Document:

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                                                                 Exhibit 10.24

                             EMPLOYMENT AGREEMENT

          This Employment Agreement (this "Agreement"), dated as of January 10,
2001 and amended as of January 31, 2001, is entered into between Federal-Mogul
Corporation, a Michigan corporation (the "Company"), and Frank Macher (the
"Executive").

          WHEREAS, the Company desires to employ the Executive to serve as Chief
Executive Officer of the Company, and the Executive desires to be employed by
the Company, upon the terms and subject to the conditions set forth herein.

          NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein, the Company and the Executive hereby agree as
follows:

          1.   Employment. The Company hereby agrees to employ the Executive and
               ----------
the Executive hereby agrees to be employed by the Company upon the terms and
subject to the conditions contained in this Agreement. The term of employment of
the Executive by the Company pursuant to this Agreement (the "Employment
Period") shall commence on January 11, 2001 (the "Effective Date") and shall end
on the second anniversary of the Effective Date, unless earlier terminated
pursuant to Section 4 hereof. The Executive's services shall be performed in the
Detroit, Michigan metropolitan area, subject to travel requirements consistent
with his position.

          2.   Position and Duties; Responsibilities; Board Service. (a)
               ----------------------------------------------------
Position and Duties.  For the period ending on the date which is 18 months
-------------------
following the Effective Date or such earlier date agreed upon in writing by the
Executive and the Board of Directors of the Company (the "Transition Date"), the
Company shall employ the Executive as its Chief Executive Officer.  After the
Transition Date and until the expiration of the Employment Period, the Company
shall employ the Executive as its Chairman.  The Executive shall report to the
Board of Directors of the Company (the "Board").  During the Employment Period,
the Executive shall perform faithfully and loyally and to the best of the
Executive's abilities the duties assigned to the Executive hereunder and shall
devote the Executive's full business time, attention and effort to the affairs
of the Company and its subsidiaries and shall use the Executive's reasonable
best efforts to promote the interests of the Company and its subsidiaries.  The
Executive may engage in charitable, civic or community activities and, with the
prior approval of the Board, may serve as a director of any other business
corporation, provided that such activities or service do not interfere with the
Executive's duties hereunder or violate the terms of any of the covenants
contained in Sections 6, 7 or 8 hereof.

          (b)  Responsibilities.  Subject to the powers, authority and
               ----------------
responsibilities vested in the Board, in duly constituted committees of the
Board and, following the Transition Date, in the Chief Executive Officer of the
Company, the Executive shall have the authority and responsibility for the
management, operation and overall conduct of the business of the Company.  The
Executive shall also perform such other duties (not inconsistent with the
positions described in Section 2(a) hereof) on behalf of the Company and its
subsidiaries as may from time to time be authorized or directed by the Board.
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          (c)  Board Service.  Promptly following the Effective Date, the
               -------------
Executive will be appointed as a member of the Board. Provided that the
Executive's employment with the Company has not previously been terminated, the
Executive will be nominated for election as a member of the Board at the first
annual meeting of the Company's shareholders following the Effective Date. If so
appointed and elected, the Executive agrees that he will serve as a member of
the Board.

          3.   Compensation.  (a)  Base Salary.  Until the Transition Date, the
               ------------        -----------
Company shall pay to the Executive a base salary ("Base Salary") at the rate of
$1,000,000 per annum and thereafter a Base Salary in an amount commensurate with
his duties, which amount shall be determined by the Compensation Committee of
the Board, in each case payable in accordance with the Company's executive
payroll policy.

          (b)  Annual Bonus.  The Executive shall, in the sole discretion of the
               ------------
Compensation Committee of the Board, be eligible as of the end of each fiscal
year of the Company during the term of this Agreement to receive an annual bonus
payable in cash for such fiscal year ("Annual Bonus").  For the 2001 fiscal year
only and provided that the Transition Date occurs after the end of such fiscal
year, the Executive shall receive a guaranteed Annual Bonus of $1,000,000 (the
"Guaranteed Annual Bonus"), payable at the time other executives generally
receive an annual bonus for such fiscal year in accordance with the Company's
policies.

          (c)  Signing Bonus, Special Bonus and Incentive Plan.  Within five
               -----------------------------------------------
business days after the Effective Date, the Executive shall be paid a one-time
lump-sum signing bonus of $500,000 and a special bonus for the 2001 fiscal year
of $750,000.  In addition, beginning with the 2001 fiscal year, the Executive
shall be entitled to participate in the Company's 2001 Performance Unit Plan
(the "Incentive Plan") in accordance with the terms of such plan.  The target
incentive bonus opportunity for the Executive for the 2001 fiscal year under the
Incentive Plan shall be $750,000 with a maximum incentive bonus opportunity of
$1,500,000.  The actual incentive bonus payable for 2001 and for any subsequent
year shall be based upon objective criteria established and approved by the
Compensation Committee of the Board.

          (d)  Other Benefits. During the Employment Period, the Executive shall
               --------------
be entitled to participate in the Company's employee benefit plans, including
fringe benefits and perquisites, generally available to executives of the
Company, including, without limitation, medical, dental, vision, life and
personal liability insurance plans and programs (such benefits being hereinafter
referred to as the "Employee Benefits"). The Executive shall be entitled to take
time off for vacation (currently four weeks per year) or illness in accordance
with the Company's policy for executives and to receive all other fringe
benefits as are from time to time made generally available to executives of the
Company, including, without limitation, the car lease program, the executive
wellness program, financial and estate planning services and annual tax planning
assistance.

          (e)  Stock Options.  On the Effective Date, subject to the approval of
               --------------
the Compensation Committee of the Board, the Executive shall be granted non-
qualified stock options (the "Options") to purchase 150,000 shares of common
stock, no par value, of the

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Company (the "Common Stock"). The exercise price of the Options shall be the
fair market value of the Common Stock on the date of grant, and one-third of the
Options shall become exercisable on each anniversary of the Effective Date. If
the Executive's employment is terminated pursuant to Section 4(a), 4(b), 4(d) or
4(f) hereof, any unexercisable Options shall immediately become exercisable and
may thereafter be exercised in full until the expiration of the five-year term
of the Options. If the Executive breaches any one or more of the covenants
contained in Section 6, 7 or 8 hereof, any Options then outstanding shall
terminate automatically on the date of any such breach by the Executive and the
Executive shall pay the Company, within five business days of receipt by the
Executive of a written demand therefor, an amount in cash equal to any gain
realized by the Executive as a result of the exercise of any Options. The
Options shall be subject to the terms and provisions of the Company's 1997
Amended and Restated Long-Term Incentive Plan and the stock option agreement
relating to the Options, which stock option agreement shall, except as provided
in this Section 3(e), be in the form customarily used by the Company.

