced by any Instrument, Certificated Security or Chattel Paper, such
Instrument, Certificated Security or Chattel Paper shall be immediately
delivered to the Trustee, duly indorsed in a manner satisfactory to the Trustee,
to be held as Collateral pursuant to this Agreement.

     4.3  Maintenance of Insurance. (a) Such Grantor will maintain, with
     -----------------------------
financially sound and reputable companies, insurance policies of the type
described in, and to the extent required by, Section 10.5 of the Credit
Agreement.

     (b) The Company shall deliver to the Trustee and the Secured Parties a
report of a reputable insurance broker with respect to such insurance
substantially concurrently with each delivery of the Company's audited annual
financial statements and such supplemental reports with respect thereto as the
Trustee may from time to time reasonably request.

     4.4  Payment of Obligations.  Such Grantor will pay and discharge or
     ---------------------------
otherwise satisfy at or before maturity or before they become delinquent, as the
case may be, all taxes, assessments and governmental charges or levies imposed
upon the Collateral or in respect of income or profits therefrom, as well as all
claims of any kind (including, without limitation, claims for labor, materials
and supplies) against or with respect to the Collateral, except that no such
charge need be paid if the amount or validity thereof is currently being
contested in good faith by appropriate proceedings, reserves in conformity with
GAAP with respect thereto have been provided on the books of such Grantor and
such proceedings could not reasonably be expected to result in the sale,
forfeiture or loss of any material portion of the Collateral or any interest
therein.

     4.5  Maintenance of Perfected Security Interests; Further Documentation.
     -----------------------------------------------------------------------
(a) Such Grantor shall maintain each of the security interests created by this
Agreement as perfected security interests having at least the priority described
in Section 3.3 and shall defend such security interest against the claims and
demands of all Persons whomsoever.

     (b) Such Grantor will furnish to the Trustee and the Administrative Agent
from time to time statements and schedules further identifying and describing
the assets and property of such Grantor and such other reports in connection
therewith as the Trustee or the Administrative Agent may reasonably request, all
in reasonable detail.

     (c) At any time and from time to time, upon the written request of the
Administrative Agent or the Trustee, and at the sole expense of such Grantor,
such Grantor will promptly and duly execute and deliver, and have recorded, such
further instruments and documents and take such further actions as the
Administrative Agent or the Trustee may reasonably request for the purpose of
obtaining or preserving the full benefits of this Agreement and of the rights
and powers herein granted, including, without

                                      14
<PAGE>

limitation, (i) filing any financing or continuation statements under the
Uniform Commercial Code (or other similar laws) in effect in any jurisdiction
with respect to the security interests created hereby and (ii) in the case of
Investment Property and any other relevant Collateral, taking any actions
necessary to enable the Trustee to obtain "control" (within the meaning of the
applicable Uniform Commercial Code) with respect thereto.

     4.6   Changes in Locations, Name, etc.  Such Grantor will not, except upon
     -------------------------------------
15 days' prior written notice to the Trustee and the Administrative Agent and
delivery to the Trustee and the Administrative Agent of (a) all additional
executed financing statements and other documents reasonably requested by the
Trustee to maintain the validity, perfection and priority of the security
interests provided for herein and (b) if applicable, a written supplement to
Schedule 5 showing any additional location at which Inventory or Equipment shall
----------
be kept:

     (i)   permit any of the Inventory or Equipment included in the Collateral
  to be kept at a location other than those listed on Schedule 5, except for
                                                      ----------
  Collateral temporarily in transit from one such listed location to another;

     (ii)  change its jurisdiction of organization or the location of its chief
  executive office or sole place of business from that referred to in Section
  3.4; or

     (iii) change its name, identity or corporate or other organizational
structure to such an extent that any financing statement filed by the Trustee in
connection with this Agreement would become misleading.

     4.7   Notices.  Such Grantor will advise the Trustee and the Administrative
     -------------
Agent promptly, in reasonable detail, of:

     (a) any Lien (other than security interests created hereby or Liens
permitted under the Credit Agreement) on any of the Collateral which would
adversely affect the ability of the Trustee to exercise any of its remedies
hereunder; and

     (b) of the occurrence of any other event which could reasonably be expected
to have a material adverse effect on the aggregate value of the Collateral or on
the security interests created hereby.

     4.8   Investment Property.  (a)  If such Grantor shall become entitled to
     -------------------------
receive or shall receive any certificate (including, without limitation, any
certificate representing a dividend or a distribution in connection with any
reclassification, increase or reduction of capital or any certificate issued in
connection with any reorganization), option or rights in respect of the Capital
Stock of any Issuer, whether in addition to, in substitution of, as a conversion
of, or in exchange for, any Investment Property, or otherwise in respect
thereof, such Grantor shall accept the same as the agent of the Trustee, hold
the same in trust for the Trustee and deliver the same forthwith to the Trustee
in the exact form received, duly indorsed by such Grantor to the Trustee, if
required, together with an undated stock power covering such certificate duly
executed in blank by such Grantor and with, if the Trustee so requests,
signature guaranteed, to be held by the Trustee, subject to the terms hereof, as
additional collateral security for the Secured Obligations of such Grantor. Any
sums paid upon or in respect of the Investment Property upon the liquidation or
dissolution of any Issuer shall be paid over to the Trustee to be held by it
hereunder as additional collateral security for the Secured Obligations of such
Grantor, and in case any distribution of capital shall be made on or in respect
of the Investment Property or any property shall be distributed upon or with
respect to the Investment Property pursuant to the recapitalization or
reclassification of the capital of any Issuer or pursuant to the reorganization
thereof, the property so distributed shall, unless otherwise subject to a
perfected security interest in favor of the Trustee, be delivered to the Trustee
to be held by it

                                      15
<PAGE>

hereunder as additional collateral security for the Secured Obligations of such
Grantor. If any sums of money or property so paid or distributed in respect of
the Investment Property shall be received by such Grantor, such Grantor shall,
until such money or property is paid or delivered to the Trustee, hold such
money or property in trust for the Trustee, segregated from other funds of such
Grantor, as additional collateral security for the Secured Obligations of such
Grantor.

