Federal-Mogul Corp. (USA) has exited Chapter 11 bankruptcy protection, after becoming one of the United States' longest-running cases.

Federal-Mogul was forced into bankruptcy at the end of third quarter 2001. Already in financial and operating trouble due to ongoing problems in its automotive parts manufacturing businesses, F-M was pushed over the edge by a mountain of asbestos-related liability and disability claims. The number of asbestos lawsuits ultimately came to nearly 400,000.

The essence of the exit plan, from F-M:

Under the Plan, liability for all asbestos personal injury and wrongful death claims against Federal-Mogul and its affiliates under the Plan will be assumed by an asbestos trust in accordance with the terms of the Plan. Holders of pre-bankruptcy Federal-Mogul bonds will receive stock in post-bankruptcy Federal-Mogul Corporation. Holders of most other claims will receive either cash payments or stock in post-bankruptcy Federal-Mogul Corporation, depending upon an election they previously made. All common stock in Federal-Mogul Corporation issued prior to December 27, 2007 is canceled under the Plan, and holders of that stock will receive warrants to purchase shares in post-bankruptcy Federal-Mogul Corporation as described in the Plan.

F-M's bankruptcy has been controversial. Since filing for bankruptcy protection, the company has been through several management teams, and criticized widely for abusing the system; for example, creditors faulted the company for floating reorganization plans which had no support from creditors, or which were based on dubious financial forecasts, in order to buy time with the courts. The court has also been criticized for allowing the tactics and prolonging the process.

Exiting bankruptcy, financier Carl Icahn holds 25.1% of the company's stock. All former shareholders have seen the value of their holdings wiped out.

Ironically, F-M's asbestos litigation settlement comes as many asbestos injury cases are being called into question, with many thousands of unsupported medical claims rejected by courts nationwide.

The asbestos claims trust owns just over 50% of F-M shares going forward. But Mr. Icahn also has options to buy all of the asbestos trust Class B shares, for approximately $900 million, giving him close to 76% ownership of Federal-Mogul.

F-M's new nine-member board will have three from Mr. Icahn's Tracinda group, three from the asbestos trust group, Mr. Icahn, current CEO Mr. Alapont, and the head of the creditor's committee. If Mr. Icahn's group buys all of the available shares, the board will be reduced to five members, also removing the four from the creditor's committee.

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