          (f)   Expense Reimbursement. During the Employment Period, the Company
                ---------------------
shall reimburse the Executive, in accordance with the Company's policies and
procedures, for all proper expenses incurred by the Executive in the performance
of the Executive's duties hereunder.

          (g)   Vesting of Retirement Benefits. Commencing on the Effective
                ------------------------------
Date, the Executive shall participate in the Company's Personal Retirement
Account (the "PRA") and in the Company's Supplemental Executive Retirement
Program (the "SERP") in accordance with the terms thereof and shall be fully
vested in the benefits under the SERP. If the Executive forfeits any amount
under the PRA as a result of the termination of his employment with the Company,
the Executive shall receive an equivalent amount from the Company under the
SERP.

          4.    Termination.  (a)  Death.  Upon the death of the Executive, this
                -----------        -----
Agreement shall automatically terminate and all rights of the Executive and the
Executive's heirs, executors and administrators to compensation and other
benefits under this Agreement shall cease immediately, except that the
Executive's heirs, executors or administrators, as the case may be, shall be
entitled to:

          (i)   accrued Base Salary through and including the Executive's date
     of death;

          (ii)  accrued Annual Bonus based on the Guaranteed Annual Bonus
     through and including the Executive's date of death; and

          (iii) other Employee Benefits to which the Executive was entitled on
     the date of death in accordance with the terms of the plans and programs of
     the Company.

          (b)   Disability.  The Company may, at its option, terminate this
                ----------
Agreement upon written notice to the Executive if the Executive, because of
physical or mental incapacity or disability, fails to perform the essential
functions of the Executive's position, with or without reasonable accommodation,
required of the Executive hereunder for a continuous period of 120 days or any
180 days within any 12-month period.  Upon such termination, all obligations of
the Company hereunder shall cease immediately, except that the Executive shall
be entitled to:

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          (i)   accrued Base Salary through and including the effective date of
     the Executive's termination of employment;

          (ii)  accrued Annual Bonus based on the Guaranteed Annual Bonus
     through and including the effective date of the Executive's termination of
     employment; and

          (iii) other Employee Benefits to which the Executive is entitled upon
     termination of employment in accordance with the terms of the plans and
     programs of the Company.

In the event of any dispute regarding the existence of the Executive's
incapacity or disability hereunder, the matter shall be resolved by the
determination of a physician selected by the Board.  The Executive shall submit
to appropriate medical examinations for purposes of such determination.

          (c)   Cause.  (i)  The Company may, at its option, terminate the
                -----
     Executive's employment under this Agreement for Cause (as hereinafter
     defined) upon written notice to the Executive (the "Cause Notice").  Any
     such termination for Cause shall be authorized by the Board.  The Cause
     Notice shall state the particular action(s) or inaction(s) giving rise to
     termination for Cause.  The Executive shall have five days after the Cause
     Notice is given to cure the particular action(s) or inaction(s), to the
     extent a cure is possible.  If the Executive so effects a cure to the
     satisfaction of the Board, the Cause Notice shall be deemed rescinded and
     of no force or effect.

          (ii)  As used in this Agreement, the term "Cause" shall mean any one
     or more of the following:

                (A) a continued and willful refusal by the Executive to perform
          the Executive's duties under this Agreement or to perform specific
          directives of the Board which are consistent with the scope and nature
          of the Executive's duties and responsibilities as set forth herein;

                (B) any intentional act of fraud, embezzlement or theft by the
          Executive in connection with the Executive's duties hereunder or in
          the course of the Executive's employment hereunder or any prior
          employment, or the Executive's admission or conviction of a felony or
          of any crime involving moral turpitude, fraud, embezzlement, theft or
          misrepresentation;

                (C) any gross negligence or willful misconduct of the Executive
          resulting in a loss to the Company or any of its subsidiaries, or
          damage to the reputation of the Company or any of its subsidiaries;

                (D) any breach by the Executive of any one or more of the
          covenants contained in Section 6, 7 or 8 hereof; or

                (E) any violation of any statutory duty of loyalty to the
          Company or any of its subsidiaries.

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                For purposes of this provision, no act or failure to act, on the
          part of the Executive, shall be considered "willful" unless it is
          done, or omitted to be done, by the Executive in bad faith or without
          reasonable belief that the Executive's action or omission was in the
          best interests of the Company. Any act, or failure to act, based upon
          authority given pursuant to a resolution duly adopted by the Board or
          based upon the advice of counsel for the Company shall be conclusively
          presumed to be done, or omitted to be done, by the Executive in good
          faith and in the best interests of the Company.

          (iii) The exercise of the right of the Company to terminate this
     Agreement pursuant to this Section 4(c) shall not abrogate the rights or
     remedies of the Company in respect of the breach giving rise to such
     termination.

          (iv)  If the Company terminates the Executive's employment for Cause,
     all obligations of the Company hereunder shall cease, except that the
     Executive shall be entitled to the payments and benefits specified in
     Sections 4(b)(i) and 4(b)(iii) hereof.

          (d)   Termination Without Cause.  The Company may, at its option,
                -------------------------
terminate the Executive's employment under this Agreement upon written notice to
the Executive for a reason other than a reason set forth in Section 4(a), 4(b)
or 4(c).  Any such termination shall be authorized by the Board.  If the Company
terminates the Executive's employment for any such reason, all obligations of
the Company hereunder shall cease immediately, except that the Executive shall
be entitled to:

          (i)   the payments and benefits specified in Sections 4(b)(i) through
     4(b)(iii) hereof, inclusive;

          (ii)  a lump sum cash payment equal to the product of (x) two, and (y)
     the sum of the Base Salary and the Guaranteed Annual Bonus; and

          (iii) the continuation by the Company of health and welfare benefits
     for 24 months on the same basis as such benefits were provided to the
     Executive immediately prior to his termination of employment.

          (e)   Voluntary Termination.  Upon 60 days prior written notice to the
                ---------------------
Company (or such shorter period as may be permitted by the Board), the Executive
may voluntarily terminate the Executive's employment with the Company for any
reason.  If the Executive voluntarily terminates the Executive's employment
pursuant to this Section 4(e), all obligations of the Company hereunder shall
cease immediately, except that the Executive shall be entitled to the payments
and benefits specified in Sections 4(b)(i) and 4(b)(iii) hereof.

          (f)   Termination for Good Reason.  (i)  Upon 30 days prior written
                ---------------------------
notice to the Company (or such shorter period as may be permitted by the Board),
the Executive may voluntarily terminate the Executive's employment with Good
Reason (as hereinafter defined).  If the Executive voluntarily terminates the
Executive's employment pursuant to this Section 4(f), all obligations of the
Company hereunder shall cease immediately, except that the Executive shall be
entitled to:

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               (A)  the payments and benefits specified in Sections 4(b)(i)
     through 4(b)(iii) hereof, inclusive;

               (B)  a lump sum cash payment equal to the product of (x) two, and
     (y) the sum of the Base Salary and the Guaranteed Annual Bonus; and

               (C)  the continuation by the Company of health and welfare
     benefits for 24 months on the same basis as such benefits were provided to
     the Executive immediately prior to his termination of employment.

