Federal-Mogul 2010
Management Incentive Plan (MIP)

    


    Goal:

    


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

    


    Participants:

    


    Individual
employees are eligible for participation in the MIP based on an appointment by
the employee’s Vice President for employees below the level of Vice President
confirmed by the Senior Vice President of Human Resources and Organization or in
the case of any employee at or above the level of Vice President by the
President and Chief Executive Officer subject to confirmation by the
Compensation Committee of the Board of Directors (the “Committee”) and provided
that in no event shall the aggregate MIP bonus payouts exceed the maximum bonus
pool.

    


    Target
Bonus:

    


    Target
Bonuses are expressed as a percentage of the employee’s Base Annual
Salary.  If the employee is paid on a monthly basis, the Base Annual
Salary, for purposes of the MIP Plan, is 12 times the monthly rate. If the
employee is paid on an every-other-week basis, the Base Annual Salary is 26
times the bi-weekly rate.   For bonus calculations, exclude 13th
month or other mandated payments in countries that require them.  For
calculation purposes, the employee’s Base Annual Rate as of December 31, 2010 is
used.

    


    Target
Bonus percentages vary by the position occupied by the individual in the
organization.   No changes may be made to the assigned target
bonuses without the written approval of the Director of Compensation and
Benefits and/or the Senior Vice President of Human Resources and Organization
provided that in the case of any employee at or above the level of Vice
President any change shall be subject to confirmation by the
Committee.   It is the responsibility of the Human Resource
Directors to insure that Target Bonuses are consistent.

    


    Proration:

    


    In order
to be eligible to receive a MIP payment for 2010, a participant must be employed
in a MIP-eligible position for a minimum of three months during 2010, except as
may be approved by the Senior Vice President of Human Resources and Organization
and, in the case of any employee at or above the level of Vice President,
subject to confirmation by the Committee.  A participant will earn a
MIP payment based on the amount of time the eligible participant is actively and
continuously employed in an eligible position during 2010.  When an
individual first becomes eligible to participate in the MIP, or a participant is
promoted or demoted from a job with one Target Bonus level to another with a
different Target Bonus level, from one operation to another with different
metric measures, is rehired, or is placed on or returns from leave of absence,
the calculated bonus is prorated based on the number of months actively and
continuously employed in the applicable job.


    
      
         


      

      
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    Communications:

    


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

    


    Metrics:

    


    2010 MIP
metrics are outlined in Appendix I.

    


    Adjustments
- The metrics and their achievement levels are the basis for payout
calculations. However, each participant's individual performance and
contributions will also be considered and may alter the final
payout.  In addition, the Company may reduce the 2010 MIP payment to a
Group Operations Vice President, Group Finance Director or Plant Manager based
on its assessment of the results of an audit or series of audits of plants or
locations within the individuals’ group.

    


    It is
intended that increases and decreases in participant MIP bonus payouts which
result from individual or group performance and contributions shall not result
in an increase in the proposed payout of the overall MIP.  In the
event that the MIP bonus payout otherwise calculated in accordance with this MIP
would exceed the maximum bonus pool, each of the proposed MIP bonus payouts
shall be reduced prorata in order that the aggregate MIP bonus payouts shall not
exceed the maximum bonus pool.

    


    MIP Payout
Ranges:

    


    The
payout range for the 2010 MIP is from 0 to 200% of a participant’s Target
Bonus.  For example, if an employee’s Target Bonus is 10% of Base
Annual Salary, he or she may receive an amount ranging from zero up to 20% of
Base Annual Salary.  Payout percentages are rounded to the nearest
whole percent (0.5 and above rounds up and any amount under 0.5 rounds
down.)

    


    The 2010
MIP bonus payment is limited to a maximum of 200% of an individual’s Target
Bonus.

    


    Target Achievement
Level:

    


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

    


    Minimum Metric Achievement
Level:

    


    If for
any metric the achievement level does not equal or exceed 80% of the target, the
payout for that metric will be zero.  At 80% achievement the payout
for a metric will be 50%.

    


    Maximum Metric Achievement
Level:

    


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


    
      
         


      

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

    


    Payout
Timing:

    


    MIP
participants must be actively employed on the day of payout to be eligible for a
MIP payment.  Payments under the 2010 MIP will be made between January 1, 2011
and March 15, 2011 after completion of the annual audit of the Company’s 2010
consolidated financial statements and filing of the Company’s Form 10-K for the
year ending December 31, 2010.  Management shall provide to the Committee by
February 1, 2011 the Company’s 2010 unaudited consolidated financial results,
other information required to calculate performance against the applicable
metrics, and recommendations for MIP payouts consistent with such financial
performance and other information (the “Committee Information Package”).  The
Committee shall have a two to three week period following receipt of the
Committee Information Package to review and consider the proposed 2010 MIP
payouts, provided that no MIP payout shall be made unless and until the
Committee has approved payouts, the completion of the audit of the 2010
consolidated financial statements and filing of the Corporation’s Form 10-K on a
basis consistent with the information provided to the Committee in the Committee
Information Package.  Once the 2010 MIP payouts have been approved by the
Committee, payments under the 2010 MIP shall be made promptly.  In all
countries, local tax laws apply, and payments will be reduced by amounts
required to be withheld for taxes at the time payments are made. MIP payments
will not be included in benefits bearing compensation, except for the
calculation of pension plan benefits, and in the U.S., for 401(k) plan
contributions.