     (b) Without the prior written consent of the Trustee, such Grantor will not
(i) vote to enable, or take any other action to permit, any Issuer to issue any
Capital Stock of any nature or to issue any other securities convertible into or
granting the right to purchase or exchange for any Capital Stock of any nature
of any Issuer, (ii) sell, assign, transfer, exchange, or otherwise dispose of,
or grant any option with respect to, the Investment Property or Proceeds thereof
(except pursuant to a transaction expressly permitted by the Credit Agreement),
(iii) create, incur or permit to exist any Lien or option in favor of, or any
claim of any Person with respect to, any of the Investment Property or Proceeds
thereof, or any interest therein, except for the security interests created by
this Agreement or (iv) enter into any agreement or undertaking restricting the
right or ability of such Grantor or the Trustee to sell, assign or transfer any
of the Investment Property or Proceeds thereof.

     (c) In the case of each Grantor which is an Issuer, such Issuer agrees that
(i) it will be bound by the terms of this Agreement relating to the Investment
Property issued by it and will comply with such terms insofar as such terms are
applicable to it, (ii) it will notify the Trustee promptly in writing of the
occurrence of any of the events described in Section 4.8(a) with respect to the
Investment Property issued by it and (iii) the terms of Sections 5.1(b) and 5.5
shall apply to it, mutatis mutandis, with respect to all actions that may be
                   ------- --------
required of it pursuant to Section 5.1(b) or 5.5 with respect to the Investment
Property issued by it.

     4.9   Intellectual Property.  (a) Such Grantor (either itself or through
     ---------------------------
licensees) will (i) continue to use each material Trademark in order to maintain
such Trademark in full force free from any claim of abandonment for non-use,
(ii) maintain as in the past the quality of products and services offered under
such Trademark, (iii) use such Trademark with the appropriate notice of
registration and all other notices and legends required by applicable
Requirements of Law and (iv) not (and not permit any licensee or sublicensee
thereof to) knowingly do any act or knowingly omit to do any act whereby such
Trademark may become invalidated or impaired in any material respect.

     (b) Such Grantor (either itself or through licensees) will not knowingly do
any act, or knowingly omit to do any act, whereby any material Patent may become
forfeited, abandoned or dedicated to the public.

     (c) Such Grantor (either itself or through licensees) will not knowingly
(and will not permit any licensee or sublicensee thereof to) do any act or
knowingly omit to do any act whereby any material portion of the Copyrights may
become invalidated or otherwise impaired. Such Grantor will not (either itself
or through licensees) do any act whereby any material portion of the Copyrights
may fall into the public domain.

     (d) Such Grantor (either itself or through licensees) will not do any act
that knowingly uses any material Intellectual Property to infringe the
intellectual property rights of any other Person if such infringement could
reasonably be expected to result in an aggregate liability to the Company and
its Subsidiaries of greater than $250,000.

     (e) Such Grantor will notify the Trustee and the Administrative Agent
immediately if it knows that any application or registration relating to any
Intellectual Property material to the Company and its Subsidiaries, taken as a
whole, may become forfeited, abandoned or dedicated to the public, or of any

                                      16
<PAGE>

adverse determination or development (including, without limitation, the
institution of, or any such determination or development in, any proceeding in
the United States Patent and Trademark Office, the United States Copyright
Office or any court or tribunal in any country) challenging such Grantor's
ownership of, or the validity of, any such Intellectual Property or such
Grantor's right to register the same or to own and maintain the same.

     (f) Whenever such Grantor, either by itself or through any agent, employee,
licensee or designee, shall file an application for a Patent with the United
States Patent and Trademark Office, or an application for the registration of
any Trademark or Copyright with the United States Patent and Trademark Office or
the United States Copyright Office, respectively, such Grantor shall report such
filing to the Administrative Agent and the Trustee; such report with respect to
any such filing in any fiscal quarter shall be delivered to the Administrative
Agent and the Trustee within such period of time after the last day of such
fiscal quarter as the Credit Agreement shall provide for delivery by the Company
to the Lenders of the Company's financial statements for such fiscal quarter.
Upon request of the Trustee, such Grantor shall execute and deliver, and have
recorded, any and all agreements, instruments, documents, and papers as the
Trustee may request to evidence the Trustee's security interest in any
Copyright, Patent or Trademark and the goodwill and general intangibles of such
Grantor relating thereto or represented thereby.

     (g) Such Grantor will take all reasonable and necessary steps, including,
without limitation, in any proceeding before the United States Patent and
Trademark Office or the United States Copyright Office, to maintain and pursue
each application (and to obtain the relevant registration) and to maintain each
registration of the Intellectual Property material to the Company and its
Subsidiaries, taken as a whole, including, without limitation, filing of
applications for renewal, affidavits of use and affidavits of incontestability.

     (h) In the event that any material Intellectual Property is infringed,
misappropriated or diluted by a third party, such Grantor shall take such
actions as such Grantor shall reasonably deem appropriate under the
circumstances to protect such Intellectual Property (which may include the grant
of a license to such third party).


                        SECTION 5.  REMEDIAL PROVISIONS

     5.1   Investment Property.  (a) Unless a Notice of Acceleration shall be in
     -------------------------
effect and the Trustee shall have given notice to the relevant Grantor of the
Trustee's intent to exercise its corresponding rights pursuant to Section
5.1(b), each Grantor shall be permitted to receive all cash dividends paid in
respect of the Investment Property, paid in the normal course of business of the
relevant Issuer, to the extent permitted in the Credit Agreement, and to
exercise all voting and corporate or other organizational rights with respect to
the Investment Property; provided, however, that no vote shall be cast or
corporate or other organizational right exercised or other action taken which,
in the Trustee's reasonable judgment, would impair the Collateral or which would
be inconsistent with or result in any violation of any provision of the Credit
Agreement, this Agreement or any other Loan Document.

