Document:

Federal-Mogul 2009
Management Incentive Plan (MIP)

    

    Goal:

    

    The
Management Incentive Plan (MIP) is intended to align the actions of participants
with the goals of the Company and reward participants for achieving or exceeding
those goals.

    

    Participants:

    

    Individual
employees are eligible for participation in the MIP based on an appointment by
the employee’s Vice President.

    

    Target
Bonus:

    

    Target
Bonuses are expressed as a percentage of the employee’s Base Annual
Salary.  If the employee is paid on a monthly basis, the Base Annual
Salary, for purposes of the MIP Plan, is 12 times the monthly rate. If the
employee is paid on an every-other-week basis, the Base Annual Salary is 26
times the bi-weekly rate.   For bonus calculations, exclude 13th
month or other mandated payments in countries that require them.  For
calculation purposes, the employee’s Base Annual Rate as of December 31, 2009 is
used.

    

    Target
Bonus percentages vary by the position occupied by the individual in the
organization.   No changes may be made to the assigned target
bonuses without the written approval of the Director of Compensation and
Benefits and/or the Sr. Vice President of Human Resources and
Organization.   It is the responsibility of the Human Resource
Directors to insure that Target Bonuses are consistent.

    

    Pro-Ration:

    

    When an
individual first becomes eligible to participate in the MIP, or is promoted from
a job with one Target Bonus level to another with a different Target Bonus
level, or from one operation to another with different metric measures, the
calculated bonus is pro-rated based on the number of months in the applicable
job.  There is no pro-ration for periods of service of less than two
months.

    

    For
example; a person newly hired with less than 2 months service would not receive
a MIP payment while a person with 10 months service or more would not be
pro-rated.

    

    If a
participant is not actively at work for a period of more than three months (90
days), his/her award will be pro-rated.

    

    Communications:

    

    Business
Unit Human Resource Directors are solely responsible for communication of this
MIP plan to participants.

    
       

      2009 MIP
Outline & Appendix
  

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    Metrics:

    

    2009 MIP
metrics are outlined in Appendix I.

    

    Adjustments
- The metrics and their achievement levels are the basis for payout
calculations. However, each participant's individual performance and
contributions will also be considered and may alter the final
payout.  In addition, the Company may reduce the 2009 MIP payment to a
Group Operations Vice President, Group Finance Director or Plant Manager based
on its assessment of the results of an audit or series of audits of plants or
locations within the individuals’ group.

    

    MIP Payout
Ranges:

    

    The
payout range for the 2009 MIP is from 0 to 200% of a participant’s Target
Bonus.  For example, if an employee’s Target Bonus is 10% of Base
Annual Salary, he may receive an amount ranging from zero up to 20% of Base
Annual Salary.  Payout percentages are rounded to the nearest whole
percent (0.5 and above rounds up and any amount under 0.5 rounds
down.)

    

    The 2009
MIP bonus payment is limited to a maximum of 200% of an individual’s Target
Bonus.

    

    Target Achievement
Level:

    

    If for
any metric the achievement level equals 100% of the goal, the payout for that
metric will be 100%.

    

    Minimum Metric Achievement
Level:

    

    If, for
any metric, the achievement level does not equal or exceed 75% of the target,
the payout for that metric will be zero.  At 75% achievement the
payout for a metric will be 50%.

    

    Maximum Metric Achievement
Level:

    

    The
maximum level of achievement eligible for a payout is 125% of the target for a
metric.   At 125% achievement, the MIP payout level is 200% for
that metric.

    

    The
payout curve between the minimum achievement level and 100% is linear; as is the
payout curve between 100% and the maximum achievement level.

    

    Payout
Timing:

    

    MIP
participants must be actively employed on the day of payout to be eligible for a
MIP payment.  Payments under the 2009 MIP will be made between January
1, 2010 and March 15, 2010 after business results are calculated and
audited.  In all countries, local tax laws apply. MIP payments are
pensionable income. In the U.S., payments are subject to 401(k) deduction
elections and statutory withholding.

     

    
      2009 MIP
Outline & Appendix

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    Compensation Committee of
the Board of Directors:

    

    All
incentive plan designs and awards, if any, are subject to approval of the
Compensation Committee of the Board of Directors.