          (ii) As used in this Agreement, the term "Good Reason" shall mean,
     without the written consent of the Executive, any one or more of the
     following, provided that an isolated, insubstantial or inadvertent action
     not taken in bad faith or failure not occurring in bad faith which is
     remedied by the Company promptly after receipt of notice thereof given by
     the Executive shall not constitute Good Reason:

               (A)  the assignment to the Executive of any duties materially
     inconsistent in any respect with the Executive's position (including
     status, offices, titles and reporting requirements), authority, duties or
     responsibilities as contemplated by this Agreement or any other action by
     the Company which results in a material diminution in such position,
     authority, duties or responsibilities;

               (B)  any failure by the Company to comply with any of the
     provisions of Section 3 hereof;

               (C)  the Company's requiring the Executive to be based at any
     office or location other than as provided in Section 1 hereof; or

               (D)  any other material breach by the Company of this Agreement,
     including, without limitation, a failure to appoint the Executive as
     Chairman of the Board after the Transition Date.

          5.   Federal and State Withholding.  The Company shall deduct from the
               -----------------------------
amounts payable to the Executive pursuant to this Agreement the amount of all
required federal, state and local withholding taxes in accordance with the
Executive's Form W-4 on file with the Company, and all applicable federal
employment taxes.

          6.   Noncompetition; Nonsolicitation.  (a)  General.  The Executive
               -------------------------------        -------
acknowledges that in the course of the Executive's employment with the Company
the Executive has and will become familiar with trade secrets and other
confidential information concerning the Company and its subsidiaries and that
the Executive's services will be of special, unique and extraordinary value to
the Company and its subsidiaries.

          (b)  Noncompetition.  The Executive agrees that during the period of
               --------------
the Executive's employment with the Company and the longer of (i) one year after
the Executive's termination of employment with the Company or (ii) the period,
if any, for which the Executive

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is entitled to payments from the Company pursuant to Section 4 (the
"Noncompetition Period"), the Executive shall not in any manner, directly or
indirectly, through any person, firm or corporation, alone or as a member of a
partnership or as an officer, director, stockholder, investor or employee of or
consultant to any other corporation or enterprise or otherwise, engage or be
engaged, or assist any other person, firm, corporation or enterprise in engaging
or being engaged, in any business, in which the Executive was involved or had
knowledge, being conducted by, or contemplated by, the Company or any of its
subsidiaries as of the termination of the Executive's employment in any
geographic area in which the Company or any of its subsidiaries is then
conducting such business. Notwithstanding the foregoing, for purposes of this
Section 6(b) only, the Noncompetition Period shall cease as of the date of the
Executive's termination of employment if such employment is terminated pursuant
to Section 4(d) or 4(f) hereof.

          (c)  Nonsolicitation.  The Executive further agrees that during the
               ---------------
Noncompetition Period the Executive shall not (i) in any manner, directly or
indirectly, induce or attempt to induce any employee of the Company or any of
its subsidiaries to terminate or abandon his or her employment for any purpose
whatsoever or (ii) in connection with any business to which Section 6(b)
applies, call on, service, solicit or otherwise do business with any customer of
the Company or any of its subsidiaries.

          (d)  Exceptions.  Nothing in this Section 6 shall prohibit the
               ----------
Executive from being (i) a stockholder in a mutual fund or a diversified
investment company or (ii) an owner of not more than two percent of the
outstanding stock of any class of a corporation, any securities of which are
publicly traded, so long as the Executive has no active participation in the
business of such corporation.

          (e)  Reformation.  If, at any time of enforcement of this Section 6, a
               -----------
court or an arbitrator holds that the restrictions stated herein are
unreasonable under circumstances then existing, the parties hereto agree that
the maximum period, scope or geographical area reasonable under such
circumstances shall be substituted for the stated period, scope or area and that
the court or arbitrator shall be allowed to revise the restrictions contained
herein to cover the maximum period, scope and area permitted by law.  This
Agreement shall not authorize a court or arbitrator to increase or broaden any
of the restrictions in this Section 6.

          7.   Confidentiality.  The Executive shall not, at any time during the
               ---------------
Employment Period or thereafter, make use of or disclose, directly or
indirectly, any (i) trade secret or other confidential or secret information of
the Company or of any of its subsidiaries or (ii) other technical, business,
proprietary or financial information of the Company or of any of its
subsidiaries not available to the public generally or to the competitors of the
Company or to the competitors of any of its subsidiaries ("Confidential
Information"), except to the extent that such Confidential Information (a)
becomes a matter of public record or is published in a newspaper, magazine or
other periodical or on electronic or other media available to the general
public, other than as a result of any act or omission of the Executive, (b) is
required to be disclosed by any law, regulation or order of any court or
regulatory commission, department or agency, provided that the Executive gives
prompt notice of such requirement to the Company to enable the Company to seek
an appropriate protective order, or (c) is required to be used or disclosed by
the Executive to perform properly the Executive's duties under this Agreement.
Promptly following the termination of the Employment Period, the Executive shall
surrender to the Company all

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records, memoranda, notes, plans, reports, computer tapes and software and other
documents and data which constitute Confidential Information which the Executive
may then possess or have under the Executive's control (together with all copies
thereof).

          8.   Intellectual Property. The Executive shall not, at any time, have
               ---------------------
or claim any right, title or interest in any trade name, patent, trademark,
copyright, trade secret, intellectual property, methodologies, technologies,
procedures, concepts, ideas or other similar rights (collectively, "Intellectual
Property") belonging to the Company or any of its affiliates and shall not have
or claim any right, title or interest in or to any material or matter of any
kind prepared for or used in connection with the business or promotion of the
Company or any of its affiliates, whether produced, prepared or published in
whole or in part by the Executive or by the Company or any of its affiliates.
All Intellectual Property that is conceived, devised, made, developed or
perfected by the Executive, alone or with others, during the Executive's
employment that is related in any way to the Company's or any of its affiliates'
business or is devised, made, developed or perfected utilizing equipment or
facilities of the Company or its affiliates shall be promptly disclosed to the
Board, are works for hire and become the sole, absolute and exclusive property
of the Company. If and to the extent that any of such Intellectual Property
should be determined for any reason not to be a work for hire, the Executive
hereby assigns to the Company all of the Executive's right, title and interest
in and to such Intellectual Property. At the reasonable request and expense of
the Company but without charge to the Company, whether during or at any time
after the Executive's employment with the Company, the Executive shall cooperate
fully with the Company and its affiliates in the securing of any trade name,
patent, trademark, copyright or intellectual property protection or other
similar rights in the United States and in foreign countries, including without
limitation, the execution and delivery of assignments, patent applications and
other documents or papers.