     (b) If a Notice of Acceleration shall be in effect and the Trustee shall
give notice of its intent to exercise such rights to the relevant Grantor or
Grantors, (i) the Trustee shall have the right to receive any and all cash
dividends, payments or other Proceeds paid in respect of the Investment Property
and make application thereof to the Secured Obligations in the order specified
in the New Trust Agreement, and (ii) any or all of the Investment Property shall
be registered in the name of the Trustee or its nominee, and the Trustee or its
nominee may thereafter exercise (x) all voting, corporate and other rights
pertaining to such Investment Property at any meeting of shareholders of the
relevant Issuer or Issuers or otherwise and

                                      17
<PAGE>

(y) any and all rights of conversion, exchange and subscription and any other
rights, privileges or options pertaining to such Investment Property as if it
were the absolute owner thereof (including, without limitation, the right to
exchange at its discretion any and all of the Investment Property upon the
merger, consolidation, reorganization, recapitalization or other fundamental
change in the corporate or other organizational structure of any Issuer, or upon
the exercise by any Grantor or the Trustee of any right, privilege or option
pertaining to such Investment Property, and in connection therewith, the right
to deposit and deliver any and all of the Investment Property with any
committee, depositary, transfer agent, registrar or other designated agency upon
such terms and conditions as the Trustee may determine), all without liability
except to account for property actually received by it, but the Trustee shall
have no duty to any Grantor to exercise any such right, privilege or option and
shall not be responsible for any failure to do so or delay in so doing.

     (c) Each Grantor hereby authorizes and instructs each Issuer of any
Investment Property pledged by such Grantor hereunder to (i) comply with any
instruction received by it from the Trustee in writing that (x) states that a
Notice of Acceleration is in effect and (y) is otherwise in accordance with the
terms of this Agreement, without any other or further instructions from such
Grantor, and each Grantor agrees that each Issuer shall be fully protected in so
complying, and (ii) if a Notice of Acceleration is in effect, pay any dividends
or other payments with respect to the Investment Property directly to the
Trustee.

     5.2   Proceeds to be Turned Over To Trustee.  If a Notice of Acceleration
     -------------------------------------------
shall be in effect, all Proceeds received by any Grantor consisting of cash,
checks and other near-cash items shall be held by such Grantor in trust for the
Trustee, segregated from other funds of such Grantor, and shall, forthwith upon
receipt by such Grantor, be turned over to the Trustee in the exact form
received by such Grantor (duly indorsed by such Grantor to the Trustee, if
required).

     5.3   Application of Proceeds.  All Proceeds of the Collateral received by
     -----------------------------
the Trustee hereunder shall be held and applied in accordance with the New Trust
Agreement.

     5.4   Code and Other Remedies. If a Notice of Acceleration is in effect,
     -----------------------------
the Trustee, on behalf of the Secured Parties, may exercise, in addition to all
other rights and remedies granted to them in this Agreement and in any other
instrument or agreement securing, evidencing or relating to the Secured
Obligations, all rights and remedies of a secured party under the New York UCC
or any other applicable law. Without limiting the generality of the foregoing,
the Trustee, without demand of performance or other demand, presentment,
protest, advertisement or notice of any kind (except any notice required by law
referred to below) to or upon any Grantor or any other Person (all and each of
which demands, defenses, advertisements and notices are hereby waived), may in
such circumstances forthwith collect, receive, appropriate and realize upon the
Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give
option or options to purchase, or otherwise dispose of and deliver the
Collateral or any part thereof (or contract to do any of the foregoing), in one
or more parcels at public or private sale or sales, at any exchange, broker's
board or office of the Trustee or any Secured Party or elsewhere upon such terms
and conditions as it may deem advisable and at such prices as it may deem best,
for cash or on credit or for future delivery without assumption of any credit
risk. The Trustee or any Secured Party shall have the right upon any such public
sale or sales, and, to the extent permitted by law, upon any such private sale
or sales, to purchase the whole or any part of the Collateral so sold, free of
any right or equity of redemption in any Grantor, which right or equity is
hereby waived and released. Each Grantor further agrees, at the Trustee's
request, to assemble the Collateral and make it available to the Trustee at
places which the Trustee shall reasonably select, whether at such Grantor's
premises or elsewhere. The Trustee shall apply the net proceeds of any action
taken by it pursuant to this Section 5.4, after deducting all reasonable costs
and expenses of every kind incurred in connection therewith or incidental to the
care or safekeeping of any of the Collateral or in any way relating to the
Collateral or the rights of the Trustee and the Secured

                                      18
<PAGE>

Parties hereunder, including, without limitation, reasonable attorneys' fees and
disbursements, to the payment in whole or in part of the Secured Obligations, in
the order specified in the New Trust Agreement, and only after such application
and after the payment by the Trustee of any other amount required by any
provision of law, including, without limitation, Article 9 of the New York UCC,
need the Trustee account for the surplus, if any, to any Grantor. To the extent
permitted by applicable law, each Grantor waives all claims, damages and demands
it may acquire against the Trustee or any Secured Party arising out of the
exercise by them of any rights hereunder. If any notice of a proposed sale or
other disposition of Collateral shall be required by law, such notice shall be
deemed reasonable and proper if given at least 10 days before such sale or other
disposition.

     5.5   Registration Rights.  (a) If the Trustee shall determine to exercise
     -------------------------
its right to sell any or all of the Investment Property pursuant to Section 5.4,
and if in the opinion of the Trustee it is necessary or advisable to have the
Investment Property, or that portion thereof to be sold, registered under the
provisions of the Securities Act, the relevant Grantor will cause the Issuer
thereof to (i) execute and deliver, and cause the directors and officers of such
Issuer to execute and deliver, all such instruments and documents, and do or
cause to be done all such other acts as may be, in the opinion of the Trustee,
necessary or advisable to register the Investment Property, or that portion
thereof to be sold, under the provisions of the Securities Act, (ii) use its
best efforts to cause the registration statement relating thereto to become
effective and to remain effective for a period of one year from the date of the
first public offering of the Investment Property, or that portion thereof to be
sold, and (iii) make all amendments thereto and/or to the related prospectus
which, in the opinion of the Trustee, are necessary or advisable, all in
conformity with the requirements of the Securities Act and the rules and
regulations of the Securities and Exchange Commission applicable thereto. Each
Grantor agrees to cause such Issuer to comply with the provisions of the
securities or "Blue Sky" laws of any and all jurisdictions which the Trustee
shall designate and to make available to its security holders, as soon as
practicable, an earnings statement (which need not be audited) which will
satisfy the provisions of Section 11(a) of the Securities Act.

