<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 2, 1996
REGISTRATION NO. 33-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
GRACE HOLDING, INC.
(TO BE RENAMED W. R. GRACE & CO.)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
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DELAWARE
(STATE OR OTHER
JURISDICTION OF 3081 65-0654331
INCORPORATION OR (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
ONE TOWN CENTER ROAD
BOCA RATON, FLORIDA 33486-1010
(407) 362-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
ROBERT B. LAMM, ESQ.
VICE PRESIDENT AND SECRETARY
ONE TOWN CENTER ROAD
BOCA RATON, FLORIDA 33486-1010
(407) 362-1645
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPY TO:
ANDREW R. BROWNSTEIN, ESQ.
WACHTELL, LIPTON, ROSEN & KATZ
51 WEST 52ND STREET
NEW YORK, NEW YORK 10019
(212) 403-1000
------------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
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==================================================================================================================
TITLE OF EACH CLASS OF
SECURITIES TO BE REGISTERED AMOUNT TO BE REGISTERED PROPOSED PROPOSED AMOUNT OF
MAXIMUM MAXIMUM REGISTRATION
OFFERING PRICE AGGREGATE FEE(1)
PER SHARE OFFERING PRICE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $0.01
per share........................ Up to 100,000,000 Shares N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------
Rights to purchase Junior
Participating Preferred Stock,
par value $0.01 per share........ Up to 100,000,000 Rights N/A N/A N/A
==================================================================================================================
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(1) Paid in connection with the Registration Statement on Form F-4 of Fresenius
Medical Care AG.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
GRACE HOLDING, INC.
(TO BE RENAMED W. R. GRACE & CO.)
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
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FORM S-1 ITEM NUMBER AND HEADING CAPTION OR LOCATION IN PROSPECTUS
------------------------------------- -------------------------------------------------
<C> <S> <C>
1. FOREPART OF THE REGISTRATION
STATEMENT AND OUTSIDE FRONT COVER
PAGE OF PROSPECTUS................... Outside Front Cover Page
2. INSIDE FRONT AND OUTSIDE BACK COVER
PAGES OF PROSPECTUS.................. ADDITIONAL INFORMATION; TABLE OF CONTENTS
3. SUMMARY INFORMATION, RISK FACTORS AND
RATIO OF EARNINGS TO FIXED CHARGES... SUMMARY; CONSOLIDATED FINANCIAL STATEMENTS OF W.
R. GRACE & CO. FOR THE YEAR ENDED DECEMBER 31,
1995
4. USE OF PROCEEDS...................... Not Applicable
5. DETERMINATION OF OFFERING PRICE...... Not Applicable
6. DILUTION............................. Not Applicable
7. SELLING SECURITY HOLDERS............. Not Applicable
8. PLAN OF DISTRIBUTION................. THE DISTRIBUTION
9. DESCRIPTION OF SECURITIES TO BE
REGISTERED........................... DESCRIPTION OF NEW GRACE CAPITAL STOCK; CERTAIN
ANTI-TAKEOVER EFFECTS
10. INTERESTS OF NAMED EXPERTS AND
COUNSEL.............................. VALIDITY OF SECURITIES
11. INFORMATION WITH RESPECT TO THE
REGISTRANT........................... SUMMARY -- New Grace; BUSINESS OF NEW GRACE;
BUSINESS OF GRACE CHEMICALS; SUMMARY -- Listing
and Trading of New Grace Common Stock; No Current
Public Market; THE DISTRIBUTION -- Listing and
Trading of New Grace Common Stock; No Current
Public Market; Consolidated Financial Statements
of W. R. Grace & Co. for the year ended December
31, 1995; Consolidated Financial Statements of W.
R. Grace & Co. for the Quarter Ended March 31,
1996; GRACE CHEMICALS SELECTED FINANCIAL
INFORMATION; MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION;
MANAGEMENT; SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS; BENEFICIAL OWNERSHIP OF
MANAGEMENT; CERTAIN RELATIONSHIPS AND
TRANSACTIONS
12. DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES.......................... Not Applicable
</TABLE>
<PAGE> 3
ANNEX A
PROSPECTUS
GRACE HOLDING, INC.
(TO BE RENAMED W. R. GRACE & CO.)
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
This Prospectus of Grace Holding, Inc. (the "Prospectus") is being furnished
in connection with the distribution ("Distribution") by W. R. Grace & Co., a New
York corporation ("Grace New York"), of one share of Common Stock, par value
$.01 per share (together with the associated rights, "New Grace Common Stock"),
of Grace Holding, Inc., a Delaware corporation wholly owned by Grace New York
(individually or together with its subsidiaries, "New Grace"), for each share of
Common Stock, par value $1.00 per share, of Grace New York (together with the
associated rights, "Grace New York Common Stock").
The Distribution, and certain related transactions, will be effected as
follows.
- Pursuant to the Agreement and Plan of Reorganization, as amended or
supplemented from time to time (the "Reorganization Agreement," and the
transactions contemplated thereby, the "Reorganization"), dated as of
February 4, 1996, by and between Grace New York and Fresenius AG, a German
corporation ("Fresenius AG"), W. R. Grace & Co.-Conn., a Connecticut
corporation which conducts the packaging and specialty chemicals
businesses of Grace New York ("Grace Chemicals"), will distribute the
capital stock of National Medical Care, Inc., a Delaware corporation and
the wholly owned principal health care subsidiary of Grace Chemicals
("NMC"), to Grace New York, resulting in Grace Chemicals, New Grace and
NMC becoming sister companies.
- Immediately thereafter, Grace New York will (1) contribute the capital
stock of Grace Chemicals to New Grace and (2) effect the Distribution (the
moment of the Distribution, the "Time of Distribution").
- Immediately following the Time of Distribution, Grace New York will be
recapitalized (the "Recapitalization") so that each holder of one share of
Grace New York Common Stock will thereafter also hold one share of a new
series of Grace New York preferred stock, par value $.10 per share (a "New
Preferred Share").
- Immediately following the Recapitalization, Grace New York (which will
then be comprised only of NMC's health care business) will merge (the
"Grace Merger") with a subsidiary of Fresenius Medical Care AG, a German
corporation ("Fresenius Medical Care"), and, based on information
available as of July 15, 1996, holders of Grace New York Common Stock
(other than any Grace New York Common Stock as to which appraisal rights
have been asserted and not withdrawn or otherwise lost, and certain other
shares) will receive approximately 1.013 American Depositary Shares
("ADSs"), each representing one-third of an Ordinary Share, nominal value
DM 5 per share, of Fresenius Medical Care ("FMC Ordinary Share"), in
exchange for each share of Grace New York Common Stock. Such ADSs,
together with the FMC Ordinary Shares allocated to NMC employees holding
options with respect to Grace New York Common Stock, will represent 44.8%
of the FMC Ordinary Shares outstanding on a fully diluted basis
immediately following the Reorganization. Shares of Grace New York
Preferred Stock, par value $100 per share ("Grace New York Preferred
Stock"), will not be exchanged for FMC Ordinary Shares in the Grace Merger
and will remain outstanding thereafter. In addition, immediately following
the Distribution, Fresenius USA, Inc., a Massachusetts corporation and
majority-owned subsidiary of Fresenius AG which acts as Fresenius AG's
distributor in North America ("Fresenius USA"), will merge with another
subsidiary of Fresenius Medical Care (the "Fresenius Merger").
- As promptly as practicable following the Grace Merger and the Fresenius
Merger, Fresenius USA will be contributed to FNMC.
For more information on the Reorganization, see the Joint Proxy
Statement-Prospectus of Grace New York and Fresenius USA dated August 2, 1996
(the "Joint Proxy Statement-Prospectus"). Immediately prior to the Time of
Distribution, the Certificate of Incorporation of Grace New York (the "Grace New
York Certificate") will be amended to change the name of Grace New York to
"Fresenius National Medical Care, Inc." ("FNMC"), and the Amended and Restated
Certificate of Incorporation of New Grace (the "New Grace Certificate") will be
amended to change the name of New Grace to "W. R. Grace & Co."
The Distribution will result in 100% of the outstanding shares of New Grace
Common Stock being distributed to the holders of Grace New York Common Stock. No
consideration will be required to be paid by holders of Grace New York Common
Stock for the shares of New Grace Common Stock. It is expected that certificates
representing shares of New Grace Common Stock will be mailed by ChaseMellon
Shareholder Services, L.L.C. (the "Distribution Agent") as promptly as
practicable following the Time of Distribution. See "THE DISTRIBUTION."
There is no current public trading market for New Grace Common Stock,
although it is expected that a "when-issued" trading market will develop at or
about the Time of Distribution. New Grace will apply to list the shares of New
Grace Common Stock on the New York Stock Exchange ("NYSE") under the symbol
"GRA."
(Continued on next page)
---------------------
A VOTE OF THE HOLDERS OF THE GRACE NEW YORK COMMON AND PREFERRED
STOCKS IS REQUIRED IN CONNECTION WITH THE REORGANIZATION, AS
DESCRIBED IN THE JOINT PROXY STATEMENT-PROSPECTUS.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
---------------------
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES.
The date of this Prospectus is August 2, 1996.
<PAGE> 4
(Continued from front cover)
The following charts represent the corporate organization of the parties to the
Reorganization on both pre-transaction and post-transaction bases:
[Chart]
(End of front cover)
<PAGE> 5
TABLE OF CONTENTS
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PAGE
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SUMMARY............................................................................... 1
New Grace........................................................................... 1
The Distribution.................................................................... 2
Tax Consequences of the Distribution................................................ 2
Relationship with Grace New York after the Distribution............................. 2
Listing and Trading of New Grace Common Stock; No Current Public Market............. 3
SUMMARY SELECTED FINANCIAL INFORMATION OF GRACE CHEMICALS............................. 4
THE DISTRIBUTION...................................................................... 5
Manner of Effecting the Distribution................................................ 5
Conditions; Termination............................................................. 5
Fraudulent Transfer and Related Considerations...................................... 6
Certain Federal Income Tax Consequences of the Distribution......................... 6
Relationships After the Distribution................................................ 8
Listing and Trading of New Grace Common Stock; No Current Public Market............. 8
Dividend Policy and Share Repurchases............................................... 9
NMC Credit Agreement................................................................ 9
Other Arrangements.................................................................. 10
BUSINESS OF NEW GRACE................................................................. 12
BUSINESS OF GRACE CHEMICALS........................................................... 12
Overview and Strategy............................................................... 12
Chemical Industry Overview.......................................................... 13
Products and Markets................................................................ 14
Discontinued Operations............................................................. 18
Research Activities................................................................. 19
Patents and Other Intellectual Property Matters..................................... 19
Environmental, Health and Safety Matters............................................ 20
Legal Proceedings and Regulatory Matters............................................ 20
Properties.......................................................................... 28
PRO FORMA FINANCIAL INFORMATION....................................................... 29
Unaudited Pro Forma Condensed Consolidated Balance Sheet............................ 29
Unaudited Pro Forma Condensed Consolidated Statement of Operations.................. 30
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AND STATEMENT OF
OPERATIONS.......................................................................... 31
CAPITALIZATION........................................................................ 33
GRACE CHEMICALS SELECTED FINANCIAL INFORMATION........................................ 34
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION........................................................................... 35
Review of Operations................................................................ 35
Specialty Chemicals................................................................. 35
Statement of Operations............................................................. 37
Restructuring Costs, Asset Impairments and Other Costs.............................. 38
Discontinued Operations............................................................. 39
Financial Condition................................................................. 39
Asbestos-Related Matters............................................................ 41
Environmental Matters............................................................... 41
</TABLE>
i
<PAGE> 6
<TABLE>
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PAGE
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MANAGEMENT............................................................................ 43
Board of Directors.................................................................. 43
Committees of the Board of Directors................................................ 45
Compensation of Directors........................................................... 45
Executive Officers.................................................................. 46
Executive Compensation and Employee Benefits Prior to the Distribution.............. 46
Executive Compensation and Employee Benefits Following the Distribution............. 47
Employee Benefits and Compensation Agreement........................................ 47
Compensation Committee Interlocks and Insider Participation......................... 47
CERTAIN AGREEMENTS BETWEEN GRACE NEW YORK AND NEW GRACE............................... 48
CERTAIN RELATIONSHIPS AND TRANSACTIONS................................................ 48
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS....................................... 49
BENEFICIAL OWNERSHIP OF MANAGEMENT.................................................... 49
DESCRIPTION OF NEW GRACE CAPITAL STOCK................................................ 50
CERTAIN ANTI-TAKEOVER EFFECTS......................................................... 51
Classified Board of Directors....................................................... 51
Number of Directors; Removal; Filling Vacancies..................................... 51
No Shareholder Action by Written Consent; Special Meetings.......................... 52
Advance Notice Provisions for Shareholder Nominations and Shareholder Proposals..... 52
New Grace Preferred Stock........................................................... 53
Rights to Purchase Securities and Other Property.................................... 54
Amendment of Certain Provisions of the New Grace Certificate of Incorporation and
New Grace By-laws................................................................ 54
Preferred Stock Purchase Rights..................................................... 55
Certain Anti-takeover Features...................................................... 57
Anti-takeover Statute............................................................... 57
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS............................... 59
Limitation of Liability of Directors................................................ 59
Indemnification of Directors and Officers........................................... 59
Certain Other Information........................................................... 60
COMPARISON OF CERTAIN RIGHTS OF SHAREHOLDERS OF GRACE NEW YORK AND NEW GRACE.......... 61
Duties of Directors................................................................. 61
Size and Classification of the Board of Directors................................... 61
Removal of Directors; Filling Vacancies on the Board of Directors................... 62
Shareholder Nominations............................................................. 62
Action by Written Consent........................................................... 63
Special Meetings of Shareholders; Quorum............................................ 63
Shareholder Proposals............................................................... 64
Required Vote for Authorization of Certain Actions.................................. 64
Amendment of Corporate Charter and By-laws.......................................... 64
Appraisal Rights.................................................................... 65
Fair Price and Anti-Greenmail Provisions............................................ 65
Stock Rights Plan................................................................... 65
State Anti-takeover Statutes........................................................ 66
Limitation on Directors' Liability.................................................. 67
Indemnification of Officers and Directors........................................... 67
Cumulative Voting................................................................... 67
Conflict-of-Interest Transactions................................................... 68
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ii
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<TABLE>
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PAGE
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Dividends and Other Distributions................................................... 68
Issuance of Rights or Options to Purchase Shares to Directors, Officers and
Employees........................................................................ 68
Loans to Directors.................................................................. 69
Right to Inspect Corporate Books and Records; Right to Inspect Shareholder Lists.... 69
VALIDITY OF SECURITIES................................................................ 70
EXPERTS............................................................................... 70
ADDITIONAL INFORMATION................................................................ 70
INDEX OF DEFINED TERMS................................................................ 71
ANNEXES
A - Form of Amended and Restated Certificate of Incorporation of W. R. Grace &
Co.............................................................................. A-1
B - Form of Amended and Restated By-laws of W. R. Grace & Co........................ B-1
C - Summary of Grace Holding, Inc. 1996 Stock Incentive Plan........................ C-1
D - Summary of Grace Holding, Inc. 1996 Stock Retainer Plan for Nonemployee
Directors....................................................................... D-1
E - Grace New York 1996 Proxy Excerpt............................................... E-1
F - Consolidated Financial Statements of W. R. Grace & Co. for the year ended
December 31, 1995............................................................... F-1
G - Consolidated Financial Statements of W. R. Grace & Co. for the quarter ended
March 31, 1996.................................................................. G-1
</TABLE>
iii
<PAGE> 8
SUMMARY
The following summary is qualified in its entirety by the more detailed
information set forth elsewhere in this Prospectus and the Joint Proxy
Statement-Prospectus. The location of the definitions of defined terms used
herein may be found in the "INDEX OF DEFINED TERMS" on page 71. This Prospectus
is being furnished solely to provide information to holders of Grace New York
Common Stock who will receive shares of New Grace Common Stock in the
Distribution. Changes may occur after the date hereof. However, the information
set forth herein will not be updated, except in the normal course of public
disclosures by Grace New York and, following the Distribution, New Grace.
NEW GRACE
New Grace will be the parent company of Grace Chemicals, which is primarily
engaged in the packaging and specialty chemicals businesses on a worldwide
basis. Grace Chemicals primarily operates through the following four units:
- Grace Packaging, which accounted for approximately 46.2% of Grace
Chemicals' 1995 sales and revenues from continuing operations, provides
flexible packaging systems (including material, equipment and services)
for meat, poultry, cheese and other perishable food products; shrink films
used in packaging consumer and industrial products; foam trays for
supermarkets and poultry and other food processors; and rigid plastic
containers for dairy and other food and nonfood products.
- Grace Davison, which accounted for approximately 18.8% of Grace
Chemicals' 1995 sales and revenues from continuing operations,
manufactures refinery catalysts, including fluid cracking catalysts that
"crack" crude oil into motor fuels and other petroleum-based products;
polyolefin catalysts, which are critical in the manufacture of
polyethylene resins for plastic film, high-performance pipe and household
containers; and silica and zeolite adsorbents, which are used in a wide
variety of products, such as plastics, toothpastes, paints and insulated
glass, as well as in the refining of edible oils.
- Grace Construction, which accounted for approximately 10.8% of Grace
Chemicals' 1995 sales and revenues from continuing operations,
manufactures concrete admixtures, cement additives, fireproofing and
waterproofing materials and masonry products to strengthen concrete,
control corrosion, prevent water damage and protect structural steel
against collapse due to fire.
- Grace Container, which accounted for approximately 9.7% of Grace
Chemicals' 1995 sales and revenues from continuing operations, produces
can and bottle sealants that protect food and beverages from bacteria and
other contaminants, extend shelf life and preserve flavor; coatings used
in the manufacture of cans and closures; and formulated engineered
polymers used in the electronics and other industries.
Grace Chemicals' strategy has been and, following the Distribution, will be
to (i) focus on core businesses to accelerate profitable growth; (ii) upgrade
financial performance, principally by selling or monetizing noncore businesses,
managing debt levels consistent with profitable growth opportunities, and
reducing overhead; and (iii) integrate corporate and operating unit functions
through global product line management. As part of this strategy, since
mid-1995, efforts have been made to enhance shareholder value by strengthening
the balance sheet and reducing costs. These objectives are being achieved
through (i) the pending dispositions of Grace Chemicals' health care business
and water treatment and process chemicals business and the planned disposition
of its cocoa business (intended to be completed in 1996); (ii) the anticipated
use of the proceeds from these and other transactions (including approximately
$2.2 billion from the Reorganization) to substantially reduce indebtedness, to
repurchase stock, and to invest in core businesses; (iii) a worldwide
restructuring program to streamline processes and thereby reduce expenses by
approximately $100 million annually (with further actions being taken to improve
margins); and (iv) the implementation of rigorous controls on working capital
and capital spending. These plans are designed to make Grace Chemicals a
high-performance, high-value company focused on the strengths of its packaging
and specialty chemicals businesses. In addition, in the early 1990s, the
management structure of Grace Chemicals was reorganized on the basis of global
product lines (as distinguished from regional product management). As a result
of this
<PAGE> 9
reorganization, Grace Chemicals believes that it is better able to serve its
multinational customers in all global regions, as well as to tailor its product
offerings to meet local preferences.
THE DISTRIBUTION
At the Time of Distribution, Grace New York (through the Distribution
Agent) will distribute, on a one-share-for-one-share basis, all of the issued
and outstanding shares of New Grace Common Stock to the holders of shares of
Grace New York Common Stock. No consideration will be required to be paid by the
holders of Grace New York Common Stock for the New Grace Common Stock. It is
expected that the mailing of certificates representing shares of New Grace
Common Stock pursuant to the Distribution will occur as promptly as practicable
following the time of Distribution. In connection with the Distribution, NMC
will borrow and/or will assume Debt (as defined in the Reorganization Agreement)
in an aggregate amount of $2.263 billion (as adjusted pursuant to the
Reorganization Agreement) and will distribute the net cash proceeds to Grace
Chemicals as a dividend (such assumption and dividend, the "Distribution
Payment"). As of the date hereof, it is estimated that the Distribution Payment
will be approximately $2.2478 billion. A portion of such net cash proceeds will
be applied to further reduce Grace Chemicals' debt; the remaining net cash
proceeds are expected to be used to purchase shares of New Grace Common Stock
and to invest in core businesses. Pursuant to the Distribution Agreement, dated
as of February 4, 1996, between Grace New York, Fresenius AG and Grace Chemicals
(the "Distribution Agreement"), at the Time of Distribution, New Grace's name
will be changed to "W. R. Grace & Co." See "THE DISTRIBUTION -- Manner of
Effecting the Distribution -- Intercompany Transactions."
The Distribution will be consummated contemporaneously with the Grace
Merger and only after the satisfaction or waiver of all conditions to the Grace
Merger. In addition, consummation of the Distribution is a condition to the
consummation of the Grace Merger. The Distribution Agreement may be terminated,
and the Distribution may be abandoned, only following termination of the
Reorganization Agreement, by and in the sole discretion of the Grace New York
Board of Directors (the "Grace New York Board"), without the approval of Grace
New York shareholders or any other party. In the event of such termination or
abandonment, Grace New York will have no liability to any person under the
Distribution Agreement or any obligation to effect the Distribution thereafter.
See "CERTAIN AGREEMENTS BETWEEN GRACE NEW YORK AND NEW GRACE."
TAX CONSEQUENCES OF THE DISTRIBUTION
The Distribution is expected to be tax-free to Grace New York and to the
holders of Grace New York Common Stock who receive shares of New Grace Common
Stock in the Distribution. See "THE DISTRIBUTION -- Certain Federal Income Tax
Consequences of the Distribution."
RELATIONSHIP WITH GRACE NEW YORK AFTER THE DISTRIBUTION
As a result of the Distribution, New Grace will cease to be a subsidiary of
Grace New York and will operate as a separate publicly held company. See
"CERTAIN RELATIONSHIPS AND TRANSACTIONS."
Under the credit agreement to be entered into by NMC shortly before the
Distribution (the "NMC Credit Agreement," and the credit facilities provided
thereunder, the "NMC Credit Facility"), Grace Chemicals has agreed to provide
guarantees up to a maximum of $950 million. The NMC Credit Agreement is expected
to provide that these guarantees will be released as to $800 million upon the
occurrence of certain events after 45 days, but within 60 days, following the
Effective Date, including (a) the receipt of an unconditional joint and several
guarantee from Fresenius Medical Care and certain of its subsidiaries for the
full amount of the NMC Credit Facility; or (b) the receipt of a letter of credit
or other acceptable financial accommodation for the account of Grace Chemicals
or Fresenius Medical Care in form and substance satisfactory to the lenders
under the NMC Credit Agreement (the "Lenders"); or (c) a prepayment in certain
specified amounts under the NMC Credit Facility. If such guarantees are not
released within 60 days following the Effective Date, demand for payment will be
made on Grace Chemicals under such guarantees as to $800 million. Grace
Chemicals has been advised that it is the intention of Fresenius Medical Care to
2
<PAGE> 10
provide the unconditional joint and several guarantees referred to in the
preceding sentence in a manner so as to cause the release of the Grace Chemicals
guarantees as to $800 million not before 46 days, but on or prior to 50 days,
following the Effective Date. However, no assurance can be given that such
guarantees will be provided or that either or both of Grace Chemicals'
guarantees will be released. In the event that Fresenius Medical Care does not
provide such guarantees or otherwise effect the release of the Grace Chemicals
guarantees as to $800 million, Grace Chemicals would be required to provide the
letters of credit or repay the amounts specified in the NMC Credit Agreement
and, thereafter, be subrogated to the rights of Lenders with respect to such
repaid amounts after the Lenders under the respective facilities have been
repaid in full; and Grace Chemicals has undertaken to the Lenders to maintain
unused available credit in an amount to be determined while the Grace Chemicals
guarantees are outstanding in order to facilitate such actions. In connection
with Grace Chemicals' agreement to extend guarantees under the NMC Credit
Agreement, Fresenius Medical Care and Grace Chemicals intend to enter into an
agreement to induce Fresenius Medical Care to cause such guarantees to be
released on the 50th day following the Effective Date. The balance of the Grace
Chemicals guarantees as to the remaining $150 million will be released upon NMC
(or Fresenius Medical Care, if Fresenius Medical Care guarantees the NMC Credit
Facility), on a consolidated basis, achieving a ratio of senior debt to EBITDA
(i.e., earnings before interest, taxes, depreciation and amortization) of equal
to or less than 3.5. See "THE DISTRIBUTION -- NMC Credit Agreement."
In addition, Grace Chemicals has entered into certain agreements and given
certain guarantees in connection with the OIG Investigation. See "THE
DISTRIBUTION -- Other Arrangements."
LISTING AND TRADING OF NEW GRACE COMMON STOCK; NO CURRENT PUBLIC MARKET
There is no current public trading market for the New Grace Common Stock.
New Grace will apply to list the New Grace Common Stock on the NYSE under the
symbol "GRA" (see "THE DISTRIBUTION -- Listing and Trading of New Grace Common
Stock; No Current Public Market"). However, there can be no assurance as to the
volume of trading and liquidity that will result or as to the prices at which
New Grace Common Stock will trade after the Distribution. Until the New Grace
Common Stock is fully distributed and an orderly market develops, the prices at
which trading in New Grace Common Stock occurs may fluctuate.
3
<PAGE> 11
SUMMARY SELECTED FINANCIAL INFORMATION OF GRACE CHEMICALS
The following summary selected consolidated financial information of Grace
Chemicals should be read in conjunction with the Consolidated Financial
Statements, the First Quarter Financial Statements and "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION" included
elsewhere in this Prospectus. The financial information for the years ended
December 31, 1991 through 1995 has been based on financial statements audited by
Price Waterhouse LLP, independent certified public accountants. The financial
information for the three-month interim periods ended March 31, 1995 and 1996
has been based on unaudited interim financial statements that reflect all
adjustments that, in the opinion of management, are necessary for a fair
presentation of the results of the interim periods presented; all such
adjustments are of a normal recurring nature. Certain amounts in prior periods
have been restated to conform to the current period's basis of presentation. The
results of operations for the three-month interim period ended March 31, 1996
are not necessarily indicative of the results of operations for the fiscal year
ending December 31, 1996.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------- ----------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------ ------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales and revenues................................ $3,326.2 $3,061.8 $2,895.5 $3,218.2 $3,665.5 $853.4 $886.0
(Loss)/income from continuing operations.......... 157.4 1.4 19.1 (41.4) (196.6) 22.9 41.6
Income from continuing operations before special
items(1)........................................ 153.9 146.5 119.1 157.6 194.7 35.4 41.6
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------
1991 1992 1993 1994 1995 MARCH 31, 1996
------- ------- ------- ------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets...................................... $6,007.1 $5,598.6 $6,108.6 $6,230.6 $6,297.6 $6,485.5
Long-term debt.................................... 1,793.1 1,354.5 1,173.5 1,098.8 1,295.5 1,265.4
Total liabilities................................. 3,981.9 4,053.6 4,591.0 4,726.1 5,065.8 5,154.6
Total equity...................................... 2,025.2 1,545.0 1,517.6 1,504.5 1,231.8 1,330.9
</TABLE>
- ---------------
(1) Income from continuing operations before special items reconciles to
(loss)/income from continuing operations as follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------- ---------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Income from continuing operations before special
items............................................... $ 153.9 $ 146.5 $ 119.1 $ 157.6 $ 194.7 $ 35.4 $ 41.6
Provision for corporate governance................... -- -- -- -- (18.6) (12.5) --
Gain on sale of remaining interest in The Restaurant
Enterprises Group, Inc............................. -- -- -- 27.0 -- -- --
Restructuring costs and asset impairments/other
activities......................................... -- -- -- -- (144.0) -- --
Provisions for environmental liabilities at former
manufacturing sites................................ -- -- -- (26.0) (50.0) -- --
Provision relating to a fumed silica plant........... -- (140.0) -- -- -- -- --
Postretirement benefits prior to plan amendments..... -- (5.1) -- -- -- -- --
Strategic restructuring gain......................... 3.5 -- -- -- -- -- --
Provisions relating to asbestos-related liabilities
and insurance coverage............................. -- -- (100.0) (200.0) (178.7) -- --
------- ------- ------- ------- ------- ------ ------
(Loss)/income from continuing operations............. $ 157.4 $ 1.4 $ 19.1 $ (41.4) $(196.6) $ 22.9 $ 41.6
======= ======= ======= ======= ======= ====== ======
</TABLE>
4
<PAGE> 12
THE DISTRIBUTION
In connection with the Reorganization, holders of Grace New York Common
Stock will receive a dividend of one share of New Grace Common Stock for each
share of Grace New York Common Stock held of record at the Time of Distribution.
The terms and conditions of the Distribution are set forth in the Distribution
Agreement and the Reorganization Agreement. See "CERTAIN AGREEMENTS BETWEEN
GRACE NEW YORK AND NEW GRACE." Following the Distribution, Grace New York's
operations will consist of its dialysis services and related health care
businesses, and New Grace will be the parent company of Grace Chemicals'
existing packaging and specialty chemicals businesses.
Holders of record of Grace New York Common Stock with inquiries relating to
the Distribution should contact the Distribution Agent by telephone at (800)
648-8392 or should contact W. R. Grace & Co. in writing at One Town Center Road,
Boca Raton, Florida 33486-1010 or by telephone at (407) 362-2300.
MANNER OF EFFECTING THE DISTRIBUTION
At the Time of Distribution, Grace New York will effect the Distribution by
delivering certificates representing all of the issued and outstanding shares of
New Grace Common Stock to the Distribution Agent, which, in turn, will
distribute such shares on the basis of one share of New Grace Common Stock for
each share of Grace New York Common Stock held of record at the Time of
Distribution. No holder of Grace New York Common Stock will be required to pay
any cash or other consideration for the shares of New Grace Common Stock, or to
surrender or exchange shares of Grace New York Common Stock, in order to receive
shares of New Grace Common Stock. It is expected that certificates representing
shares of New Grace Common Stock will be mailed by the Distribution Agent to
holders of Grace New York Common Stock as promptly as practicable following the
Time of Distribution.