          9.   Enforcement.  The parties hereto agree that the Company and its
               -----------
subsidiaries would be damaged irreparably in the event that any provision of
Section 6, 7 or 8 of this Agreement were not performed in accordance with its
terms or were otherwise breached and that money damages would be an inadequate
remedy for any such nonperformance or breach.  Accordingly, the Company and its
successors and permitted assigns shall be entitled, in addition to other rights
and remedies existing in their favor, to an injunction or injunctions to prevent
any breach or threatened breach of any of such provisions and to enforce such
provisions specifically (without posting a bond or other security).  The
Executive agrees that the Executive will submit to the personal jurisdiction of
the courts of the State of Michigan in any action by the Company to enforce an
arbitration award against the Executive or to obtain interim injunctive or other
relief pending an arbitration decision.

          10.  Representations.  The Executive represents and warrants to the
               ---------------
Company that (a) the execution, delivery and performance of this Agreement by
the Executive does not and will not conflict with, breach, violate or cause a
default under any contract, agreement, instrument, order, judgment or decree to
which the Executive is a party or by which the Executive is bound, and the
Executive is not a party to or bound by any employment agreement, noncompetition
agreement or confidentiality agreement with any other person or entity, except,
in each case, for a noncompetition agreement between the Executive and Ford
Motor Company, the restrictions of which have been waived in writing by Ford
Motor Company with respect to the employment of the Executive by the Company and
the service of the Executive as a director

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<PAGE>

of the Company and the execution, delivery and performance of this Agreement by
the Executive and (b) upon the execution and delivery of this Agreement by the
Company, this Agreement shall be the valid and binding obligation of the
Executive, enforceable in accordance with its terms.

          11.  Survival.  Sections 6, 7, 8 and 9 of this Agreement shall survive
               --------
and continue in full force and effect in accordance with their respective terms,
notwithstanding any termination of the Employment Period.

          12.  Arbitration.  Except as otherwise set forth in Section 9 hereof,
               -----------
any dispute or controversy between the Company and the Executive, whether
arising out of or relating to this Agreement, the breach of this Agreement, or
otherwise, shall be settled by arbitration in Detroit, Michigan administered by
the American Arbitration Association, with any such dispute or controversy
arising under this Agreement being so administered in accordance with its
Commercial Rules then in effect, and judgment on the award rendered by the
arbitrator may be entered in any court having jurisdiction thereof.  The
arbitrator shall have the authority to award any remedy or relief that a court
of competent jurisdiction could order or grant, including, without limitation,
the issuance of an injunction.  However, either party may, without inconsistency
with this arbitration provision, apply to any court having jurisdiction over
such dispute or controversy and seek interim provisional, injunctive or other
equitable relief until the arbitration award is rendered or the controversy is
otherwise resolved.  Except as necessary in court proceedings to enforce this
arbitration provision or an award rendered hereunder, or to obtain interim
relief, neither a party nor an arbitrator may disclose the existence, content or
results of any arbitration hereunder without the prior written consent of the
Company and the Executive.  The Company and the Executive acknowledge that this
Agreement evidences a transaction involving interstate commerce.
Notwithstanding any choice of law provision included in this Agreement, the
United States Federal Arbitration Act shall govern the interpretation and
enforcement of this arbitration provision.

          13.  Notices.  All notices and other communications required or
               -------
permitted hereunder shall be in writing and shall be deemed given when (a)
delivered personally or by overnight courier to the following address of the
other party hereto (or such other address for such party as shall be specified
by notice given pursuant to this Section) or (b) sent by facsimile to the
following facsimile number of the other party hereto (or such other facsimile
number for such party as shall be specified by notice given pursuant to this
Section), with the confirmatory copy delivered by overnight courier to the
address of such party pursuant to this Section 13:

          If to the Company, to:

               Federal-Mogul Corporation
               26555 Northwestern Highway
               Southfield, Michigan  48034
               Attention: Chairman of the Compensation Committee
                          of the Board of Directors

          with a copy to:

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               Federal-Mogul Corporation
               26555 Northwestern Highway
               Southfield, Michigan  48034
               Attention:  General Counsel

          If to the Executive, to:

               Frank Macher
               2525 Country Club Road
               Ann Arbor, Michigan  48105

          14.  Severability.  Whenever possible, each provision of this
               ------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
the validity, legality or enforceability of any other provision of this
Agreement or the validity, legality or enforceability of such provision in any
other jurisdiction, but this Agreement shall be reformed, construed and enforced
in such jurisdiction as if such invalid, illegal or unenforceable provision had
never been contained herein.

          15.  Change of Control.  Simultaneously with the execution and
               -----------------
delivery of this Agreement, the parties also are executing and delivering an
Employment Agreement in the form attached hereto as Exhibit A.  In the event of
a "Change of Control," as defined in the Employment Agreement attached hereto as
Exhibit A, the annexed Employment Agreement shall exclusively govern the
employment relationship between the Company and the Executive and this Agreement
shall immediately terminate without any further obligations by either party;
provided, however, that Section 3(g) hereof shall not terminate by reason of
--------  -------
said Change of Control and shall remain in full force and effect.

          16.  Entire Agreement.  This Agreement and the Employment Agreement in
               ----------------
the form attached hereto as Exhibit A constitute the entire agreement and
understanding between the parties with respect to the subject matter hereof or
thereof and supersede and preempt any prior understandings, agreements or
representations by or between the parties, written or oral, which may have
related in any manner to the subject matter hereof or thereof.

          17.  Successors and Assigns.  This Agreement shall be enforceable by
               ----------------------
the Executive and the Executive's heirs, executors, administrators and legal
representatives, and by the Company and its successors and assigns.

          18.  Governing Law.  This Agreement shall be governed by and construed
               -------------
and enforced in accordance with the internal laws of the State of Michigan
without regard to principles of conflict of laws.

          19.  Amendment and Waiver.  The provisions of this Agreement may be
               --------------------
amended or waived only by the written agreement of the Company and the
Executive, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall affect the validity, binding effect or
enforceability of this Agreement.

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          20.  Counterparts.  This Agreement may be executed in two
               ------------
counterparts, each of which shall be deemed to be an original and both of which
together shall constitute one and the same instrument.

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          IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.