     (b) Each Grantor recognizes that the Trustee may be unable to effect a
public sale of any or all the Investment Property, by reason of certain
prohibitions contained in the Securities Act and applicable state securities
laws or otherwise, and may be compelled to resort to one or more private sales
thereof to a restricted group of purchasers which will be obliged to agree,
among other things, to acquire such securities for their own account for
investment and not with a view to the distribution or resale thereof. Each
Grantor acknowledges and agrees that any such private sale may result in prices
and other terms less favorable than if such sale were a public sale and,
notwithstanding such circumstances, agrees that any such private sale shall be
deemed to have been made in a commercially reasonable manner. The Trustee shall
be under no obligation to delay a sale of any of the Investment Property for the
period of time necessary to permit the Issuer thereof to register such
securities for public sale under the Securities Act, or under applicable state
securities laws, even if such Issuer would agree to do so.

     (c) Each Grantor agrees to use its best efforts to do or cause to be done
all such other acts as may be necessary to make such sale or sales of all or any
portion of the Investment Property pursuant to this Section 5.5 valid and
binding and in compliance with any and all other applicable Requirements of Law.
Each Grantor further agrees that a breach of any of the covenants contained in
this Section 5.5 will cause irreparable injury to the Trustee and the Secured
Parties, that the Trustee and the Secured Parties have no adequate remedy at law
in respect of such breach and, as a consequence, that each and every covenant
contained in this Section 5.5 shall be specifically enforceable against such
Grantor, and such Grantor hereby waives and agrees not to assert any defenses
against an action for specific performance of such covenants except for a
defense that no Event of Default has occurred under the Credit Agreement.

                                      19
<PAGE>

     5.6   Waiver; Deficiency.  Each Grantor waives and agrees not to assert any
     ------------------------
rights or privileges which it may acquire under Article 9 of the New York UCC.
Each Grantor shall remain liable for any deficiency if the proceeds of any sale
or other disposition of the Collateral are insufficient to pay its Secured
Obligations and the fees and disbursements of any attorneys employed by the
Trustee to collect such deficiency.

     5.7   Certain Matters Relating to Receivables. (a) Subject in all cases to
     ---------------------------------------------
Section 5.8:

     (i)   The Trustee shall have the right, at any time after the occurrence
  and during the continuance of an Event of Default, to make test verifications
  of the Receivables in any manner and through any medium that it reasonably
  considers advisable, and each Grantor shall furnish all such assistance and
  information as the Trustee may require in connection with such test
  verifications.

     (ii)  Each Grantor is authorized to collect such Grantor's Receivables,
  subject to the Trustee's direction and control after the occurrence and during
  the continuance of an Event of Default, and the Trustee may curtail or
  terminate said authority at any time after the occurrence and during the
  continuance of an Event of Default. If required by the Trustee at any time
  after the occurrence and during the continuance of an Event of Default, any
  payments of Receivables, when collected by any Grantor, (A) shall be forthwith
  (and, in any event, within two Business Days) deposited by such Grantor in the
  exact form received, duly indorsed by such Grantor to the Trustee if required,
  in the Collateral Account maintained pursuant to the New Trust Agreement, and
  (B) until so turned over, shall be held by such Grantor in trust for the
  Trustee and the other Secured Parties, segregated from other funds of such
  Grantor. Each such deposit of Proceeds of Receivables shall be accompanied by
  a report identifying in reasonable detail the nature and source of the
  payments included in the deposit.

     (iii) At the Trustee's request, each Grantor shall deliver to the Trustee
  all original and other documents evidencing, and relating to, the agreements
  and transactions which gave rise to the Receivables, including, without
  limitation, all original orders, invoices and shipping receipts.

     (iv)  At any time after the occurrence and during the continuance of an
  Event of Default, each Grantor will cooperate with the Trustee and the
  Administrative Agent to establish a system of lockbox accounts, under the sole
  dominion and control of the Trustee, into which all Receivables shall be paid
  and from which all collected funds will be transferred to the Collateral
  Account maintained pursuant to the Trust Agreement.

           Anything herein to the contrary notwithstanding, each Grantor shall
remain liable under each of the Receivables (or any agreement giving rise
thereto) to observe and perform all the conditions and obligations to be
observed and performed by it thereunder, all in accordance with the terms of any
agreement giving rise thereto. Neither the Trustee nor any other Secured Party
shall have any obligation or liability under any Receivable (or any agreement
giving rise thereto) by reason of or arising out of this Agreement or the
receipt by any Secured Party of any payment relating thereto.

     5.8   Automatic Release of Liens: Limitation on Actions. Anything herein or
     -------------------------------------------------------
in the New Trust Agreement or any other Security Document to the contrary
notwithstanding:

     (i)   Simultaneously with any transfer of any Securitized Receivable to the
  Receivables Subsidiary pursuant to the Existing Accounts Receivable Financing
  Program, the security interest created by this Agreement in such Securitized
  Receivable and in any Securitization Assets related thereto shall
  automatically terminate, without the necessity of any action by the Trustee or
  any other Person. For the avoidance of doubt, it is understood and agreed that
  (x) pursuant to the terms of the Sale Agreement (as such term is defined in
  the Purchase Agreement), Federal-Mogul Funding

                                      20
<PAGE>

  Corporation purchases Securitized Receivables from the Company upon the
  creation of such Securitized Receivables and (y) in no event shall the
  Trustee, any Secured Party or any other Person pursuant to the terms of this
  Agreement have any interest in any of the Securitized Receivables and/or the
  Securitization Assets;

     (ii)   Neither the Trustee nor any other Person, directly or indirectly,
  shall, at any time prior to the date on which all Aggregate Unpaids have been
  paid in full in cash in accordance with the terms of the Transaction Documents
  (which payment shall be confirmed in writing by the Blue Ridge Agent and the
  Falcon Agent), exercise any right or remedy or take any action under this
  Agreement or the New Trust Agreement (including, but not limited to, any
  rights, remedies or actions pursuant to this Section 5 and/or the appointment
  of the Trustee as an attorney-in-fact pursuant to Section 6.1) with respect to
  any Excluded Receivables or any (x) Related Security with respect to any
  Excluded Receivables, (y) cash collections or other cash proceeds of Excluded
  Receivables, including, without limitation, cash proceeds of Related Security
  with respect to any Excluded Receivables or (z) concentration account,
  depositary account, lock-box account or similar account in which any cash
  collections or cash proceeds described in the preceding clause (y) are
  collected or deposited and all balances, checks, money orders, and other
  instruments from time to time collected or deposited therein;

