April 7 (Bloomberg) -- W.R. Grace & Co., the chemical maker forced into bankruptcy seven years ago by more than 135,000 asbestos injury claims, agreed to settle the remainder of those cases by paying as much as $1.8 billion.

The accord, disclosed today in a regulatory filing, would eliminate the last major hurdle to Grace's reorganization if it's approved by a bankruptcy judge in Pittsburgh. Under the deal, Grace will no longer be liable for its asbestos products. All future lawsuits would be settled through a trust fund.

``Countless lives were lost and families damaged because of the needless use of asbestos products for many decades,'' John Cooney, a Chicago lawyer who represents some of the claimants, said in a statement. Grace, which said it has accounted for the cost of the agreement in its reserves, rose 8 percent.

Under the settlement, the company will pay as much as $1.8 billion into the trust for victims of its asbestos-related products, including steel fireproofing. The fund will first collect $250 million, then an additional $1.55 billion from 2019 through 2034, guaranteed by 50.1 percent of Grace common stock.

Claimants will also get the right to buy 10 million shares at $17 a share, according to the filing with the U.S. Securities and Exchange Commission. The equity may bring the total value of the settlement to about $3 billion, according to Cooney, who helped negotiate the deal with Columbia, Maryland-based Grace.

`Biggest Impediment'

``The biggest impediment through the last seven years has been the personal injury amount,'' Grace Chief Executive Officer Fred Festa said. ``This settlement resolves that issue.''

The payments under the agreement will come as part of the company's reorganization plan, which must be approved by U.S. Bankruptcy Judge Judith Fitzgerald in Pittsburgh. Under that plan, Grace has agreed to repay all debt.

Festa said he hoped the company will exit bankruptcy late this year, although objections to the reorganization plan may delay the exit until early 2009. Grace may borrow as much as $1.5 billion in exit financing to pay off $1 billion in anticipated net debt, with the remainder going to settlement costs and other liabilities, he said.

Grace set aside $1.7 billion to pay asbestos litigation in late 2004, Festa said. The total cost to Grace is within the company's current reserve and won't require an additional charge, Robert Tarola, Grace's senior vice president of corporate strategy, said today in a conference call.

The cost of financing the asbestos trust will be shared in part by insurance providers and other companies that face related asbestos claims, Grace said.

Midst of Hearing

Since filing for bankruptcy, Grace has battled with lawyers for asbestos victims about how to structure the trust.

The company doubled sales during bankruptcy to $3.12 billion last year by expanding globally and focusing on chemicals for the construction and refining industries, said Festa, who is also Grace's chairman. The company now gets 65 percent of its sales outside the U.S., double the pre-bankruptcy level, he said.

``Instead of taking a wait-and-see mode on Chapter 11, we tried to maximize the value of the company,'' Festa said.

Sales gains that have averaged 8 to 12 percent a year should continue after Grace exits bankruptcy, he said.

The company also faces federal criminal charges and lawsuits related to its former vermiculite ore mine near Libby, Montana, where town residents claimed Grace is responsible for exposing them to asbestos.

Biggest Payment

Last month, the company agreed to the biggest payment ever to reimburse the U.S. Superfund program for cleanup costs. That $250 million settlement ended a 2003 court judgment.

U.S. prosecutors claim at least 1,200 workers and residents of the town were injured or killed as a result of asbestos- related diseases, including asbestosis, a scarring of the lungs, and mesothelioma, a form of cancer.

The company and six former executives were indicted for contaminating Libby and interfering with a government cleanup. A trial has been delayed while a federal appeals court considers pretrial rulings.

If convicted, Grace may be fined as much as $280 million. Individual defendants may be sentenced to as much as 15 years in prison. Grace and the executives pleaded not guilty.

Grace rose $1.98 to $26.83 in New York Stock Exchange composite trading.

The case is In re W.R. Grace, 01-1139, U.S. Bankruptcy Court, District of Delaware (Wilmington).

To contact the reporters on this story: Steven Church in Wilmington, Delaware, at schurch3@bloomberg.net; Jack Kaskey in New York at jkaskey@bloomberg.net.

Last Updated: April 7, 2008 17:52 EDT