    

    Company
Discretion:

    

    The
Company may, with the consent of the Compensation Committee, make changes to the
MIP program and alter, postpone or disallow individual or location payments as
it deems appropriate, within the plan's payout range of zero to 200% of
Target.

    

    General
Provisions:

    

    a) Withholding of Taxes:
Federal-Mogul shall withhold the amount of taxes which, in the determination of
the Company, are required under law with respect to any amount due or paid under
the Plan.

    

    b) Expenses:
Federal-Mogul is responsible for all expenses and costs in connection with the
adoption and administration of the Plan.

    

    c) Active Employment:
Active employment means actively engaged in the work of the
Corporation.  Those in severance period, notice period or on garden
leave status pending termination are not considered in active
employment.

    

    d) Voluntary
Termination:   Subject to the Company Discretion clause
above, in the event a participant elects to leave or elects to retire from
Federal-Mogul before payment of the 2009 MIP bonus is made, all rights under the
MIP cease and no benefit is vested, accrued or due under the MIP.

    

    e) Involuntary
Termination: Subject to the Company Discretion clause above, if a
participant is involuntarily terminated for reasons other than “for cause”,
dies, or becomes permanently disabled prior to December 31, 2009, he or she may
be paid a pro-rated portion of his/her calculated MIP
Bonus.   The pro-ration will be calculated based on the formula
(x times Target MIP Bonus times the final calculated payout percentage) where x
equals a fraction where the numerator is the number of days the employee is
employed in the year and the denominator is 365 (366 in a Leap
Year).   Payment will be made at the same time active
participants are paid. In the event of involuntary termination, payment of this
pro-rated MIP Bonus is contingent on the employee signing the Agreement and
Release form.

     

    
      2009 MIP
Outline & Appendix

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Limitations:

    

    a) No Continued
Employment

    

    Neither
the establishment of the Plan, participation in the Plan, nor any payment
thereunder shall be deemed to constitute an express or implied contract of
employment of any participant for any period of time or in any way abridge the
rights of Federal-Mogul to determine the terms and conditions of employment or
to terminate the employment of any employee with or without cause at any
time.

    

    
      b) Other
Plans

    

    

    Nothing
contained herein shall limit Federal-Mogul’s power to make regular or
discretionary payments to employees of Federal-Mogul, whether or not they are
participants in this Plan.

    
       

      2009 MIP
Outline & Appendix

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Appendix
I

    

    2009
MIP Metrics

    

    1. Operational
EBITDA:

    

    Operational
EBITDA - Operational EBITDA is defined as earnings before interest, income
taxes, depreciation and amortization, and certain items such as restructuring
and impairment charges, Chapter 11 related reorganization expenses, gains or
losses on the sales of businesses, and the non-cash expense relating to U.S.
based funded pension plans; as audited by Ernst & Young on a quarterly and
annual basis. The finance department will calculate the Corporation's
Operational EBITDA.

    

    Business
Unit Operational EBITDA - Each of the Corporation’s business units; Powertrain
Energy, Powertrain Sealing and Bearings, Vehicle Safety and Protection and
Global Aftermarket has a goal for Operational EBITDA.  Business Unit
Operational EBITDA is calculated and reported by the finance
department.

    

    Plant
Operational EBITDA / Productivity - All locations have
Operational EBITDA targets, the finance department will report the location
achievement level.  However, at distribution centers or specific
locations relying solely on transfer pricing, the finance department will report
the level of achievement against productivity improvement goals set in the
budget.

    

    2. Cash Flow Before Interest
and Financing (CFIF):

    

    Net cash
provided by operating activities less net cash used by investing before the
deduction of interest paid, net of interest received per the Form 10-K statement
of cash flows, and notes to the accounts; as audited by Ernst & Young on a
quarterly and annual basis.

    

    3. Value Cash
Flow:

    

    Value
Cash Flow is defined as Operational EBITDA less capital spending; as audited by
Ernst & Young on a quarterly and annual basis.

    

    4. Safety, Customer
Satisfaction and Service:

    

    Safety

    

    The
Company's goal is to have zero work-related incidents, injuries or
illnesses.  Concealing of incidents which should have been reported
under the incident reporting system will lead to discipline, up to and including
termination for cause.