     (iii)  Any payments, collections or other cash proceeds received by the
  Servicer (as such term is defined in the Purchase Agreement) relating to any
  Securitized Receivables, to the extent the Servicer cannot apply such payment
  to a specific invoice, shall be applied first to payment of the oldest
  invoices;

     (iv)   In the event that the Trustee receives any payments or funds
  relating to the Securitized Receivables and the Securitization Assets, the
  Trustee shall hold such payments or funds in trust for the benefit of the Blue
  Ridge Agent and the Falcon Agent, and shall promptly transfer such payments or
  funds to the Falcon Agent;

     (v)    The provisions of this Section 5.8 shall continue to be effective or
  be reinstated, as the case may be, if at any time any payment of any of the
  Aggregate Unpaids is rescinded or must otherwise be returned by the Blue Ridge
  Agent, the Falcon Agent or any Purchaser (as such term is defined in the
  Purchase Agreement) upon the insolvency, bankruptcy or reorganization of the
  Company or otherwise, all as though such payment had not been made; and

     (vi)   In no event shall the Trustee or any Secured Party object to or
  contest in any manner (1) the interests of Federal-Mogul Funding Corporation
  and its successors and assigns and/or (2) the interests of the Blue Ridge
  Agent, the Falcon Agent and/or the Purchasers, in the case of clause (1)
  and/or (2), in the Securitized Receivables and/or the Securitization Assets.

     (b)  Each of the Blue Ridge Agent and the Falcon Agent shall be a third
party beneficiary with respect to this Section 5.8.

     (c)  So long as any Aggregate Unpaids have not been paid in full in cash in
accordance with the terms of the Transaction Documents, (1) clause (b) of the
definition of "Excluded Assets" and the defined terms "Contract", "Existing
Accounts Receivable Financing Program", "Excluded Receivables", "Originator",
"Related Security", "Securitization Assets" and "Securitized Receivables" and
(2) this Section 5.8, in the case of clause (1) and/or clause (2), 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/or the Falcon Agent, and the defined terms specified
in

                                      21
<PAGE>

the preceding clause (1) and the provisions of this Section 5.8 shall be
contained in any agreement that amends and restates this Agreement.

                            SECTION 6.  THE TRUSTEE

     6.1    Trustee's Appointment as Attorney-in-Fact, etc.. (a) Each Grantor
     ------------------------------------------------------
hereby irrevocably constitutes and appoints the Trustee and any officer or agent
thereof, with full power of substitution, as its true and lawful attorney-in-
fact with full irrevocable power and authority in the place and stead of such
Grantor and in the name of such Grantor or in its own name, for the purpose of
carrying out the terms of this Agreement, to take any and all appropriate action
and to execute any and all documents and instruments which may be necessary or
desirable to accomplish the purposes of this Agreement, and, without limiting
the generality of the foregoing, each Grantor hereby gives the Trustee the power
and right, on behalf of such Grantor, without notice to or assent by such
Grantor, to do any or all of the following:

     (i)    in the name of such Grantor or its own name, or otherwise, take
  possession of and indorse and collect any checks, drafts, notes, acceptances
  or other instruments for the payment of moneys due under any Receivable or
  with respect to any other Collateral and file any claim or take any other
  action or proceeding in any court of law or equity or otherwise deemed
  appropriate by the Trustee for the purpose of collecting any and all such
  moneys due under any Receivable or with respect to any other Collateral
  whenever payable ;

     (ii)   in the case of any Intellectual Property, execute and deliver, and
  have recorded, any and all agreements, instruments, documents and papers as
  the Trustee may request to evidence the Trustee's and the Secured Parties'
  security interest in such Intellectual Property and the goodwill and general
  intangibles of such Grantor relating thereto or represented thereby ;

     (iii)  pay or discharge taxes and Liens levied or placed on or threatened
  against the Collateral, effect any repairs or any insurance called for by the
  terms of this Agreement and pay all or any part of the premiums therefor and
  the costs thereof;

     (iv)   execute, in connection with any sale provided for in Section 5.4 or
  5.5, any indorsements, assignments or other instruments of conveyance or
  transfer with respect to the Collateral; and

     (v)    (1) direct any party liable for any payment under any of the
  Collateral to make payment of any and all moneys due or to become due
  thereunder directly to the Trustee or as the Trustee shall direct; (2) ask or
  demand for, collect, and receive payment of and receipt for, any and all
  moneys, claims and other amounts due or to become due at any time in respect
  of or arising out of any Collateral; (3) sign and indorse any invoices,
  freight or express bills, bills of lading, storage or warehouse receipts,
  drafts against debtors, assignments, verifications, notices and other
  documents in connection with any of the Collateral; (4) commence and prosecute
  any suits, actions or proceedings at law or in equity in any court of
  competent jurisdiction to collect the Collateral or any portion thereof and to
  enforce any other right in respect of any Collateral; (5) defend any suit,
  action or proceeding brought against such Grantor with respect to any
  Collateral; (6) settle, compromise or adjust any such suit, action or
  proceeding and, in connection therewith, give such discharges or releases as
  the Trustee may deem appropriate; (7) assign any Copyright, Patent or
  Trademark (along with the goodwill of the business to which any such Trademark
  pertains), throughout the world for such term or terms, on such conditions,
  and in such manner, as the Trustee shall in its sole discretion determine; and
  (8) generally, sell, transfer, pledge and make any agreement with respect to
  or otherwise deal with any of the Collateral as fully and completely as though
  the Trustee were the

                                      22
<PAGE>

     absolute owner thereof for all purposes, and do, at the Trustee's option
     and such Grantor's expense, at any time, or from time to time, all acts and
     things which the Trustee deems necessary to protect, preserve or realize
     upon the Collateral and the Trustee's and the Secured Parties' security
     interests therein and to effect the intent of this Agreement, all as fully
     and effectively as such Grantor might do.

     Anything in this Section 6.1(a) to the contrary notwithstanding, the
Trustee agrees that it will not exercise any rights under the power of attorney
provided for in this Section 6.1(a) unless directed to do so in the manner
specified in the New Trust Agreement while a Notice of Acceleration is in
effect.