Shares Outstanding Following the Distribution. The actual number of shares
of New Grace Common Stock to be distributed in the Distribution will equal the
number of shares of Grace New York Common Stock outstanding at the Time of
Distribution, less the number of shares of Grace New York Common Stock as to
which appraisal rights have been perfected in accordance with New York law
("Dissenting Shares"). Based upon the shares of Grace New York Common Stock
outstanding on July 15, 1996, and assuming that there are no Dissenting Shares,
approximately 92 million shares of New Grace Common Stock will be distributed in
the Distribution. Following the Distribution, approximately 208 million shares
of New Grace Common Stock will remain authorized but unissued, of which
approximately 11.5 million will be reserved for issuance pursuant to director
and employee stock plans. In the Reorganization, employee stock options with
respect to Grace New York Common Stock held by individuals who will be employees
of New Grace following the Distribution will be converted into options with
respect to New Grace Common Stock, and employee stock options with respect to
Grace New York Common Stock held by individuals who will be employees of
Fresenius Medical Care or a subsidiary thereof following the Distribution will
be converted into either options with respect to securities of Fresenius Medical
Care or securities of Fresenius Medical Care; in both cases, options remaining
outstanding following the Reorganization will be adjusted to preserve their
value. See "MANAGEMENT -- Executive Compensation and Employee Benefits Following
the Distribution."
Intercompany Transactions. Prior to the Distribution, NMC will effect the
Distribution Payment by assuming Debt and transferring cash in an aggregate
amount currently estimated to be approximately $2.2478 billion. See "CERTAIN
AGREEMENTS BETWEEN GRACE NEW YORK AND NEW GRACE."
CONDITIONS; TERMINATION
The Distribution is conditioned upon, among other things, (i) the approval
of the Reorganization by Grace New York shareholders, (ii) the satisfaction or
waiver of all conditions to the Reorganization set forth in the Reorganization
Agreement, and (iii) the compliance of the transactions contemplated by the
Distribution Agreement with all applicable federal and state securities laws.
5
<PAGE> 13
The Distribution will be consummated contemporaneously with the Grace
Merger and only after the satisfaction or waiver of all conditions to the Grace
Merger. In addition, consummation of the Distribution is a condition to the
consummation of the Grace Merger. The Distribution Agreement may be terminated,
and the Distribution may be abandoned, only following termination of the
Reorganization Agreement, by and in the sole discretion of the Grace New York
Board, without the approval of Grace New York's shareholders or any other party.
See "THE REORGANIZATION -- Termination" in the Joint Proxy Statement-Prospectus.
In the event of such termination or abandonment, Grace New York will have no
liability to any person by virtue of the Distribution Agreement or any
obligation to effect the Distribution thereafter.
FRAUDULENT TRANSFER AND RELATED CONSIDERATIONS
It is a condition to the Reorganization that the Distribution and the
Distribution Payment shall have occurred. Under applicable law, the Distribution
and the Distribution Payment would constitute a "fraudulent transfer" if (i)
Grace New York or NMC is insolvent when the Distribution Payment is made or at
the Time of Distribution, (ii) the Distribution or the Distribution Payment
would render Grace New York or NMC insolvent, (iii) the Distribution or the
Distribution Payment would leave Grace New York or NMC engaged in a business or
transaction for which its remaining assets constituted unreasonably small
capital or (iv) Grace New York or NMC intended to incur or believed it would
incur debts beyond its ability to pay as such debts mature. Generally, an entity
is considered insolvent if it is unable to pay its debts as they come due or if
the fair value of its assets is less than the amount of its actual and expected
liabilities. In addition, the Distribution and the Distribution Payment may be
made only out of surplus (net assets minus capital) and not out of capital.
Grace believes that, based on the factors considered in connection with the
Reorganization, each of the Distribution and the Distribution Payment will not
be a fraudulent transfer and will be made out of surplus in accordance with
applicable law. There is no certainty, however, that a court would reach the
same conclusions in determining that Grace New York or NMC have satisfied the
applicable standards. In this regard, it should be noted that Grace New York or
NMC may have significant liabilities relating to regulatory matters. For more
information regarding such potential liabilities, see "BUSINESS OF FRESENIUS
MEDICAL CARE -- Regulatory and Legal Matters" in the Joint Proxy
Statement-Prospectus.
If, in a lawsuit filed by an unpaid creditor or a representative of unpaid
creditors, or a trustee in bankruptcy, a court were to find that, at the time
the Distribution or the Distribution Payment was consummated or after giving
effect thereto, either Grace New York or NMC, as the case may be, (i) was
insolvent, (ii) was rendered insolvent by reason of the Distribution or the
Distribution Payment, (iii) was engaged in a business or transaction for which
its remaining assets constituted unreasonably small capital or (iv) intended to
incur, or believed it would incur, debts beyond its ability to pay as such debts
matured, then such court might require New Grace or Grace Chemicals to fund
certain liabilities of FNMC, as Grace New York will be known following the
Reorganization, or NMC, as the case may be, for the benefit of FNMC's or NMC's
creditors. The same consequences would also apply were a court to find that the
Distribution and the Distribution Payment were not made out of surplus.
Pursuant to the OIG Agreements, the United States has agreed to release
NMC, Grace Chemicals and certain others in connection with certain possible
fraudulent transfer claims relating to the Reorganization. See "-- Other
Arrangements."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION
In the opinion of Wachtell, Lipton, Rosen & Katz, special counsel to Grace,
and Miller & Chevalier, tax counsel to Grace (collectively, "Counsel"), the
following discussion is an accurate description of the material federal income
tax consequences expected to result to New Grace and Grace New York shareholders
as a result of the Distribution. This discussion is based on the current
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
applicable Treasury Regulations, judicial authority and administrative rulings
and practice. There can be no assurance that the Internal Revenue Service (the
"IRS") will not take a contrary view. No ruling from the IRS has been or will be
sought with respect to any aspect of the transactions
6
<PAGE> 14
described herein. Legislative, judicial or administrative changes or
interpretations may be forthcoming that could alter or modify the statements and
conclusions set forth herein. Any such changes or interpretations may or may not
be retroactive and could affect the tax consequences to shareholders.
The following summary is for general information only. The tax treatment
applicable to a shareholder may vary depending upon the shareholder's particular
situation, and certain shareholders (including insurance companies, tax-exempt
organizations, financial institutions or broker-dealers, and persons who are not
citizens or residents of the U.S. or who are foreign corporations, foreign
partnerships or foreign estates or trusts as to the U.S.) may be subject to
special rules not discussed below. EACH SHAREHOLDER IS URGED TO CONSULT HIS OR
HER OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO HIM OR HER OF THE
TRANSACTIONS DESCRIBED HEREIN, INCLUDING THE APPLICABILITY AND EFFECT OF ANY
STATE, LOCAL OR FOREIGN TAX LAWS, AND OF CHANGES IN APPLICABLE TAX LAWS.
The obligation of Grace New York to consummate the Distribution is
conditioned, among other things, upon the delivery of satisfactory tax opinions
from special counsel and tax counsel to Grace New York (the "Opinions"). Counsel
currently expect that the Opinions will state that the Distribution will qualify
as a tax-free distribution under Section 355 of the Code. In rendering the
Opinions, counsel will receive, rely on and assume the accuracy of certain
representations by Grace New York and Fresenius AG (the "Representations"), and
certain other information, data, documentation and materials deemed necessary,
including representations that, to the best knowledge of the management of Grace
New York and Fresenius AG: (i) except as set forth in the Reorganization
Agreement, there is no plan or intention by the shareholders of Grace New York
to sell, exchange, transfer by gift or otherwise dispose of any of their stock
in, or securities of, either Grace New York or New Grace subsequent to the
Distribution; (ii) there is no plan or intention to liquidate New Grace
subsequent to the Distribution, to sell or otherwise dispose of a substantial
amount of the assets of New Grace or its subsidiaries (except in the ordinary
course of business), to redeem shares of New Grace Common Stock except as
described in the Representations, to cause New Grace to merge with any other
corporation or to cease to conduct New Grace's business; and (iii) there is no
plan or intention to liquidate Grace New York subsequent to the Distribution, to
sell or otherwise dispose of a substantial amount of the assets of Grace New
York or its subsidiaries (except in the ordinary course of business), to redeem
shares of Grace New York Common Stock (except as described in the
Representations), to cause Grace New York to merge with any other corporation
(except as described in the Reorganization Agreement), or to cease to conduct
its business. The Representations address, among other things, the requirements
for tax-free treatment of the Distribution that (a) Grace New York shareholders
retain a continuity in both Grace New York and New Grace after the Distribution,
and (b) Grace New York's historic businesses continue after the Distribution.
Assuming that the Distribution is tax-free, (i) Grace New York shareholders
will not recognize income, gain or loss upon the receipt of shares of New Grace
Common Stock; (ii) each shareholder will allocate his or her aggregate tax basis
in his or her Grace New York Common Stock before the Distribution between his or
her Grace New York Common Stock and New Grace Common Stock in proportion to
their respective fair market values at the time of the Distribution; (iii) each
shareholder's holding period for New Grace Common Stock will include his or her
holding period for his or her Grace New York Common Stock, provided that the
Grace New York Common Stock is held as a capital asset at the time of the
Distribution; (iv) the earnings and profits of Grace New York will be allocated
between Grace New York and New Grace; and (v) no gain or loss will be recognized
by Grace New York or New Grace upon the Distribution. For a description of the
consequences to Grace New York and New Grace shareholders if the Distribution
were not to qualify as tax-free, see "RISK FACTORS -- Other Risks -- Certain
U.S. Tax Considerations Related to the Distribution" in the Joint Proxy
Statement-Prospectus.
A Preferred Share Purchase Right (a "New Grace Right") will attach to each
share of New Grace Common Stock distributed in the Distribution. While the
distribution of the New Grace Rights should not be taxable to shareholders, to
New Grace or to Grace New York, shareholders may, depending upon the
circumstances, recognize taxable income in the event that the New Grace Rights
become exercisable for New
7
<PAGE> 15
Grace Junior Preferred Stock (or other consideration) or for common stock of an
acquiring company. See "CERTAIN ANTI-TAKEOVER EFFECTS -- Preferred Stock
Purchase Rights."
On or prior to the Time of Distribution, Grace New York and New Grace will
enter into a Tax Sharing and Indemnification Agreement providing for various tax
matters. See "CERTAIN AGREEMENTS BETWEEN GRACE NEW YORK AND NEW GRACE."
THE FOREGOING DISCUSSION OF MATERIAL UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES IS FOR GENERAL INFORMATION PURPOSES ONLY AND IS NOT TAX ADVICE.
ACCORDINGLY, EACH SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR WITH
RESPECT TO THE TAX CONSEQUENCES OF THE DISTRIBUTION, INCLUDING THE APPLICABILITY
AND EFFECT OF STATE, LOCAL AND FOREIGN TAX LAWS, AND OF PROPOSED CHANGES IN
APPLICABLE TAX LAWS.
RELATIONSHIPS AFTER THE DISTRIBUTION
As a result of the Distribution, NMC will cease to be affiliated with Grace
Chemicals, and New Grace will operate as a separate publicly held company. From
and after the Distribution, shares of New Grace Common Stock and FMC Ordinary
Shares (or ADSs represented by American Depositary Receipts ("ADRs")) will trade
independently. See "CERTAIN AGREEMENTS BETWEEN GRACE NEW YORK AND NEW GRACE" and
"CERTAIN RELATIONSHIPS AND TRANSACTIONS."
LISTING AND TRADING OF NEW GRACE COMMON STOCK; NO CURRENT PUBLIC MARKET
There is no current public trading market for New Grace Common Stock. New
Grace will apply to list the New Grace Common Stock on the NYSE under the symbol
"GRA." Based on information as of July 15, 1996, New Grace initially expects to
have approximately 92 million shares issued and outstanding, approximately 4.7
million shares subject to outstanding options and approximately 18,000 holders
of record.
A "when-issued" trading market in New Grace Common Stock is expected to
develop at or about the Time of Distribution. The existence of such a market
means that shares can be traded prior to the time certificates are actually
available or issued. The prices at which shares of New Grace Common Stock may
trade, either prior to the Distribution on a "when-issued" basis or subsequent
to the Distribution, cannot be predicted. Until an orderly market develops, the
prices at which trading in such stock will occur may fluctuate significantly.
The prices at which the shares of New Grace Common Stock will trade will be
determined by the marketplace, and may be influenced by many factors, including,
among others, the depth and liquidity of the market for such shares, investor
perceptions of New Grace and the industries in which it participates, New
Grace's dividend policy and general economic and market conditions. Such prices
may also be affected by certain anti-takeover provisions of the New Grace
Certificate, the Amended and Restated By-laws of New Grace (the "New Grace
By-laws") and the New Grace Rights, in each case as in effect following the
Distribution. See "CERTAIN ANTI-TAKEOVER EFFECTS."
The shares of New Grace Common Stock distributed to holders of Grace New
York Common Stock will be freely transferable, except for shares of New Grace
Common Stock received by persons who may be deemed "affiliates" of New Grace
under the Securities Act of 1933, as amended (the "Securities Act"). Persons who
may be deemed affiliates of New Grace after the Distribution generally include
individuals or entities that control, are controlled by or are under common
control with New Grace, and may include the directors and executive officers of
New Grace, as well as any principal shareholders of New Grace. See "SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS" and "BENEFICIAL OWNERSHIP OF
MANAGEMENT." Persons who are affiliates of New Grace will be permitted to sell
their shares of New Grace Common Stock only pursuant to an effective
registration statement under the Securities Act or an exemption from the
registration requirements of the Securities Act, such as the exemption afforded
by Rule 144 under the Securities Act. Based on the number of shares of New Grace
Common Stock expected to be held by directors and executive officers of New
Grace following the Distribution, approximately 224,000 shares of New Grace
Common Stock will be available for sale pursuant to such exemptions.
8
<PAGE> 16
DIVIDEND POLICY AND SHARE REPURCHASES
Grace New York's stated policy is to pay dividends in any year equal to 20%
to 30% of its earnings for the prior year. New Grace intends to continue this
policy. In addition, New Grace intends to repurchase New Grace Common Stock from
time to time as circumstances allow. However, the declaration and payment of
cash dividends and the repurchase of shares will be at the sole discretion of
the New Grace Board of Directors (the "New Grace Board") and will depend on New
Grace's ability to declare and pay dividends and to repurchase shares under its
credit and financing agreements, as well as on the future operating and
financial condition of New Grace, its capital requirements and future prospects,
general business conditions and other factors deemed relevant by the New Grace
Board. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION -- Financial Condition -- Liquidity and Capital Resources."
NMC CREDIT AGREEMENT
In connection with the NMC Credit Agreement, Grace Chemicals has agreed to
guarantee a two-year facility ("Facility 3") (which provides for a maximum of
$500 million of available credit) and a seven-year facility ("Facility 2") up to
a maximum of $450 million. The NMC Credit Agreement is expected to provide that
these guarantees will be released as to $800 million upon the occurrence of
certain events after 45 days, but within 60 days, following the Effective Date,
including (a) the receipt of an unconditional joint and several guarantee from
Fresenius Medical Care and certain of its subsidiaries for the full amount of
the NMC Credit Facility; or (b) the receipt of a letter of credit or other
acceptable financial accommodation for the account of Grace Chemicals or
Fresenius Medical Care in form and substance satisfactory to the Lenders; or (c)
a prepayment in certain specified amounts under the NMC Credit Facility. If such
guarantees are not released within 60 days following the Effective Date, demand
for payment will be made on Grace Chemicals under such guarantees as to $800
million. Grace Chemicals has been advised that it is the intention of Fresenius
Medical Care to provide the unconditional joint and several guarantees referred
to in the preceding sentence in a manner so as to cause the release of the Grace
Chemicals' guarantees as to $800 million not before 45 days, but on or prior to
50 days, following the Effective Date. However, no assurance can be given that
such guarantees will be provided or that either or both of Grace Chemicals'
guarantees will be released. In the event that Fresenius Medical Care does not
provide such guarantees or otherwise effect the release of the Grace Chemicals
guarantees as to $800 million, Grace Chemicals would be required to provide the
letters of credit or repay the amounts specified in the NMC Credit Agreement
and, thereafter, be subrogated to the rights of Lenders with respect to such
repaid amounts after the Lenders under the respective facilities have been
repaid in full; and Grace Chemicals has undertaken to the Lenders to maintain
unused available credit in an amount to be determined while the Grace Chemicals
guarantees are outstanding in order to facilitate such actions. The balance of
the Grace Chemicals guarantees under Facility 2 will be released upon NMC (or
Fresenius Medical Care, if Fresenius Medical Care guarantees the NMC Credit
Facility), on a consolidated basis, achieving a ratio of senior debt to EBITDA
of equal to or less than 3.5.
In connection with Grace Chemicals' agreement to extend guarantees under
the NMC Credit Agreement, to provide a significant inducement for the release of
such guarantees as to $800 million on or prior to the 50th day following the
Effective Date, Fresenius Medical Care and Grace Chemicals intend to enter into
an agreement providing that, if such Grace Chemicals guarantees, other than with
respect to $150 million guaranteed under Facility 2, have not been released
prior to close of business on the 50th day following the Effective Date, it
will, at such time, make a $300 million payment to W. R. Grace Foundation, Inc.
which contribution may not be used to satisfy any legal obligation of Grace
Chemicals). In addition, it is intended that Fresenius Medical Care will agree
that (i) it will contribute the capital stock of Fresenius USA to Grace promptly
following the Effective Date and (ii) during the 49-day period following the
Effective Date, (a) it will not engage, or permit NMC to engage, in any
settlement discussions regarding OIG matters without Grace Chemicals'
participation and consent and (b) it will cause the respective businesses of NMC
and Fresenius USA to be conducted in the ordinary course, without incurring
additional debt (other than indebtedness permitted under the NMC Credit
Agreement), relinquishing or modifying contracts with affiliates of Fresenius AG
and without making cash distributions other than to a subsidiary of Grace.
9
<PAGE> 17
In connection with the above, it is intended that Fresenius Medical Care
will agree that, during the 45-day period following the Effective Date, it will
not (except as required by the Reorganization Agreement or the agreement
described in the preceding paragraph): (i) make, or cause to be made, a capital
contribution to Grace (or its subsidiaries) or take, or cause to be taken, any
action which would cause a capital contribution to any such entity to be
required under the NMC Credit Agreement; (ii) provide, or cause to be provided,
any guarantee of any debt of Grace (or its subsidiaries), or procure or provide,
or cause to be procured or provided, any letter of credit or other credit
support of any such debt; (iii) take, or cause to be taken, any other action
that has the effect, directly or indirectly, of rendering any assets of
Fresenius Medical Care (other than Grace (or its subsidiaries)) to support the
debt of NMC.
Under this agreement, it is intended that Fresenius Medical Care will
consent to jurisdiction and enforceability in the states of New York and Florida
by Grace Chemicals and W. R. Grace Foundation, Inc., will agree that all costs
of enforcement of the agreement will be borne by Fresenius Medical Care, will
agree that W. R. Grace Foundation, Inc. will be a third-party beneficiary of the
agreement and will agree that any provision of the agreement that is invalid or
unenforceable shall only be so to the extent of such invalidity or
unenforceability without in any way affecting any remaining provisions.
OTHER ARRANGEMENTS
As a result of discussions with representatives of the United States in
connection with the OIG Investigation, certain agreements (the "OIG Agreements")
have been entered into to guarantee the payment of any Obligations of NMC to
the United States relating to or arising out of the OIG Investigation and a qui
tam action pending in federal court in Florida (the "Florida Action") (the
"Government Claims"). For the purposes of the OIG Agreements, an Obligation is
(a) a liability or obligation of NMC to the United States in respect of a
Government Claim pursuant to a court order (i) which is final and nonappealable
or (ii) the enforcement of which has not been stayed pending appeal or (b) a
liability or obligation agreed to be an obligation in a settlement agreement
executed by Fresenius Medical Care, Grace New York or NMC, on the one hand, and
the United States, on the other hand. As stated elsewhere herein, the outcome of
the OIG Investigation cannot be predicted. The entering into of the OIG
Agreements is not an admission of liability by any party with respect to the OIG
Investigation, nor does it indicate the liability, if any, which may result
therefrom.
Under the OIG Agreements, effective upon consummation of the
Reorganization, the United States will be provided by Fresenius Medical Care and
Grace New York with a joint and several guarantee of payment when due of all
Obligations (the "Primary Guarantee"). As credit support for this guarantee, NMC
will deliver, on or prior to the Effective Date, an irrevocable standby letter
of credit in the amount of $150 million. The United States will return such
letter of credit (or any renewal or replacement) for cancellation when all
Obligations have been paid in full or it is determined that NMC has no liability
in respect of the Government Claims. In addition, under the OIG Agreements,
effective upon consummation of the Reorganization, the United States will be
provided with a guarantee by Grace Chemicals of the obligations of Fresenius
Medical Care under the Primary Guarantee in respect of Government Claims for
acts and transactions that took place at any time up to the consummation of the
Reorganization (the "Secondary Guarantee"). Under the Secondary Guarantee,
payment will be required only if, and to the extent that, Obligations have
become due and payable and remain uncollected for 120 days. Grace Chemicals is a
third-party beneficiary of the Primary Guarantee and may institute suit to
enforce its terms.
Under the OIG Agreements, the United States has agreed, solely in its
capacity as holder of the Government Claims: (a) to not take any action
whatsoever to impede, prohibit, enjoin, delay or otherwise interfere with
consummation of the Reorganization on grounds that the Reorganization
constitutes a fraudulent conveyance or other similarly avoidable transfer as to
the United States; (b) to represent to the court in the Florida Action or any
other court presented with an attempt by a relator in any qui tam action
relating in substantial part to matters that are the subject of the Florida
Action or the OIG Investigation to impede, prohibit, enjoin, delay or otherwise
interfere with consummation of the Reorganization that the OIG Agreements
satisfy the concerns of the United States with respect to the Reorganization
and; (c) effective upon consummation of the Reorganization, to release and
discharge Grace Chemicals, Grace New York, NMC, Fresenius Medical Care, and
certain other parties (collectively, the "Releasees") from claims to the effect
that the Reorganization (or any transaction comprising a part thereof)
constitutes a fraudulent conveyance or other similarly avoidable transfer as to
the United States.
10
<PAGE> 18
Fresenius Medical Care and the United States state in the OIG Agreements
that they will negotiate in good faith to attempt to arrive at a consensual
resolution of the Government Claims and, in the context of such negotiations,
will negotiate in good faith as to the need for any restructuring of the payment
of any obligations arising under such resolution, taking into account the
ability of Fresenius Medical Care to pay the Obligations. The OIG Agreements
state that the foregoing statements shall not be construed to obligate any
person to enter into any settlement of the Government Claims or to agree to a
structured settlement. Moreover, the OIG Agreements state that the statements
described in the first sentence of this paragraph are precatory and statements
of intent only and that (a) compliance by the United States with such provisions
is not a condition or defense to the obligations of Fresenius Medical Care,
Grace New York or Grace Chemicals under the OIG Agreements and (b) breach of
such provisions by the United States cannot and will not be raised by Fresenius
Medical Care, Grace New York or Grace Chemicals to excuse performance of their
respective its obligations under the OIG Agreements.
If the Reorganization is not consummated on or before October 1, 1996, the
OIG Agreements will terminate and be of no further force and effect unless all
parties thereto agree otherwise in writing. If the Reorganization Agreement is
amended, modified or supplemented after the date of the Joint Proxy
Statement-Prospectus, Fresenius Medical Care will provide the United States with
written notice describing the nature of such amendment, modification or
supplement. If the United States determines that such amendment, modification or
supplement is adverse to its interests, the United States will have the right to
terminate the OIG Agreements by delivering written notice of such termination
within 10 business days of its actual receipt of notice of such amendment,
modification or supplement.
The foregoing describes the material terms of the OIG Agreements, copies of
which have been filed as exhibits to the Registration Statement. The foregoing
description does not purport to be complete and is qualified in its entirety by
reference to such exhibits.
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BUSINESS OF NEW GRACE
New Grace was incorporated in January 1996 as a wholly owned subsidiary of
Grace New York and currently has no assets. Prior to the Distribution, Grace New
York will contribute to New Grace all of the capital stock of Grace Chemicals
and will thereafter effect the Distribution. Immediately following the
Distribution, the name of New Grace will be changed to "W. R. Grace & Co." New
Grace's principal executive offices are located at One Town Center Road, Boca
Raton, Florida 33486-1010, and its main telephone number is (407) 362-2000.
BUSINESS OF GRACE CHEMICALS
OVERVIEW AND STRATEGY
Grace Chemicals is one of the world's leading packaging and specialty
chemicals companies. Grace Chemicals began operating its core businesses in
1954, when it acquired both the Dewey and Almy Chemical Company and the Davison
Chemical Company. Grace Chemicals also has certain noncore businesses that have
been classified as discontinued operations, the most significant of which are
its cocoa business and its Amicon bioseparations business.
Grace Chemicals' core businesses are packaging, catalysts and other
silica-based products, construction products, and container and specialty
polymer products. Grace Chemicals believes that each of its core businesses is a
market leader, offers high value-added products, employs leading technology and
has a global presence. Grace Chemicals' products and systems serve highly
specialized markets, and, accordingly, competition tends to be based primarily
on technological capability, customer service, product quality, and, to a lesser
extent, price. These products and systems also represent an important or
critical component (but a relatively small portion of the cost) of the end
products in which they are used. In its core businesses, Grace Chemicals
believes that it provides highly differentiated, superior products and services
through investments in research and development, facilities that enable Grace
Chemicals to take advantage of expanding global market opportunities, and
technology platforms capable of providing multiple products to satisfy
customers' specific needs. Moreover, Grace Chemicals has focused its research
and development spending on core businesses, fostered the exchange of technology
among its product lines and increased the level of process development directed
at streamlining operations.
Grace Chemicals' strategy has been and, following the Distribution, will be
to (i) focus on core businesses to accelerate profitable growth; (ii) upgrade
financial performance, principally by selling or monetizing noncore businesses,
managing debt levels consistent with profitable growth opportunities, and
reducing overhead; and (iii) integrate corporate and operating unit functions
through global product line management. As part of this strategy, since
mid-1995, efforts have been made to enhance shareholder value by strengthening
the balance sheet and reducing costs. These objectives are being achieved
through (i) the sale of Grace Chemicals' water treatment and process chemicals
business, the pending disposition of Grace Chemicals' health care business and
the planned disposition of its cocoa business (intended to be completed in
1996); (ii) the anticipated use of the proceeds from these and other
transactions (including the Distribution Payment), to substantially reduce
indebtedness, to repurchase stock, and to invest in core businesses; (iii) a
worldwide restructuring program to streamline processes and thereby reduce
expenses by approximately $100 million annually (with further actions being
taken to improve margins); and (iv) the implementation of rigorous controls on
working capital and capital spending. These plans are designed to make Grace
Chemicals a high-performance, high-value company focused on the strengths of its
packaging and specialty chemicals businesses. In addition, in the early 1990s,
the management structure of Grace Chemicals was reorganized on the basis of
global product lines (as distinguished from regional product management). As a
result of this reorganization, Grace Chemicals believes that it is better able
to serve its multinational customers in all global regions, as well as to tailor
its product offerings to meet local preferences.
To focus on core business growth, Grace Chemicals has made strategic
acquisitions, totaling $120 million in the 1991 to 1995 period, directly related
to its core businesses, including acquisitions intended to further expand its
core businesses internationally. In 1992, Grace Chemicals acquired the North
American food
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service packaging business of DuPont Canada, Inc. In 1993, Grace Chemicals
acquired the Katalistiks fluid cracking catalyst additive business previously
owned by a joint venture between Union Carbide Corporation and AlliedSignal Inc.
In 1993, Grace Chemicals also formed a 51%-owned joint venture with a large
chemical and industrial concern headquartered in Volgograd, Russia, to produce
flexible packaging for sale throughout the Commonwealth of Independent States;
the joint venture began production in the third quarter of 1994. In 1994, Grace
Chemicals acquired the Schur Multiflex group of European flexible packaging
businesses; construction chemicals businesses; and a small pollution control
equipment producer. In 1995, Grace Chemicals formed a 51%-owned joint venture in
Malaysia to produce rigid plastic packaging products for sale throughout
Southeast Asia; a 68%-owned joint venture with a Chinese packaging company to
manufacture shrink films for sausage casings and to market Grace Chemicals'
packaging products and systems in China; a 51%-owned joint venture with a
Russian company to produce container and closure sealants for sale throughout
the Commonwealth of Independent States; and a 50%-owned joint venture with
Engelhard Corporation to manufacture and market metal-based catalytic converters
to the automotive industry. In early 1996, Grace Chemicals agreed to form a
joint venture to produce and market coatings, closures and can sealing compounds
in India, and, in June 1996, Grace Chemicals agreed in principle to acquire
Cypress Packaging, Inc., a U.S. manufacturer of flexible plastic packaging
materials for the retail pre-cut produce market segment. In furtherance of its
strategy to focus on core businesses, Grace Chemicals announced in March 1996
that it had entered into a definitive agreement to sell its water treatment and
process chemicals business to Betz Laboratories, Inc. for $632 million. This
transaction was completed in June 1996.
From 1991 through 1995, Grace Chemicals' capital expenditures for its core
packaging and specialty chemicals business totaled $1,470.8 million (including
$487.4 million in 1995). These expenditures were directed towards the expansion
of existing facilities as well as the construction of new facilities. Grace
anticipates that its capital expenditures for 1996 will approximate those for
1995, including expenditures related to a $350 million multi-year global
expansion program in its packaging business.