    

    Safety is
measured by Incident Rate; as audited by operations, finance and internal
control on a monthly, quarterly and annual basis. The injury Incident Rate is
the number of recordable injuries, per 200,000 hours worked at the reporting
facility.

    

    Plants
that achieve or maintain an Incident Rate of zero will receive maximum payout
for the Safety portion of this metric.

     

    
      2009 MIP
Outline & Appendix

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    For 2009,
plants and/or Business Units with a 2009 Incident Rate at 1.5 or below for two
consecutive years will receive 200% payout for the Safety portion of this
metric.

    

    For 2009,
plants and/or Business Units with a 2008 Incident Rate above 1.5 have the goal
of achieving a 10% improvement.  Improvement beyond these goals will
be recognized consistent with the MIP payout curve.

    

    Customer Satisfaction
(Quality)

    

    Customer
Satisfaction (Quality) is measured in Parts per Million (PPM) defects as
reported by customers and audited on a monthly, quarterly and annual basis by
operations, finance and internal control.

    

    Federal-Mogul's
Quality goal is to provide products and services with zero defects. For each
Business Unit, product group and facility the targets are as listed in the
Quality Management Information System:

    

    Parts per
Million (PPM) defects for 2009 over 2008 are:

    A 50 %
reduction, if previous year PPM was >= 50.

    A 25 %
reduction, if previous year PPM was between 50 and 30.

    A 15 %
reduction, if previous year PPM was between 30 and 11.

    Below 10
PPM, if previous year PPM was below 11.

    Service

    

    Service
is measured by on-time delivery to customers; as audited by operations, finance
and internal control on a monthly, quarterly and annual basis.

    

    The 2009
goal for manufacturing plants is 100% on-time delivery to OE customers and 97%
on-time delivery to the Aftermarket.

    

    The goal
for Aftermarket distribution centers is 100% on-time delivery.

    

    Business
unit leaders and participants in manufacturing and distribution will, in
general, be measured on all three metrics - Safety, Customer Satisfaction
(Quality) and Service.

    

    Designated
corporate functions will be measured on Safety and Customer Satisfaction
(Quality).

    

    Purchasing
will be measured on Supplier Quality and Supplier Service.  Supplier
Quality is measured in PPM as reported by the manufacturing plants in the F-M
Supply Net system against the budget goal.  Supplier Service is
delivery shipping by suppliers as reported by the plants in the F-M Supply Net
system vs. the budget goal.

     

    
      2009 MIP
Outline & Appendix 

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    5.  Productivity
and Restructuring:

    

    Productivity
is measured by non-volume related cost changes as reported in the Form 10-K as
audited by Ernst & Young on a quarterly and annual basis.

    

    6.  SG&A

    

    Measured
by level of SG&A reductions outlined in the budget; as audited by finance
and internal control on a monthly, quarterly and annual basis. The finance
department will report the level of achievement compared to the
budget.

     

    
      2009 MIP
Outline & AppendixFederal-Mogul 2009
Management Incentive

    Uplift Plan
Outline

    

    Goal:

    

    The 2009
Management Incentive Uplift Plan (2009 Uplift) is a special program designed to
incentivize long term performance and retain critical skills.  Toward
this goal it provides participants with the opportunity to receive additional
incentives for 2009 achievements.

    

    Participants:

    

    This
program is being offered to a select group of employees and applies solely to
the calendar year 2009.  Individual employees are eligible for
participation in the 2009 Uplift based upon appointment by the President and
Chief Executive Officer. Because of limited participation in this program,
employees are expected to keep their participation confidential.

    

    Target
Bonus:

    

    The 2009
Uplift Target Bonus Percentage is assigned to eligible participants at the
discretion of the President and Chief Executive Officer.

    

    For
example, the President and Chief Executive Officer may elect to assign a Manager
with a normal MIP Target Award of 20% of base a 2009 Uplift Target Bonus of
10%.  When combined with the annual MIP program his/her combined 2009
Target Award is 30%.

    Shown
another way this example would provide:

    

    
      
        
          
            
              
                	
                        Annual
      MIP Target Bonus

                      	 	 	20	%
	
                        2009 Uplift Target Bonus

                      	 	 	10	%
	
                        Combined
      2009 Target Awards

                      	 	 	30	%

              

            

          

        

      

    

    

    Pro-Ration:

    

    If an
employee is hired or promoted during 2009, the calculation of his/her award will
be prorated in the same manner as the annual MIP prorated calculation
formula.  If a participant is not actively at work for a period of
more than three months, his/her award will be pro-rated.