                              FEDERAL-MOGUL CORPORATION

                              By:  /s/ Richard P. Randazzo
                                   ---------------------------------------------
                                   Richard P. Randazzo
                                   Senior Vice President, Human Resources

                              FRANK MACHER

                              /s/ Frank Macher
                              --------------------------------------------------

                                       12<PAGE>

                                                                   Exhibit 10.25

                             EMPLOYMENT AGREEMENT

          AGREEMENT by and between Federal-Mogul Corporation, a Michigan
corporation (the "Company"), and Frank Macher (the "Executive"), dated as of the
10th day of January, 2001 (this "Agreement").

          The Board of Directors of the Company (the "Board") has determined
that it is in the best interests of the Company and its shareholders to assure
that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined below) of the Company. The Board believes it is imperative to diminish
the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control and
to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change of Control which ensure that the compensation and benefits expectations
of the Executive will be satisfied and which are competitive with those of other
corporations. Therefore, in order to accomplish these objectives, the Board has
caused the Company to enter into this Agreement.

          NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:

          1.  Certain Definitions. (a) The "Effective Date" shall mean the
              -------------------
first date during the Change of Control Period (as defined in Section 1(b)) on
which a Change of Control (as defined in Section 2) occurs.  Anything in this
Agreement to the contrary notwithstanding, if a Change of Control occurs and if
the Executive's employment with the Company is terminated prior to the date on
which the Change of Control occurs, and if it is reasonably demonstrated by the
Executive that such termination of employment (i) was at the request of a third
party who has taken steps reasonably calculated to effect a Change of Control or
(ii) otherwise arose in connection with or anticipation of a Change of Control,
then for all purposes of this Agreement the "Effective Date" shall mean the date
immediately prior to the date of such termination of employment.

          (b) The "Change of Control Period" shall mean the period commencing on
the date hereof and ending on the third anniversary of the date hereof;
provided, however, that commencing on the date one year after the date hereof,
and on each annual anniversary of such date (such date and each annual
anniversary thereof shall be hereinafter referred to as the "Renewal Date"),
unless previously terminated, the Change of Control Period shall be
automatically extended so as to terminate three years from such Renewal Date,
unless at least 60 days prior to the Renewal Date the Company shall give notice
to the Executive that the Change of Control Period shall not be so extended.

          2.  Change of Control. For the purpose of this Agreement, a "Change of
              -----------------
Control" shall mean:

          (a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated
<PAGE>

under the Exchange Act) of 20% or more of either (i) the then outstanding shares
of common stock of the Company (the "Outstanding Company Common Stock") or (ii)
the combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however, that for purposes
of this subsection (a), the following acquisitions shall not constitute a Change
of Control: (A) any acquisition directly from the Company, (B) any acquisition
by the Company, (C) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any corporation controlled by
the Company or (D) any acquisition by any corporation pursuant to a transaction
which complies with clauses (i), (ii) and (iii) of subsection (c) of this
Section 2; or

          (b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or

          (c) Consummation of a reorganization, merger or consolidation or sale
or other disposition of all or substantially all of the assets of the Company (a
"Business Combination"), in each case, unless, following such Business
Combination, (i) all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more than 50% of,
respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be, (ii) no
Person (excluding any corporation resulting from such Business Combination or
any employee benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding shares of common
stock of the corporation resulting from such Business Combination or the
combined voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to the
Business Combination and (iii) at least a majority of the members of the board
of directors of the corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such Business
Combination; or

          (d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.

                                       2
<PAGE>

          3.  Employment Period. The Company hereby agrees to continue the
              -----------------
Executive in its employ, and the Executive hereby agrees to remain in the employ
of the Company subject to the terms and conditions of this Agreement, for the
period commencing on the Effective Date and ending on the third anniversary of
such date (the "Employment Period").

          4.  Terms of Employment. (a) Position and Duties.  (i) During the
              -------------------      -------------------
Employment Period, (A) the Executive's position (including status, offices,
titles and reporting requirements), authority, duties and responsibilities shall
be at least commensurate in all material respects with the most significant of
those held, exercised and assigned at any time during the 120-day period
immediately preceding the Effective Date and (B) the Executive's services shall
be performed at the location where the Executive was employed immediately
preceding the Effective Date or any office or location less than 35 miles from
such location.

               (ii)  During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive agrees
to devote reasonable attention and time during normal business hours to the
business and affairs of the Company and, to the extent necessary to discharge
the responsibilities assigned to the Executive hereunder, to use the Executive's
reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to the extent that
any such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.

          (b)  Compensation. (i) Base Salary. During the Employment Period, the
               ------------      -----------
Executive shall receive an annual base salary ("Annual Base Salary"), which
shall be paid at an annual rate at least equal to twelve times the highest
monthly base salary paid or payable, including any base salary which has been
earned but deferred, to the Executive by the Company and its affiliated
companies in respect of the twelve-month period immediately preceding the month
in which the Effective Date occurs. During the Employment Period, the Annual
Base Salary shall be reviewed no more than 12 months after the last salary
increase awarded to the Executive prior to the Effective Date and thereafter at
least annually. Any increase in Annual Base Salary shall not serve to limit or
reduce any other obligation to the Executive under this Agreement. Annual Base
Salary shall not be reduced after any such increase and the term Annual Base
Salary as utilized in this Agreement shall refer to Annual Base Salary as so
increased. As used in this Agreement, the term "affiliated companies" shall
include any company controlled by, controlling or under common control with the
Company.

               (ii) Annual Bonus. In addition to Annual Base Salary, the
                    ------------
Executive shall be awarded, for each fiscal year ending during the Employment
Period, an annual bonus (the "Annual Bonus") in cash at least equal to the
Executive's highest bonus, including any bonus or portion thereof which has been
earned but deferred, under the Company's 1997 Supplemental

                                       3
<PAGE>

Compensation Plan, as amended and restated, or any comparable bonus under any
predecessor or successor plan, for the last three full fiscal years prior to the
Effective Date (annualized in the event that the Executive was not employed by
the Company for the whole of such fiscal year); provided, that if the
Executive's highest bonus for one or more of such fiscal years is determined
pursuant to the terms of the Company's Economic Value Added (EVA) Plan (the "EVA
Plan"), and the Executive's bonus declared pursuant to the EVA Plan for such
fiscal year is higher than the Executive's bonus paid pursuant to the EVA Plan
for such fiscal year, the Executive's highest bonus for such fiscal year shall
be the Executive's bonus declared for such fiscal year. The Executive's highest
bonus for the last three full fiscal years prior to the Effective Date, as
determined (and annualized, if applicable) pursuant to this Section 4(b)(ii), is
hereinafter referred to as the "Recent Annual Bonus"). Each such Annual Bonus
shall be paid no later than the end of the third month of the fiscal year next
following the fiscal year for which the Annual Bonus is awarded, unless the
Executive shall elect to defer the receipt of such Annual Bonus.

