29th September 2005 - Federal Mogul: UK Pensions Update September 2005

Statement from Kroll, Administrators of the Federal Mogul UK Group of Companies

To all Federal Mogul employees

Ref: Federal Mogul UK Group (in administration); 26 September 2005

As the administrators of the Federal Mogul group of companies, we wanted to update you on a significant development and outline how it affects you as employees and, if appropriate, as pension scheme members.

We are pleased to confirm that an agreement in principle has been reached with Federal Mogul, the US Creditor Committees and the Pensions Protection Fund (PPF), with support from the T&N Creditor Committee. The agreement constitutes the most significant step to date towards a final settlement and a reorganisation of the Federal Mogul UK Group.

The agreement in principle provides for a cash settlement to be made available for creditors, allowing ownership and control over the UK businesses and assets to be returned to the global Federal Mogul group and this suspends the efforts relating to the controlled realisation of assets. The companies will remain in administration until a distribution can be made to creditors and today's news does not, in itself, create any day to day changes for you as an employee at this time.

For those of you who are T&N pension's scheme members, you may be interested to learn that we estimate that we will have approximately £250 million to pay a dividend to the T&N pension scheme. The PPF has indicated support for the agreement and that, in itself, it would not prevent the UK pension schemes from entry into the PPF at a later date if a second insolvency event occurred. We will continue to liaise with the Independent Trustees, the Pensions Regulator and the PPF with regard to the group pension schemes.

We will also have other funds to pay UK asbestos claimants, certain other asbestos claimants of the UK companies and other creditors of the UK companies. The terms of the agreement state that US asbestos claims will be settled by the US reorganisation process, which Federal Mogul and the US Creditor Companies continue to progress.

There are still some challenging hurdles that must be overcome before this agreement can conclude, including a range of rulings from the UK and US courts, however all parties are hopeful that the settlement of UK claims and the reorganisation of the UK businesses can now shortly commence. While it is too soon to say with any certainty when this will occur, the Administrators will seek to do this as soon as practicable following approval by creditors of Company Voluntary Arrangements.

As you will be aware, this agreement follows many months of negotiations involving the Administrators and other stakeholders to this settlement. Throughout the process, the parties made it clear that they were keen to find an acceptable solution and this agreement is testament to everyone's efforts.

We have included with this note, some questions and answers we thought you might have, however there are no doubt many other questions not included. If you could direct these to your line manager in the normal way, we will seek to provide answers to them as quickly as possible.

Finally, this is one of the most complex restructurings ever undertaken and the signing of an agreement in principle moves it further towards a successful conclusion and the eventual exit from administration and the payment to creditors. Your support, and that of your representatives, has been vital throughout this process and I'd like to thank you for all your efforts during this time.

Yours faithfully

Simon Freakley
Joint Administrator of the Federal Mogul UK Group of Companies
For an on behalf of the Joint Administrators of the Federal Mogul UK Group of Companies

Source: Transport and General Workers' Union Website