    

    Metrics:

    

    The 2009
Uplift program metrics focus on Operational EBITDA, Value Cash Flow, New
Business Bookings, and Return on Tangible Assets.

    

    Operational EBITDA -
Operational EBITDA is defined as earnings before interest, income taxes,
depreciation and amortization, and certain items such as restructuring and
impairment charges, Chapter 11 related reorganization expenses, gains or losses
on the sales of businesses, and the non-cash expense relating to U.S. based
funded pension plans; as audited by Ernst & Young on a quarterly and annual
basis.

    
      
         

      

      
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1

        
          

        

      

      
         

      

    

    

    Value Cash Flow - Value Cash
Flow is defined as Operational EBITDA less capital spending; as audited by Ernst
& Young on a quarterly and annual basis.

    

    New Business Bookings - New
Business Bookings is defined as the total dollar value over the program life of
newly awarded future business in 2009; as audited by finance and internal
control on  a monthly, quarterly and annual basis.

    

    Return on Tangible Assets –
Return on Tangible Assets is defined as Operational EBITDA for the year divided
by average Assets over 5 most recent quarters.  "Assets" is defined as
total assets per the consolidated balance sheet excluding intangible assets,
cash and equivalents; as audited by Ernst & Young on a quarterly and annual
basis

    

    2009 Uplift Payout
Ranges:

    

    The
metrics and their achievement levels are the basis for payout calculations.
However, each participant's individual performance and contributions will also
be considered and may alter the final payout.  The payout range for
the 2009 Uplift program is from 0 to 200% of a participant’s 2009 Uplift Target
Bonus.  If an employee’s 2009 Uplift Target Bonus is, for example, 10%
of base salary; he may receive an amount equal to zero up to 20% of base
salary.

    

    Target Achievement
Level:

    

    If for
any metric the achievement level equals 100% of the goal, the payout for that
metric will be 100%.

    

    Minimum Achievement
Level:

    

    If, for
any metric the achievement level does not equal or exceed 75% of the target, the
payout for that metric will be zero.  At the 75% achievement level the
payout is 50%.

    

    Maximum Achievement
Level:

    

    The
maximum level of achievement for a payout is 125% of the target for a
metric.   At 125% achievement, the 2009 Uplift payout level is
200% for that metric.

    

    The
payout curve between the minimum achievement level and 100% is linear; as is the
payout curve between 100% and the maximum achievement level.

    

    Payout
Timing:

    

    Cash
Portion:  One half of the achieved 2009 Uplift award will be
paid to participants, in cash in two installments.

    

    Payment
of two-thirds (2/3) of the 2009 Uplift cash portion will be made within 30 days
after completion of the annual audit of results and between January 1, 2010 and
March 15, 2010.  Payment of one-third (1/3) of the 2009 Uplift cash
portion will be made between January 1, 2011 and March 15,
2011.  Interest will be credited to the second installment at a rate
equal to the average one-month LIBOR plus 1.9375% over the period from January
1, 2010 to such payment date.

    
      
         

      

      
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2

        
          

        

      

      
         

      

    

    

    2009
Uplift participants must be actively employed on the day of payout to be
eligible for either installment payable under the 2009 Uplift
payment.

    

    In all
countries, local tax laws apply. 2009 Uplift payments are pensionable income. In
the U.S., payments are subject to 401(k) deduction elections and statutory
withholding.

    

    Stock Appreciation Rights
Portion:   One half of the achieved 2009 Uplift award will
be paid to the participant in the form of stock appreciation rights
(SARs).

    

    The SARs
will be priced based on fair market value of a share of Federal-Mogul Common
Stock and will have a five-year life.   The SARs will vest over a
three year period as follows:

    

    First
Anniversary of Grant Date:  1/3

    Second
Anniversary of Grant Date:  1/3

    Third
Anniversary of Grant Date: 1/3

    

    Upon
vesting the SARs may be exercised at the participant's discretion up to the
expiration date which is close of business on the fifth anniversary of the Grant
Date.