               (iii)  Incentive, Savings and Retirement Plans. During the
                      ---------------------------------------
Employment Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans, practices, policies and programs
applicable generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and programs
provide the Executive with incentive opportunities (measured with respect to
both regular and special incentive opportunities, to the extent, if any, that
such distinction is applicable), savings opportunities and retirement benefit
opportunities, in each case, less favorable, in the aggregate, than the most
favorable of those provided by the Company and its affiliated companies for the
Executive under such plans, practices, policies and programs as in effect at any
time during the 120-day period immediately preceding the Effective Date or if
more favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its affiliated
companies. Without limiting the generality of the foregoing, the Executive shall
be entitled to the retirement benefits set forth in Section 3(g) of the
Employment Agreement dated as of January 10, 2001 between the Company and the
Executive, which benefits shall be benefits pursuant to a retirement plan of the
Company for all purposes of this Agreement.

               (iv)   Welfare Benefit Plans. During the Employment Period, the
                      ---------------------
Executive and/or the Executive's family, as the case may be, shall be eligible
for participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company and its affiliated
companies (including, without limitation, medical, prescription, dental,
disability, employee life, group life, accidental death and travel accident
insurance plans and programs) to the extent applicable generally to other peer
executives of the Company and its affiliated companies, but in no event shall
such plans, practices, policies and programs provide the Executive with benefits
which are less favorable, in the aggregate, than the most favorable of such
plans, practices, policies and programs in effect for the Executive at any time
during the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its affiliated
companies.

               (v)    Expenses. During the Employment Period, the Executive
                      --------
shall be entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive in accordance with the most favorable policies,
practices and procedures of the Company and its

                                       4
<PAGE>

affiliated companies in effect for the Executive at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.

               (vi)   Fringe Benefits. During the Employment Period, the
                      ---------------
Executive shall be entitled to fringe benefits, including, without limitation,
tax and financial planning services, payment of club dues, and, if applicable,
use of an automobile and payment of related expenses, in accordance with the
most favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.

               (vii)  Office and Support Staff. During the Employment Period,
                      ------------------------
the Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial and
other assistance, at least equal to the most favorable of the foregoing provided
to the Executive by the Company and its affiliated companies at any time during
the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as provided generally at any time thereafter with
respect to other peer executives of the Company and its affiliated companies.

               (viii) Vacation. During the Employment Period, the Executive
                      --------
shall be entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and its affiliated companies as
in effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives of
the Company and its affiliated companies.

          5. Termination of Employment. (a) Death or Disability. The Executive's
             -------------------------      -------------------
employment shall terminate automatically upon the Executive's death during the
Employment Period. If the Company determines in good faith that the Disability
of the Executive has occurred during the Employment Period (pursuant to the
definition of Disability set forth below), it may give to the Executive written
notice in accordance with Section 12(b) of this Agreement of its intention to
terminate the Executive's employment. In such event, the Executive's employment
with the Company shall terminate effective on the 30th day after receipt of such
notice by the Executive (the "Disability Effective Date"), provided that, within
the 30 days after such receipt, the Executive shall not have returned to full-
time performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for 180 consecutive business days as a
result of incapacity due to mental or physical illness which is determined to be
total and permanent by a physician selected by the Company or its insurers and
acceptable to the Executive or the Executive's legal representative.

          (b)  Cause. The Company may terminate the Executive's employment
               -----
during the Employment Period for Cause.  For purposes of this Agreement, "Cause"
shall mean:

                                       5
<PAGE>

          (i)    the willful and continued failure of the Executive to perform
     substantially the Executive's duties with the Company or one of its
     affiliates (other than any such failure resulting from incapacity due to
     physical or mental illness), after a written demand for substantial
     performance is delivered to the Executive by the Board or the Chief
     Executive Officer of the Company which specifically identifies the manner
     in which the Board or Chief Executive Officer believes that the Executive
     has not substantially performed the Executive's duties, or

          (ii)   the willful engaging by the Executive in illegal conduct or
     gross misconduct which is materially and demonstrably injurious to the
     Company.

For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer or
a senior officer of the Company or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The cessation
of employment of the Executive shall not be deemed to be for Cause unless and
until there shall have been delivered to the Executive a copy of a resolution
duly adopted by the affirmative vote of not less than three-quarters of the
entire membership of the Board at a meeting of the Board called and held for
such purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the Executive is
guilty of the conduct described in subparagraph (i) or (ii) above, and
specifying the particulars thereof in detail.

          (c)    Good Reason. The Executive's employment may be terminated by
                 -----------
the Executive for Good Reason. For purposes of this Agreement, "Good Reason"
shall mean:

          (i)    the assignment to the Executive of any duties inconsistent in
     any respect with the Executive's position (including status, offices,
     titles and reporting requirements), authority, duties or responsibilities
     as contemplated by Section 4(a) of this Agreement, or any other action by
     the Company which results in a diminution in such position, authority,
     duties or responsibilities, excluding for this purpose an isolated,
     insubstantial and inadvertent action not taken in bad faith and which is
     remedied by the Company promptly after receipt of notice thereof given by
     the Executive;

          (ii)   any failure by the Company to comply with any of the provisions
     of Section 4(b) of this Agreement, other than an isolated, insubstantial
     and inadvertent failure not occurring in bad faith and which is remedied by
     the Company promptly after receipt of notice thereof given by the
     Executive;

          (iii)  the Company's requiring the Executive to be based at any office
     or location other than as provided in Section 4(a)(i)(B) hereof or the
     Company's requiring the Executive to travel on Company business to a
     substantially greater extent than required immediately prior to the
     Effective Date;

                                       6
<PAGE>

          (iv)  any purported termination by the Company of the Executive's
     employment otherwise than as expressly permitted by this Agreement; or

          (v)   any failure by the Company to comply with and satisfy Section
     11(c) of this Agreement.

For purposes of this Section 5(c), any good faith determination of "Good Reason"
made by the Executive shall be conclusive.

          (d)  Notice of Termination. Any termination by the Company for Cause,
               ---------------------
or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 12(b) of
this Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than thirty
days after the giving of such notice). The failure by the Executive or the
Company to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of
the Executive or the Company, respectively, hereunder or preclude the Executive
or the Company, respectively, from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.

          (e)  Date of Termination. "Date of Termination" means (i) if the
               -------------------
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such termination and (iii) if the Executive's employment is
terminated by reason of death or Disability, the Date of Termination shall be
the date of death of the Executive or the Disability Effective Date, as the case
may be.