In the future, Grace Chemicals intends to emphasize internal growth. In
addition, it may also effect acquisitions, joint ventures and strategic
alliances that afford synergies or other benefits necessary to fulfill strategic
objectives of a core business (such as a key technology or opportunities for
geographic expansion) or that provide a combination of a close fit with a core
business with the potential for exceptional returns.
At year-end 1995, Grace Chemicals had approximately 21,200 full-time
employees worldwide in its continuing operations and approximately 2,200
full-time employees worldwide in discontinued operations.
CHEMICAL INDUSTRY OVERVIEW
The chemicals industry is generally grouped into three major categories:
commodity chemicals, fine chemicals and specialty chemicals. Commodity
chemicals, such as methanol, ethylene and ammonia, are produced in large volumes
using established manufacturing processes and are sold to a wide range of
customers. Virtually all commodity chemicals have multiple producers, are
relatively fungible and do not command high premiums. At the other extreme, fine
chemicals are the highest value-added chemicals used as intermediates in the
production of pharmaceuticals, foodstuffs and other products, are usually
produced in low volumes using high manufacturing standards and are typically
sold for high premiums. Specialty chemicals, such as those produced by Grace
Chemicals, are high value-added products used as intermediates in a wide variety
of products, are produced in small volumes, and must satisfy well-defined
performance requirements and specifications. Specialty chemicals are often
critical components of the end products in which they are used; consequently,
they are tailored to customer needs, which generally results in a close
relationship between the specialty chemicals producer and the customer. Rapid
response to customers and reliability of product and supply are important
competitive factors in specialty chemicals businesses.
Management of Grace Chemicals believes that, in the specialty chemicals
business, technological leadership (resulting from continuous innovation through
research and development), combined with product differentiation and superior
customer service, leads to high operating margins. Grace Chemicals believes that
its core businesses are characterized by market features that reward the higher
research and development and customer service costs associated with its
strategy.
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PRODUCTS AND MARKETS
Packaging. Grace Chemicals' packaging business ("Grace Packaging")
provides high-performance total packaging systems on a worldwide basis,
competing principally by providing superior-quality products and services for
specialized customer needs. The principal products and services provided by
Grace Packaging are (i) flexible plastic packaging systems (including material,
equipment and services) for a broad range of perishable foods such as fresh,
smoked and processed meat products, cheese, poultry, prepared foods (including
soups and sauces for restaurants and institutions), baked goods and produce;
(ii) shrink films used in packaging a variety of nonfood consumer and industrial
products; (iii) foam trays for supermarkets and poultry and other food
processors; and (iv) rigid plastic containers for dairy and other food and
nonfood products. Grace Packaging competes through three product groups:
flexible packaging (marketed extensively under the Cryovac(R) registered
trademark), Formpac(TM) foam trays and Omicron(TM) rigid plastic containers.
Grace Packaging believes that its expertise in food technology and its
long-standing relationships with food producers, principally meat packers, have
been and will continue to be key factors in its success.
The Cryovac packaging products group developed and introduced flexible
plastic vacuum shrink packaging to the food processing industry in the late
1940s, contributing to expanded food distribution and marketing by providing
superior protection against decay-inducing bacteria and moisture loss. The
market for Cryovac products has since expanded into the retail food market, and
Cryovac packaging technology has also been introduced in nonfood applications
for consumer merchandising of housewares, toys and compact discs, as well as for
electronic and medical products.
Cryovac flexible packaging products include shrink bags, shrink films,
laminated films, and films for medical bags and equipment. Shrink bags are
multi-layered plastic bags that mold themselves to the exact shape of the
product, forming a clear "second skin." Using sophisticated coextrusion
technology, Cryovac shrink bags maximize barrier properties, optics, abuse
resistance, shrinkability and seal strength. Cryovac shrink films are
multi-layered shrinkable plastic films used to package a variety of food and
nonfood consumer goods to protect against damage, preserve freshness and enhance
marketability. Cryovac laminates are multi-layered, nonshrinkable and normally
high-barrier flexible materials used for packaging perishable foods, shelf-
stable products (nonrefrigerated foods, such as syrups, toppings and tomato
paste) and various nonfood products. The Cryovac line also includes sterilized
medical bags and films for use in medical products.
Grace Packaging differentiates its flexible packaging products from
competitive products by offering a combination of the following core
competencies: (i) proprietary film processing technology; (ii) resin technology,
permitting the production of materials suited to specific customer needs; (iii)
packaging and food science expertise, providing better understanding of the
interaction between packaging materials and packaged products; (iv) complete
systems support capability, providing a single source for customer needs; (v)
talented employee base that strives to anticipate, meet and exceed customer
expectations; and (vi) effective sales and distribution networks. In addition,
Grace Packaging's systems can be adapted to support customers' marketing goals.
Technological leadership is a key competitive factor in the packaging
business. Today, Grace Packaging is recognized as a worldwide leader in flexible
packaging technology. Management expects that its technological leadership will
continue to spur Grace Packaging's growth in several markets: in the rapidly
expanding packaged fresh-cut produce market, Grace Packaging produces films that
permit oxygen to pass through at various rates, thereby matching the varying
respiration rates of different vegetables and permitting longer shelf life; in
the fresh meat market, Grace Packaging's case-ready program reduces
supermarkets' in-store production costs by allowing meat processors to centrally
package meat products suitable for display; in the bone-in pork market, Grace
Packaging's Total Bone Guard (TBG(TM)) packaging products have revolutionized
the distribution of large subprimal cuts of pork by adding a film patch to
certain sections of a high-abuse barrier bag to prevent bone punctures; and, in
the processed meats and poultry markets, Cryovac cook-in bags and laminates
withstand high cooking temperatures, reducing the potential for contamination
and retaining product shape, clarity and weight. Because technological
innovations by competitors could adversely affect its business, Grace Packaging
intends to continue to focus research and development expenditures on
maintaining technological leadership in flexible packaging.
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Grace Packaging's Formpac business group manufactures and sells polystyrene
foam prepackaging trays used by supermarkets and grocery stores to protect and
display fresh meat, poultry and produce, and by poultry and other meat
processors, as well as foam food service items such as hinged-lid containers
used in institutional environments, by carry-out restaurants and by supermarkets
for sale to retail customers. Formpac manufactures foam trays in a two-stage
process consisting of the extrusion and thermoforming of polystyrene foam
sheets. Although the majority of Formpac's customers are located in the eastern
two-thirds of the U.S., Formpac's proprietary technology has also been
successfully used in certain packaging applications outside of the U.S.
Competition is based on service, price and product quality.
Grace Packaging's Omicron business group produces rigid plastic packaging
products (primarily plastic tubs for dairy products such as margarine and
yogurt) in Australia. Omicron products use proprietary thermoforming technology,
involving the controlled thinning and shaping of hot plastic sheets to increase
strength and rigidity while minimizing weight. Grace Packaging is expanding the
Omicron business into Southeast Asia through a 51%-owned joint venture formed in
1995 to produce rigid plastic packaging products in Malaysia.
Resins are the principal raw materials used by Grace Packaging. Although
prices for ethylene-based resins can be volatile, there is currently an adequate
worldwide supply of resins at generally stable prices. Further, Grace Packaging
has typically been able to increase the sales prices of its products in response
to increases in the prices of resins and other raw materials. However, to the
extent that resin prices increase and Grace Packaging cannot pass on the
increases to its customers, such price increases may have an adverse impact on
Grace Chemicals' profitability. In most cases, multiple sources of resins and
other raw materials exist, with at least one source located in most global
regions.
Grace Packaging's sales and revenues were $1.7 billion in 1995, $1.4
billion in 1994 and $1.3 billion in 1993. Approximately 51% of Grace Packaging's
1995 sales and revenues were generated in North America, 30% in Europe, 11% in
Asia Pacific and the remainder in Latin America. Grace Packaging estimates that
approximately 80% of its 1995 sales were to the food industry. Although sales
and revenues tend to be slightly higher in the fourth quarter, seasonality is
generally not significant to Grace Packaging.
At year-end 1995, Grace Packaging employed approximately 9,900 people in 28
production facilities (nine in North America, eight in Europe, six in Asia
Pacific and five in Latin America) and 79 sales offices, serving approximately
24,000 customers. Grace Packaging's principal U.S. manufacturing facilities are
located at Simpsonville, South Carolina, Iowa Park, Texas, Seneca, South
Carolina and Cedar Rapids, Iowa; its principal European manufacturing facilities
are located at Epernon, France, St. Neots, United Kingdom, Passirana, Italy, and
Hamburg and Flensburg, Germany, and it has major manufacturing facilities
located in Australia, Japan, Brazil and Argentina. Grace Packaging has also
recently constructed a manufacturing facility in Kuantan, Malaysia that will be
its principal manufacturing facility in Asia. Grace Packaging distributes its
products globally through direct sales organizations and distributors, using a
network of distribution facilities located near its manufacturing facilities.
In Grace Packaging's business, the failure to have capacity sufficient to
meet customer needs, or to manufacture in geographic markets in which customers
expand, could result in a loss of customer relationships and/or business. As a
result of product introductions, marketing programs and improvements in global
economic conditions, worldwide demand for Grace Packaging products grew at a
rapid pace in 1994 and 1995, placing pressure on existing capacity. To address
this matter, Grace Packaging has added capacity in all regions (including the
plant in Kuantan, Malaysia, referred to above).
Catalysts and Other Silica-Based Products. Grace Chemicals' Davison
division ("Grace Davison"), founded in 1832, is composed of three principal
product groups: refinery catalysts, polyolefin catalysts, and silica and zeolite
adsorbents. These products apply silica, alumina and zeolite technology, and are
designed and manufactured to meet the varying specifications of such diverse
customers as major oil refiners, plastics and chemical manufacturers and
consumer products companies. Grace Davison's technological expertise provides a
competitive edge, allowing Grace Davison to quickly design products that meet
customer specifications, as well as to develop new products that expand its
existing technology; for example, Grace
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Davison estimates that a substantial portion of its 1995 fluid cracking catalyst
sales was attributable to products introduced in the last five years.
Refinery catalysts include (a) fluid cracking catalysts used by petroleum
refiners to convert crude oil into more valuable transportation fuels, such as
gasoline and jet and diesel fuel, as well as other petroleum-based products, and
(b) hydroprocessing catalysts that remove certain impurities (such as nitrogen,
sulfur and heavy metals) from crude oil prior to the use of fluid cracking
catalysts. Oil refining is a highly specialized discipline, demanding that
products be tailored to meet local variations in crude oil and the refinery's
changing operational needs. Grace Davison works regularly with most of the
approximately 360 refineries in the world, helping to find the most appropriate
catalyst formulations for the refiners' changing needs. Grace Davison's business
has benefited in recent years, in part, from the use of heavier crude oils, and
could be adversely affected by an increase in the availability of lighter crude
oil, which generally requires less fluid cracking catalysts to refine.
Competition in the refinery catalyst business is based on technology,
product performance, customer service and price. Grace Davison believes it is
one of the world leaders in refinery catalysts and the largest supplier of fluid
cracking catalysts in North America and Europe.
Grace Davison's polyolefin catalysts and catalyst supports are essential
components used in manufacturing nearly half of all high density and linear low
density polyethylene resins, which are used in products such as plastic film,
high-performance pipe and household containers. The polyolefin catalyst business
is technology-intensive and focused on providing products specifically
formulated to meet end-user applications. Manufacturers generally compete on a
worldwide basis, and competition has recently intensified due to evolving
technologies, particularly the use of metallocenes. Grace Chemicals believes
that metallocenes represent a revolutionary development in the making of
plastics, allowing plastics manufacturers to design polymers with exact
performance characteristics. Grace Davison is continuing its work on the
development and commercialization of metallocene catalysts.
Silica and zeolite adsorbents are used in a wide variety of industrial and
consumer applications. For example, silicas are used in coatings as flatting
agents (i.e., to reduce gloss), in plastics to improve handling, in toothpastes
as thickeners and cleaners, in foods to carry flavors and prevent caking, and in
the purification of edible oils. Zeolite adsorbents are used between the two
panes of insulated glass to adsorb moisture and in process applications to
separate certain chemicals from mixtures. Competition is based on product
performance, customer service and price. Grace Davison is planning to expand its
silica business in the Asia Pacific region with a new plant in Kuantan,
Malaysia, to open in 1996.
Grace Davison's sales and revenues were $687 million in 1995, $610 million
in 1994 and $572 million in 1993; approximately 52% of Grace Davison's 1995
sales and revenues were generated in North America, 37% in Europe, 10% in Asia
Pacific and 1% in Latin America. At year-end 1995, Grace Davison employed
approximately 2,700 people worldwide in nine facilities (six in the U.S. and one
each in Canada, Germany and Brazil). Grace Davison's principal U.S.
manufacturing facilities are located in Baltimore, Maryland and Lake Charles,
Louisiana; its principal European manufacturing facility is located in Worms,
Germany. Grace Davison has a direct selling force and distributes its products
directly to customers.
Most raw materials used in the manufacture of Grace Davison products are
available from multiple sources, and, in some instances, are produced or
supplied by Grace Davison. Because of the diverse applications of products using
Grace Davison technology and the geographic areas in which such products are
used, seasonality does not have a significant effect on Grace Davison's
businesses.
Construction Products. Grace Chemicals' construction products division
("Grace Construction") is a leading supplier of specialty materials to the
construction industry. Grace Construction's products fall mainly into three
groups: concrete and cement additives (principally additives that add strength,
control corrosion, reduce the amount of water required or modify the setting
time), products that prevent water damage to structures (such as water and ice
proofing products for residential use and waterproofing systems for commercial
structures), and substances that protect structural steel against collapse due
to fire. In North America, Grace Construction also manufactures and distributes
masonry block additives and products and
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vermiculite products used in construction and other industrial applications.
Grace Construction's products are sold to a broad customer base, including
cement manufacturers, ready-mix and pre-stressed concrete producers, specialty
subcontractors and applicators, masonry block manufacturers, building materials
distributors, and other industrial manufacturers. Grace Construction's products
are marketed to construction specifiers, such as architects and structural
engineers, for whom product performance and adaptability are important, as well
as to contractors, to whom cost and ease of application are frequently more
important.
Grace Construction competes globally with several large construction
materials suppliers and regionally and locally with numerous smaller
competitors. Grace Construction's customers are frequently local contractors and
cement manufacturers; consequently, local suppliers are often able to compete
effectively. As a result, Grace Construction sells products to certain customers
under global or U.S. contracts, others under regional contracts and others on a
job-by-job basis. In recent years, the cement manufacturing business and the
contracting business have experienced substantial consolidation, particularly in
foreign markets. Competition is based largely on price, technical support and
service, adaptability of the product, and product performance.
Grace Construction's 1995 sales and revenues totaled $397 million (66% in
North America, 17% in each of Europe and Asia Pacific and less than 1% in Latin
America), versus $387 million and $333 million in 1994 and 1993, respectively.
At year-end 1995, Grace Construction employed approximately 1,900 people at 57
production facilities (27 in North America, 11 in Southeast Asia, seven in
Australia/New Zealand, seven in Europe, four in Latin America and one in Japan)
and 70 sales offices worldwide. Grace Construction's capital expenditures tend
to be relatively lower, and sales and marketing expenditures tend to be
relatively higher, than those of Grace Chemicals' other core businesses.
The construction business is cyclical in response to economic conditions
and construction demand. The construction market has experienced slow but steady
growth through 1995 from a cyclical low in 1991. During this time, management of
Grace Construction has focused its efforts on streamlining its range of products
and reducing costs. For example, during this period, Grace Construction
implemented a lower cost structure by consolidating manufacturing operations in
North America and through an extensive restructuring plan in Europe. The
construction business is also seasonal due to weather conditions. Grace
Construction seeks to increase profitability and minimize the impact of cyclical
and seasonal downturns in regional economies by introducing technically
advanced, value-added products, expanding geographically, and developing
business opportunities in renovation construction markets. However, there can be
no assurance that Grace Construction's attempts to minimize the impact of the
cyclicality and seasonality of the construction business will succeed, and such
cyclicality and seasonality could adversely affect the business of Grace
Construction.
The raw materials used for manufacturing Grace Construction products are
primarily commodities obtained from multiple sources, including commodity
chemical producers, petroleum companies and paper manufacturers. In most
instances, there are at least two alternative suppliers for each of the
principal raw materials used by Grace Construction. However, the worldwide
supply of calcium lignin, a wood pulping by-product used as a raw material in
the production of concrete admixtures, has been decreasing as paper mills
convert to new manufacturing processes. Grace Construction has secured
short-term supplies of calcium lignin and is exploring new technologies to
replace it in the future. However, there is no assurance that Grace Construction
will be able to find an adequate replacement for calcium lignin, and, in the
event of such an occurrence, the business of Grace Construction may be adversely
affected.
Container and Specialty Polymer Products. Grace Chemicals' container
division ("Grace Container") consists primarily of four product lines: container
sealants, closure sealants, coatings for metal packaging and specialty polymers.
Container sealants are applied to food and beverage cans, as well as to other
rigid containers (such as industrial product containers and aerosol cans), to
ensure a hermetic seal between the lid and the can body. Closure sealants are
used to seal pry-off and twist-off metal crowns, as well as roll-on pilfer proof
and plastic closures, for the glass/plastic container markets (primarily in
beverage and food applications). Coatings are used in the manufacture of cans
and closures to protect the metal against corrosion, to protect the contents
against the influences of metal, to ensure proper adhesion of sealing compounds
to metal surfaces, and to provide base coats for inks and for decorative
purposes. These products are principally sold to
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third parties who perform canning and bottling for food and beverage companies.
Formulated engineered polymers are used in printed circuit board and component
assembly in the electronics, electrical, automotive and defense industries,
including surface mount and conductive adhesives, capacitor coatings,
light-emitting diode encapsulants and conformal coatings. Grace Container is
expanding its product offering and is seeking to improve sales growth through
new technologies such as its oxygen-scavenging compound, which combines with
closure sealants to extend shelf life by eliminating oxygen, and oxygen's effect
on taste, from sealed beer and other beverage bottles.
Grace Container's sales and revenues were $357 million, $325 million and
$306 million in 1995, 1994 and 1993, respectively. Future sales growth will
likely be impacted by the trend toward cans and cannery systems requiring fewer
seams. Grace Container's products are marketed internationally, with 34% of 1995
sales and revenues in Europe, 28% in each of North America and Asia Pacific and
10% in Latin America. At year-end 1995, Grace Container employed approximately
1,600 people at 30 production facilities (nine in Asia Pacific and seven in each
of North America, Europe and Latin America) and 57 sales offices worldwide.
Competition is based on providing high-quality customer service at all customer
sites, as well as on price and product quality and reliability. In addition,
because of the relative concentration of the canning and bottling market,
maintaining relationships with the leading canners and bottlers and assisting
them as they install new plants and reengineer processes are key elements for
success. Although the raw materials used in Grace Container's operations,
including resins, rubber and latices, are generally available from multiple
sources, the prices of these raw materials experienced rapid escalation during
most of 1995, negatively impacting Grace Container's gross margins; improvements
are expected in 1996 as raw materials prices started to ease during the latter
part of 1995. However, no assurance can be given that these prices will continue
to decline or as to the extent of any decline. Although demand for container
packaging and sealant products tends to increase slightly during the second and
third quarters, the impact of such seasonality is not significant to Grace
Container.
Thermal and Emission Control Systems. Grace Chemicals' thermal and
emission control systems business ("Grace TEC Systems") is a developmental
business that consists of four principal product groups: web processing
products, industrial emission control products, mobile emission control products
and specialty catalysts. These products are designed to customer specifications
and are sold to a variety of industrial customers.
Web processing products, consisting primarily of air flotation dryers and
auxiliary equipment, are sold principally to the graphic arts, coating and
converting markets. The industrial emission control products group manufactures
volatile organic compound control equipment, including thermal, catalytic and
regenerative oxidation systems. Demand for this equipment is driven principally
by government regulations. The mobile emission control products group sells
washcoat materials and specialty substrates. Washcoat materials are used by
catalyst manufacturers to enhance the performance of catalytic converters sold
to automotive original equipment manufacturers. Specialty catalysts are used to
control volatile organic compounds, nitrogen oxides and carbon monoxide from a
variety of sources.
Competition for Grace TEC Systems' products is based primarily on system
design, materials, technology, customer service, product performance and price.
DISCONTINUED OPERATIONS
In 1993, the then remaining noncore businesses of Grace New York were
classified as discontinued operations. The sale and monetization of a
substantial portion of these noncore businesses have been completed; Grace Cocoa
and Amicon are the principal discontinued operations that have not yet been
divested. Grace Chemicals is actively pursuing the disposition of these
businesses and its other remaining discontinued operations and intends to
complete such dispositions in 1996. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION."
Grace Cocoa. The chocolate and cocoa business of Grace Chemicals ("Grace
Cocoa") produces high-quality intermediate cocoa and chocolate products for sale
as ingredients to the bakery, confectionery, dairy and beverage industries.
Cocoa liquor, cocoa butter and cocoa powder are sold internationally; coatings
and intermediate chocolate products are sold to the European market; and
intermediate chocolate products,
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mainly coatings and cookie drops, are sold to the North American market. Grace
Cocoa competes primarily on the basis of service, product quality and
reliability. Sales of cocoa and chocolate products were $798 million in 1995,
$718 million in 1994 and $636 million in 1993. At year-end 1995, Grace Cocoa
employed approximately 1,700 people at nine production facilities (four in each
of Europe and North America and one in Asia Pacific) and five other offices
worldwide. Grace Chemicals is focusing on improving Grace Cocoa's operating cash
flow through the adoption of new strategies and a new global organizational
structure, while simultaneously positioning the business for sale.
Amicon. The Amicon bioseparations division ("Amicon") produces and markets
membrane ultrafiltration devices and systems and low and high pressure liquid
chromatography media, columns and systems. Amicon's ultrafiltration devices are
used primarily for concentrating proteins and nucleic acids (such as DNA) for
both research and drug production purposes. Amicon's chromatography products are
mainly used for purifying and isolating specific molecules in the production of
synthetic drugs. Amicon's customers consist primarily of pharmaceutical,
biotechnology and specialty chemicals companies, government-sponsored research
facilities, academic institutions and hospitals.
Amicon operates manufacturing facilities in the U.S., England, France and
Ireland. Amicon maintains direct sales and technical services offices in the
U.S. and 11 other countries and has distribution arrangements in 25 other
countries.
RESEARCH ACTIVITIES
Grace Chemicals engages in research and development programs directed
toward the development of new products and processes, and the improvement of,
and development of new uses for, existing products and processes. Research is
carried out by product line laboratories in North America, Europe, Asia and
Latin America and by the Corporate Research Division in Columbia, Maryland
(collectively, the "Research Division"). The Research Division's activities
focus on Grace Chemicals' core product lines and include research in specialty
polymers, catalysis, construction materials, photopolymers, specialty packaging
and process engineering, principally involving the development of technologies
to manufacture chemical specialties. Grace Chemicals' research and development
strategy will be to use its centralized Washington Research Center ("WRC") to
develop technology platforms on which new products will be based, while focusing
development efforts in each business unit, in conjunction with WRC, on the
improvement of existing products and/or the adaptation of existing products to
customer needs.
Research and development expenses relating to continuing operations
amounted to $121 million in 1995, $107 million in 1994 and $112 million in 1993
(including expenses incurred in funding external research projects). The amount
of research and development expenses relating to government- and
customer-sponsored projects (as opposed to projects sponsored by Grace
Chemicals) is not material.
PATENTS AND OTHER INTELLECTUAL PROPERTY MATTERS
Grace Chemicals relies on numerous patents and patent applications, as well
as on know-how and other proprietary information. As competition in the markets
in which Grace Chemicals does business is often based on technological
superiority and innovation, with new products being introduced frequently, the
ability to achieve technological innovations and obtain patent or other
intellectual property protection is crucial. There can be no assurance that
Grace Chemicals' patents, patent applications or other intellectual property
will provide sufficient proprietary protection. There can also be no assurance
that the patents of other companies will not have an adverse effect on Grace
Chemicals. Other companies may independently develop similar systems or
processes that circumvent patents issued to Grace Chemicals. In addition, Grace
Chemicals' competitors may develop technologies, systems or processes that are
more effective than those developed by Grace Chemicals, or that render Grace
Chemicals' technology, systems or processes less competitive or obsolete. Any
such events could have an adverse effect on Grace Chemicals.
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ENVIRONMENTAL, HEALTH AND SAFETY MATTERS
In constructing and operating its facilities, Grace Chemicals incurs
capital and operating expenditures relating to the protection of the
environment, as well as costs to remediate properties. The following table sets
forth Grace Chemicals' expenditures in the past three years, and its estimated
expenditures in 1996 and 1997, for (i) the operation and maintenance of
environmental facilities and the disposal of hazardous and nonhazardous wastes
with respect to continuing operations; (ii) capital improvements to
environmental control facilities relating to continuing operations; and (iii)
the remediation of sites:
<TABLE>
<CAPTION>
(I)
-------------- (II)
OPERATION OF ------------ (III)
FACILITIES AND CAPITAL -----------
WASTE DISPOSAL IMPROVEMENTS REMEDIATION
-------------- ------------ -----------
(IN MILLIONS)
<S> <C> <C> <C>
1993........................................... $ 41 $ 19 $44
1994........................................... 36 22 31
1995........................................... 44 15 31
1996 (estimated)............................... 45 20 30
1997 (estimated)............................... 47 17 20
</TABLE>
Such expenditures have not had, and are not expected to have, a material
effect on Grace Chemicals' other capital expenditures, its earnings or its
competitive position. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION."
With the goal of continuously improving Grace Chemicals' environment,
health and safety ("EHS") performance, Grace New York established its Commitment
to Care(TM) initiative (based on the Responsible Care(R) program of the Chemical
Manufacturers Association) in 1994 as the program under which all Grace
Chemicals' EHS activities are to be implemented. To the extent applicable,
Commitment to Care extends the basic elements of Responsible Care to all Grace
Chemicals locations worldwide, embracing specific objectives in the key areas of
product stewardship, employee health and safety, community awareness and
emergency response, distribution, process safety, and pollution prevention.
See "-- Legal Proceedings and Regulatory Matters" for information
concerning environmental proceedings to which Grace Chemicals is a party and
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION" for additional information concerning environmental matters.
LEGAL PROCEEDINGS AND REGULATORY MATTERS
Asbestos Litigation. Grace Chemicals is a defendant in property damage and
personal injury lawsuits relating to previously sold asbestos-containing
products, and anticipates that it will be named as a defendant in additional
asbestos-related lawsuits in the future. Due to the unique nature of each
property damage claim, Grace Chemicals cannot predict whether and to what extent
asbestos-related property damage lawsuits and claims will be brought against it
in the future or the expenses involved in defending against and disposing of any
such future lawsuits and claims. By contrast, Grace Chemicals believes that
there are common features with respect to personal injury claims; in the fourth
quarter of 1995, Grace Chemicals determined that it had adequate experience to
reasonably estimate the number of personal injury claims to be filed against it
through 1998 and established an accrual for such claims. Grace Chemicals'
aggregate accrual for asbestos liabilities as of March 31, 1996 was $792.4
million; this amount reflects all asbestos-related property damage and personal
injury lawsuits and claims pending at that date (except for four property damage
lawsuits as to which the liabilities are not yet estimable because Grace
Chemicals has not yet been able to obtain sufficient information as to the
relevant properties through discovery proceedings), as well as personal injury
lawsuits and claims expected to be filed through 1998.
Grace Chemicals previously purchased insurance policies with respect to its
asbestos-related lawsuits and claims. Grace Chemicals has settled with and been
paid by its primary insurance carriers with respect to both property damage and
personal injury lawsuits and claims. With minor exceptions, Grace Chemicals has
also
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<PAGE> 28
settled with its excess insurance carriers that wrote policies available for
property damage claims; those settlements involve amounts paid and to be paid to
Grace Chemicals. In addition, Grace Chemicals has settled with many excess
insurance carriers that wrote policies available for personal injury lawsuits
and claims. Grace Chemicals is currently in litigation with its remaining excess
insurance carriers whose policies Grace Chemicals believes are available for
asbestos-related personal injury lawsuits and claims. Recovery under these
policies is subject to lengthy litigation and legal uncertainties. Insurance
coverage for asbestos-related liabilities has not been commercially available
since 1985.
As of March 31, 1996, Grace Chemicals had recorded a receivable of $281.5
million, which is the amount estimated to be the probable recovery from its
insurance carriers with respect to pending and projected asbestos claims. In
Grace Chemicals' opinion, it is probable that recoveries from its insurance
carriers, along with other funds, will be available to satisfy the pending
property damage and personal injury claims, and personal injury claims expected
to be filed through year-end 1998. Consequently, Grace Chemicals believes that
the resolution of its asbestos-related litigation will not have a material
adverse effect on its consolidated results of operations or financial position.
In addition to the discussion below, see Note 2 to the historical consolidated
financial statements of Grace New York and the notes thereto for the year ended
December 31, 1995, attached hereto as Annex F (the "Consolidated Financial
Statements"), and Note (b) to the unaudited historical consolidated financial
statements of Grace New York and the notes thereto for the three-month period
ended March 31, 1996, attached hereto as Annex G (the "First Quarter Financial
Statements"), for a more comprehensive discussion of these matters, including
tabular presentations of accrued liabilities and asbestos-related receivables.
Grace Chemicals was a defendant in approximately 40,800 asbestos-related
lawsuits at year-end 1995 (47 involving claims for property damage and the
remainder involving approximately 92,400 claims for personal injury), as
compared to approximately 38,700 lawsuits at year-end 1994 (65 involving claims
for property damage and the remainder involving approximately 67,900 claims for
personal injury). In most of these lawsuits, Grace Chemicals is one of many
defendants.