          (b)   If any Grantor fails to perform or comply with any of its
agreements contained herein, the Trustee, at its option, but without any
obligation so to do, may perform or comply, or otherwise cause performance or
compliance, with such agreement.

          (c)   The expenses of the Trustee incurred in connection with actions
undertaken as provided in this Section 6.1, together with interest thereon at a
rate per annum equal to the highest rate per annum at which interest would then
be payable on any category of past due Base Rate Loans which are US$ Revolving
Credit Loans under the Credit Agreement, from the date of payment by the Trustee
to the date reimbursed by the relevant Grantor, shall be payable by such Grantor
to the Trustee on demand.

          (d)   Each Grantor hereby ratifies all that said attorneys shall
lawfully do or cause to be done by virtue hereof. All powers, authorizations and
agencies contained in this Agreement are coupled with an interest and are
irrevocable until this Agreement is terminated and the security interests
created hereby are released.

          6.2   Duty of Trustee. The Trustee's sole duty with respect to the
          ---------------------
custody, safekeeping and physical preservation of the Collateral in its
possession, under Article 9 of the New York UCC or otherwise, shall be as
provided in the New Trust Agreement. Neither the Trustee, any Secured Party nor
any of their respective officers, directors, employees or agents shall be liable
for failure to demand, collect or realize upon any of the Collateral or for any
delay in doing so or shall be under any obligation to sell or otherwise dispose
of any Collateral upon the request of any Grantor or any other Person or to take
any other action whatsoever with regard to the Collateral or any part thereof.
The powers conferred on the Trustee and the Secured Parties hereunder are solely
to protect the Trustee's and the Secured Parties' interests in the Collateral
and shall not impose any duty upon the Trustee or any Secured Party to exercise
any such powers. The Trustee and the Secured Parties shall be accountable only
for amounts that they actually receive as a result of the exercise of such
powers, and neither they nor any of their officers, directors, employees or
agents shall be responsible to any Grantor for any act or failure to act
hereunder, except for their own gross negligence or willful misconduct.

          6.3   Execution of Financing Statements.  Pursuant to Article 9 of the
          ---------------------------------------
New York UCC and any other applicable law, each Grantor authorizes the Trustee
to file or record financing statements and other filing or recording documents
or instruments with respect to the Collateral without the signature of such
Grantor in such form and in such offices as the Trustee determines appropriate
to perfect the security interests of the Trustee under this Agreement. A
photographic or other reproduction of this Agreement shall be sufficient as a
financing statement or other filing or recording document or instrument for
filing or recording in any jurisdiction.

          6.4   Authority of Trustee.  Each Grantor acknowledges that the rights
          --------------------------
and responsibilities of the Trustee under this Agreement with respect to any
action taken by the Trustee or the exercise or non-exercise by the Trustee of
any option, voting right, request, judgment or other right or remedy provided
for herein or resulting or arising out of this Agreement shall, as between the
Trustee and the Secured

                                      23
<PAGE>

Parties, be governed by the New Trust Agreement and by such other agreements
with respect thereto as may exist from time to time among them, but, as between
the Trustee and the Grantors, the Trustee shall be conclusively presumed to be
acting as agent for the Secured Parties with full and valid authority so to act
or refrain from acting, and no Grantor shall be under any obligation, or
entitlement, to make any inquiry respecting such authority.

                           SECTION 7.  MISCELLANEOUS

     7.1  Amendments in Writing.  None of the terms or provisions of this
     --------------------------
Agreement may be waived, amended, supplemented or otherwise modified except by
an instrument in writing executed by the Grantors and by the Trustee (pursuant
to instructions given in accordance with the New Trust Agreement).

     7.2  Notices.  All notices, requests and demands to or upon the Trustee or
     ------------
any Grantor hereunder shall be effected in the manner provided for in Section
6.1 of the New Trust Agreement; provided that any such notice, request or demand
to or upon any Subsidiary Grantor shall be addressed to such Grantor c/o the
Company and that any such notice, request or demand to or upon the Trustee shall
be addressed to the Trustee at its notice address set forth in the New Trust
Agreement.

     7.3  No Waiver by Course of Conduct; Cumulative Remedies.  Neither the
     --------------------------------------------------------
Trustee nor any Secured Party shall by any act (except by a written instrument
pursuant to Section 7.1), delay, indulgence, omission or otherwise be deemed to
have waived any right or remedy hereunder or to have acquiesced in any Default
or Event of Default. No failure to exercise, nor any delay in exercising, on the
part of the Trustee or any Secured Party, any right, power or privilege
hereunder shall operate as a waiver thereof. No single or partial exercise of
any right, power or privilege hereunder shall preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. A
waiver by the Trustee or any Secured Party of any right or remedy hereunder on
any one occasion shall not be construed as a bar to any right or remedy which
the Trustee or such Secured Party would otherwise have on any future occasion.
The rights and remedies herein provided are cumulative, may be exercised singly
or concurrently and are not exclusive of any other rights or remedies provided
by law.

     7.4  Enforcement Expenses; Indemnification.  (a) Each Grantor agrees to pay
     ------------------------------------------
or reimburse each Secured Party and the Trustee for all its costs and expenses
incurred in enforcing or preserving any rights under this Agreement and the
other Loan Documents to which such Grantor is a party, including, without
limitation, the fees and disbursements of counsel (including the allocated fees
and expenses of in-house counsel) to each Secured Party and of counsel to the
Trustee.

     (b)  Each Grantor agrees to pay, and to save the Trustee and the Secured
Parties harmless from, any and all liabilities with respect to, or resulting
from any delay in paying, any and all stamp, excise, sales or other taxes which
may be payable or determined to be payable with respect to any of the Collateral
or in connection with any of the transactions contemplated by this Agreement.

     (c)  Each Grantor agrees to pay, and to save the Trustee and the Secured
Parties harmless from, any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever with respect to the execution, delivery, enforcement,
performance and administration of this Agreement to the extent the Company would
be required to indemnify the Administrative Agent and the Lenders pursuant to
Section 15.5 of the Credit Agreement, and Section 4.6 of the New Trust
Agreement.