          6.  Obligations of the Company upon Termination. (a) Good Reason:
              -------------------------------------------      ------------
Other Than for Cause, Death or Disability. If, during the Employment Period, the
-----------------------------------------
Company shall terminate the Executive's employment other than for Cause or
Disability or the Executive shall terminate employment for Good Reason:

          (i)   the Company shall pay to the Executive in a lump sum in cash
     within 30 days after the Date of Termination the aggregate of the following
     amounts:

               (A)  the sum of (1) the Executive's Annual Base Salary through
          the Date of Termination to the extent not theretofore paid, (2) the
          product of (x) the higher of (I) the Recent Annual Bonus and (II) the
          "Highest Annual Bonus," as such term is defined in the last sentence
          of Section 6(a) hereof, and (y) a fraction, the numerator of which is
          the number of days in the current fiscal year through the Date of
          Termination, and the denominator of which is 365 and (3) any

                                       7
<PAGE>

          compensation previously deferred by the Executive (together with any
          accrued interest or earnings thereon) and any accrued and banked
          vacation pay, in each case to the extent not theretofore paid (the sum
          of the amounts described in clauses (1), (2), and (3) shall be
          hereinafter referred to as the "Accrued Obligations"); and

               (B)  the amount equal to the product of (1) three and (2) the sum
          of (x) the Executive's Annual Base Salary and (y) the "Highest Annual
          Bonus," as such term is defined in the last sentence of Section 6(a)
          hereof; and

               (C)  an amount equal to the excess of (a) the actuarial
          equivalent of the benefit under the Company's Personal Retirement
          Account (the "PRA") (utilizing actuarial assumptions no less favorable
          to the Executive than those in effect under the Company's PRA
          immediately prior to the Effective Date) and Supplemental Executive
          Retirement Program (the "SERP") which the Executive would receive if
          the Executive's employment continued for three years after the Date of
          Termination assuming for this purpose that all accrued benefits are
          fully vested, and, assuming that the Executive's compensation in each
          of the three years is that required by Section 4(b)(i) and Section
          4(b)(ii), over (b) the actuarial equivalent of the Executive's actual
          benefit (paid or payable), if any, under the PRA and the SERP as of
          the Date of Termination;

          (ii)   for three years after the Executive's Date of Termination, or
     such longer period as may be provided by the terms of the appropriate plan,
     program, practice or policy, the Company shall continue benefits to the
     Executive and/or the Executive's family at least equal to those which would
     have been provided to them in accordance with the plans, programs,
     practices and policies described in Section 4(b)(iv) of this Agreement if
     the Executive's employment had not been terminated or, if more favorable to
     the Executive, as in effect generally at any time thereafter with respect
     to other peer executives of the Company and its affiliated companies and
     their families, provided, however, that if the Executive becomes reemployed
     with another employer and is eligible to receive medical or other welfare
     benefits under another employer provided plan, the medical and other
     welfare benefits described herein shall be secondary to those provided
     under such other plan during such applicable period of eligibility.  For
     purposes of determining eligibility (but not the time of commencement of
     benefits) of the Executive for retiree benefits pursuant to such plans,
     practices, programs and policies, the Executive shall be considered to have
     remained employed until three years after the Date of Termination and to
     have retired on the last day of such period;

          (iii)  the Company shall, at its sole expense as incurred, provide the
     Executive with outplacement services the scope and provider of which shall
     be selected by the Executive in his sole discretion; and

          (iv)   to the extent not theretofore paid or provided, the Company
     shall timely pay or provide to the Executive any other amounts or benefits
     required to be paid or provided or which the Executive is eligible to
     receive under any plan, program, policy or practice

                                       8
<PAGE>

     or contract or agreement of the Company and its affiliated companies (such
     other amounts and benefits shall be hereinafter referred to as the "Other
     Benefits").

For purposes of this Agreement, "Highest Annual Bonus" shall mean the Annual
Bonus paid or payable, including any bonus or portion thereof which has been
earned but deferred (and annualized for any fiscal year consisting of less than
twelve full months or during which the Executive was employed for less than
twelve full months), for the most recently completed fiscal year during the
Employment Period, if any; provided, that if the Annual Bonus for such fiscal
year is determined pursuant to the terms of the EVA Plan, and the Executive's
bonus declared pursuant to the EVA Plan for such fiscal year is higher than the
Executive's bonus paid pursuant to the EVA Plan for such fiscal year, the Annual
Bonus for such fiscal year shall be the Executive's bonus declared for such
fiscal year.

          (b)  Death. If the Executive's employment is terminated by reason of
               -----
the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for payment of Accrued Obligations and the
timely payment or provision of Other Benefits.  Accrued Obligations shall be
paid to the Executive's estate or beneficiary, as applicable, in a lump sum in
cash within 30 days of the Date of Termination.  With respect to the provision
of Other Benefits, the term Other Benefits as utilized in this Section 6(b)
shall include, without limitation, and the Executive's estate and/or
beneficiaries shall be entitled to receive, benefits at least equal to the most
favorable benefits provided by the Company and affiliated companies to the
estates and beneficiaries of peer executives of the Company and such affiliated
companies under such plans, programs, practices and policies relating to death
benefits, if any, as in effect with respect to other peer executives and their
beneficiaries at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive's estate and/or the
Executive's beneficiaries, as in effect on the date of the Executive's death
with respect to other peer executives of the Company and its affiliated
companies and their beneficiaries.

          (c)  Disability. If the Executive's employment is terminated by
               ----------
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision of
Other Benefits.  Accrued Obligations shall be paid to the Executive in a lump
sum in cash within 30 days of the Date of Termination.  With respect to the
provision of Other Benefits, the term Other Benefits as utilized in this Section
6(c) shall include, and the Executive shall be entitled after the Disability
Effective Date to receive, disability and other benefits at least equal to the
most favorable of those generally provided by the Company and its affiliated
companies to disabled executives and/or their families in accordance with such
plans, programs, practices and policies relating to disability, if any, as in
effect generally with respect to other peer executives and their families at any
time during the 120-day period immediately preceding the Effective Date or, if
more favorable to the Executive and/or the Executive's family, as in effect at
any time thereafter generally with respect to other peer executives of the
Company and its affiliated companies and their families.

          (d)  Cause; Other than for Good Reason. If the Executive's employment
               ---------------------------------
shall be terminated for Cause during the Employment Period, this Agreement shall
terminate without further obligations to the Executive other than the obligation
to pay to the Executive (i) his

                                       9
<PAGE>

Annual Base Salary through the Date of Termination, (ii) the amount of any
compensation previously deferred by the Executive, and (iii) Other Benefits, in
each case to the extent theretofore unpaid. If the Executive voluntarily
terminates employment during the Employment Period, excluding a termination for
Good Reason, this Agreement shall terminate without further obligations to the
Executive, other than for Accrued Obligations and the timely payment or
provision of Other Benefits. In such case, all Accrued Obligations shall be paid
to the Executive in a lump sum in cash within 30 days of the Date of
Termination.