The plaintiffs in property damage lawsuits generally seek, among other
things, to have the defendants absorb the cost of removing, containing or
repairing the asbestos-containing materials in the affected buildings. Through
1995, 129 asbestos property damage cases were dismissed with respect to Grace
Chemicals without payment of any damages or settlement amounts; judgments were
entered in favor of Grace Chemicals in 10 cases (excluding cases settled
following appeals of judgments in favor of Grace Chemicals and a case in which
the plaintiff was granted a new trial on appeal); Grace Chemicals was held
liable for a total of $74.7 million in seven cases (two of which are on appeal);
and 177 property damage suits and claims were settled for a total of $421.8
million.
Included in the asbestos property damage lawsuits pending against Grace
Chemicals and others at year-end 1995 were the following class actions: (i) a
Pennsylvania state court action (Prince George Center, Inc. v. U.S. Gypsum
Company, et al., Court of Common Pleas of Philadelphia County), certified in
1992, covering all commercial buildings in the U.S. leased, in whole or in part,
to the U.S. government on or after May 30, 1986; (ii) an action, conditionally
certified by the U.S. Court of Appeals for the Fourth Circuit in 1993 and
pending in the U.S. District Court for the District of South Carolina, covering
all public and private colleges and universities in the U.S. whose buildings
contain asbestos materials (Central Wesleyan College, et al. v. W. R. Grace, et
al.); and (iii) a purported class action (Anderson Memorial Hospital, et al. v.
W. R. Grace & Co., et al.), filed in 1992, in the Court of Common Pleas for
Hampton County, South Carolina, on behalf of all entities that own, in whole or
in part, any building containing asbestos materials manufactured by Grace
Chemicals or one of the other named defendants, other than buildings subject to
the class action lawsuits described above and any building owned by the federal
or any state government. In December 1995, Grace Chemicals entered into an
agreement to settle the claims under Prince George Center, Inc. v. U.S. Gypsum
Company, et al. The terms of the settlement agreement (which is subject to
judicial review and approval after class members have an opportunity to be
heard) are not expected to have a significant effect on Grace Chemicals'
consolidated results of operations or financial position. In July 1994, the
claims of most class members in Anderson Memorial Hospital, et al., v. W. R.
Grace & Co., et al. were dismissed due to a ruling that a South Carolina statute
prohibits nonresidents from pursuing claims in the South Carolina state courts
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<PAGE> 29
with respect to buildings located outside the state. The plaintiffs have
requested that the court reconsider its decision. In August 1994, Grace
Chemicals entered into an agreement to settle In re: Asbestos School Litigation,
a nationwide class action brought in 1983 in the U.S. District Court for the
Eastern District of Pennsylvania on behalf of all public and private elementary
and secondary schools in the U.S. that contain friable asbestos materials (other
than schools that "opted out" of the class). The terms of the settlement
agreement (which were approved by the U.S. District Court for the Eastern
District of Pennsylvania in September 1995) are not expected to have a
significant effect on Grace Chemicals' consolidated results of operations or
financial position.
The remaining asbestos lawsuits pending at year-end 1995 involved claims
for personal injury. Through year-end 1995, approximately 10,100 personal injury
lawsuits involving 24,500 claims were dismissed with respect to Grace Chemicals
without payment of any damages or settlement amounts (primarily on the basis
that Grace Chemicals products were not involved), and approximately 23,700 such
suits involving 29,600 claims were disposed of for a total of $109 million (see
"-- Insurance Litigation" below). However, as a result of various trends
(including the insolvency of other former asbestos producers and cross-claims by
co-defendants in asbestos personal injury lawsuits), the costs incurred in
disposing of such lawsuits in the past may not be indicative of the costs of
disposing of such lawsuits in the future.
In 1991, the Judicial Panel on Multi-District Litigation consolidated in
the U.S. District Court for the Eastern District of Pennsylvania, for pre-trial
purposes, all asbestos personal injury cases pending in the U.S. federal courts,
including approximately 7,000 cases then pending against Grace Chemicals; 3,600
new cases involving 7,200 claims against Grace Chemicals have subsequently been
added to the consolidated cases. To date, no action has been taken by the court
handling the consolidated cases that would indicate whether the consolidation
will affect Grace's cost of disposing of these cases or its defense costs.
Grace Chemicals' ultimate exposure with respect to its asbestos-related
lawsuits and claims will depend on the extent to which its insurance will cover
damages for which it may be held liable, amounts paid in settlement and
litigation costs. A May 1994 decision of the U.S. Court of Appeals for the
Second Circuit limited the amount of insurance coverage available with respect
to property damage lawsuits and claims. Because Grace Chemicals' insurance
covers both property damage and personal injury lawsuits and claims, the May
1994 decision has had the concomitant effect of reducing the insurance coverage
available with respect to Grace Chemicals' asbestos personal injury lawsuits and
claims. However, in Grace Chemicals' opinion (which is not based on a formal
opinion of counsel), it is probable that recoveries from its insurance carriers,
along with other funds, will be available to satisfy the property damage and
personal injury lawsuits and claims pending at year-end 1995, as well as
personal injury lawsuits and claims expected to be filed in the future.
Consequently, Grace Chemicals believes that the resolution of its
asbestos-related litigation will not have a material adverse effect on its
consolidated results of operations or financial position. See "-- Insurance
Litigation" below and Note 2 to the Consolidated Financial Statements attached
hereto for additional information.
Environmental Proceedings. Manufacturers of specialty chemical products,
including Grace Chemicals, are subject to stringent regulations under numerous
federal, state and local environmental, health and safety laws and regulations
relating to the generation, storage, handling, discharge and disposition of
hazardous wastes and other materials. Grace Chemicals has expended substantial
funds in order to comply with such laws and regulations and expects to continue
to do so in the future. See "-- Environmental, Health and Safety Matters." There
can be no assurance that additional material environmental costs will not arise
as a result of future legislation or other developments. Grace Chemicals
believes that neither its operations, its financial condition nor its
competitive position will be materially adversely affected by compliance with
environmental requirements or by the impact of environmental considerations on
the marketability of its products. However, there can be no assurance that Grace
Chemicals will not incur material liability in connection with future actions of
governmental agencies and/or private parties relating to past or future
practices of Grace Chemicals with respect to the generation, storage, handling,
discharge or disposition of hazardous wastes and other materials.
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<PAGE> 30
The following is a description of the material environmental proceedings in
which Grace Chemicals is involved:
Grace Chemicals (together with certain other companies) has been designated
a "potentially responsible party" ("PRP") by the U.S. Environmental Protection
Agency ("EPA") with respect to absorbing the costs of investigating and
remediating pollution at various sites. At year-end 1995, proceedings were
pending with respect to approximately 30 sites as to which Grace has been
designated a PRP. Federal law provides that all PRPs may be held jointly and
severally liable for the costs of investigating and remediating a site. Grace
Chemicals is also conducting investigatory and remediation activities at sites
under the jurisdiction of state and/or local authorities.
In addition, in 1989, Hatco Corporation ("Hatco"), which purchased the
assets of a Grace Chemicals business in 1978, instituted a lawsuit against Grace
Chemicals in the U.S. District Court for the District of New Jersey (Hatco
Corporation v. W. R. Grace & Co.-Conn.) seeking recovery of cleanup costs for
waste allegedly generated at a New Jersey facility during the period of Grace
Chemicals' ownership. Grace Chemicals subsequently filed a lawsuit against its
insurance carriers seeking indemnity against any damages assessed against Grace
Chemicals in the underlying lawsuit, as well as defense costs. In decisions
rendered during 1993, the U.S. District Court for the District of New Jersey
ruled that Grace Chemicals is responsible for a substantial portion of Hatco's
costs. In July 1995, the U.S. Court of Appeals for the Third Circuit reversed
the decisions of the U.S. District Court for the District of New Jersey and
remanded the lawsuit to the U.S. District Court for the District of New Jersey
for further proceedings. Specifically, the Court of Appeals (i) reversed the
U.S. District Court for the District of New Jersey ruling that Grace Chemicals
is responsible for a substantial portion of Hatco's costs and (ii) ruled that in
the remand proceeding the burden of proof would be on Hatco to establish that it
had not released Grace Chemicals from the asserted liabilities. In an earlier
decision, the U.S. District Court for the District of New Jersey had resolved,
in a manner favorable to Grace Chemicals, certain legal issues regarding Grace
Chemicals' right to insurance coverage; however, the ultimate liability of Grace
Chemicals' insurance carriers will be determined at trial, should a trial be
necessary after the remand proceedings described above. Remediation costs, and
Grace Chemicals' share, if any, of such costs, will be determined once ongoing
site investigations are completed, a remediation plan is approved by the State
of New Jersey (which is expected by year-end 1997) and the litigation is fully
resolved. Grace Chemicals estimates that any amounts that it may be required to
pay in connection with this litigation (which amounts are expected to be
partially offset by recoveries from insurance carriers) will not exceed its
established reserves. See "-- Insurance Litigation" below.
In November 1995, Grace Chemicals received a letter from the U.S.
Department of Energy ("DOE") inquiring as to Grace Chemicals' willingness to
contribute to the continued cleanup of a former Grace Chemicals property located
in Wayne, New Jersey. The letter asserted that Grace Chemicals has a legal duty
to pay for the site's cleanup and that the total cost of cleanup may exceed $100
million. The operations conducted by Grace Chemicals at the Wayne site (from
1955 to 1970) included work done on radioactive materials under contract with
the U.S. government for the "Manhattan Project" and with the U.S. Atomic Energy
Commission. In 1975, the U.S. Nuclear Regulatory Commission inspected the site,
concluded that it was decontaminated in accordance with applicable regulations
and released it for unrestricted use. In 1984, pursuant to a request from the
DOE, Grace Chemicals transferred the Wayne property to the DOE and made a cash
payment as a contribution towards the DOE's cleanup efforts at the site, which
was acknowledged by the DOE as fulfilling any obligation Grace Chemicals had to
contribute to DOE's cleanup effort. As a result of these transactions, Grace
Chemicals believes it has no further obligation to contribute to the DOE's
cleanup activities.
In March 1993, an action was filed in the U.S. District Court for the
Southern District of Texas against Grace Drilling Company, a subsidiary of Grace
Chemicals, the business and assets of which have since been sold, and several
other defendants, for alleged violations of the Clean Water Act and the Rivers
and Harbors Act (U.S. v. Fina Oil and Chemical Co., et al.). The government
alleges that seagrasses and seabeds around a drilling rig operated by Fina Oil
and Chemical Co. were damaged in connection with the placing, servicing and
removal of the rig. The government is seeking injunctive relief requiring the
defendants to restore the damaged areas and to compensate for temporary loss of
the seagrass habitat, as well as civil penalties of up to $25,000
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per day of violation and attorneys' fees. The parties to such action are
currently participating in a court-ordered mediation process.
Grace Chemicals is also a party to other proceedings involving federal,
state and/or local government agencies and private parties regarding Grace
Chemicals' compliance with environmental laws and regulations. These proceedings
are not expected to result in significant sanctions or in any material
liability. As a voluntary participant in the EPA Toxic Substances Control Act
("TSCA") Compliance Audit Program, Grace Chemicals agreed to undertake a
corporate-wide audit of compliance with Section 8 of TSCA, and agreed to pay a
stipulated civil penalty for each study or report that the EPA alleges should
have been, but was not, submitted to the EPA as required under Section 8 of
TSCA. Grace Chemicals has been advised that it will be required to pay the EPA a
penalty of $255,000 for information discovered in the course of the audit. In
addition, Grace Chemicals has voluntarily reported to the EPA violations of
certain notification and related requirements under TSCA, and penalties may be
assessed against Grace Chemicals in connection therewith; however, the amount of
such penalties cannot be determined at this time.
Grace Chemicals believes that the liabilities for environmental remediation
costs that have been recorded in Grace New York's historical financial
statements are adequate. In addition, Grace Chemicals is presently involved in
litigation with its insurance carriers seeking to hold them responsible for
certain amounts for which Grace Chemicals may be held liable with respect to
such costs. The outcome of such litigation, as well as the amounts of any
recoveries that Grace Chemicals may receive in connection therewith, is
presently uncertain. However, Grace Chemicals believes that the resolution of
pending environmental proceedings will not have a material adverse effect on the
consolidated financial position, results of operations or liquidity of New
Grace. For further information, see "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION."
Insurance Litigation. Grace Chemicals is involved in litigation with
certain of its insurance carriers with respect to asbestos-related insurance
claims and environmental liabilities. It has settled all of its asbestos-related
insurance coverage actions, with the exception of Maryland Casualty Co. v. W. R.
Grace & Co., pending in the U.S. District Court for the Southern District of New
York. Grace Chemicals' two environmental insurance coverage actions consist of
an action pending in the U.S. District Court for the Southern District of New
York, also styled Maryland Casualty Co. v. W. R. Grace & Co., and an action
pending in the U.S. District Court for the District of New Jersey, Hatco Corp.
v. W. R. Grace & Co.-Conn. The relief sought by Grace Chemicals in these three
actions would provide insurance that would partially offset Grace Chemicals'
estimated exposure with respect to amounts already expended, and that may be
expended in the future, by Grace Chemicals to defend claims, satisfy judgments
and fund settlements. See Note 2 to the Consolidated Financial Statements and
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION" for additional information.
Prior to 1993, Grace Chemicals received payments totaling $97.7 million
from insurance carriers, the majority of which represented the aggregate
remaining obligations owed to Grace Chemicals by those carriers for
primary-level insurance coverage written for the period June 30, 1962 through
June 30, 1987. In 1993 and 1994, Grace Chemicals settled with insurance carriers
for a total of $300.2 million (portions of which were paid or will be paid in
subsequent years), in reimbursement for amounts expended by Grace Chemicals in
connection with asbestos-related litigation. In 1995, Grace Chemicals settled
with a primary-level insurer for $100 million, and with other insurers for a
total of $200.3 million, including future payments of approximately $70 million.
In 1996, Grace Chemicals has settled with additional excess-level insurers for a
total of $59.9 million (including $19.2 million to be received over the next
five years) with respect to both products liability and other coverage. As a
result of these settlements, Grace Chemicals' asbestos-related insurance claims
have been dismissed as to the primary-level product liability insurance coverage
previously sold by the relevant insurers to Grace Chemicals, as well as to many
of Grace Chemical's excess-level liability insurers. However, ligation continues
in New York federal court as to certain excess-level carriers which have not
settled.
In April 1996, as a result of rulings in the New York federal court action
favorable to Grace Chemicals with respect to its asbestos-related property
damage liabilities, the insurers agreed to the entry of summary
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judgment in favor of Grace Chemicals. These insurers have stated that they
intend to appeal the trial court's rulings. The New York court has not yet
addressed Grace Chemicals' claims for insurance coverage for its
asbestos-related bodily injury liabilities.
The Hatco environmental coverage action, involving a single environmental
site, is set for trial in September 1996, with its discovery phase substantially
complete. The comprehensive environmental coverage action in New York federal
court, potentially involving several hundred sites, is just entering its
discovery phase, focusing on eight representative or "test" environmental sites.
No trial date has been set, but the test sites will probably be tried next year.
Fumed Silica Plant Litigation. In 1993, Grace Chemicals initiated legal
action in the Belgian courts against the Flemish government to recover losses
resulting from the closing of Grace Chemicals' fumed silica plant in Puurs,
Belgium. Grace Chemicals is seeking damages in excess of four billion Belgian
francs (approximately $135.5 million at the December 29, 1995 exchange rate),
plus interest and lost profits. This claim was dismissed at the trial court
level and is now being appealed by Grace Chemicals. The trial court also
determined that Grace Chemicals should repay approximately 239 million Belgian
francs (approximately $8.1 million at the December 29, 1995 exchange rate), plus
interest to the Flemish government for previously received investment grants;
this decision is also being appealed by Grace Chemicals. Also pending is an
arbitration involving the engineering company that was responsible for the
design and construction of the fumed silica plant. The outcome of this
proceeding may affect the action filed against the Flemish government.
Shareholder Litigation. Commencing in March 1995, five lawsuits were
brought against Grace New York and members of the Grace New York Board (as well
as against J. P. Bolduc, who resigned as President and Chief Executive Officer
and a director of Grace New York in March 1995) in New York State Supreme Court,
New York County. These lawsuits were consolidated in the case entitled Weiser,
et al. v. Grace, et al. The consolidated amended complaint in this lawsuit,
which purports to be a derivative action (i.e., an action brought on behalf of
Grace New York), alleges, among other things, that the individual defendants
breached their fiduciary duties to Grace New York (i) by providing J. Peter
Grace, Jr. (the Chairman and a director of Grace New York until his death in
April 1995) with certain compensation arrangements upon his voluntary retirement
as Grace New York's Chief Executive Officer in 1992 and (ii) by approving Mr.
Bolduc's severance arrangements, and that Messrs. Grace and Bolduc breached
their fiduciary duties by accepting such benefits and payments. The lawsuit
seeks unspecified damages, the cancellation of all allegedly improper
agreements, the cancellation of the non-employee director retirement plan, the
return of all remuneration paid to the present and former directors who are
defendants while they were in breach of their fiduciary duties to Grace New
York, an award of attorneys' and experts' fees and costs, and such other relief
as the Court may deem appropriate.
In March 1996, two purported shareholder derivative class actions were
filed in New York State Supreme Court, New York County, against Grace New York
and Albert J. Costello, Grace New York's Chairman, President and Chief Executive
Officer, alleging that the defendants breached their fiduciary duties to Grace
New York's shareholders by failing to investigate and consider fully a proposal
by Hercules, Incorporated to acquire or merge with Grace New York (Izes, etc. v.
W. R. Grace & Company, et al. and Polikoff, etc. v. W. R. Grace & Company, et
al.). The lawsuits seek injunctive relief ordering defendants to carry out their
fiduciary duties by considering and evaluating such proposal, unspecified
monetary damages, costs and counsel fees and such other relief as the Court
deems proper.
Securities and Exchange Commission Investigations. Grace New York has been
notified that the Securities and Exchange Commission (the "Commission") has
issued a formal order of investigation with respect to Grace New York's prior
disclosures regarding benefits and retirement arrangements provided to J. Peter
Grace, Jr. (the Chairman and a director of Grace New York until his death in
April 1995) and certain matters relating to J. Peter Grace III, a son of J.
Peter Grace, Jr. Grace New York is cooperating with the investigation.
In April 1996, Grace New York received a formal order of investigation
issued by the Commission directing an investigation into, among other things,
whether Grace New York violated the federal securities
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<PAGE> 33
laws by filing periodic reports with the Commission that contained false and
misleading financial information. Pursuant to this formal order of
investigation, Grace New York has received a subpoena from the Southeast
Regional Office of the Commission requiring the Company to produce documents
relating to reserves (net of applicable taxes) established by Grace New York and
NMC during the period from January 1, 1990 to the date of the subpoena (the
"Covered Period"). New Grace believes that all financial statements filed by
Grace New York with the Commission during the Covered Period, the financial
statements of NMC included in the NMC Form 10 filed with the Commission on
September 25, 1995, and the Consolidated Financial Statements (all of which
financial statements, other than unaudited quarterly financial statements, were
covered by unqualified opinions issued by Price Waterhouse LLP, independent
certified public accountants), have been fairly stated, in all material
respects, in conformity with generally accepted accounting principles. Grace New
York is cooperating with the investigation. The outcome of this investigation
and its impact, if any, on Grace New York, New Grace or NMC cannot be predicted
at this time.
Shareholder Actions Relating to NMC. In 1995, nine purported class action
lawsuits were brought against Grace New York and certain of its officers and
directors in various federal courts. These lawsuits have been consolidated in
the case entitled Murphy, et al. v. W. R. Grace & Co., et al., which is pending
in the U.S. District Court for the Southern District of New York. The first
amended class action complaint in this lawsuit, which purports to be a class
action on behalf of all persons and entities who purchased Grace New York's
publicly traded securities during the period from March 13, 1995 through October
17, 1995, generally alleges that the defendants concealed information, and
issued misleading public statements and reports, concerning NMC's financial
position and business prospects, a proposed spin-off of NMC and the matters that
are the subject of the investigations of NMC by the Office of the Inspector
General of the U.S. Department of Health and Human Services (the "OIG"), in
violation of federal securities laws. The lawsuit seeks unspecified damages,
attorneys' and experts' fees and costs and such other relief as the Court deems
proper.
In October 1995, a purported derivative lawsuit was filed in the U.S.
District Court for the Southern District of Florida, Northern Division, against
Grace New York, certain of its directors and its former President and Chief
Executive Officer, alleging that such individuals breached their fiduciary
duties by failing to properly supervise the activities of NMC in the conduct of
its business (Bennett v. Bolduc, et al.). In December 1995, the plaintiff in
this action filed a new action, based on similar allegations, in the U.S.
District Court for the Southern District of New York (Bennett v. Bolduc, et
al.). The Florida action has been dismissed in favor of the action filed in the
U.S. District Court for the Southern District of New York. A second action
making similar allegations was filed in October 1995 in New York State Supreme
Court, New York County (Bauer v. Bolduc, et al.). Grace New York has been
advised that this action will be dismissed or stayed in favor of the Bennett
action, which has been consolidated, for discovery purposes only, with the
Murphy action described above. The complaint in the Bennett action seeks
unspecified damages, attorneys' and experts' fees and costs and such other
relief as the Court deems proper.
In February 1996, a purported class action was filed in New York State
Supreme Court, New York County, against Grace New York and certain of its
current and former directors, alleging that the defendants breached their
fiduciary duties, principally by failing to provide internal financial data
concerning NMC to Vivra Incorporated and by failing to negotiate with Baxter
International, Inc. in connection with a business combination involving NMC
(Rosman v. W. R. Grace, et al. 96-102347). The lawsuit seeks injunctive relief
ordering the defendants to carry out their fiduciary duties and preventing or
rescinding the Reorganization or any related transactions with Fresenius AG,
unspecified monetary damages, an award of plaintiff's attorneys' and experts'
fees and costs and such other relief as the court may deem just and proper. The
plaintiff has not taken any steps to prosecute this lawsuit since it was filed,
and the defendants believe this lawsuit is without merit.
OIG Investigation. As discussed in the Joint Proxy Statement-Prospectus
mailed herewith, NMC is the subject of an investigation (the "OIG
Investigation") by the OIG, among others. One of the subpoenas received in
connection with the OIG Investigation requests documents from NMC relating to
the relationship of NMC with Grace New York and Grace Chemicals and Grace
Chemicals' and Grace New York's knowledge of NMC's activities. Such request may
indicate that investigators are looking into Grace Chemicals' potential
liability in respect of NMC's activities. Under the Distribution Agreement,
Grace New
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York will indemnify Grace Chemicals with respect to all liabilities arising from
or relating to the OIG Investigation and may not settle or compromise the OIG
Investigation unless, as part of such settlement or compromise, Grace Chemicals
is granted an unconditional release in respect thereof. However, no assurance
can be given that Grace Chemicals will not have liability in this regard. See
"THE DISTRIBUTION -- Fraudulent Transfer and Related Considerations." In
addition, under the OIG Agreement, Grace Chemicals has given certain guarantees
in connection with the OIG Investigation. See "THE DISTRIBUTION -- Other
Arrangements."
27
<PAGE> 35
PROPERTIES
Grace Chemicals operates manufacturing and other types of plants and
facilities (including office and other service facilities) throughout the world,
some of which are shared by two or more of Grace Chemicals' product lines. Grace
Chemicals considers its major operating properties to be in good operating
condition and suitable for their current use. Although Grace Chemicals believes
that, after taking planned expansion into account, the productive capacity of
its plants and other facilities is generally adequate for current operations and
foreseeable growth, it conducts ongoing, long-range forecasting of its capital
requirements to assure that additional capacity will be available when and as
needed. Accordingly, Grace Chemicals does not anticipate that its operations or
income will be materially affected by the absence of available capacity. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION" for information regarding Grace Chemicals' capital expenditures.
The following table describes Grace Chemicals' principal properties, all of
which are owned.
<TABLE>
<CAPTION>
FLOOR AREA PRIMARY
(APPROXIMATE PRODUCT
LOCATION SQUARE FEET) LINES
- --------------------------------------------- ------------------------ ----------------
<S> <C> <C>
In der Hollerhecke 2,334,100 Grace Davison
67547 Worms, Germany
803 N. Maple St. 1,139,600 Grace Packaging
Simpsonville, SC
Rue St. Denis, 703,900 Grace Packaging,
Epernon, France Grace Container
and Grace
Construction
5500 Chemical Road 650,000 Grace Davison
Baltimore, MD
1301 W. Magnolia 579,400 Grace Packaging
Iowa Park, TX
1126 Sydney Rd. 409,800 Grace Packaging
Fawkner, Victoria,
Australia
20017 Passirana - 393,400 Grace Packaging
Via Trento 7 and Grace
I-20017 Rho Construction
Milano, Italy
150 Grace Way 334,600 Grace Packaging
Seneca, SC
1125 Wilson Ave., S.W. 236,800 Grace Packaging
Cedar Rapids, IA
P.O. Box 3247, Hwy. #27 115,700 Grace Davison
Lake Charles, LA
</TABLE>
In addition, Grace Cocoa owns a 315,300 square-foot facility in Milwaukee,
Wisconsin. Additional information regarding Grace Chemicals' properties is set
forth in Notes 1, 9 and 12 to the Consolidated Financial Statements.
28
<PAGE> 36
PRO FORMA FINANCIAL INFORMATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
The unaudited pro forma condensed consolidated balance sheet of New Grace
has been derived from the historical consolidated balance sheet of Grace New
York, adjusted for the disposition of NMC and for certain costs and expenses to
be incurred in connection with the Reorganization. The pro forma condensed
consolidated balance sheet has been prepared on the assumption that the
Reorganization occurred on March 31, 1996.
The pro forma condensed consolidated balance sheet should be read in
conjunction with the Consolidated Financial Statements and the First Quarter
Financial Statements. The pro forma condensed consolidated balance sheet is not
necessarily indicative of the financial position of New Grace that would
actually have resulted had the Reorganization occurred on March 31, 1996.
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
GRACE NEW YORK ----------------------- NEW GRACE
HISTORICAL DEBIT CREDIT PRO FORMA
-------------- -------- -------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents...................... $ 56.5 $2,247.8(a) $1,187.8(b)
60.0(a) $1,056.5
Notes and accounts receivable, net............. 666.8 666.8
Other current assets........................... 1,024.6 1,024.6
-------- --------
Total Current Assets...................... 1,747.9 2,747.9
Properties and equipment, net.................. 1,810.0 1,810.0
Net assets of discontinued operations -- health
care......................................... 1,540.5 366.3(b) 1,842.6(c) 64.2
Other assets................................... 1,387.1 1,387.1
-------- --------
Total Assets.............................. $6,485.5 $6,009.2
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term debt................................ $ 895.2 821.5(b) $ 73.7
Other current liabilities...................... 1,494.0 1,494.0
-------- --------
Total Current Liabilities................. 2,389.2 1,567.7
Long-term debt................................. 1,265.4 1,265.4
Other liabilities.............................. 807.6 807.6
Noncurrent liability for asbestos-related
litigation................................... 692.4 692.4
-------- --------
Total Liabilities......................... 5,154.6 4,333.1
-------- --------
Commitments and Contingencies
Shareholders' Equity
Preferred stocks............................... 7.4 7.4(e) --
Common stock................................... 98.5 97.5(d) 1.0
Paid in capital................................ 503.1 95.1(d) 598.2
Retained earnings.............................. 760.2 60.0(a) 2,247.8(a)
1,842.6(c) 7.4(e) 1,112.8
Cumulative translation adjustments............. (35.9) (35.9)
Treasury stock, at cost........................ (2.4) 2.4(d) --
-------- --------
Total Shareholders' Equity................ 1,330.9 1,676.1
-------- --------
Total Liabilities and Shareholders'
Equity.................................. $6,485.5 $6,009.2
======== ========
</TABLE>
THE NOTES TO THIS UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
ARE AN INTEGRAL PART OF THE PRO FORMA FINANCIAL INFORMATION PRESENTED.
29
<PAGE> 37
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
The unaudited pro forma condensed consolidated statement of operations of
New Grace has been derived from the historical consolidated statement of
operations of Grace New York, adjusted to reflect the reduction in interest
expense expected to result from the Reorganization. The pro forma condensed
consolidated statement of operations has been prepared on the assumption that
the Reorganization occurred on January 1, 1995.