    


    Compensation Committee of
the Board of Directors:

    


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

    


    Company
Discretion:

    


    The
Company may, with the prior approval of the Committee, make changes to the MIP
program.  The Company may alter, postpone or disallow individual or location
payments as it deems appropriate, within the plan's payout range of zero to 200%
of Target, subject in the case of any employee at or above the level of Vice
President to the prior approval by the Committee.

    


    General
Provisions:

    


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

    


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

    


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


    
      
         


      

      
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    d) Voluntary
Termination:   Subject to the Company Discretion clause
above, in the event a participant elects to leave or elects to retire from
Federal-Mogul before payment of the 2010 MIP bonus is made, all rights under the
MIP cease and no benefit is vested, accrued or due under the MIP.

    


    e) Involuntary
Termination: Subject to the Company Discretion clause above, if a
participant is involuntarily terminated for reasons other than “for cause”, dies
or becomes permanently disabled prior to December 31, 2010, he or she may be
paid a prorated portion of his/her calculated MIP Bonus.  In the case
of any employee at or above the level of Vice President who is involuntarily
terminated, any such pro-rated payment shall require the prior approval of the
Committee.  The pro-ration will be calculated based on the formula (x times
Target MIP Bonus times the final calculated payout percentage) where x equals a
fraction where the numerator is the number of days the employee is employed in
the year and the denominator is 365 (366 in a Leap
Year).   Payment will be made at the same time and in the same
manner active participants are paid.  In the event of involuntary
termination, payment of a prorated MIP Bonus is contingent on the employee
signing the form of Federal-Mogul Corporation Agreement and
Release.

    


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

    


    g)  Other
Plans:  Nothing contained herein shall limit Federal-Mogul’s
power to make regular or discretionary payments to employees of Federal-Mogul,
whether or not they are participants in this MIP, with, in the case of employees
at or above the level of Vice President, the prior approval of the
Committee.  For the avoidance of doubt, no payment shall be made under
this MIP to any participant if and to the extent that such payment, either alone
or when taken together with other payments from the Company to such participant,
would result in such participant receiving compensation from the Company in
excess of any compensation limit contained in any written employment agreement
between the Company and such participant.

    


    h) Non-Assignability:  No
right under this MIP shall be assignable, either voluntarily or involuntarily by
way of encumbrance, pledge, attachment, levy or charge of any nature (except as
may be required by local, state, or federal law).

    


    Nothing
in this MIP shall require the Company to segregate or set aside any funds or
other property for the purpose of paying any portion of an award.  No
participant, beneficiary or other person shall have any right, title or interest
in any amount awarded under this MIP prior to the payment of such award to him
or her.


    
      
         


      

      
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    Appendix
I

    


    2010
MIP Metrics

    


    1. MIP
EBITDA:

    


    MIP
EBITDA - is Operational EBITDA as calculated and reported in the Company’s U.S.
Securities and Exchange Commission filings; provided however that the Committee
has the discretion, after consultation with management of the Company, to make
adjustments to Operational EBITDA as the Committee deems appropriate in order to
determine MIP EBITDA.

    


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

    


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

    


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

    


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

    


    3. Value Cash
Flow:

    


    Value
Cash Flow is defined as: (x) MIP EBITDA; less (y) capital spending, as audited
by Ernst & Young on a quarterly and annual basis.

    


    4. Safety, Customer
Satisfaction and Service:

    


    Safety

    


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

    


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

    


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


    
      
         


      

      
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    The 2010
safety performance for Plants and/or Business Units with a 2009 Incident Rate
(a) at or below 1.5 will be measured against their actual 2009 Incident Rate or
(b) above 1.5 will have a 2010 safety target of achieving a 10% improvement over
their actual 2009 Incident Rate.

    


    Customer Satisfaction
(Quality)

    


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

    


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

    


    Parts per
Million (PPM) defects for 2010 over 2009 are:

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

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

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

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

    Service

    


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

    


    The 2010
goal for manufacturing plants is 100% on-time delivery to OE customers and 97%
on-time delivery to the Aftermarket.

    


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

    


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

    


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

    


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


    
      
         


      

      
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    5.  Productivity
and Restructuring:

    


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

    


    6.  SG&A
Reduction

    


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


    
      
         


      

      
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