          7.  Non-exclusivity of Rights.  Nothing in this Agreement shall
              -------------------------
prevent or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor, subject to Section
12(f), shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or any of
its affiliated companies.  Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan, policy, practice or
program of or any contract or agreement with the Company or any of its
affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.

          8.  Full Settlement.  The Company's obligation to make the payments
              ---------------
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others.  In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and such amounts
shall not be reduced whether or not the Executive obtains other employment.  The
Company agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a result of
any contest (regardless of the outcome thereof) by the Company, the Executive or
others of the validity or enforceability of, or liability under, any provision
of this Agreement or any guarantee of performance thereof (including as a result
of any contest by the Executive about the amount of any payment pursuant to this
Agreement), plus in each case interest on any delayed payment at the applicable
Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code
of 1986, as amended (the "Code").

          9.  Certain Additional Payments by the Company.
              ------------------------------------------

          (a)  Anything in this Agreement to the contrary notwithstanding and
except as set forth below, in the event it shall be determined that any payment
or distribution by the Company to or for the benefit of the Executive (whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional payments
required under this Section 9) (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties are incurred by
the Executive with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitation, any income taxes (and any
interest and penalties

                                       10
<PAGE>

imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments. Notwithstanding the foregoing provisions of this
Section 9(a), if it shall be determined that the Executive is entitled to a
Gross-Up Payment, but that the Executive, after taking into account the Payments
and the Gross-Up Payment, would not receive a net after-tax benefit of at least
$550,000 (taking into account both income taxes and any Excise Tax) as compared
to the net after-tax proceeds to the Executive resulting from an elimination of
the Gross-Up Payment and a reduction of the Payments, in the aggregate, to an
amount (the "Reduced Amount") such that the receipt of Payments would not give
rise to any Excise Tax, then no Gross-Up Payment shall be made to the Executive
and the Payments, in the aggregate, shall be reduced to the Reduced Amount.

          (b)  Subject to the provisions of Section 9(c), all determinations
required to be made under this Section 9, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by Ernst & Young
LLP or such other certified public accounting firm as may be designated by the
Executive (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days of
the receipt of notice from the Executive that there has been a Payment, or such
earlier time as is requested by the Company.  In the event that the Accounting
Firm is serving as accountant or auditor for the individual, entity or group
effecting the Change of Control, the Executive shall appoint another nationally
recognized accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm hereunder).
All fees and expenses of the Accounting Firm shall be borne solely by the
Company.  Any Gross-Up Payment, as determined pursuant to this Section 9, shall
be paid by the Company to the Executive within five days of the receipt of the
Accounting Firm's determination.  Any determination by the Accounting Firm shall
be binding upon the Company and the Executive.  As a result of the uncertainty
in the application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should have been made
("Underpayment"), consistent with the calculations required to be made
hereunder.  In the event that the Company exhausts its remedies pursuant to
Section 9(c) and the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive.

          (c)  The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment.  Such notification shall be given as soon
as practicable but no later than ten business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid.  The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due).  If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:

                                       11
<PAGE>

          (i)    give the Company any information reasonably requested by the
     Company relating to such claim,

          (ii)   take such action in connection with contesting such claim as
     the Company shall reasonably request in writing from time to time,
     including, without limitation, accepting legal representation with respect
     to such claim by an attorney reasonably selected by the Company,

          (iii)  cooperate with the Company in good faith in order effectively
     to contest such claim, and

          (iv)   permit the Company to participate in any proceedings relating
     to such claim;

provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses.  Without limitation on the foregoing provisions
of this Section 9(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount.  Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.

          (d)  If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 9(c), the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of Section 9(c)) promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto).  If, after the receipt by the Executive
of an amount advanced by the Company pursuant to Section 9(c), a determination
is made that the Executive shall not be entitled to any refund with respect to
such claim and the Company does not notify the Executive in writing of its
intent to contest such denial of refund prior to the expiration of 30 days after
such determination, then such advance shall be forgiven and shall not

                                       12
<PAGE>

be required to be repaid and the amount of such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be paid.

          10. Confidential Information.  The Executive shall hold in a
              ------------------------
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, which shall have been obtained by
the Executive during the Executive's employment by the Company or any of its
affiliated companies and which shall not be or become public knowledge (other
than by acts by the Executive or representatives of the Executive in violation
of this Agreement).  After termination of the Executive's employment with the
Company, the Executive shall not, without the prior written consent of the
Company or as may otherwise be required by law or legal process, communicate or
divulge any such information, knowledge or data to anyone other than the Company
and those designated by it.  In no event shall an asserted violation of the
provisions of this Section 10 constitute a basis for deferring or withholding
any amounts otherwise payable to the Executive under this Agreement.

          11. Successors.  (a)  This Agreement is personal to the Executive and
              ----------
without the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution.  This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.

          (b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.

          (c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place.  As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.

          12. Miscellaneous. (a)  This Agreement shall be governed by and
              -------------
construed in accordance with the laws of the State of Michigan, without
reference to principles of conflict of laws.  The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect.  This
Agreement may not be amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors and legal
representatives.

          (b) All notices and other communications hereunder shall be in writing
and shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:

                                       13
<PAGE>

          If to the Executive:
          --------------------

               Frank Macher
               2525 Country Club Road
               Ann Arbor, Michigan  48105

          If to the Company:
          ------------------

               Federal-Mogul Corporation
               26555 Northwestern Highway
               Southfield, Michigan  48034
               Attention: Chairman of the Compensation
                          Committee of the Board of Directors

               Federal-Mogul Corporation
               26555 Northwestern Highway
               Southfield, Michigan  48034
               Attention: General Counsel

or to such other address as either party shall have furnished to the other in
writing in accordance herewith.  Notice and communications shall be effective
when actually received by the addressee.

          (c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.

          (d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.

          (e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.

          (f) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the Executive
and the Company, the employment of the Executive by the Company is "at will"
and, subject to Section 1(a) hereof, prior to the Effective Date, the
Executive's employment and/or this Agreement may be terminated by either the
Executive or the Company at any time prior to the Effective Date, in which case
the Executive shall have no further rights under this Agreement.  From and after
the Effective Date this Agreement shall supersede any other agreement between
the parties with respect to the subject matter hereof.

                                       14
<PAGE>

          IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization from its Board of Directors, the Company
has caused these presents to be executed in its name on its behalf, all as of
the day and year first above written.

                                   FEDERAL-MOGUL CORPORATION

                                   By: /s/ Richard P. Randazzo
                                       ----------------------------------------

                                   FRANK MACHER

                                   By: /s/ Frank Macher
                                       ----------------------------------------

                                       15

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