The pro forma condensed consolidated statement of operations should be read
in conjunction with the Consolidated Financial Statements and the First Quarter
Financial Statements. The pro forma condensed consolidated statement of
operations is not necessarily indicative of the results of operations of New
Grace that would actually have resulted had the Reorganization occurred on
January 1, 1995.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-----------------------------------------------
PRO FORMA
GRACE ADJUSTMENTS NEW
NEW YORK ---------------- GRACE
HISTORICAL DEBIT CREDIT PRO FORMA
--------- ----- ------ -----------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Sales and revenues..................................................... $3,665.5 $ 3,665.5
Other income........................................................... 41.9 41.9
------- -------
Total......................................................... 3,707.4 3,707.4
------- -------
Cost of goods sold and operating expenses.............................. 2,243.7 2,243.7
Selling, general and administrative expenses........................... 905.6 905.6
Depreciation and amortization.......................................... 186.3 186.3
Interest expense and related financing costs........................... 71.3 $0.7(f) 70.6
Research and development expenses...................................... 120.6 120.6
Corporate expenses previously allocated to health care operations...... 37.8 37.8
Restructuring costs and asset impairments.............................. 179.5 179.5
Provision relating to asbestos-related liabilities and insurance
coverage............................................................. 275.0 275.0
------- -------
Total......................................................... 4,019.8 4,019.1
------- -------
Loss from continuing operations before income taxes.................... (312.4) (311.7)
Benefit from income taxes.............................................. (115.8) 0.3(f) (115.5)
------- -------
Loss from continuing operations........................................ $ (196.6) $ (196.2)
======= =======
Loss per share:
Continuing operations................................................ $ (2.05) $ (2.05)
Fully diluted loss per share:
Continuing operations................................................ $ -- (1) $ --(1)
Weighted average shares of Common Stock outstanding (in thousands)..... 95,822 95,822
</TABLE>
- ---------------
(1) Not presented as the effect is anti-dilutive.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996
----------------------------------------------
PRO FORMA
GRACE ADJUSTMENTS NEW
NEW YORK ---------------- GRACE
HISTORICAL DEBIT CREDIT PRO FORMA
--------- ----- ------ ----------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
Sales and revenues..................................................... $ 886.0 $ 886.0
Other income........................................................... 3.8 3.8
------- --------
Total......................................................... 889.8 889.8
------- --------
Cost of goods sold and operating expenses.............................. 531.8 531.8
Selling, general and administrative expenses........................... 199.3 199.3
Depreciation and amortization.......................................... 45.5 45.5
Interest expense and related financing costs........................... 18.4 $5.6(f) 24.0
Research and development expenses...................................... 28.8 28.8
------- --------
Total......................................................... 823.8 829.4
------- --------
Income from continuing operations before income taxes.................. 66.0 60.4
Provision for income taxes............................................. 24.4 $2.2(f) 22.2
------- --------
Income from continuing operations...................................... $ 41.6 $ 38.2
======= ========
Earnings per share:
Continuing operations................................................ $ .42 $ .39
Fully diluted earnings per share:
Continuing operations................................................ $ .41 $ .38
Weighted average shares of Common Stock outstanding (in thousands)..... 97,888 97,888
</TABLE>
THE NOTES TO THIS UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS ARE AN INTEGRAL PART OF THE PRO FORMA FINANCIAL INFORMATION
PRESENTED.
30
<PAGE> 38
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AND
STATEMENT OF OPERATIONS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(a) The Reorganization Agreement provides that, prior to the Reorganization, NMC
will borrow and/or will assume debt of Grace Chemicals in an aggregate
amount of approximately $2,263 (as adjusted pursuant to the Reorganization
Agreement), and will distribute the net cash proceeds to Grace Chemicals; it
is currently estimated that such aggregate amount will be approximately
$2,247.8. A portion of such net cash proceeds will be applied to further
reduce Grace Chemicals' debt, resulting in an aggregate reduction of
$1,187.8 in Grace Chemicals' debt (see note (b) below). In addition, Grace
will incur expenses totaling approximately $60.0 (net of applicable tax
benefit) in connection with the Reorganization. The remaining net cash
proceeds received from NMC (estimated at $1,000.0) are expected to be used
to purchase shares of New Grace Common Stock, which would result in a
decrease in current assets and a commensurate decrease in shareholders'
equity.
(b) As discussed in note (a) above, the assumption of Grace Chemicals' debt by
NMC and the application of a portion of the net cash proceeds distributed to
Grace Chemicals by NMC to the reduction of Grace Chemicals' debt is expected
to result in an aggregate reduction of $1,187.8 in Grace Chemicals' debt,
consisting of (i) $179.8 of borrowings under NMC receivables financing
arrangements; (ii) $186.5 of other NMC debt; and (iii) $821.5 of short-term
debt (consisting of $527.3 of commercial paper and bank borrowings and
$294.2 of other short-term borrowings).
(c) Reflects the disposition of NMC's net assets of $1,842.6. Subsequent to the
disposition of NMC, New Grace will retain as discontinued operations certain
health care assets, primarily a bioseparation sciences business, a health
care services company and other assets (including NMC's cash and marketable
securities). The resulting gain of $405.2 (reflecting net cash proceeds of
$2,247.8, as described in note (a) above, less the disposition of NMC's net
assets of $1,842.6) is not reflected in the pro forma condensed consolidated
statement of operations.
(d) As part of the Reorganization, Grace New York will distribute, on a
one-share-for-one-share basis, all of the issued and outstanding New Grace
Common Stock (which has a par value of $.01 per share) to the holders of
shares of Grace New York Common Stock (which has a par value of $1.00 per
share) at the Time of Distribution. The treasury stock held by Grace New
York at the Time of Distribution will not be transferred to New Grace and is
therefore eliminated in the pro forma adjustments. As a result of the
retirement of the treasury stock and the difference in the par values, (i)
the $2.4 of treasury stock will be eliminated, (ii) Common stock will
decrease by $97.5 and (iii) paid in capital will increase by $95.1.
(e) The currently issued and outstanding shares of Grace New York Preferred
Stock will remain issued and outstanding following the Reorganization and
the Distribution, and no New Grace preferred stock will be issued. The
resulting reduction in outstanding Preferred stock is presented as an
increase in retained earnings within the shareholders' equity section of the
pro forma balance sheet.
(f) Grace Chemicals has allocated interest expense to discontinued operations
(including NMC), based on the ratio of the net assets of the businesses
classified as discontinued operations as compared to Grace Chemicals' total
capital. Excluding amounts allocated to discontinued operations, interest
expense and related financing costs were $71.3 for the year ended December
31, 1995 and $18.4 for the three months ended March 31, 1996. For the year
ended December 31, 1995, the assumed reduction in debt as of January 1, 1995
would have the pro forma effect of reducing total interest expense and
related financing costs by $94.2 (of which $0.7 was attributable to
continuing operations and $93.5 was attributable to discontinued
operations). For the three months ended March 31, 1996, the assumed
reduction in debt as of January 1, 1995 would have the pro forma effect of
reducing total interest expense and related financing costs by $21.2
(increasing interest expense and related financing costs attributable to
continuing operations by $5.6 and reducing interest expense and related
financing costs attributable to discontinued operations by $26.8).
31
<PAGE> 39
The above adjustments to interest expense and related financing costs would
have the pro forma effect of increasing tax expense by $0.3 for the year
ended December 31, 1995 and reducing tax expense by $2.2 for the
three-month period ended March 31, 1996. The tax effects were calculated
using an effective tax rate of approximately 40%, which represents the U.S.
federal corporate tax rate of 35%, plus state and local income taxes, net
of U.S. federal income tax benefit.
------------------------
For accounting purposes, Grace Chemicals will receive the Distribution
Payment and will be deemed to receive a 44.8% common equity interest in FMC and
to immediately distribute such interest to the holders of Grace New York Common
Stock; however, the receipt and distribution of the interest in FMC Ordinary
Shares are not reflected in the pro forma condensed consolidated balance sheet
and statement of operations.
In March 1996, Grace Chemicals entered into a definitive agreement to sell
its Grace Dearborn water treatment and process chemicals business to Betz
Laboratories, Inc. for $632 million. The transaction was completed in June 1996.
Grace Dearborn's sales and revenues were $398.5 million for the year ended
December 31, 1995; its financial position and results of operations were not
significant to Grace Chemicals. Also, in May 1996 Grace Chemicals completed the
sale of the transgenic plant business of its Agracetus, Inc. subsidiary (which
had previously been classified as a discontinued operation) to the Monsanto
Company for $150 million; the revenues and net assets of Agracetus, Inc. were
immaterial to Grace Chemicals. The after-tax cash proceeds generated by these
transactions have been applied to the further reduction of borrowings and the
repurchase of stock. These transactions are not reflected in the pro forma
financial information included herein.
In May 1996, Grace Chemicals entered into a new credit agreement providing
for total borrowings of $1.85 billion, and three previous agreements providing
for total borrowings of $850 million were terminated. The new credit agreement
is intended to provide liquidity to finance the repurchase of stock and
potential acquisitions. The borrowings under the new credit agreement have been
guaranteed by New Grace and Grace New York. Upon the completion of the
transactions described above (including the Reorganization), the total
borrowings available under the new credit agreement will be reduced to $650
million and the guarantee by Grace New York will be terminated.
32
<PAGE> 40
CAPITALIZATION
The following table sets forth the capitalization of Grace New York and the
pro forma capitalization of New Grace at March 31, 1996, giving effect to the
Reorganization and related transactions described in the notes to the unaudited
pro forma condensed consolidated balance sheet and statement of operations. This
table should be read in conjunction with such notes, the Consolidated Financial
Statements and the First Quarter Financial Statements.
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------------------
GRACE NEW YORK NEW GRACE
HISTORICAL PRO FORMA
-------------- ---------
(DOLLARS IN MILLIONS, EXCEPT PAR
VALUE)
<S> <C> <C>
Debt, including short-term debt(a)............................ $2,160.6 $1,339.1
-------- --------
Shareholders' equity:
Grace New York Common Stock:
Common stock, $1.00 par value; 300,000,000 shares
authorized; 98,487,000 outstanding..................... $ 98.5 --
Grace Delaware Common Stock
Common stock, $.01 par value; 300,000,000 shares
authorized; 98,487,000 outstanding..................... -- $ 1.0
Grace New York Preferred Stock:
6% Preferred Stock, Cumulative, $100 par value; 40,000
shares authorized; 36,460 outstanding.................. 3.6 --
Class A Preferred Stock, 8% Cumulative, $100 par value;
50,000 shares authorized; 16,256 outstanding........... 1.6 --
Class B Preferred Stock, 8% Noncumulative, $100 par
value; 40,000 shares authorized; 21,577 outstanding.... 2.2 --
Paid in capital............................................. 503.1 598.2
Retained earnings........................................... 760.2 1,112.8
Cumulative translation adjustments.......................... (35.9) (35.9)
Treasury stock, at cost..................................... (2.4) --
-------- --------
Total shareholders' equity............................... 1,330.9 1,676.1
-------- --------
Total capitalization..................................... $3,491.5 $3,015.2
======== ========
</TABLE>
- ---------------
(a) In addition to the retirement of debt reflected above, it is also expected
that $179.8 of borrowings under NMC receivables financing arrangements and
$186.5 of other NMC debt will be retired. These amounts are classified
within Net assets of discontinued operations -- health care in the Grace New
York historical balance sheet at March 31, 1996.
33
<PAGE> 41
GRACE CHEMICALS SELECTED FINANCIAL INFORMATION
The following selected consolidated financial information for Grace
Chemicals should be read in conjunction with the Consolidated Financial
Statements and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION" included elsewhere in this Prospectus. This financial
information for the years ended December 31, 1991 through 1995 has been based on
financial statements audited by Price Waterhouse LLP, independent certified
public accountants. The financial information for the three-month interim
periods ended March 31, 1995 and 1996 has been based on unaudited interim
financial statements that reflect all adjustments that, in the opinion of
management, are necessary for a fair presentation of the results of the interim
periods presented; all such adjustments are of a normal recurring nature.
Certain amounts in prior periods have been restated to conform to the current
period's basis of presentation. The results of operations for the three-month
interim period ended March 31, 1996 are not necessarily indicative of the
results of operations for the fiscal year ending December 31, 1996.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------- ---------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- ------ ------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales and revenues................................... $3,326.2 $3,061.8 $2,895.5 $3,218.2 $3,665.5 $853.4 $886.0
(Loss)/income from continuing operations............. 157.4 1.4 19.1 (41.4) (196.6) 22.9 41.6
Income from continuing operations before special
items(1)........................................... 153.9 146.5 119.1 157.6 194.7 35.4 41.6
(Loss)/earnings from continuing operations per share
of Grace New York Common Stock..................... 1.80 .01 .20 (.45) (2.05) .24 .42
Earnings from continuing operations per share of
Grace New York Common Stock before special
items(1)........................................... 1.76 1.63 1.30 1.68 2.03 .38 .42
Cash dividends declared per share of Grace New York
Common Stock....................................... 1.40 1.40 1.40 1.40 1.175 .35 .125
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------- MARCH 31,
1991 1992 1993 1994 1995 1996
-------- -------- -------- -------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets......................................... $6,007.1 $5,598.6 $6,108.6 $6,230.6 $6,297.6 $6,485.5
Long-term debt....................................... 1,793.1 1,354.5 1,173.5 1,098.8 1,295.5 1,265.4
Total liabilities.................................... 3,981.9 4,053.6 4,591.0 4,726.1 5,065.8 5,154.6
Total equity......................................... 2,025.2 1,545.0 1,517.6 1,504.5 1,231.8 1,330.9
</TABLE>
- ---------------
(1) Income from continuing operations before special items reconciles to
(loss)/income from continuing operations as follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------- --------------
1991 1992 1993 1994 1995 1995 1996
------ ------- ------- ------- ------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Income from continuing operations before special
items.............................................. $153.9 $ 146.5 $ 119.1 $ 157.6 $ 194.7 $ 35.4 $41.6
Provision for corporate governance................... -- -- -- -- (18.6) (12.5) --
Gain on sale of remaining interest in The Restaurant
Enterprises Group, Inc............................. -- -- -- 27.0 -- -- --
Restructuring costs and asset impairments/other
activities......................................... -- -- -- -- (144.0) -- --
Provisions for environmental liabilities at former
manufacturing sites................................ -- -- -- (26.0) (50.0) -- --
Provision relating to a fumed silica plant........... -- (140.0) -- -- --
Postretirement benefits prior to plan amendments..... -- (5.1) -- -- -- -- --
Strategic restructuring gain......................... 3.5 -- -- -- -- -- --
Provisions relating to asbestos-related liabilities
and insurance coverage............................. -- -- (100.0) (200.0) (178.7) -- --
------ ------- ------- ------- ------- ------ -----
(Loss)/income from continuing operations............. $157.4 $ 1.4 $ 19.1 $ (41.4) $(196.6) $ 22.9 $41.6
====== ======= ======= ======= ======= ====== =====
</TABLE>
34
<PAGE> 42
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following is a discussion of the results of operations and financial
condition of Grace Chemicals. The discussion should be read in conjunction with
the Consolidated Financial Statements.
REVIEW OF OPERATIONS
First Quarter 1996 Compared to First Quarter 1995. Sales and revenues
increased 4% in the first quarter of 1996 over the first quarter of 1995. Net
income for the first quarter of 1996 was $63.6 million, a 34% increase as
compared to the 1995 first quarter. The first quarter of 1995 includes an
after-tax charge of $12.5 million ($20.0 million pretax) for costs associated
with the termination of the employment agreement of Grace New York's former
president and chief executive officer, pension costs resulting from the
retirement of certain directors, legal and other expenses related to the
foregoing and other corporate governance activities. Excluding the above charge,
net income for the first quarter of 1996 would have increased 6% as compared to
the 1995 first quarter.
1995 Compared to 1994. Sales and revenues of Grace Chemicals increased 14%
in 1995 over 1994, as compared to an increase of 11% in 1994 over 1993.
(Loss)/income from continuing operations was $(196.6) million, $(41.4)
million and $19.1 million in 1995, 1994 and 1993, respectively. These results
reflected (i) 1995, 1994 and 1993 pretax provisions of $275.0 million, $316.0
million and $159.0 million ($178.7 million, $200.0 million and $100.0 million
after-tax), respectively, relating to asbestos-related liabilities and insurance
coverage (see "-- Asbestos-Related Matters" below and Note 2 to the Consolidated
Financial Statements for further information); (ii) 1995 and 1994 pretax
provisions of $77.0 million and $40.0 million ($50.0 million and $26.0 million
after-tax), respectively, relating to environmental liabilities (see
"-- Environmental Matters" below for further information); (iii) a 1995 pretax
charge of $220.0 million ($144.0 million after-tax) relating to restructuring
costs, asset impairments and other costs (see "-- Restructuring Costs, Asset
Impairments and Other Costs" below for further information); (iv) a 1995 pretax
charge of $30.0 million ($18.6 million after-tax) relating to corporate
governance matters; and (v) a 1994 gain of $27.0 million (pre- and after-tax) on
the sale of Grace Chemicals' remaining interest in The Restaurant Enterprises
Group, Inc. Excluding these provisions and charges from all years, income from
continuing operations in 1995 increased 24%, to $194.7 million, as compared to
1994, and in 1994 increased 32%, to $157.6 million, over 1993.
Income from continuing operations reflects corporate expenses of $37.8
million, $37.1 million and $37.4 million in 1995, 1994 and 1993, respectively,
previously allocated to the discontinued health care operations. These expenses
will not be assumed by NMC following the Reorganization and it is expected that
these costs will be eliminated. See below for additional information regarding
the Reorganization and Grace Chemicals' cost management efforts.
For all periods presented, the Consolidated Statement of Operations has
been restated to reflect the classification of certain businesses as
discontinued operations, as discussed in Note 7 to the Consolidated Financial
Statements.
SPECIALTY CHEMICALS
Operating Results -- First Quarter 1996 Compared to First Quarter 1995. As
noted above, sales and revenues increased 4% in the first quarter of 1996 as
compared to the 1995 first quarter, reflecting favorable volume, price/product
mix and currency translation variances estimated at 2%, 1% and 1%, respectively.
Catalysts and other silica-based products, packaging and water treatment product
lines experienced improved volumes, offset by volume declines in the
construction and container product lines. Volume increases in catalysts and
other silica-based products reflected higher sales in all regions, especially
refinery catalysts in Asia Pacific (due to market share gains), polyolefin
catalysts in North America, and silica/adsorbent products in Europe, Asia
Pacific and Latin America, as a result of new product introductions. Packaging
volume increases reflected higher sales of bags in North America and Europe, and
laminates in all regions, particularly
35
<PAGE> 43
Europe; 1996 first quarter sales of films were flat versus the first quarter of
1995. Volume increases in water treatment reflected higher paper industry
process chemicals sales in Europe caused by market share gains, as well as
higher water treatment chemicals sales in Latin America. Construction products
experienced volume decreases, primarily due to the 1995 divestment of the
composite material business and decreases in sales of fire protection products
in North America (due to a declining market) and waterproofing products in North
America (compared to a strong 1995 first quarter that benefited from a mild
winter) and Europe (due to weak economic conditions in the United Kingdom).
These decreases were offset by higher sales of concrete products in Asia Pacific
(caused by a strong construction market). Container volume decreases were due to
decreased sales of can sealing products in Asia Pacific and closure compounds in
Europe, partially offset by improved sales of can coating products in Latin
America (as a result of continuing market share penetration).
Operating income before taxes increased by 23% in the first quarter of 1996
as compared to the 1995 first quarter, as cost management programs initiated in
1995 are beginning to favorably impact operating income within all regions and
product lines. North American results in the first quarter of 1996 increased,
primarily reflecting improved operating margins and the volume increases in
packaging, offset by the volume decreases in construction products noted above.
European results improved versus the 1995 first quarter, primarily due to higher
sales of silica/adsorbents products (attributable to strong sales of catalyst
carriers which are used by customers to convert ethylene to ethanol) and in
paper industry process chemicals, as noted above. These favorable results were
offset by lower results in packaging, as lower margins and higher operating
expenses offset the volume increases discussed above. In Asia Pacific, 1996
first quarter results were flat versus the first quarter of 1995, as the volume
increases in refinery catalysts noted above were offset by unfavorable results
in can sealing products (due to a shortage of products to be canned as a result
of last year's floods in Southeast Asia). Latin American results in the first
quarter of 1996 improved versus the first quarter of 1995, primarily due to the
improved water treatment chemical sales noted above, improved volumes in
packaging and market share gains within container's coating products. The above
results reflect the allocation of general corporate overhead, general corporate
research expenses and certain other income and expense items that can be
identified with the specialty chemicals operations; corporate interest and
financing costs and nonallocable expenses are not reflected in the specialty
chemicals results.
Operating Results -- 1995 Compared to 1994. As noted above, sales and
revenues increased 14% in 1995 as compared to 1994, reflecting favorable volume,
price/product mix and currency translation variances estimated at 7%, 4% and 3%,
respectively. All product lines experienced improved volumes in 1995. Packaging
volume increases reflected higher sales of bags and films in all regions, and
higher sales of laminates in all regions other than Latin America. Volume
increases in catalysts and other silica-based products reflected higher sales in
all regions, especially refinery catalysts in Asia Pacific and Europe, and
silica/adsorbent products in Asia Pacific and Europe. Container volume increases
were due to increased sales of specialty polymers and can sealing products in
Asia Pacific, and coating products in Latin America. Volume increases in water
treatment reflected higher paper industry process chemicals sales in Europe and
North America caused by market share gains, as well as higher water treatment
chemicals sales in Latin America. Construction products experienced volume
increases, primarily in Asia Pacific, due to increased construction activity,
partially offset by volume decreases in both fire protection products in North
America (due to a small market share loss) and waterproofing products in Europe
and North America.
Operating income before taxes (which excludes for all years the items
discussed in the second paragraph of "-- Review of Operations") increased by 15%
in 1995 as compared to 1994. North American results in 1995 improved, reflecting
strong growth in packaging due to the volume increases noted above (especially
in bags). However, this was partially offset by reduced profitability in
refinery catalysts as North American refiners continued to experience low
margins. The narrow spread between light and heavy crude oil prices led
customers to crack higher quality light crude rather than heavy crude oil (which
requires more catalysts). In addition, water treatment chemicals in North
America experienced lower profitability due to ongoing market consolidations.
European results in 1995 improved significantly versus 1994, primarily in
packaging, reflecting volume increases caused by an economic recovery that
revitalized key markets, partially offset by unfavorable results in construction
waterproofing products due to higher material costs and a slowdown in the
nonresidential construction market. European results also benefited from the
absence of costs
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incurred in 1994 to streamline European packaging, water treatment and container
operations. In Asia Pacific, favorable results were achieved versus 1994,
primarily in refinery catalysts and silica/adsorbent and construction products
(due to the volume increases noted above), partially offset by higher operating
costs incurred to increase market share in the region. Latin American 1995
results declined slightly versus 1994, primarily due to the effect of inflation
indexation on wage and employee benefit costs in the Brazilian water treatment
operations, partially offset by increased profitability in packaging due to
improved volumes and in container products due to market share gains in coating
products. The above results reflect the allocation of corporate overhead and
corporate research expenses; corporate interest and financing costs and
nonallocable expenses are not reflected in the results of specialty chemicals.
Operating Results -- 1994 Compared to 1993. Sales and revenues increased
by 11%, and operating income before taxes increased by 19%, in 1994 as compared
to 1993. The increase in sales and revenues reflected favorable volume,
price/product mix and currency translation variances estimated at 9%, 1% and 1%,
respectively. Volume increases were experienced by all core product lines. North
American results in 1994 were positively affected by strong growth in
construction and packaging, mainly due to the volume increases, partially offset
by reduced profitability in refinery catalysts due to volume decreases as a
result of customers' use of higher quality crude oil and an increase in customer
maintenance shutdowns. European results in 1994 improved significantly versus
1993, primarily due to improvements in refinery and polyolefin catalysts and
construction products (due to the volume increases), partially offset by costs
associated with streamlining European operations. In Asia Pacific, favorable
results were achieved versus 1993, primarily due to volume increases in refinery
and polyolefin catalysts and container products. Latin American 1994 results
improved versus 1993, primarily due to increased profitability in packaging (due
to increased volumes in bags, films and laminates). Latin American results also
benefited from improved economic conditions in Brazil; however, this was
partially offset by the devaluation of the Mexican peso in late 1994.
STATEMENT OF OPERATIONS
First Quarter 1996 Compared to First Quarter 1995
Other Income. Other income includes interest income, dividends, royalties
from licensing agreements and equity in earnings of affiliated companies.
Interest Expense and Related Financing Costs. Excluding amounts allocated
to discontinued operations (as discussed in Note (c) to the First Quarter
Financial Statements), interest expense and related financing costs of $18.4
million in the first quarter of 1996 increased 16% versus the comparable period
of 1995. Including amounts allocated to discontinued operations, interest
expense and related financing costs increased 26% in the first quarter of 1996
over the comparable period of 1995, to $45.2 million, primarily due to higher
debt levels. See "-- Financial Condition -- Liquidity and Capital
Resources -- First Quarter 1996" for information on borrowings.
Research and Development Expenses. Research and development spending
decreased 6% in the first quarter of 1996 versus the 1995 first quarter,
reflecting the cost management programs discussed above. Research and
development spending continues to be directed toward Grace Chemicals' core
specialty chemicals businesses.
Income Taxes. The effective tax rate was 37.0% in the first quarter of
1996 versus 31.1% in the 1995 first quarter, excluding the 1995 first quarter
charge of $20.0 million pretax ($12.5 million after-tax) for corporate
governance, as discussed above. The higher effective tax rate in the first
quarter of 1996 was primarily due to a reduction in the overall foreign tax rate
in the first quarter of 1995, as the result of a reassessment of the valuation
allowance for certain deferred tax assets.
1995 Compared to 1994
Other Income. See Note 4 to the Consolidated Financial Statements for
information relating to other income.
Interest Expense and Related Financing Costs. Excluding amounts allocated
to discontinued operations (as discussed in Note 7 to the Consolidated Financial
Statements), interest expense and related financing costs of $71.3 million in
1995 increased 44% versus 1994. Including amounts allocated to discontinued
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operations, interest expense and related financing costs increased 50% in 1995
over 1994, to $164.8 million, primarily due to higher average effective
short-term interest rates and higher debt levels.
Grace Chemicals' debt and interest rate management objectives are to reduce
its cost of funding over the long term, considering economic conditions and
their potential impact on Grace Chemicals, and to improve liquidity by
developing and maintaining access to a variety of long-term and short-term
capital markets. To manage its exposure to changes in interest rates, Grace
Chemicals enters into interest rate agreements; during 1995, most of these
agreements effectively converted fixed-rate debt into variable-rate debt. These
agreements have readily identifiable impacts on interest cost and are
characterized by broad market liquidity. See Note 11 to the Consolidated
Financial Statements for further information on interest rate agreements.
See "-- Financial Condition -- Liquidity and Capital Resources" below and
Note 10 to the Consolidated Financial Statements for information on borrowings.
Research and Development Expenses. Research and development spending
increased 13% in 1995 versus 1994. Research and development spending continues
to be directed toward Grace Chemicals' core specialty chemicals businesses. As
discussed below, during 1995 Grace Chemicals undertook a worldwide restructuring
program, including a study of company-wide research and development expenses.
Certain actions have already been taken based on this study, including the
shutdown of Grace Chemicals' Japan research center and the phase-out of certain
research programs related to noncore operations.
RESTRUCTURING COSTS, ASSET IMPAIRMENTS AND OTHER COSTS
Restructuring Costs. As discussed in Note 5 to the Consolidated Financial
Statements, during the third quarter of 1995, Grace Chemicals began implementing
a worldwide restructuring program aimed at streamlining processes and reducing
general and administrative expenses, factory administration costs and noncore
corporate research and development expenses. The program is expected to be
substantially completed by the end of 1996. In the third and fourth quarters of
1995, Grace Chemicals recorded pretax charges totalling $44.3 million and $91.7
million ($27.2 million and $61.9 million after-tax), respectively, comprised of
$77.4 million for employee termination benefits; $13.4 million for plant closure
and related costs, including lease termination costs; $15.5 million for prior
business exits and related costs; $20.8 million for asset writedowns; and $8.9
million for other costs. The $77.4 million for employee termination benefits
primarily represents severance pay and other benefits associated with the
elimination of approximately 1,000 positions worldwide; more than 50% of the
total cost reductions will come from corporate staff functions worldwide.
Grace Chemicals expects to implement additional cost reductions and
efficiency improvements beyond those discussed above, as its businesses further
evaluate and reengineer their operations. These reductions and efficiencies are
expected in areas such as purchasing, logistics, working capital management and
manufacturing.
Asset Impairments. During 1995, Grace Chemicals determined that, due to
various events and changes in circumstances (including the worldwide
restructuring program described above), certain long-lived assets and related
goodwill were impaired. As a result, in the fourth quarter of 1995, Grace
Chemicals recorded a $43.5 million pretax charge ($29.0 million after-tax), the
majority of which related to assets that will continue to be held and used in
Grace Chemicals' continuing operations; the charge included no significant
individual components. Grace Chemicals determined the amount of the charge based
on various valuation techniques, including discounted cash flow, replacement
cost and net realizable value for assets to be disposed of.
Other Costs. Also, in the fourth quarter of 1995, Grace Chemicals recorded
pretax charges totalling $40.5 million ($25.9 million after-tax) relating to the
writedown of corporate assets ($27.0 million) and working capital assets ($13.5
million). These amounts are included in "Cost of goods sold and operating
expenses" in the Consolidated Statement of Operations included in the
Consolidated Financial Statements.
Income Taxes. Grace Chemicals' effective tax rates were (37.1)%, (53.0)%
and 34.6% in 1995, 1994 and 1993, respectively. Excluding the items discussed in
the second paragraph of "-- Review of Operations," Grace Chemicals' effective
tax rates were 32.8%, 34.6% and 36.7% in 1995, 1994 and 1993, respectively. The
lower effective tax rate in 1995, as compared to 1994, was largely due to the
reversal of the valuation allowance on foreign net operating losses and lower
state income taxes, partially offset by higher taxes on foreign
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operations. The lower effective tax rate in 1994 as compared to 1993, was
largely due to lower taxes on foreign operations.
Grace Chemicals has recognized a valuation allowance relating to
uncertainty as to the realization of certain deferred tax assets, including U.S.
tax credit carryforwards, state and local net operating loss carryforwards and
net deferred tax assets. As a result of the favorable resolution of an audit,
the valuation allowance on net operating loss carryforwards in foreign
jurisdictions was reversed in 1995. Based upon anticipated future results, Grace
Chemicals has concluded, after consideration of the valuation allowance, that it
is more likely than not that the remaining balance of the net deferred tax
assets will be realized.
See Note 6 to the Consolidated Financial Statements for further information
on income taxes.