    

    At its
sole option, the Company may settle the exercise of an SAR in shares of Common
Stock, in cash or in a combination of cash and shares.  When
exercised, the proceeds will be paid in cash to the participant on the next
available payroll date but not later than 60 days following the date of
exercise.  A participant will receive a SARs Agreement containing the
terms of conditions of the SARs on or as soon as practicable after the Grant
Date.

    

    Company
Discretion:

    

    The
Company may, with the consent of the Compensation Committee, make changes to the
2009 Uplift program and alter, postpone or disallow individual or location
payments, within its sole discretion, as it deems appropriate within the plan's
payout range of zero to 200% of Target.  With respect to the President
and Chief Executive Officer's participation and award payment the Compensation
Committee of the Board of Directors shall have sole discretion.

    

    Compensation Committee of
the Board of Directors:

    

    All
incentive plan designs and awards, if any, and all terms relating to the SARs
and to awards under this MIP Uplift Plan, are subject to approval of the
Compensation Committee of the Board of Directors.

    

    General
Provisions:

    

    a) Withholding of Taxes:
Federal-Mogul shall withhold the amount of taxes which, in the determination of
the Company, are required under law with respect to any amount due or paid under
the Plan.

    
      
         

      

      
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3

        
          

        

      

      
         

      

    

    b) Expenses:
  Federal-Mogul is responsible for all expenses and costs in
connection with the adoption and administration of the Plan.

    

    c) Active
Employment:  Active employment means actively engaged in the
work of the corporation.  Those in severance period, notice period or
on garden leave status pending termination are not considered in active
employment.

    

    d) Voluntary Termination of
Employment:  Subject to the Company Discretion clause above, in
the event a participant elects to leave Federal-Mogul before either both cash
installments of the 2009 Uplift payment have been paid, all rights under this
Plan to receive such installments shall cease and no benefit is vested, accrued
or due under the Plan.  A participant’s SARs Agreement will contain
specific provisions regarding termination of employment.

    

    e) Retirement:   If
a participant retires in accordance with the provisions of an applicable
retirement or pension plan or policy, he/she will be paid any unpaid cash
installment of the 2009 Uplift at the same time as other
participants.  Upon retirement (as such term is defined in the
incentive plan) all granted SARs immediately vest and are exercisable for the
shorter of the remainder of the SARs’ life or 12 months from the date of
retirement subject to the specific terms of a participant’s SARs Agreement
regarding termination of employment.

    

    f) Involuntary
Termination:  In the discretion of the Compensation Committee,
if a participant is involuntarily terminated for reasons other than for “cause”,
dies, or becomes permanently disabled prior to December 31, 2009 he/she may be
paid a pro-rated portion of his/her calculated 2009 Uplift bonus.  The
pro-ration will be calculated based on the formula (x times Target 2009 Uplift
bonus times the final calculated payout percentage) where x equals a fraction
where the numerator is the number of days the employee is employed in the year
and the denominator is 365.   Payment will be made at the same
time active participants are paid between January 1, 2010 and March 15,
2010.  In the event of involuntary termination, payment of this
pro-rated 2009 Uplift bonus is contingent on the employee signing the form of
Federal-Mogul Agreement and Release.  A participant’s SARs Agreement
will contain specific provisions regarding termination of
employment.

    

    Limitations:

    

    a) No Continued
Employment:  Neither the establishment of the Plan,
participation in the Plan, nor any payment hereunder shall be deemed to
constitute an express or implied contract of employment of any participant for
any period of time or in any way abridge the rights of Federal-Mogul to
determine the terms and conditions of employment or to terminate the employment
of any employee with or without cause at any time.

    

    b) Other
Plans:  Nothing contained herein shall limit Federal-Mogul’s
power to make regular or discretionary payments to employees of Federal-Mogul,
whether or not they are participants in this Plan.

    

    c) SARs Agreement and Incentive
Plan:  This 2009 MIP Uplift Plan Outline is subject in all
respects to the provisions of a participant’s SARs Agreement and the incentive
plan.  If  the terms of this 2009 MIP Uplift Plan Outline
conflict with the terms of either a participant’s SARs Agreement or the
incentive plan, the participant’s SARs Agreement or the incentive plan, as
applicable, will control.

    
      
         

      

      
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4

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