                                      24
<PAGE>

     (d)   The agreements in this Section 7.4 shall survive repayment of the
Secured Obligations and all other amounts payable under the Credit Agreement and
the other Loan Documents and the New Trust Agreement.

     7.5   Successors and Assigns.  This Agreement shall be binding upon the
     ----------------------------
successors and assigns of each Grantor and shall inure to the benefit of the
Trustee and the Secured Parties and their successors and assigns; provided that
no Grantor may assign, transfer or delegate any of its rights or obligations
under this Agreement without the prior written consent of the Trustee.

     7.6   Counterparts.  This Agreement may be executed by one or more of the
     ------------------
parties to this Agreement on any number of separate counterparts (including by
telecopy), and all of said counterparts taken together shall be deemed to
constitute one and the same instrument.


     7.7   Severability.  Any provision of this Agreement which is prohibited or
     ------------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.

     7.8   Section Headings.  The Section headings used in this Agreement are
     ----------------------
for convenience of reference only and are not to affect the construction hereof
or be taken into consideration in the interpretation hereof.

     7.9   Integration.  This Agreement and the other Loan Documents represent
     -----------------
the agreement of the Grantors, the Trustee and the Secured Parties with respect
to the subject matter hereof and thereof, and there are no promises,
undertakings, representations or warranties by the Trustee or any Secured Party
relative to subject matter hereof and thereof not expressly set forth or
referred to herein or in the other Loan Documents.

     7.10  GOVERNING LAW.  THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
     -------------------
AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

     7.11  Submission To Jurisdiction; Waivers.  Each Grantor hereby irrevocably
     -----------------------------------------
and unconditionally:

     (a) submits for itself and its property in any legal action or proceeding
relating to this Agreement and the other Loan Documents and Trust Security
Documents to which it is now, or may hereafter become, a party, or for
recognition and enforcement of any judgment in respect thereof, to the non-
exclusive general jurisdiction of the courts of the State of New York, the
courts of the United States of America for the Southern District of New York,
and appellate courts from any thereof;

     (b) consents that any such action or proceeding may be brought in such
courts and waives any objection that it may now or hereafter have to the venue
of any such action or proceeding in any such court or that such action or
proceeding was brought in an inconvenient court and agrees not to plead or claim
the same;

     (c) agrees that service of process in any such action or proceeding may be
effected by mailing a copy thereof by registered or certified mail (or any
substantially similar form of mail), postage prepaid, to such Grantor at its
address referred to in Section 7.2 or at such other address of which the Trustee
shall have been notified pursuant thereto;

                                      25
<PAGE>

     (d)   agrees that nothing herein shall affect the right to effect service
of process in any other manner permitted by law or shall limit the right to sue
in any other jurisdiction; and

     (e)   waives, to the maximum extent not prohibited by law, any right it may
have to claim or recover in any legal action or proceeding referred to in this
Section any special, exemplary, punitive or consequential damages.

     7.12    Acknowledgements.  Each Grantor hereby acknowledges that:
     ----------------------

     (a)   it has been advised by counsel in the negotiation, execution and
delivery of this Agreement and the other Loan Documents and Trust Security
Documents to which it is a party;

     (b)   neither the Trustee nor any Secured Party has any fiduciary
relationship with or duty to any Grantor arising out of or in connection with
this Agreement or any of the other Loan Documents, and the relationship between
the Grantors, on the one hand, and the Trustee and Secured Parties, on the other
hand, in connection herewith or therewith is solely that of debtor and creditor;
and

     (c)   no joint venture is created hereby or by the other Loan Documents or
otherwise exists by virtue of the transactions contemplated hereby among the
Secured Parties or among the Grantors and the Secured Parties.

     7.13    Additional Grantors.  Each Subsidiary of the Company that is
     ---------------------------
required to become a party to this Agreement pursuant to Section 10.11 of the
Credit Agreement shall become a Grantor for all purposes of this Agreement upon
execution and delivery by such Subsidiary of an Assumption Agreement in the form
of Annex I hereto.

     7.14    Releases.  (a) At such time as the Loans and the other Secured
     ----------------
Obligations shall have been paid in full, the Commitments have been terminated
and no Letter of Credit or Surety Bond shall remain outstanding, and the
Administrative Agent and the Surety Parties have so certified to the Trustee,
the Collateral shall be released from the Liens created hereby, and this
Agreement and all obligations (other than those expressly stated to survive such
termination) of the Trustee and each Grantor hereunder shall terminate, all
without delivery of any instrument or performance of any act by any party, and
all rights to the Collateral shall revert to the relevant Grantors. At the
request and sole expense of any Grantor following any such termination, the
Trustee shall deliver to such Grantor any Collateral held by the Trustee
hereunder, and execute and deliver to such Grantor such documents as such
Grantor shall reasonably request to evidence such termination. In addition, the
Trustee shall release the Collateral upon directions from the Administrative
Agent as provided in Section 6.10 of the New Trust Agreement.

       (b) If  any of the Collateral shall be sold, transferred or otherwise
disposed of by any Grantor in a transaction permitted by the Credit Agreement,
then the Trustee, at the request and sole expense of such Grantor, shall execute
and deliver to such Grantor all releases or other documents reasonably necessary
or desirable for the release of the Liens created hereby on such Collateral;
provided that the Company shall have delivered to the Trustee, at least ten
--------
Business Days prior to the date of the proposed release, a written request for
release identifying the relevant Grantor, together with (i) a certification by
the Company stating that such transaction is in compliance with the Credit
Agreement and the other Loan Documents and (ii) a written confirmation by the
Administrative Agent that such release is permitted by the Credit Agreement.  At
the request and sole expense of the Company, a Grantor shall be released from
its obligations hereunder in the event that all the Capital Stock of such
Grantor shall be sold, transferred or otherwise disposed of in a transaction
permitted by the Credit Agreement; provided that the Company shall have
                                   --------
delivered to the Trustee, at least ten Business Days prior to the date of the
proposed release, a written request for release identifying the relevant
Grantor, together with (i) a certification by the

                                      26
<PAGE>

Company stating that such transaction is in compliance with the Credit Agreement
and the other Loan Documents and (ii) a written confirmation by the
Administrative Agent that such release is permitted by the Credit Agreement.