DISCONTINUED OPERATIONS
In the second quarter of 1993, Grace Chemicals classified as discontinued
operations its battery separators business; certain engineered materials
businesses, principally its printing products, material technology and
electromagnetic radiation control businesses (collectively, "EMS"); and other
noncore businesses. At that time, a provision of $105.0 million (net of an
applicable tax benefit of $22.3 million) was recorded to reflect the losses
expected on the divestment of these businesses.
During the fourth quarter of 1995, Grace Chemicals revised the divestment
plan for Grace Cocoa. As a result of this revised divestment plan, recent trends
and a reassessment of forecasts for all remaining discontinued operations, Grace
Chemicals recorded an additional provision of $151.3 million (net of an
applicable tax benefit of $48.7 million) related to its remaining discontinued
operations, principally Grace Cocoa.
See Note 7 to the Consolidated Financial Statements for additional
information relating to the above matters.
FINANCIAL CONDITION
Liquidity and Capital Resources
First Quarter 1996. During the first quarter of 1996, the net pretax cash
used for Grace Chemicals' continuing operating activities was $47.7 million,
versus $68.5 million in the first quarter of 1995. The reduction was primarily
due to improved operating results, offset by net cash outflows of $7.5 million
in the first quarter of 1996, reflecting amounts paid for the defense and
disposition of asbestos-related litigation (net of amounts received from
settlements with certain insurance carriers for asbestos-related litigation, as
discussed below), as compared to a net cash inflow of $69.1 million in the first
quarter of 1995. After giving effect to the net pretax cash (used for)/provided
by operating activities of discontinued operations (including an increase in the
use of operating working capital by NMC in the first quarter of 1996) and
payments of income taxes, the net cash used for operating activities was $91.3
million in the first quarter of 1996 versus $62.5 million in the first quarter
of 1995.
Investing activities used $139.8 million of cash in the first quarter of
1996, largely reflecting capital expenditures of $112.5 million (more than 70%
of which relates to Grace Chemicals' packaging and catalyst and other
silica-based businesses). Also, investing activities of discontinued operations
for the first quarter of 1996 used $33.8 million (compared to $3.3 million used
in the 1995 first quarter), primarily reflecting the classification of the
health care business as a discontinued operation in the 1995 second quarter.
Management anticipates that the level of capital expenditures in 1996 will
approximate that of 1995.
Net cash provided by financing activities in the first quarter of 1996 was
$246.8 million, primarily reflecting an increase in total debt from December 31,
1995 and proceeds from the exercise of employee stock options, offset by the
payment of $12.4 million of dividends. Total debt was $2,160.6 million at March
31, 1996, an increase of $226.8 million from December 31, 1995. Grace Chemicals'
total debt as a percentage of total capital (debt ratio) increased from 61.1% at
December 31, 1995 to 61.9% at March 31, 1996, primarily
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due to the increase in total debt. At March 31, 1996 and December 31, 1995, the
net assets of the discontinued health care business included $210.6 million and
$226.7 million of debt, respectively.
Grace Chemicals expects to receive a substantial amount of cash in 1996
from the Distribution Payment, the previously announced pending sale of the
Grace Dearborn water treatment and process chemicals business, the sale of Grace
Chemicals' transgenic plant business (see discussion below), and, to a lesser
extent, funds generated by operations. Grace Chemicals expects to apply the cash
proceeds generated by these transactions to the reduction of borrowings, the
repurchase of stock and investments in core businesses. A previously announced
share repurchase program was initiated in April 1996.
In May 1996, Grace sold the transgenic plant business of its Agracetus,
Inc. subsidiary to the Monsanto Company for $150.0 million in cash.
1995. During 1995, the net pretax cash provided by Grace Chemicals'
continuing operating activities was $229.7 million, versus $210.9 million in
1994. The increase was primarily due to net cash inflows of $97.0 million in
1995 from settlements with certain insurance carriers for asbestos-related
litigation, net of amounts paid for the defense and disposition of
asbestos-related litigation (see discussion below), as compared to the net
outflow of $60.0 million for asbestos-related litigation in 1994. However, the
1995 increase was offset by an increase in the use of operating working capital.
After giving effect to the net pretax cash provided by operating activities of
discontinued operations (including an increase in the use of operating working
capital by NMC in 1995) and increased payments of income taxes (attributable to
taxable income resulting from settlements of asbestos-related litigation, as
well as from audit adjustments to prior years' federal income tax returns), the
net cash provided by operating activities was $107.0 million in 1995 versus
$453.5 million in 1994.
Investing activities used $801.6 million of cash in 1995, largely
reflecting capital expenditures of $537.6 million (more than 75% of which
relates to Grace Chemicals' packaging and catalyst and other silica-based
businesses) and the acquisition of dialysis centers and medical products
facilities for a total of $37.4 million in the first quarter of 1995. Also,
investing activities of discontinued operations for 1995 used $295.2 million,
primarily reflecting the classification of the health care segment as a
discontinued operation in the second quarter. Management anticipates that the
level of capital expenditures in 1996 will approximate that of 1995. In 1995,
Grace Chemicals launched a $350.0 million global capital expansion program in
its packaging product line, including $50.0 million to build a plant in Seneca,
South Carolina to serve the fresh-cut produce market. In 1996, Grace Chemicals
is also scheduled to open new silica and packaging plants in Kuantan, Malaysia.
Net cash provided by financing activities in 1995 was $655.7 million,
primarily reflecting an increase in total debt from December 31, 1994 and the
exercise of employee stock options, offset by the payment of $112.6 million of
dividends. Total debt was $1,933.8 million at December 31, 1995, an increase of
$404.1 million from December 31, 1994. Grace Chemicals' total debt as a
percentage of total capital (debt ratio) increased from 50.4% at December 31,
1994 to 61.1% at December 31, 1995, primarily due to the reduction in
shareholders' equity (due to the charges discussed in "-- Review of
Operations -- 1995 Compared to 1994" and "Discontinued Operations") and the
increase in total debt. At December 31, 1995, the net assets of the discontinued
health care segment included $226.7 million of debt.
In October 1995, in anticipation of the then pending spin-off of NMC, the
Grace New York Board declared a quarterly cash dividend of 12.5 cents per share
on Grace New York Common Stock, a reduction from the previous quarterly cash
dividend of 35 cents per share. At that time, the Grace New York Board also
approved a policy of paying dividends at a rate of 20% to 30% of the prior
year's net earnings and authorized the repurchase of up to 10 million shares of
Grace New York Common Stock. In February 1996, after approving the
Reorganization Agreement, the Grace New York Board increased the number of
shares that may be repurchased to 20% of the outstanding Grace New York Common
Stock (see "-- Discontinued Operations" and Note 7 to the Consolidated Financial
Statements).
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ASBESTOS-RELATED MATTERS
First Quarter 1996. In the first quarter of 1996, Grace Chemicals paid
$7.5 million for the defense and disposition of asbestos-related property damage
and personal injury litigation, net of amounts received under settlements with
certain insurance carriers. The balance sheet at March 31, 1996 includes a
receivable due from insurance carriers, a portion of which is subject to
litigation, of $281.5 million. Grace Chemicals has also recorded notes
receivable of $147.3 million ($136.8 million net of discounts) for amounts to be
received in 1996 to 2001 pursuant to settlement agreements with certain
insurance carriers.
Although the amounts to be paid in 1996 in respect of asbestos-related
lawsuits and claims cannot be precisely estimated, Grace Chemicals expects that
it will be required to expend approximately $40.0 million (pretax) in 1996 to
defend against and dispose of such lawsuits and claims (after giving effect to
payments to be received from certain insurance carriers, as discussed above and
in Note (b) to the First Quarter Financial Statements and in Note 2 to the
Consolidated Financial Statements). As indicated therein, the amounts reflected
in the First Quarter Financial Statements with respect to the probable cost of
defending against and disposing of asbestos-related lawsuits and claims and
probable recoveries from insurance carriers represent estimates; neither the
outcomes of such lawsuits and claims nor the outcomes of Grace Chemicals'
continuing litigations with certain of its insurance carriers can be predicted
with certainty.
1995. In 1995, Grace Chemicals received $97.0 million under settlements
with certain insurance carriers, net of amounts paid for the defense and
disposition of asbestos-related property damage and personal injury litigation.
During the fourth quarter of 1995, Grace Chemicals recorded a noncash pretax
charge of $275.0 million ($178.7 million after-tax), primarily to reflect the
estimated costs of defending against and disposing of personal injury lawsuits
and claims expected to be filed through 1998. The balance sheet at December 31,
1995 includes a receivable due from insurance carriers, a portion of which is
subject to litigation, of $321.2 million. Grace Chemicals has also recorded
notes receivable of $130.0 million ($118.4 million after discounts) for amounts
to be received in 1996 to 1999 pursuant to settlement agreements previously
entered into with certain insurance carriers.
ENVIRONMENTAL MATTERS
First Quarter 1996. There were no significant developments relating to
environmental liabilities in the first quarter of 1996.
1995. Grace Chemicals incurs costs to comply with environmental laws and
regulations and to fulfill its commitment to industry initiatives and Grace
Chemicals standards. Worldwide expenses of continuing operations related to the
operation and maintenance of environmental facilities and the disposal of
hazardous and nonhazardous wastes totalled $43.5 million, $35.7 million and
$40.7 million in 1995, 1994 and 1993, respectively. Such costs are estimated to
be approximately $45.0 million and $47.0 million in 1996 and 1997, respectively.
In addition, worldwide capital expenditures for continuing operations relating
to environmental protection totalled $14.9 million in 1995, compared to $21.5
million and $19.3 million in 1994 and 1993, respectively. Capital expenditures
to comply with environmental initiatives in future years are estimated to be
$20.0 million and $17.0 million in 1996 and 1997, respectively. Grace Chemicals
has also incurred costs to remediate environmentally impaired sites. These costs
were $31.3 million, $30.8 million and $44.4 million in 1995, 1994 and 1993,
respectively. These amounts have been charged against previously established
reserves. Future cash outlays for remediation costs are expected to total $30.0
million in 1996 and $20.0 million in 1997. Expenditures have been funded from
internal sources of cash and are not expected to have a significant effect on
liquidity.
Grace Chemicals accrues for anticipated costs associated with investigatory
and remediation efforts relating to the environment in accordance with Statement
of Financial Accounting Standards No. 5, "Accounting for Contingencies," which
requires estimating the probability and amount of future costs. At December 31,
1995, Grace Chemicals' liability for environmental investigatory and remediation
costs related to continuing and discontinued operations totalled approximately
$280.3 million, which amount does not take into account any discounting for
future expenditures or possible future insurance recoveries. The measurement of
the liability is evaluated quarterly based on currently available information.
In 1995 and 1994, periodic
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provisions were recorded for environmental and plant closure expenses, which
include the costs of future environmental investigatory and remediation
activities. Additionally, in the fourth quarter of 1995 and first quarter of
1994, Grace Chemicals recorded pretax provisions of $77.0 million and $40.0
million ($50.0 million and $26.0 million after-tax), respectively, principally
to provide for future costs related to remediation activities required at former
manufacturing sites. The 1995 provision of $77.0 million related principally to
increased cost estimates associated with five former manufacturing facilities.
This provision was based on increased remediation activities which were
determined to be necessary at these locations during the investigation process
and, in one case, during the actual remediation process.
For additional information relating to environmental liabilities, see Note
12 to the Consolidated Financial Statements.
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MANAGEMENT
BOARD OF DIRECTORS
The New Grace Board is currently composed of certain executive officers of
Grace New York. Set forth below is information with respect to the individuals
who are expected to serve as the directors of New Grace following the
Distribution, all of whom are currently directors of Grace New York and will
resign from the Grace New York Board contemporaneously with the Reorganization.
Under the classified board provisions of the New Grace Certificate and the New
Grace By-laws, these individuals will not be required to stand for re-election
to the New Grace Board until the year in which their respective terms expire.
Each director's term will expire at the same time that such director's term as a
member of the Grace New York Board was scheduled to expire. See "CERTAIN
ANTI-TAKEOVER EFFECTS -- Classified Board of Directors."
CLASS I DIRECTORS -- TERMS EXPIRING IN 1999
ALBERT J. COSTELLO
Age: 60
Mr. Costello is Grace New York's Chairman, President and Chief Executive
Officer, positions he has held since May 1995. Before joining Grace New York,
Mr. Costello served as Chairman of the Board and Chief Executive Officer of
American Cyanamid Company from April 1993 to December 1994. Mr. Costello
received a B.S. in chemistry from Fordham University and an M.S. in chemistry
from New York University. He joined American Cyanamid Company in 1957 as a
chemist and held various research, marketing and management positions in the
U.S., Mexico and Spain. In 1982, he was named Group Vice President in charge of
American Cyanamid Company's global agricultural business; in 1983 he became an
Executive Vice President with responsibility for global agricultural and
chemical products businesses; and from 1991 through March 1993 he was American
Cyanamid Company's President. Mr. Costello is a director of FMC Corporation and
the Chemical Manufacturers Association; a trustee of Fordham University and the
American Enterprise Institute for Public Policy Research; a member of the
Business Roundtable; and a member of the executive committee of the
British-North American Committee of the National Planning Association. He has
previously served as a director of the Pharmaceutical Manufacturers Association;
as Chairman of the National Agricultural Chemicals Association; and as a member
of the Executive Committee of the Societe de Chimie Industrielle.
MARYE ANNE FOX
Age: 48
Dr. Fox is Vice President for research, and the Waggoner Regents Chair in
chemistry, of the University of Texas, positions she has held since 1994 and
1992, respectively; she has been on the faculty of the University of Texas since
1976. Dr. Fox received a B.S. in chemistry from Notre Dame College, an M.S. in
organic chemistry from Cleveland State University and a Ph.D. in organic
chemistry from Dartmouth College; she also holds an honorary doctoral degree
from Notre Dame College. Dr. Fox is Vice Chair of the National Science Board and
has received numerous honors and awards from a wide variety of educational and
professional organizations. She has also served on several editorial boards and
has authored approximately 300 publications, including three books and more than
20 book chapters.
THOMAS A. VANDERSLICE
Age: 64
Mr. Vanderslice began his career with General Electric Company, where he
spent 23 years in various technical, management and executive positions,
including Executive Vice President and Sector Executive of General Electric
Company's power systems business. He subsequently served as President and Chief
Operating Officer of GTE Corporation, as Chairman and Chief Executive Officer of
Apollo Computer, Inc., and, from 1989 to June 1995, as Chairman and Chief
Executive Officer of M/A-COM, Inc., a designer and
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manufacturer of radio frequency and microwave components, devices and subsystems
for commercial and defense applications. Mr. Vanderslice received a B.S. in
chemistry and philosophy from Boston College and a Ph.D. in chemistry and
physics from Catholic University; he holds several patents and has written
numerous technical articles. He is a director of Texaco Inc., a trustee of
Boston College and Chairman of the Massachusetts High Technology Council. He is
also a member of the National Academy of Engineering, the American Chemical
Society and the American Institute of Physics.
CLASS II DIRECTORS -- TERMS EXPIRING IN 1997
VIRGINIA A. KAMSKY
Age: 43
Ms. Kamsky is the founder, President and Co-Chief Executive Officer of
Kamsky Associates Inc., an advisory, consultancy and investment firm
specializing in The People's Republic of China. She graduated from Princeton
University with an honors degree in East Asian studies (with concentration in
Chinese and Japanese language studies) and served as a lending officer with The
Chase Manhattan Bank in Tokyo, Beijing and New York City before forming Kamsky
Associates, Inc. in 1980. Ms. Kamsky is a member of the Council on Foreign
Relations, a founding director of the Council's Hong Kong Committee, and a
trustee of Princeton-in-Asia and the Johns Hopkins-Nanjing Council. She
previously served on Princeton University's Board of Trustees, including its
Executive and Investment Committees.
JOHN E. PHIPPS
Age: 63
Mr. Phipps is a private investor. He is Chairman and a director of John H.
Phipps, Inc. and a director of The Bessemer Group, Bessemer Securities
Corporation, Bessemer Trust Company, Bessemer Trust Company of Florida, Bessemer
Trust Company, N.A., Essex Holdings and Ingersoll-Rand Company.
CLASS III DIRECTORS -- TERMS EXPIRING IN 1998
HAROLD A. ECKMANN
Age: 75
Mr. Eckmann retired in 1985 as Chairman and Chief Executive Officer of
Atlantic Mutual Insurance Company and Centennial Insurance Company -- The
Atlantic Companies. He was educated at the U.S. Merchant Marine Academy and the
University of California. Mr. Eckmann joined The Atlantic Companies in 1949, and
became President in 1970 and Chairman and Chief Executive Officer in 1976.
JAMES W. FRICK
Age: 71
Dr. Frick is president of James W. Frick Associates, a consulting firm to
private colleges and universities. He is also Vice President Emeritus of the
University of Notre Dame, having served the University in various capacities
from 1951 to 1987, including as a member of the Board of Trustees. Dr. Frick
holds three degrees from the University of Notre Dame. He is President Emeritus
of the Community Foundation of St. Joseph County, Indiana, a former director of
Society Bank of South Bend and Society National Bank, Indiana, and a former
member of the Board of Trustees of Converse College. He also served a term as a
member of the Board of Directors of the Department of Financial Institutions of
the State of Indiana.
THOMAS A. HOLMES
Age: 72
Mr. Holmes served as acting President and Chief Executive Officer of Grace
New York from March to May 1995. He was Chairman, President and Chief Executive
Officer of Ingersoll-Rand Company until his retirement in 1988, having spent his
entire business career with Ingersoll-Rand Company. He is a graduate of the
University of Missouri -- Rolla. Mr. Holmes is a director of Newmont Gold Co.
and Newmont Mining Corp.
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COMMITTEES OF THE BOARD OF DIRECTORS
There are currently no committees of the New Grace Board. However, after
the Distribution, it is expected that the following committees of the New Grace
Board will be established:
Audit Committee. The Audit Committee of the New Grace Board will be
responsible for reviewing the financial information New Grace provides to
shareholders and others, New Grace's systems of internal controls, and its
auditing, accounting and financial reporting process generally. The Audit
Committee's specific responsibilities will include recommending to the New Grace
Board the selection of independent certified public accountants to audit the
annual financial statements of New Grace and its consolidated subsidiaries;
reviewing the annual financial statements; and meeting with New Grace's senior
financial officers, internal auditors and independent certified public
accountants to review the scope and results of the audit and other matters
regarding New Grace's accounting, financial reporting and internal control
systems. The members of the Audit Committee are expected to be Mr. Eckmann
(Chairman), Drs. Fox and Frick and Mr. Vanderslice.
Compensation, Employee Benefits and Stock Incentive Committee. The
Compensation, Employee Benefits and Stock Incentive Committee of the New Grace
Board (the "Compensation Committee") will make recommendations to the New Grace
Board with respect to the salary and annual and long-term incentive compensation
of certain officers and other high-level employees, as well as with respect to
New Grace's benefit plans, programs and arrangements generally. The Compensation
Committee will also administer New Grace's stock incentive plans and determine
the recipients and terms of stock incentives granted under those plans. The
members of the Compensation Committee are expected to be Messrs. Eckmann, Holmes
(Chairman), Phipps and Vanderslice.
Nominating Committee. The Nominating Committee of the New Grace Board will
recommend to the Grace Delaware Board candidates for nomination as directors of
New Grace. The members of the Nominating Committee are expected to be Drs. Fox
and Frick and Messrs. Phipps (Chairman) and Holmes.
Committee on Corporate Responsibility. The Committee on Corporate
Responsibility of the New Grace Board will advise management on New Grace's role
in the public sector and its responsibility with respect to matters of public
policy. The members of the Committee on Corporate Responsibility are expected to
be Mr. Eckmann, Dr. Frick (Chairman) and Ms. Kamsky.
COMPENSATION OF DIRECTORS
Under the New Grace compensation program for nonemployee directors, each
nonemployee director will receive an annual retainer of $24,000, payable in
shares of New Grace Common Stock; the Chairmen of the Audit and Compensation
Committees will receive annual cash retainers of $12,000, and the Chairmen of
the Nominating Committee and the Committee on Corporate Responsibility will
receive annual cash retainers of $2,000; and each nonemployee director will
receive $2,000 in cash for each New Grace Board meeting and $1,000 for each
committee meeting attended (except that committee chairmen will receive $1,200
per committee meeting).
Nonemployee directors will be reimbursed for expenses they incur in
attending New Grace Board and committee meetings, and New Grace is expected to
maintain business travel accident insurance coverage for the nonemployee
directors. In addition, nonemployee directors will receive a fee of $1,000 per
day for work performed at New Grace's request.
A director will be able to defer payment of all or part of the fees
received for attending New Grace Board and committee meetings and/or the cash
retainers referred to above. The amounts deferred (plus an interest equivalent)
will be payable to the director or his or her heirs or beneficiaries in a lump
sum or in quarterly installments over two to 20 years following a date specified
by the director. The interest equivalent on amounts deferred will be computed at
the higher of the prime rate plus two percentage points or 120% of the prime
rate, in either case compounded semiannually. This program will provide for the
payment of additional survivors' benefits in certain circumstances.
New Grace also expects to have a retirement plan under which an individual
who has been a nonemployee director for more than four years will receive annual
payments of $24,000 for a period equal to
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<PAGE> 53
the length of service as a nonemployee director (but not more than 15 years)
after the director ceases to be eligible to receive directors' fees. In the
event of a director's death, payments will be made to his or her surviving
spouse.
EXECUTIVE OFFICERS
Set forth below is information with respect to the individuals expected to
serve as executive officers of New Grace following the Distribution. All of the
individuals have been actively engaged in Grace New York's business for the past
five years, other than Mr. Costello; Mr. Ellberger, who was a Corporate Vice
President and Director of Corporate Development and Planning of American
Cyanamid Company from October 1991 until 1995 and, prior to that, Vice
President, Industrial and Performance Products Division; and Mr. Houchin, who
was Chief Executive Officer of Gulfstream Land & Development prior to joining
Grace New York in October 1991.
<TABLE>
<CAPTION>
NAME AND AGE OFFICE
- ----------------------------------- ------------------------------------------------
<S> <C>
Robert H. Beber (60)............... Executive Vice President and General Counsel
Robert J. Bettacchi (53)........... Vice President
Albert J. Costello (60)............ Chairman, President and Chief Executive Officer
Larry Ellberger (48)............... Senior Vice President
Peter D. Houchin (48).............. Senior Vice President and Chief Financial
Officer
James R. Hyde (57)................. Senior Vice President
J. Gary Kaenzig, Jr. (51).......... Senior Vice President
Donald H. Kohnken (62)............. Executive Vice President
Fred Lempereur (58)................ Senior Vice President
</TABLE>
EXECUTIVE COMPENSATION AND EMPLOYEE BENEFITS PRIOR TO THE DISTRIBUTION
The individuals who will serve as executive officers of New Grace after the
Distribution have served as and been compensated as executive officers of Grace
New York. For information with respect to the compensation of executive officers
of Grace New York prior to the Distribution, reference is made to the excerpt
from the Proxy Statement, dated April 10, 1996, for the 1996 Grace New York
Annual Meeting of Shareholders attached hereto as Annex E (the "Grace New York
1996 Proxy Excerpt"); such information is incorporated herein by reference.
In June 1996, Dr. Constantine L. Hampers resigned all offices and
directorships he held with Grace New York and its subsidiaries, including Grace
Chemicals and NMC. Under the terms of an agreement providing for his
resignation, Dr. Hampers will continue to receive salary (at the annual rate of
$875,270), as well as specified benefits, until December 31, 1996, at which time
he will become eligible to commence receiving the pension benefit provided under
his previous employment agreement with Grace Chemicals. He will also be entitled
to participate in Grace New York's Annual Incentive Compensation Program for
1996 and to receive any awards earned under Grace New York's Long-Term Incentive
Program (the "LTIP") for the 1994-1996 and 1995-1997 performance periods (with
the award for the 1995-1997 performance period to be paid on a pro rata basis).
In addition, as contemplated by his previous employment agreement, Dr. Hampers
was granted the right to purchase a corporate aircraft from Grace for its fair
market value (subject to certain adjustments), as well as an automobile
previously provided for his use. Dr. Hampers has subsequently agreed to purchase
the aircraft from Grace for approximately $19,000,000.
Grace Chemicals has been advised that Dr. Hampers has reached an agreement
to serve, following the Reorganization, as a consultant to Fresnius Medical
Care, reporting to Dr. Gerd Krick, who is the chief executive officer of
Fresenius AG and who will serve as the chief executive officer of Fresenius
Medical Care following the Reorganization. Under the terms of the agreement, Dr.
Hampers will receive a $6 million fee
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<PAGE> 54
from Fresenius Medical Care conditional upon the successful completion of the
Reorganization, as well as a consulting fee of $500,000 per year for two years.
The foregoing description does not purport to be complete and is qualified
in its entirety by reference to the text of (i) Dr. Hampers' employment
agreement with Grace Chemicals, dated as of April 1, 1991, which was filed with
the Commission as an exhibit to the Annual Report on Form 10-K of Grace New York
for the year ended December 31, 1991, (ii) a letter agreement, dated March 29,
1996, amending such employment agreement, which was filed as an exhibit to the
Quarterly Report on Form 10-Q of Grace New York for the quarter ended March 31,
1996, and (iii) the letter agreement, dated June 14, 1996, providing for Dr.
Hampers' resignation, which has been filed as an exhibit to the Registration
Statement (see "ADDITIONAL INFORMATION" below).
EXECUTIVE COMPENSATION AND EMPLOYEE BENEFITS FOLLOWING THE DISTRIBUTION
Upon completion of the Distribution, New Grace will assume substantially
all of the obligations of Grace New York under its executive and other
compensation plans, programs and arrangements. Consequently, the compensation
and benefits to be provided to employees of New Grace and its subsidiaries will
be substantially identical to those they currently receive as employees of Grace
New York and its subsidiaries. In addition, Grace New York, as sole stockholder
of New Grace, is expected to approve New Grace's 1996 Stock Incentive Plan and
1996 Stock Retainer Plan for Nonemployee Directors, which are described and set
forth in Annexes C and D, respectively, to this Prospectus.
The Reorganization (including the Distribution) will not be deemed a
"change in control" of Grace New York for purposes of any employment or other
agreement between Grace New York and its executive officers. Grace New York's
nine executive officers would be entitled to receive payments aggregating
approximately $24 million under employment and/or executive severance agreements
in the event of a "change in control" for purposes of such agreements.
EMPLOYEE BENEFITS AND COMPENSATION AGREEMENT
It is currently expected that Grace New York and New Grace will enter into
an Employee Benefits and Compensation Agreement providing for, among other
things, (i) the retention or assumption, as the case may be, by New Grace of all
liabilities for compensation and employee benefits provided to individuals who
were or are employees of Grace Chemicals or beneficiaries or dependents of such
individuals ("New Grace Employees"), whether such liabilities arise before, at
or after the Time of Distribution; and (ii) the retention or assumption, as the
case may be, by New Grace of all liabilities associated with employee benefit
plans maintained by New Grace and the portion of such plans maintained by Grace
New York that cover New Grace Employees, whether such liabilities arise before,
at or after the Time of Distribution.
In addition, the Employee Benefits and Compensation Agreement is expected
to provide that the value of the contingent awards held by New Grace Employees
under the LTIP for the 1994-1996 and 1995-1997 performance periods will be
determined in accordance with the terms of the LTIP, adjusted to reflect the
Distribution, so that the financial performance component of the awards granted
to New Grace Employees will reflect the performance of New Grace, and that of
the awards granted to NMC employees will reflect NMC's performance.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the New Grace Compensation Committee are expected to be
Messrs. Eckmann, Holmes (Chairman), Phipps and Vanderslice. As noted above, Mr.
Holmes served as acting President and Chief Executive Officer of Grace New York
from March 2 to May 1, 1995.
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<PAGE> 55
CERTAIN AGREEMENTS BETWEEN GRACE NEW YORK
AND NEW GRACE
New Grace and Grace New York have entered into certain agreements providing
for the orderly separation of New Grace from Grace New York, the making of the
Distribution, and certain other matters. For a description of these agreements,
see "THE REORGANIZATION" in the Joint Proxy Statement-Prospectus. The
availability of the indemnities to be provided to Grace Chemicals under such
agreements will be dependent upon the financial strength and creditworthiness of
Fresenius AG, Fresenius Medical Care, FNMC and NMC. No assurance can be given
that such entities will be able to honor such indemnities should they be
obligated to do so at some future point. See also "THE DISTRIBUTION -- NMC
Credit Agreement" and "-- Other Arrangements" for a discussion of certain
arrangements between Grace Chemicals and NMC in respect of the NMC Credit
Agreement and the OIG Investigation.
CERTAIN RELATIONSHIPS AND TRANSACTIONS
The individuals who will serve as directors and executive officers of New
Grace after the Distribution currently serve as directors and executive officers
of Grace New York. For information with respect to certain relationships and
transactions prior to the Distribution, reference is made to the Grace New York
1996 Proxy Excerpt.
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<PAGE> 56
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Grace New York currently owns all of the outstanding shares of New Grace
Common Stock. The following table sets forth certain information with respect to
all shareholders anticipated to be the beneficial owners (as defined below) of
more than 5% of the New Grace Common Stock outstanding immediately following the
Distribution, based solely upon a review of statements filed with the Commission
pursuant to Sections 13(d), 13(g) and 16(a) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), with respect to Grace New York Common
Stock prior to July 15, 1996.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
NAME AND ADDRESS BENEFICIAL PERCENT OF
OF BENEFICIAL OWNER OWNERSHIP(A) CLASS(B)
- ------------------------------------------------------------- ---------------- ----------
<S> <C> <C>
College Retirement Equities Fund(c).......................... 7,238,300 shares 7.9%
730 Third Avenue
New York, N.Y. 10017-3206
Lincoln Capital Management Company(d)........................ 5,751,400 shares 6.3%
200 South Wacker Drive
Suite 2100
Chicago, Illinois 60606
</TABLE>
- ---------------
(a) Under the rules of the Commission, a person is deemed to be the "beneficial
owner" of a security if such person has or shares the power to vote or
direct the voting of such security or the power to dispose or direct the
disposition of such security. A person is also deemed to be a beneficial
owner of any securities if that person has the right to acquire beneficial
ownership within 60 days. Accordingly, more than one person may be deemed to
be a beneficial owner of the same security. Unless otherwise indicated by
footnote, the named person is expected to have sole voting and dispositive
power with respect to the shares to be held.
(b) Based on 92,001,176 shares of Grace New York Common Stock outstanding as of
July 15, 1996.
(c) The ownership information set forth herein is based in its entirety on
material contained in a Schedule 13G, dated February 1, 1996, filed with the
Commission by College Retirement Equities Fund, which certified therein that
the securities were not acquired for the purpose of changing or influencing
the control of Grace New York. With respect to the shares held, such
shareholder stated in such Schedule 13G that it has sole voting power and
sole dispositive power as to 7,238,300 shares.
(d) The ownership information set forth herein is based in its entirety on
material contained in a Schedule 13G, dated June 21, 1996, filed with the
Commission by Lincoln Capital Management Company, which certified therein
that the securities were not acquired for the purpose of changing or
influencing the control of Grace New York. With respect to the shares held,
such shareholder stated in such Schedule 13G that it has sole voting power
as to 2,651,800 shares and sole dispositive power as to 5,751,400 shares.
BENEFICIAL OWNERSHIP OF MANAGEMENT
Grace New York currently owns all of the outstanding shares of New Grace
Common Stock. For information with respect to the number of shares of New Grace
Common Stock expected to be beneficially owned immediately following the
Distribution by (i) the individuals expected to be New Grace directors and (ii)
the executive officers of Grace New York named in the Summary Compensation Table
in the Grace New York 1996 Proxy Excerpt who are expected to be executive
officers of New Grace, see the table set forth under "SECURITY OWNERSHIP OF
MANAGEMENT AND OTHERS" in the Grace New York 1996 Proxy Excerpt.
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<PAGE> 57
DESCRIPTION OF NEW GRACE CAPITAL STOCK
The following description of New Grace capital stock is a summary of the
material terms thereof and is qualified in its entirety by reference to the
provisions of the New Grace Certificate and the New Grace By-laws, copies of
which are attached to this Prospectus as Annex A and Annex B, respectively.
Under the New Grace Certificate, the total number of shares of all classes
of stock that New Grace has authority to issue is 353 million, consisting of 53
million shares of New Grace Preferred Stock, par value $.01 per share (the "New
Grace Preferred Stock"), and 300 million shares of New Grace Common Stock. No
shares of New Grace Preferred Stock are being issued in connection with the
Distribution. An aggregate of approximately 92 million shares of New Grace
Common Stock is expected to be distributed in the Distribution, based on the
number of shares of Grace New York Common Stock outstanding on July 15, 1996.
The New Grace Board is authorized to provide for the issuance of shares of
New Grace Preferred Stock in one or more series, to establish the number of
shares in each series, and to fix the designation, powers, preferences and
rights of each such series and the qualifications, limitations or restrictions
thereof. The New Grace Certificate has authorized, and the New Grace Board has
reserved for issuance, 3 million shares of Junior Participating Preferred Stock,
par value $.01 per share, of New Grace ("New Grace Junior Preferred Stock") in
connection with the New Grace Rights. See "CERTAIN ANTI-TAKEOVER EFFECTS --
Preferred Stock Purchase Rights."
The holders of New Grace Common Stock are entitled to one vote per share on
all matters voted on by shareholders, including elections of directors, and,
except as otherwise required by law or provided in any resolution adopted by the
New Grace Board with respect to any series of New Grace Preferred Stock, the
holders of the New Grace Common Stock exclusively possess all voting power. The
New Grace Certificate does not provide for cumulative voting in the election of
directors. Subject to any preferential rights of any outstanding series of New
Grace Preferred Stock, the holders of New Grace Common Stock are entitled to
such dividends as may be declared from time to time by the New Grace Board from
funds available therefor, and, upon liquidation, are entitled to receive pro
rata all assets of New Grace available for distribution to such holders. All
shares of New Grace Common Stock received in the Distribution will be fully paid
and nonassessable and the holders thereof will not have preemptive rights. See
"CERTAIN ANTI-TAKEOVER EFFECTS."
The transfer agent and registrar for the New Grace Common Stock will be
Chemical Mellon Shareholder Services.
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<PAGE> 58
CERTAIN ANTI-TAKEOVER EFFECTS
The New Grace Certificate and the New Grace By-laws contain certain
provisions that could delay or make more difficult the acquisition of New Grace
by means of a tender offer, a proxy contest or otherwise. Such provisions have
been implemented to enable New Grace, particularly (but not exclusively) in the
years immediately following the Distribution, to develop its business in a
manner which will foster its long-term growth without disruption caused by the
threat of a takeover not deemed by the New Grace Board to be in the best
interests of New Grace and its shareholders. The description of certain aspects
of the New Grace Certificate and the New Grace By-laws set forth below does not
purport to be complete and is qualified in its entirety by reference to the New
Grace Certificate and the New Grace By-laws, which are attached to this
Prospectus as Annex A and Annex B, respectively.
CLASSIFIED BOARD OF DIRECTORS
The New Grace Certificate and the New Grace By-laws provide that the New
Grace Board will be divided into three classes of directors, with the classes to
be as equal in number as possible. The New Grace Board is expected to consist of
the individuals referred to in "MANAGEMENT -- Board of Directors." The New Grace
Certificate and the New Grace By-laws provide that, of the initial directors of
New Grace, approximately one-third will continue to serve until the 1997 Annual
Meeting of Shareholders, approximately one-third will continue to serve until
the 1998 Annual Meeting of Shareholders and approximately one-third will
continue to serve until the 1999 Annual Meeting of Shareholders. Of the initial
directors, Virginia A. Kamsky and John E. Phipps will serve until the 1997
Annual Meeting of Shareholders, Harold A. Eckmann, James W. Frick and Thomas A.
Holmes will serve until the 1998 Annual Meeting of Shareholders, and Albert J.
Costello, Marye Anne Fox and Thomas A. Vanderslice will serve until the 1999
Annual Meeting of Shareholders. Starting with the 1997 Annual Meeting of
Shareholders, one class of directors will be elected each year for a three-year
term.
The classification of directors will have the effect of making it more
difficult for shareholders to change the composition of the New Grace Board. At
least two annual meetings of shareholders, instead of one, will generally be
required to effect a change in a majority of the New Grace Board. Such a delay
may help ensure that New Grace's directors, if confronted by a holder attempting
to force a proxy contest, a tender or exchange offer, or an extraordinary
corporate transaction, would have sufficient time to review the proposal as well
as any available alternatives to the proposal and to act in what they believe to
be the best interest of the shareholders. However, the classification provisions
will apply to every election of directors and will increase the likelihood that
incumbent directors will retain their positions, regardless of whether a change
in the composition of the New Grace Board would be beneficial to New Grace and
its shareholders and whether or not a majority of New Grace's shareholders
believe that such a change would be desirable.
The classification provisions could also have the effect of discouraging a
third party from initiating a proxy contest, making a tender offer or otherwise
attempting to obtain control of New Grace, even though such an attempt might be
beneficial to New Grace and its shareholders. In addition, because the
classification provisions may discourage accumulations of large blocks of New
Grace Common Stock by purchasers whose objective is to take control of New Grace
and remove a majority of the New Grace Board, the classification of the New
Grace Board could tend to reduce the likelihood of fluctuations in the market
price of the New Grace Common Stock that might result from accumulations of
large blocks. Accordingly, shareholders could be deprived of certain
opportunities to sell their shares of New Grace Common Stock at a higher market
price than might otherwise be the case.
NUMBER OF DIRECTORS; REMOVAL; FILLING VACANCIES
The New Grace Certificate provides that, subject to the rights of any
holders of any series of New Grace Preferred Stock to elect additional directors
under specified circumstances, the number of directors will be fixed in the
manner provided in the New Grace By-laws. The New Grace By-laws provide that,
subject to any rights of holders of New Grace Preferred Stock to elect directors
under specified circumstances, the number of directors will be fixed from time
to time exclusively pursuant to a resolution adopted by directors constituting a
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<PAGE> 59
majority of the total number of directors that New Grace would have if there
were no vacancies on the New Grace Board (the "Whole Board"). In addition, the
New Grace By-laws provide that, subject to applicable law and any rights of
holders of New Grace Preferred Stock, and unless the New Grace Board otherwise
determines, any vacancies will be filled only by the affirmative vote of a
majority of the remaining directors, though less than a quorum. Accordingly,
absent an amendment to the New Grace By-laws, the New Grace Board could prevent
any shareholder from enlarging the New Grace Board and filling the new
directorships with such shareholder's own nominees.
Under the Delaware General Corporation Law ("DGCL"), unless otherwise
provided in a corporation's certificate of incorporation, directors serving on a
classified board may only be removed by the shareholders for cause. The New
Grace Certificate does not otherwise provide.
NO SHAREHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS
The New Grace Certificate and the New Grace By-laws provide that, subject
to the rights of any holders of New Grace Preferred Stock to elect additional
directors under specified circumstances, shareholder action can be taken only at
an annual or special meeting of shareholders and may not be taken by written
consent in lieu of a meeting. The New Grace By-laws provide that, subject to the
rights of holders of any series of New Grace Preferred Stock to elect additional
directors under specified circumstances, special meetings of shareholders can be
called only by the Chairman or the President or by the New Grace Board pursuant
to a resolution adopted by a majority of the Whole Board. Shareholders are not
permitted to call, or to require that the Chairman, the President or the New
Grace Board call, a special meeting of shareholders. Moreover, the business
permitted to be conducted at any special meeting of shareholders is limited to
the business brought before the meeting pursuant to the notice of meeting given
by New Grace.
The provisions of the New Grace Certificate and the New Grace By-laws
prohibiting shareholder action by written consent may have the effect of
delaying consideration of a shareholder proposal until the next annual meeting.
These provisions would also prevent the holders of a majority of the voting
power of the voting stock from unilaterally using the written consent procedure
to take shareholder action. Moreover, a shareholder could not force shareholder
consideration of a proposal over the opposition of the Chairman and the New
Grace Board by calling a special meeting of shareholders prior to the time the
Chairman or a majority of the Whole Board believes such consideration to be
appropriate.
ADVANCE NOTICE PROVISIONS FOR SHAREHOLDER NOMINATIONS AND SHAREHOLDER PROPOSALS
The New Grace By-laws establish an advance notice procedure for
shareholders to nominate candidates for election as directors or to bring other
business before meetings of shareholders of New Grace (the "Shareholder Notice
Procedure").
Only those shareholder nominees who are nominated in accordance with the
Shareholder Notice Procedure will be eligible for election as directors of New
Grace. Under the Shareholder Notice Procedure, notice of shareholder nominations
to be made at an annual meeting (or of any other business to be brought before
such meeting) must be received by New Grace not less than 60 days nor more than
90 days prior to the first anniversary of the previous year's annual meeting
(or, if the date of the annual meeting is more than 30 days before or more than
60 days after such anniversary date, not earlier than the 90th day prior to such
meeting and not later than the later of (i) the 60th day prior to such meeting
or (ii) the 10th day after public announcement of the date of such meeting is
first made). Notwithstanding the foregoing, in the event that the number of
directors to be elected is increased and there is no public announcement naming
all of the nominees for director or specifying the size of the increased New
Grace Board made by New Grace at least 70 days prior to the first anniversary of
the preceding year's annual meeting, a shareholder's notice will be timely, but
only with respect to nominees for any new positions created by such increase, if
it is received by New Grace not later than the 10th day after such public
announcement is first made by New Grace.
The New Grace By-laws provide that only such business may be conducted at a
special meeting as is specified in the notice of meeting. Nominations for
election to the New Grace Board may be made at a special meeting at which
directors are to be elected only by or at the New Grace Board's direction or by
a shareholder
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<PAGE> 60
who has given timely notice of nomination. Under the Shareholder Notice
Procedure, such notice must be received by New Grace not earlier than the 90th
day before such meeting and not later than the later of (i) the 60th day prior
to such meeting or (ii) the 10th day after public announcement of the date of
such meeting is first made. Shareholders will not be able to bring other
business before special meetings of shareholders.
The Shareholder Notice Procedure provides that at an annual meeting only
such business may be conducted as has been brought before the meeting by, or at
the direction of, the Chairman, the President or the New Grace Board or by a
shareholder who has given timely written notice (as set forth above) to the
Secretary of New Grace of such shareholder's intention to bring such business
before such meeting.
Under the Shareholder Notice Procedure, a shareholder's notice to New Grace
proposing to nominate an individual for election as a director must contain
certain information, including, without limitation, the identity and address of
the nominating shareholder, the class and number of shares of stock of New Grace
owned by such shareholder, and all information regarding the proposed nominee
that would be required to be included in a proxy statement soliciting proxies
for the proposed nominee. Under the Shareholder Notice Procedure, a
shareholder's notice relating to the conduct of business other than the
nomination of directors must contain certain information about such business and
about the proposing shareholder, including, without limitation, a brief
description of the business the shareholder proposes to bring before the
meeting, the reasons for conducting such business at such meeting, the name and
address of such shareholder, the class and number of shares of stock of New
Grace beneficially owned by such shareholder, and any material interest of such
shareholder in the business so proposed. If the Chairman or other officer
presiding at a meeting determines that an individual was not nominated, or other
business was not brought before the meeting, in accordance with the Shareholder
Notice Procedure, such individual will not be eligible for election as a
director, or such business will not be conducted at such meeting, as the case
may be.
By requiring advance notice of nominations by shareholders, the Shareholder
Notice Procedure will afford the New Grace Board an opportunity to consider the
qualifications of the proposed nominees and, to the extent deemed necessary or
desirable by the New Grace Board, to inform shareholders about such
qualifications. By requiring advance notice of other proposed business, the
Shareholder Notice Procedure will provide a more orderly procedure for
conducting annual meetings of shareholders and, to the extent deemed necessary
or desirable by the New Grace Board, will provide the New Grace Board with an
opportunity to inform shareholders, prior to such meetings, of any business
proposed to be conducted at such meetings, together with the New Grace Board's
position regarding action to be taken with respect to such business, so that
shareholders can better decide whether to attend such a meeting or to grant a
proxy regarding the disposition of any such business.
Although the New Grace By-laws do not give the New Grace Board any power to
approve or disapprove shareholder nominations for the election of directors or
proposals for action, they may have the effect of precluding a contest for the
election of directors or the consideration of shareholder proposals if the
proper procedures are not followed, and of discouraging or deterring a third
party from conducting a solicitation of proxies to elect its own slate of
directors or to approve its own proposal, without regard to whether
consideration of such nominees or proposals might be harmful or beneficial to
New Grace and its shareholders.
NEW GRACE PREFERRED STOCK
The New Grace Certificate authorizes the New Grace Board to establish one
or more series of New Grace Preferred Stock, and to determine, with respect to
any series of New Grace Preferred Stock, the terms and rights of such series,
including (i) the designation of the series; (ii) the number of shares of the
series, which number the New Grace Board may thereafter (except where otherwise
provided in the New Grace Preferred Stock designation) increase or decrease (but
not below the number of shares thereof then outstanding); (iii) whether
dividends, if any, will be cumulative or noncumulative and the dividend rate of
the series; (iv) the dates on which dividends, if any, will be payable; (v) the
redemption rights and price or prices, if any, for shares of the series; (vi)
the terms and amounts of any sinking fund provided for the purchase or
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<PAGE> 61
redemption of shares of the series; (vii) the amounts payable on shares of the
series in the event of any voluntary or involuntary liquidation, dissolution or
winding up of the affairs of New Grace; (viii) whether the shares of the series
will be convertible into shares of any other class or series, or any other
security, of New Grace or any other corporation, and, if so, the specification
of such other class or series or such other security, the conversion price or
prices or rate or rates, any adjustments thereof, the date or dates as of which
such shares shall be convertible and all other terms and conditions upon which
such conversion may be made; (ix) restrictions on the issuance of shares of the
same series or of any other class or series; and (x) the voting rights, if any,
of the holders of such series.
The authorized shares of New Grace Preferred Stock, as well as shares of
New Grace Common Stock, will be available for issuance without further action by
New Grace's shareholders, unless such action is required by applicable law or
the rules of any stock exchange or automated quotation system on which New
Grace's securities may be listed or traded. If the approval of New Grace's
shareholders is not so required, the New Grace Board does not intend to seek
shareholder approval.
Although the New Grace Board has no intention at the present time of doing
so, it could issue a series of New Grace Preferred Stock that could, depending
on the terms of such series, impede the completion of a merger, tender offer or
other takeover attempt. The New Grace Board will make any determination to issue
such shares based on its judgment as to the best interests of New Grace and its
shareholders. The New Grace Board, in so acting, could issue New Grace Preferred
Stock having terms that could discourage an acquisition attempt or other
transaction that some, or a majority, of New Grace's shareholders might believe
to be in their best interests or in which shareholders might receive a premium
for their stock over the then-current market price of such stock.
RIGHTS TO PURCHASE SECURITIES AND OTHER PROPERTY
The New Grace Certificate authorizes the New Grace Board to create and
issue rights entitling the holders thereof to purchase from New Grace shares of
capital stock or other securities or property. The times at which and terms upon
which such rights are to be issued would be determined by the New Grace Board
and set forth in the contracts or instruments that evidence such rights. The
authority of the New Grace Board with respect to such rights includes, but is
not limited to, determining (i) the purchase price of the capital stock or other
securities or property to be purchased upon exercise of such rights; (ii)
provisions relating to the times at which and the circumstances under which such
rights may be exercised or sold or otherwise transferred, either together with
or separately from any other stock or other securities of New Grace; (iii)
provisions which adjust the number or exercise price of such rights or the
amount or nature of the stock, other securities or other property receivable
upon exercise of such rights in the event of a combination, split or
recapitalization of any stock of New Grace, a change in ownership of New Grace's
stock or other securities or a reorganization, merger, consolidation, sale of
assets or other occurrence relating to New Grace or any stock of New Grace, and
provisions restricting the ability of New Grace to enter into any such
transaction absent an assumption by the other party or parties thereto of the
obligations of New Grace under such rights; (iv) provisions which deny the
holder of a specified percentage of the outstanding securities of New Grace the
right to exercise such rights and/or cause such rights held by such holder to
become void; (v) provisions which permit New Grace to redeem or exchange such
rights; and (vi) the appointment of the rights agent with respect to such
rights. This provision is intended to confirm the New Grace Board's authority to
issue share purchase rights or other rights to purchase stock or securities of
New Grace or any other corporation. See "-- Preferred Stock Purchase Rights."
AMENDMENT OF CERTAIN PROVISIONS OF THE NEW GRACE CERTIFICATE OF INCORPORATION
AND NEW GRACE BY-LAWS
Under the DGCL, shareholders have the right to adopt, amend or repeal the
certificate of incorporation and by-laws of a corporation. In addition, if the
certificate of incorporation so provides, the by-laws may be amended by the
board of directors. The New Grace Certificate provides that the affirmative vote
of the holders of at least 80% of the voting power of the outstanding shares of
capital stock of New Grace eligible to vote generally in the election of
directors ("Voting Stock"), voting together as a single class, is required to
amend provisions of the New Grace Certificate relating to the prohibition of
shareholder action without a
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meeting; the number, election and term of New Grace's directors; the removal of
directors; and the amendment of the New Grace By-laws. The New Grace Certificate
further provides that the New Grace By-laws may be amended by the New Grace
Board or by the affirmative vote of the holders of at least 80% of the
outstanding shares of Voting Stock, voting together as a single class. These
voting requirements will have the effect of making it more difficult for
shareholders to amend the provisions of the New Grace Certificate stated above
or the New Grace By-laws, even if a majority of New Grace's shareholders believe
that such amendment would be in their best interests.
PREFERRED STOCK PURCHASE RIGHTS
The New Grace Board has determined that a dividend of one New Right will be
paid in respect of each share of New Grace Common Stock to the holder of record
thereof as of the Time of Distribution. Pursuant to the rights agreement
relating thereto (the "Rights Agreement"), each New Grace Right entitles the
registered holder to purchase from New Grace one hundredth of one share of New
Grace Junior Preferred Stock at a price of $200 per share (the "Purchase
Price"), subject to adjustment.
Until the earlier to occur of (i) 10 days following a public announcement
that a person or group of affiliated or associated persons (an "Acquiring
Person") has acquired beneficial ownership of 20% or more of the then
outstanding shares of New Grace Common Stock or (ii) 10 business days (or such
later date as may be determined by action of the New Grace Board prior to such
time as any person or group becomes an Acquiring Person) following the
commencement of, or announcement of an intention to make, a tender offer or
exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 20% or more of the outstanding shares of New
Grace Common Stock (the earlier of such dates being called the "Rights
Distribution Date"), the New Grace Rights will be evidenced by the certificates
representing shares of New Grace Common Stock. The Rights Agreement provides
that, until the Rights Distribution Date (or the earlier redemption or
expiration of the New Grace Rights), (i) the New Grace Rights will be
transferred with and only with the shares of New Grace Common Stock, (ii)
certificates representing shares of New Grace Common Stock will contain a
notation incorporating the terms of the New Grace Rights by reference, and (iii)
the surrender for transfer of any certificates representing shares of New Grace
Common Stock will also constitute the transfer of the New Grace Rights
associated with the shares of New Grace Common Stock represented by such
certificate. As soon as practicable following the Rights Distribution Date,
separate certificates evidencing the New Grace Rights ("Rights Certificates")
will be mailed to holders of record of the shares of New Grace Common Stock as
of the close of business on the Rights Distribution Date and such separate
Rights Certificates alone will evidence the New Grace Rights.
The Purchase Price payable, and the number of shares of New Grace Junior
Preferred Stock or other securities or property issuable, upon exercise of the
New Grace Rights are subject to adjustment from time to time to prevent dilution
(i) in the event of a stock dividend on, or a subdivision, combination or
reclassification of, the shares of New Grace Junior Preferred Stock, (ii) upon
the grant to holders of the shares of New Grace Junior Preferred Stock of
certain rights or warrants to subscribe for or purchase shares of New Grace
Junior Preferred Stock at a price, or securities convertible into shares of New
Grace Junior Preferred Stock with a conversion price, less than the then current
market price of the shares of New Grace Junior Preferred Stock, or (iii) upon
the distribution to holders of the shares of New Grace Junior Preferred Stock of
evidences of indebtedness or assets (excluding regular periodic cash dividends
paid out of earnings or retained earnings or dividends payable in shares of New
Grace Junior Preferred Stock) or of subscription rights or warrants (other than
those referred to above). The number of outstanding New Grace Rights and the
number of hundredths of a share of New Grace Junior Preferred Stock issuable
upon exercise of each New Grace Right are also subject to adjustment in the
event of a split of the New Grace Common Stock or a dividend on the New Grace
Common Stock payable in New Grace Common Stock, or subdivisions, consolidations
or combinations of the New Grace Common Stock occurring, in any such case, prior
to the Rights Distribution Date.
Shares of New Grace Junior Preferred Stock that may be purchased upon
exercise of the New Grace Rights will not be redeemable. Each share of New Grace
Junior Preferred Stock will be entitled to a minimum preferential quarterly
dividend payment of one dollar per share but will be entitled to an aggregate
dividend equal to 100 times the dividend declared per share of New Grace Common
Stock whenever such
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dividend is declared. In the event of liquidation, the holders of the New Grace
Junior Preferred Stock will be entitled to a minimum preferential liquidation
payment of $100 per share but will be entitled to an aggregate payment equal to
100 times the payment made per share of New Grace Common Stock. Each share of
New Grace Junior Preferred Stock will have 100 votes, voting together with the
New Grace Common Stock. Finally, in the event of any merger, consolidation or
other transaction in which New Grace Common Stock is exchanged, each share of
New Grace Junior Preferred Stock will be entitled to receive an amount equal to
100 times the amount received per share of New Grace Common Stock. These rights
are protected by customary antidilution provisions.
Because of the nature of the dividend, liquidation and voting rights of New
Grace Junior Preferred Stock, the value of the one hundredth interest in a share
of New Grace Junior Preferred Stock that may be purchased upon exercise of each
New Grace Right should approximate the value of one share of New Grace Common
Stock.
In the event that any person or group of affiliated or associated persons
becomes an Acquiring Person, proper provision will be made so that each holder
of a New Grace Right, other than New Grace Rights beneficially owned by the
Acquiring Person (which will become void after such person becomes an Acquiring
Person), will, after such person becomes an Acquiring Person, have the right to
receive upon exercise, in lieu of shares of New Grace Junior Preferred Stock,
that number of shares of New Grace Common Stock having a market value of two
times the exercise price of the New Grace Right (such right being referred to as
a "Flip-in Right"). In the event that, at any time on or after the date that any
person has become an Acquiring Person, New Grace is acquired in a merger or
other business combination transaction or 50% or more of its consolidated assets
or earning power is sold, proper provision will be made so that each holder of a
New Grace Right will thereafter have the right to receive, upon the exercise
thereof at the then current exercise price of the New Grace Right, that number
of shares of common stock of the acquiring company which at the time of such
transaction will have a market value of two times the exercise price of the New
Grace Right.
At any time after any person or group of affiliated or associated persons
becomes an Acquiring Person, and prior to the acquisition by such person or
group of 50% or more of the outstanding shares of New Grace Common Stock, the
New Grace Board may exchange the New Grace Rights for New Grace Common Stock or
New Grace Junior Preferred Stock (other than New Grace Rights owned by such
person or group, which will have become void after such person became an
Acquiring Person), in whole or in part, at an exchange ratio of one share of New
Grace Common Stock, or one hundredth of a share of New Grace Junior Preferred
Stock (or of a share of another series of New Grace Preferred Stock having
equivalent rights, preferences and privileges), per New Grace Right (subject to
adjustment).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1%. No
fractional shares of New Grace Junior Preferred Stock will be issued (other than
fractions which are integral multiples of one hundredth of a share of New Grace
Junior Preferred Stock, which may, at the election of New Grace, be evidenced by
depositary receipts) and, in lieu thereof, an adjustment in cash will be made
based on the market price of the shares of New Grace Junior Preferred Stock on
the last trading day prior to the date of exercise.
At any time prior to the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 20% or more of the outstanding
shares of New Grace Common Stock, the New Grace Board may redeem the New Grace
Rights in whole, but not in part, at a price of $.01 per New Grace Right (the
"Redemption Price"). The redemption of the New Grace Rights may be made
effective at such time, on such basis and with such conditions as the New Grace
Board may determine, in its sole discretion. Immediately upon any redemption of
the New Grace Rights, the right to exercise the New Grace Rights will terminate
and the only right of the holders of New Grace Rights will be to receive the
Redemption Price.
The terms of the New Grace Rights may be amended by the New Grace Board
without the consent of the holders of the New Grace Rights, including an
amendment to lower (i) the threshold at which a person becomes an Acquiring
Person and (ii) the percentage of New Grace Common Stock proposed to be acquired
in a tender or exchange offer that would cause the Rights Distribution Date to
occur, to not less than the greater of (a) the sum of .001% and the largest
percentage of the outstanding New Grace Common Stock then known to New Grace to
be beneficially owned by any person or group of affiliated or associated persons
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and (b) 10%, except that, from and after such time as any person or group of
affiliated or associated persons becomes an Acquiring Person, no such amendment
may adversely affect the interests of the holders of the New Grace Rights.
The New Grace Rights will not be exercisable until the Rights Distribution
Date. The New Grace Rights will expire on the close of business on the 10th
anniversary of the Time of Distribution (the "Final Expiration Date"), unless
the Final Expiration Date is extended or unless the New Grace Rights are earlier
redeemed or exchanged by New Grace.
Until a New Grace Right is exercised, the holder thereof, as such, will
have no rights as a shareholder of New Grace, including, without limitation, the
right to vote or to receive dividends.
The New Grace Rights will have certain anti-takeover effects. The New Grace
Rights will cause substantial dilution to a person or group that attempts to
acquire New Grace on terms not approved by the New Grace Board, except pursuant
to an offer conditioned on a substantial number of New Grace Rights being
acquired. The New Grace Rights should not interfere with any merger or business
combination approved by the New Grace Board, since the New Grace Rights may be
redeemed by New Grace at the Redemption Price prior to the time that a person or
group has become an Acquiring Person.
The foregoing summary of certain terms of the New Grace Rights does not
purport to be complete and is qualified in its entirety by reference to the form
of the Rights Agreement, which has been filed as an exhibit to the registration
statement described in "ADDITIONAL INFORMATION."
CERTAIN ANTI-TAKEOVER FEATURES
The New Grace Certificate, the New Grace By-laws and the New Grace Rights
contain several provisions that may make the acquisition of control of New Grace
difficult or expensive, increase the likelihood that incumbent management will
retain its positions, and deprive shareholders of opportunities to receive
premiums over the market value for their shares. In addition, in certain of the
agreements entered into in connection with the Reorganization, each of Grace New
York, New Grace, Fresenius AG and Fresenius Medical Care has undertaken to
indemnify one another against certain tax liabilities that could arise were the
Distribution to be taxable, which indemnity could diminish the willingness of a
third party to acquire New Grace in a taxable transaction for some period
following the Distribution. See "CERTAIN AGREEMENTS BETWEEN GRACE NEW YORK AND
NEW GRACE."