       (c) The Trustee will, at any time, upon the written instruction of the
Administrative Agent, at the sole expense of the relevant Grantor, execute and
deliver to the relevant Grantor all releases or other documents reasonably
necessary or desirable for any release contemplated above in this Section 7.13
of the Liens created hereby on the Collateral specified by the Administrative
Agent in such instruction.

       (d) By acceptance of the benefits hereof, each Secured Party acknowledges
and consents to the provisions of this Section 7.14, agrees that the Trustee
shall incur no liability whatsoever to any Secured Party for any release
effected by the Trustee in accordance with this Section 7.14 and agrees that the
Administrative Agent shall incur no liability whatsoever to any Secured Party
for any release directed or consented to by it in accordance with the Credit
Agreement.

       7.15  WAIVER OF JURY TRIAL.  EACH OF THE GRANTORS, AND, BY ACCEPTANCE OF
             --------------------
THE BENEFITS HEREOF, EACH OF THE TRUSTEE AND THE SECURED PARTIES, HERE BY
IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY
COUNTERCLAIM THEREIN.

                                      27
<PAGE>

                                                                      Annex I to
                                                            Collateral Agreement
                                                            --------------------

          ASSUMPTION AGREEMENT, dated as of ________________, 200__, made by
______________________________ (the "Additional Grantor"), in favor of
                                     ------------------
[__________] (the "Trustee"), not individually but solely as Trustee under the
                   -------
Trust Agreement, dated as of December 29, 2000 (as amended, supplemented or
otherwise modified from time to time, the "New Trust Agreement"), among Federal-
                                           -------------------
Mogul Corporation, a Michigan corporation (the "Company"), the Subsidiaries of
                                                -------
the Company parties thereto and the Trustee.

                             W I T N E S  E T H :
                             - - - - - - - - - -

          WHEREAS, the Company, certain Subsidiaries of the Company, the banks
and other financial institutions from time to time parties thereto and The Chase
Manhattan Bank, as Administrative Agent, have entered into a Fourth Amended and
Restated Credit Agreement, dated as of December 29, 2000 (as amended,
supplemented or otherwise modified from time to time, the "Credit Agreement");
                                                           ----------------

          WHEREAS, in connection with the Credit Agreement, the Company and
certain of its Subsidiaries (other than the Additional Grantor) have entered
into the Security Agreement, dated as of December 29, 2000 (as amended,
supplemented or otherwise modified from time to time, the "Security Agreement")
                                                           -------- ---------
in favor of the Trustee for the benefit of the Secured Parties;

          WHEREAS, the Credit Agreement requires the Additional Grantor to
become a party to the Security Agreement; and

          WHEREAS, the Additional Grantor has agreed to execute and deliver this
Assumption Agreement in order to become a party to the Security Agreement;

          NOW, THEREFORE, IT IS AGREED:

          1.  Security Agreement.  By executing and delivering this Assumption
              ------------------
Agreement, the Additional Grantor, as provided in Section 7.13 of the Security
Agreement, hereby becomes a party to the Security Agreement as a Grantor
thereunder with the same force and effect as if originally named therein as a
Grantor and, without limiting the generality of the foregoing, hereby expressly
assumes all obligations and liabilities of a Grantor thereunder.  The
information set forth in Annex 1-A hereto is hereby added to the information set
forth in the Schedules to the Security Agreement.  The Additional Grantor hereby
represents and warrants that each of the representations and warranties
contained in Section 3 of the Security Agreement is true and correct on and as
the date hereof (after giving effect to this Assumption Agreement) as if made on
and as of such date.

          2.  Governing Law.  THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED BY,
              -------------
AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW
YORK.

                                       1
<PAGE>

          IN WITNESS WHEREOF, the undersigned has caused this Assumption
Agreement to be duly executed and delivered as of the date first above written.



                                       [ADDITIONAL GRANTOR]

                                       By: ___________________________
                                           Name:
                                           Title:

                                       2
<PAGE>

                                                                    Annex 1-A to
                                                            Assumption Agreement
                                                            --------------------

                           Supplement to Schedule 1
                           ------------------------

                           Supplement to Schedule 2
                           ------------------------

                           Supplement to Schedule 3
                           ------------------------

                           Supplement to Schedule 4
                           ------------------------

                           Supplement to Schedule 5
                           ------------------------

                           Supplement to Schedule 6
                           ------------------------

                                       i
<PAGE>

          IN WITNESS WHEREOF, each of the undersigned has caused this Security
Agreement to be duly executed and delivered as of the date first above written.

                              Federal-Mogul Corporation
                              Carter Automotive Company, Inc.
                              Federal-Mogul Aviation, Inc.
                              Federal-Mogul Dutch Holdings Inc.
                              Federal-Mogul Global Inc.
                              Federal-Mogul Ignition Company
                              Federal-Mogul Products, Inc.
                              Federal-Mogul U.K. Holdings Inc.
                              Federal-Mogul Venture Corporation
                              Federal-Mogul World Wide, Inc.
                              Federal-Mogul Global Properties, Inc.
                              Felt Products Mfg. Co.
                              AE Goetze FB Inc.
                              Brake Acquisition Inc.
                              Federal-Mogul Aftermarket of Canada Inc.
                              Federal-Mogul Camshafts, Inc.
                              Federal-Mogul Carolina, Inc.
                              Federal-Mogul Engineered Bearings, Inc.
                              Federal-Mogul Flowery Branch, L.L.C.
                              Federal-Mogul LaGrange, Inc.
                              Federal-Mogul Piston Rings, Inc.
                              Federal-Mogul PowerTrain, Inc.
                              Federal-Mogul RPB, Inc.
                              Federal-Mogul Sealing Systems, Inc.
                              Federal-Mogul Sintered Products-Waupun, Inc.
                              Federal-Mogul Sintered Products, Inc.
                              Federal-Mogul South Bend, Inc.
                              Federal-Mogul Systems Protection Group, Inc.
                              Federal-Mogul Technology, Inc.
                              Ferodo America, Inc.
                              Ferodo Technical Center Inc.
                              McCord Sealing, Inc.
                              T&N Industries Inc.
                              Weyburn Aquisition Corporation

                              By: /s/ Scott Argersinger
                                 --------------------------------------
                              Name: Scott Argersinger
                              Title: Authorized Representative