ANTI-TAKEOVER STATUTE
Section 203 of the DGCL provides that, subject to certain exceptions
specified therein, a corporation shall not engage in any business combination
with any "interested shareholder" for a three-year period following the date on
which such shareholder becomes an interested shareholder unless (i) prior to
such date, the board of directors of the corporation approves either the
business combination or the transaction which resulted in the shareholder
becoming an interested shareholder, (ii) upon consummation of the transaction
which results in the shareholder becoming an interested shareholder, the
interested shareholder owns at least 85% of the voting stock (as defined in
Section 203 of the DGCL) of the corporation outstanding at the time the
transaction commenced (excluding certain shares), or (iii) on or subsequent to
such date, the business combination is approved by the board of directors of the
corporation and by the affirmative vote of at least 66 2/3% of the outstanding
voting stock not owned by the interested shareholder. Except as specified in
Section 203 of the DGCL, an "interested shareholder" is defined to include (a)
any person that is the owner of 15% or more of the outstanding voting stock of
the corporation, or is an affiliate or associate of the corporation and was the
owner of 15% or more of the outstanding voting stock of the corporation, at any
time within three years immediately prior to the relevant date and (b) the
affiliates and associates of any such person.
Under certain circumstances, Section 203 of the DGCL makes it more
difficult for an interested shareholder to effect various business combinations
with a corporation for a three-year period, although the shareholders may elect
to exclude a corporation from the restrictions imposed thereunder; the New Grace
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Certificate does not exclude New Grace from such restrictions. It is anticipated
that the provisions of Section 203 of the DGCL may encourage companies
interested in acquiring New Grace to negotiate in advance with the New Grace
Board, since the shareholder approval requirement would be avoided if a majority
of the directors then in office approve either the business combination or the
transaction that results in the shareholder becoming an interested shareholder.
Section 203 of the DGCL should encourage persons interested in acquiring New
Grace to negotiate in advance with the New Grace Board, since the higher
shareholder voting requirements would not be invoked if such person, prior to
acquiring 15% of New Grace's Voting Stock, obtains the approval of the New Grace
Board for such acquisition or for the proposed business combination transaction
(unless such person acquires 85% or more of New Grace's voting stock in such
transaction, excluding certain shares as described above). In the event of a
proposed acquisition of New Grace, it is believed that the interests of New
Grace shareholders will best be served by a transaction that results from
negotiations based upon careful consideration of the proposed terms, such as the
price to be paid to minority shareholders, the form of consideration paid and
tax effects of the transaction.
Section 203 of the DGCL will not prevent a hostile takeover of New Grace.
It may, however, make more difficult or discourage a takeover of New Grace or
the acquisition of control of New Grace by a significant shareholder and thus
the removal of incumbent management. Any such effect will be enhanced by the
issuance of the New Grace Rights. Some shareholders may find this
disadvantageous in that they may not be afforded the opportunity to participate
in takeovers that are not approved as required by Section 203 of the DGCL but in
which shareholders might receive, for at least some of their shares, a
substantial premium above the market price at the time of a tender offer or
other acquisition transaction.
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LIABILITY AND INDEMNIFICATION
OF DIRECTORS AND OFFICERS
LIMITATION OF LIABILITY OF DIRECTORS
The New Grace Certificate provides that a director will not be personally
liable for monetary damages to New Grace or its shareholders for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to New Grace or its shareholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) for paying a dividend or approving a stock repurchase in
violation of Section 174 of the DGCL, or (iv) for any transaction from which the
director derived an improper personal benefit.
While the New Grace Certificate provides directors with protection against
awards for monetary damages for breaches of their duty of care, it does not
eliminate such duty. Accordingly, the New Grace Certificate will have no effect
on the availability of equitable remedies such as an injunction or rescission
based on a director's breach of his or her duty of care. The provisions of the
New Grace Certificate described above apply to an officer of New Grace only if
he or she is a director of New Grace and is acting in his or her capacity as
director, and do not apply to officers of New Grace who are not directors.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The New Grace Certificate provides that each individual who is or was or
had agreed to become a director or officer of New Grace, or each such person who
is or was serving or who had agreed to serve at the request of the New Grace
Board as an employee or agent of New Grace or as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans (also
including the heirs, executors, administrators or estate of such person), will
be indemnified by New Grace, in accordance with the New Grace By-laws, to the
fullest extent permitted by the DGCL, as the same exists or may in the future be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits New Grace to provide broader indemnification rights than said
law permitted prior to such amendment). The New Grace Certificate also
specifically authorizes New Grace to enter into agreements with any person
providing for indemnification greater than or different from that provided by
the New Grace Certificate.
The New Grace By-laws provide that each person who was or is made a party
or is threatened to be made a party to or is involved in any action, suit, or
proceeding, whether civil, criminal, administrative or investigative (a
"Proceeding"), by reason of the fact that he or she or a person of whom he or
she is the legal representative is or was a director, officer or employee of New
Grace or is or was serving at the request of New Grace as a director, officer,
employee or agent of another corporation or of a partnership, joint venture,
trust or other enterprise, including service with respect to employee benefit
plans, whether the basis of such Proceeding is alleged action in an official
capacity as a director, officer, employee or agent or in any other capacity
while serving as a director, officer, employee or agent, will be indemnified and
held harmless by New Grace to the fullest extent authorized by the DGCL as the
same exists or may in the future be amended (but, in the case of any such
amendment, only to the extent that such amendment permits New Grace to provide
broader indemnification rights than said law permitted prior to such amendment),
against all expense, liability and loss (including, without limitation,
attorneys' fees, judgments, fines, excise taxes or penalties and amounts paid or
to be paid in settlement) reasonably incurred or suffered by such person in
connection therewith, and such indemnification will continue as to a person who
has ceased to be a director, officer, employee or agent and will inure to the
benefit of his or her heirs, executors and administrators; however, except as
described in the next paragraph with respect to Proceedings seeking to enforce
rights to indemnification, New Grace will indemnify any such person seeking
indemnification in connection with a Proceeding (or part thereof) initiated by
such person only if such Proceeding (or part thereof) was authorized by the New
Grace Board.
Pursuant to the New Grace By-laws, if a claim for indemnification as
described in the preceding paragraph is not paid in full by New Grace within 30
days after a written claim has been received by New Grace, the claimant may, at
any time thereafter, bring suit against New Grace to recover the unpaid amount
of the claim and, if successful, in whole or in part, the claimant will be
entitled to be paid also the expense of prosecuting such claim. The New Grace
By-laws provide that it will be a defense to any such action (other
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than an action brought to enforce a claim for expenses incurred in defending any
Proceeding in advance of its final disposition where the required undertaking,
if any, has been tendered to New Grace, as discussed below) that the claimant
has not met the standards of conduct which make it permissible under the DGCL
for New Grace to indemnify the claimant for the amount claimed, but the burden
of proving such defense will be on New Grace. Neither the failure of New Grace
(including the New Grace Board, independent legal counsel or shareholders) to
have made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because he or she
has met the applicable standard of conduct set forth in the DGCL, nor an actual
determination by New Grace (including the New Grace Board, independent legal
counsel or shareholders) that the claimant has not met such applicable standard
of conduct, will be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
The New Grace By-laws provide that the right conferred in the New Grace
By-laws to indemnification and the payment of expenses incurred in defending a
Proceeding in advance of its final disposition will not be exclusive of any
other right which any person may have or may in the future acquire under any
statute, provision of the New Grace Certificate or the New Grace By-laws,
agreement, vote of shareholders or disinterested directors or otherwise. The New
Grace By-laws permit New Grace to maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of New Grace or another
corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss, whether or not New Grace would have the power to
indemnify such person against such expense, liability or loss under the DGCL.
New Grace intends to obtain directors and officers liability insurance providing
coverage to its directors and officers. In addition, the New Grace By-laws
authorize New Grace, to the extent authorized from time to time by the New Grace
Board, to grant rights to indemnification, and rights to be paid by New Grace
the expenses incurred in defending any Proceeding in advance of its final
disposition, to any agent of New Grace to the fullest extent of the provisions
of the New Grace By-laws with respect to the indemnification and advancement of
expenses of directors, officers and employees of New Grace.
The New Grace By-laws provide that the right to indemnification conferred
therein will be a contract right and will include the right to be paid by New
Grace the expenses incurred in defending any such Proceeding in advance of its
final disposition, except that if the DGCL requires, the payment of such
expenses incurred by a director or officer in his or her capacity as a director
or officer (and not in any other capacity in which service was or is rendered by
such person while a director or officer, including, without limitation, service
to an employee benefit plan) in advance of the final disposition of a Proceeding
will be made only upon delivery to New Grace of an undertaking by or on behalf
of such director or officer to repay all amounts so advanced if it is ultimately
determined that such director or officer is not entitled to be indemnified under
the New Grace By-laws or otherwise.
Grace New York is currently advancing the defense costs being incurred by
certain current and former directors (including the estate of a deceased
director) in certain of the litigations discussed in the Grace New York 1996
Proxy Excerpt and the Joint Proxy Statement-Prospectus. As contemplated by New
York law, such individuals (and the estate) are entering into agreements in
which they undertake to reimburse Grace New York for such advances in the event
it is determined that they were not entitled thereto.
CERTAIN OTHER INFORMATION
There has not been in the past and there is not presently pending any
litigation or proceeding involving a director, officer, employee or agent of New
Grace, acting in such capacity, in which indemnification would be required or
permitted by the New Grace By-Laws. In addition, the New Grace Board is not
aware of any threatened litigation or proceeding which may result in a claim for
indemnification under the New Grace By-Laws. However, certain litigation and
proceedings involving such persons in their respective capacities with Grace New
York are pending. Under the Distribution Agreement, Grace Chemicals has agreed
to indemnify Grace New York and NMC with respect to such pending litigations and
proceedings. For information with respect to the above, reference is hereby made
to the Grace New York 1996 Proxy Excerpt.
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COMPARISON OF CERTAIN RIGHTS OF SHAREHOLDERS OF
GRACE NEW YORK AND NEW GRACE
Upon consummation of the Distribution, the shareholders of Grace New York
will become shareholders of New Grace and their rights will be governed by the
New Grace Certificate, the New Grace By-laws and the DGCL, which differ in
certain material respects from the Grace New York Certificate, the Grace New
York By-Laws and the NYBCL.
The following comparison of the New Grace Certificate, the New Grace
By-Laws and the DGCL, on the one hand, and the Grace New York Certificate, the
Grace New York By-laws and the NYBCL, on the other hand, is not intended to be
complete and is qualified in its entirety by reference to the relevant
provisions of the New Grace Certificate, the New Grace By-laws, the DGCL, the
Grace New York Certificate, the Grace New York By-Laws and the NYBCL. Copies of
the New Grace Certificate and the New Grace By-laws are attached hereto as Annex
A and Annex B, respectively. Copies of the Grace New York Certificate and the
Grace New York By-Laws are filed as exhibits to the registration statements,
filed with the Commission, covering the ADSs and the New Preferred Shares. See
"AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN INFORMATION BY REFERENCE"
in the Joint Proxy Statement-Prospectus. See also "DESCRIPTION OF NEW GRACE
CAPITAL STOCK" and "CERTAIN ANTI-TAKEOVER EFFECTS" in this Prospectus.
DUTIES OF DIRECTORS
Grace New York
Section 717(b) of the NYBCL permits a board of directors to consider,
including in connection with a change or potential change in control of the
corporation, both the long-term and short-term effects of a decision on the
corporation and, specifically, the effects on: (i) the potential growth,
development, productivity and profitability of the corporation; (ii) current
employees; (iii) retired employees and other beneficiaries of the corporation
still entitled to receive, directly or indirectly, benefits from the
corporation; (iv) customers and creditors of the corporation; and (v) the
ability of the corporation to continuously provide goods, services, employment
opportunities and benefits and to make any other contributions to the
communities in which it does business.
New Grace
Section 141 of the DGCL provides that the duties of a board are to manage
the business and affairs of a corporation, except as may otherwise be provided
in the DGCL or the certificate of incorporation of such corporation; the New
Grace Certificate does not provide otherwise.
SIZE AND CLASSIFICATION OF THE BOARD OF DIRECTORS
Grace New York
Pursuant to the Grace New York Certificate, the Grace New York Board is
divided into three classes, with the classes to be as nearly equal in number as
possible, and directors are elected to serve staggered three-year terms. The
Grace New York Certificate provides that the number of directors of Grace New
York will be not less than nine and not more than 50, as determined by a
majority of the Grace New York Board, provided that the number of directors may
not be reduced to shorten the term of any incumbent director.
New Grace
Pursuant to the New Grace Certificate and the New Grace By-laws, the New
Grace Board is divided into three classes, with the classes to be as nearly
equal in number as possible, and directors are elected to serve staggered
three-year terms. The New Grace By-laws provide that the number of directors of
Grace will be fixed from time to time exclusively pursuant to a resolution
adopted by the directors constituting a majority of the Whole Board, provided
that the number of directors may not be reduced to shorten the term of any
incumbent director.
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REMOVAL OF DIRECTORS; FILLING VACANCIES ON THE BOARD OF DIRECTORS
Grace New York
Directors of Grace New York may be removed only for cause (as defined in
the Grace New York Certificate) and only upon the affirmative vote of a majority
of the voting power of all shares of capital stock of Grace New York. The Grace
New York By-Laws provide that if a vacancy occurs in any class of directors, it
may be filled by the vote of a majority of the directors remaining in office, or
by the sole remaining director. Any vacancy in the Grace New York Board
resulting from an increase in the number of directors may be filled by a vote of
directors constituting a majority of the entire Grace New York Board prior to
such increase. Any director elected by the Grace New York Board is required to
stand for election at the next annual meeting of shareholders.
New Grace
Directors of New Grace may be removed by the shareholders only for cause.
The New Grace By-laws provide that if a vacancy occurs, including a vacancy
resulting from an increase in the number of directors, it may be filled only by
the affirmative vote of a majority of the directors remaining in office, though
less than a quorum. Any director so chosen shall remain in office until the next
annual meeting of shareholders at which the term of office of the class to which
he or she shall have been elected expires and until such director's successor
shall have been duly elected and qualified.
SHAREHOLDER NOMINATIONS
Grace New York
The Grace New York By-Laws establish procedures that must be followed for
shareholders to nominate individuals for election to the Grace New York Board.
Nominations by shareholders of individuals for election to the Grace New York
Board must be made by delivering written notice of such nomination to the
Secretary of Grace New York not less than 60 days nor more than 90 days prior to
an annual meeting, unless the annual meeting takes place on a date other than
the ordinary date specified in the Grace New York By-Laws, in which case notice
by a shareholder to be timely must be so received not later than the close of
business on the 10th day following the date on which notice or disclosure of the
date of the meeting is first given. The nomination notice must set forth certain
information about the shareholder making the nomination, including the
shareholder's name and address, the number of shares of capital stock of Grace
New York beneficially owned by the shareholder, a representation that the
shareholder will be a holder of record of stock entitled to vote at the meeting,
and intends to appear in person or by proxy, and a description of any material
interest of the shareholder and each proposed nominee in any matter to be voted
upon. The nomination notice must set forth certain information about each person
to be nominated, including information concerning the nominee's principal
occupation or employment and the class and number of shares of Grace New York
beneficially owned by such nominee. If the presiding officer at the
shareholders' meeting determines that a nomination was not made in accordance
with these procedures, the presiding officer may so declare at the meeting and
the nomination will not be acted upon.
New Grace
The New Grace By-laws establish procedures that must be followed for
shareholders to nominate individuals for election to the New Grace Board.
Nominations by shareholders of individuals for election to the New Grace Board
must be made by delivering written notice of such nomination to the Secretary of
New Grace not less than 60 days nor more than 90 days prior to the first
anniversary of the previous year's annual meeting (or if the date of the annual
meeting is more than 30 days before or more than 60 days after such anniversary
date, not earlier than the 90th day prior to such meeting and not later than the
later of (x) the 60th day prior to such meeting or (y) the 10th day after public
announcement or disclosure of the date of such meeting is first made).
Notwithstanding the foregoing, in the event that the number of directors to be
elected is increased and there is no public announcement or disclosure by New
Grace, within 70 days prior to the first anniversary of the preceding year's
annual meeting, naming all of the nominees for election as director or
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specifying the increased size of the New Grace Board, a shareholder's notice
will be timely, but only with respect to nominees for any new positions created
by such increase, if it is received by New Grace not later than the 10th day
after such public announcement or disclosure is first made by New Grace. The
nomination notice must set forth certain information about the shareholder
making the nomination, including the shareholder's name and address, the class
and number of shares of capital stock of New Grace beneficially owned by the
shareholder, and a description of any material interest of the shareholder and
each proposed nominee in any matter to be voted upon. The nomination notice must
set forth such information about the proposed nominee that would be required to
be included in a proxy statement soliciting proxies for the proposed nominee. If
the presiding officer at the shareholders' meeting determines that a nomination
was not made in accordance with these procedures, he or she may so declare at
the meeting and the nomination will not be acted upon.
ACTION BY WRITTEN CONSENT
Grace New York
Under the NYBCL, whenever shareholders are required or permitted to take
any action by vote, such action may be taken without a meeting on written
consent signed by the holders of all outstanding shares entitled to vote
thereon, unless the certificate of incorporation authorizes written consent of
the holders of less than all outstanding shares. The Grace New York Certificate
does not authorize action by less than all such holders and, as a practical
matter, since action by written consent must be unanimous, shareholders of Grace
New York cannot act by written consent.
New Grace
The New Grace Certificate and the New Grace By-laws provide that, subject
to the rights of holders of any New Grace preferred stock to elect additional
directors under specified circumstances, shareholder action can only be taken at
an annual or special meeting of shareholders and shareholder action by written
consent in lieu of a meeting is prohibited.
SPECIAL MEETINGS OF SHAREHOLDERS; QUORUM
Grace New York
A special meeting of shareholders of Grace New York may be called only by
the Chairman, the President or the Grace New York Board.
A quorum for a meeting of the shareholders of Grace New York generally
consists of the holders of shares constituting a majority of the voting power of
the outstanding shares of Grace New York entitled to vote. A majority of the
votes cast is generally required for an action by the shareholders of Grace New
York. The NYBCL provides that these quorum requirements may be increased or
decreased by a change to the Grace New York Certificate or By-Laws (the latter
of which may be effected by the Grace New York Board), so long as the
requirement for a quorum does not fall below one-third of the shares entitled to
vote.
New Grace
The New Grace By-laws provide that, subject to the rights of holders of any
New Grace preferred stock to elect additional directors under specified
circumstances, special meetings of shareholders of New Grace may be called only
by the Chairman, the President or the New Grace Board.
A quorum for a meeting of the shareholders of New Grace generally consists
of the holders of a majority of the voting power of the shares of New Grace
entitled to vote. A majority of the votes cast is generally required for an
action by the shareholders of New Grace. The DGCL provides that these quorum
requirements may be increased or decreased by a change to the New Grace
Certificate or By-laws, so long as the requirement for a quorum does not fall
below one-third of the shares entitled to vote.
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SHAREHOLDER PROPOSALS
Grace New York
The Grace New York By-Laws establish procedures that must be followed for a
shareholder to submit a proposal at an annual meeting of the shareholders of
Grace New York (other than a proposal submitted under the Commission's
shareholder proposal rules). No such proposal may be submitted unless the
submitting shareholder has timely filed with the Secretary of Grace New York a
written statement setting forth specified information, including the name and
address of the person making the proposal, the class and number of shares of
capital stock of Grace New York beneficially owned by such person, a description
of the proposal and the reasons for bringing such business before the annual
meeting, a representation that such person is or will be a holder of record of
stock of Grace New York entitled to vote at such meeting and intends to appear
in person or by proxy to make the proposal, and any material interest of the
shareholder in such business. If the presiding officer at any shareholders'
meeting determines that any such proposal was not made in accordance with these
procedures or is otherwise not in accordance with law, he or she will so declare
at the meeting and such defective proposal will not be acted upon.
New Grace
The New Grace By-laws establish procedures that must be followed for a
shareholder to submit a proposal at an annual meeting of the shareholders of New
Grace (other than a proposal submitted under the Commission's shareholder
proposal rules). No such proposal may be submitted unless the submitting
shareholder has timely filed with the Secretary of New Grace a written statement
setting forth specified information, including the name and address of the
person making the proposal, the class and number of shares of capital stock of
New Grace beneficially owned by such person, a description of the proposal and
the reasons for bringing such business and the class and number of shares which
are owned beneficially and of record by such person. If the presiding officer at
any shareholders' meeting determines that any such proposal was not made in
accordance with these procedures or is otherwise not in accordance with the law,
he or she will so declare at the meeting and such defective proposal will not be
acted upon.
REQUIRED VOTE FOR AUTHORIZATION OF CERTAIN ACTIONS
Grace New York
Under the NYBCL, subject to the provisions described under " -- State
Anti-takeover Statutes -- Grace New York," the recommendation of the Grace New
York Board and the approval of two-thirds of the outstanding voting power of
Grace New York is required to effect a merger or consolidation with Grace New
York, or the sale, lease or exchange of all or substantially all of Grace New
York's assets. The NYBCL provides that holders of Grace New York Preferred Stock
are entitled to vote on a merger or consolidation, and to vote as a class if the
merger or consolidation would have certain adverse effects on such holders, such
as limiting their voting rights, changing their shares into different shares,
altering their rights, preferences or limitations, or subordinating their rights
by authorizing shares with superior rights.
New Grace
Under the DGCL, an agreement of merger or consolidation involving New
Grace, or a sale, lease or exchange of all or substantially all of New Grace's
assets, must generally be approved by the directors of New Grace and adopted by
the affirmative vote of the holders of a majority of the outstanding shares
entitled to vote thereon.
AMENDMENT OF CORPORATE CHARTER AND BY-LAWS
Grace New York
An amendment to the Grace New York Certificate requires the approval of
both the Grace New York Board and a majority of the voting power of all
outstanding shares of capital stock of Grace New York. Holders of Grace New York
Preferred Stock may be entitled to vote as a class on amendments to the Grace
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New York Certificate that would have certain adverse effects on such holders,
such as limiting their voting rights. Except as prohibited by the NYBCL, the
Grace New York Board may adopt, amend or repeal the Grace New York By-Laws
without the assent or vote of the shareholders. The shareholders may amend or
repeal the Grace New York By-Laws by the affirmative vote of the holders of a
majority of the voting power of shares entitled to vote in the election of
directors.
New Grace
Under the DGCL, shareholders have the right to adopt, amend or repeal the
certificate of incorporation and by-laws of a corporation. In addition, if the
certificate of incorporation so provides, the by-laws may be amended by the
board of directors. The New Grace Certificate provides that the affirmative vote
of the holders of at least 80% of the voting power of the outstanding shares of
Voting Stock, voting together as a single class, is required to amend provisions
of the New Grace Certificate relating to the prohibition of shareholder action
without a meeting; the number, election and term of New Grace's directors; the
removal of directors; and the amendment of the New Grace By-laws. The New Grace
Certificate further provides that the New Grace By-laws may be amended by the
New Grace Board or by the affirmative vote of the holders of at least 80% of the
outstanding shares of Voting Stock, voting together as a single class.
APPRAISAL RIGHTS
Grace New York
The NYBCL provides appraisal rights to holders entitled to vote thereon for
(i) certain mergers and consolidations; (ii) dispositions of assets requiring
shareholder approval; and (iii) certain amendments to the certificate of
incorporation of a corporation which adversely affect the rights of such
shareholder.
New Grace
Section 262 of the DGCL provides appraisal rights to holders entitled to
vote thereon for certain mergers or consolidations, provided, however, that
appraisal rights are generally not available if the stock of the corporation is
listed on a national securities exchange or held of record by more than 200
holders.
FAIR PRICE AND ANTI-GREENMAIL PROVISIONS
Grace New York
The NYBCL prohibits, subject to certain exceptions, a corporation subject
to Section 912 of the NYBCL from purchasing or agreeing to purchase more than
10% of its stock from a shareholder for more than the market value thereof
unless such purchase or agreement is approved by shareholders. See "-- State
Antitakeover Statutes -- Grace New York."
New Grace
The DGCL has no comparable provisions.
STOCK RIGHTS PLAN
Grace New York
Each share of Grace New York Common Stock has an attendant Grace Right (as
defined in the Joint Proxy Statement-Prospectus). The Grace Rights may have
certain anti-takeover effects, but are not, and will not become, exercisable
unless and until certain events occur.
The Grace Rights may be redeemed by Grace New York at $.025 per Grace Right
(payable in cash, Grace New York Common Stock or any other form of consideration
deemed appropriate by the Grace New York Board) at any time through the tenth
business day (or such later business day as may be fixed by the Grace New York
Board) after a public announcement that a person or group has become an
"interested shareholder," as defined in the Rights Agreement respecting the
Grace Rights, this right of redemption may
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be reinstated if all interested shareholders reduce their holdings to 10% or
less of the outstanding Grace New York Common Stock. The Grace Rights will
expire in January 1997. In contemplation of the Reorganization, the Grace New
York Board authorized the amendment of the Grace Rights so as to prevent the
Grace Rights from becoming exercisable as a result of the transactions
contemplated by the Reorganization Agreement.
New Grace
Each share of New Grace Common Stock will have an attendant New Grace
Right. The New Grace Rights may have certain anti-takeover effects, but are not,
and will not become, exercisable unless and until certain events occur.
The New Grace Rights will be redeemable by New Grace at $.01 per New Grace
Right (payable in cash, New Grace Common Stock or any other form of
consideration deemed appropriate by the New Grace Board) at such time, on such
basis and with such conditions as the New Grace Board may determine, in its sole
discretion. The New Grace Rights will expire in 2006.
STATE ANTI-TAKEOVER STATUTES
Grace New York
Section 912 of the NYBCL prohibits a "business combination" (as defined in
Section 912 of the NYBCL, generally including mergers, sales and leases of
assets, issuances of securities and similar transactions) by Grace New York or a
Grace New York subsidiary with an interested shareholder (as defined in Section
912 of the NYBCL, generally the beneficial owner of 20% or more of Grace New
York voting stock) within five years after the person or entity becomes an
interested shareholder, unless (i) prior to the person or entity becoming an
interested shareholder, the business combination or the transaction pursuant to
which such person or entity became an interested shareholder has been approved
by the Grace New York Board, or (ii) the business combination is approved by the
holders of a majority of the voting power of the capital stock of Grace New
York, excluding shares held by the interested shareholder, at a meeting called
for such purpose no earlier than five years after such interested shareholder's
"stock acquisition date". In addition, Section 912 of the NYBCL specifies
certain minimum consideration that must be paid in a business combination with
an interested shareholder. In approving the Reorganization Agreement, the Grace
New York Board approved the Reorganization, so that it is not subject to the
limitations set forth in Section 912 of the NYBCL.
New Grace
Section 203 of the DGCL provides that, subject to certain exceptions
specified therein, a corporation shall not engage in any business combination
with any "interested shareholder" for a three-year period following the date
that such shareholder becomes an interested shareholder unless (i) prior to such
date, the board of directors of the corporation approved either the business
combination or the transaction which resulted in the shareholder becoming an
interested shareholder, (ii) upon consummation of the transaction which resulted
in the shareholder becoming an interested shareholder, the interested
shareholder owns at least 85% of the voting stock (as defined in Section 203 of
the DGCL) of the corporation outstanding at the time the transaction commenced
(excluding certain shares), or (iii) on or subsequent to such date, the business
combination is approved by the board of directors of the corporation and by the
affirmative vote of at least 66 2/3% of the outstanding voting stock not owned
by the interested shareholder. Except as specified in Section 203, an
"interested shareholder" is defined to include (i) any person that is the owner
of 15% or more of the outstanding Voting Stock of the corporation, or is an
affiliate or associate of the corporation and was the owner of 15% or more of
the outstanding Voting Stock of the corporation at any time within three years
immediately prior to the relevant date and (ii) the affiliates and associates of
any such person.
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LIMITATION ON DIRECTORS' LIABILITY
Grace New York
Under Section 402 of the NYBCL, a corporation may limit or eliminate the
personal liability of directors to the corporation or its shareholders for
damages for breach of duty in such capacity. This limitation on liability is not
available for acts or omissions by a director which (i) were in bad faith, (ii)
involved intentional misconduct or a knowing violation of law, (iii) involved
financial profit or other advantage to which the director was not entitled or
(iv) resulted in a violation of a statute prohibiting certain dividend
declarations, certain payments to shareholders after dissolution and particular
types of loans. The Grace New York Certificate provides for the limitation on
directors' liability as permitted by this statute.
New Grace
As permitted by the DGCL, the New Grace Certificate provides that a
director will not be personally liable for monetary damages to New Grace or its
shareholders for breach of fiduciary duty as a director, except for liability
(i) for any breach of the director's duty of loyalty to New Grace or its
shareholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for paying a
dividend or approving a stock repurchase in violation of Section 174 of the DGCL
or (iv) for any transaction from which the director derived an improper personal
benefit.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Grace New York
Sections 722 and 723 of the NYBCL provide that a corporation may indemnify
its officers and directors party to any action, suit or proceeding by reason of
the fact that he or she was a director, officer or employee of the corporation
by, among other things, a majority vote of a quorum consisting of directors who
were not parties to such action, suit, or proceeding, provided that such
officers and directors acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interests of the corporation. The
Grace New York By-Laws provide for indemnification of officers and directors as
permitted by this statute.
New Grace
The New Grace Certificate provides that each individual who is or was or
has agreed to become a director or officer of New Grace, or each such person who
is or was serving or who has agreed to serve at the request of the New Grace
Board as an employee or agent of New Grace or as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans (also
including the heirs, executors, administrators or estate of such person), will
be indemnified by New Grace, in accordance with the New Grace By-laws, to the
fullest extent permitted by the DGCL, as the same exists or may in the future be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits New Grace to provide broader indemnification rights than said
law permitted prior to such amendment). The New Grace Certificate also
specifically authorizes New Grace to enter into agreements with any person
providing for indemnification greater than or different from that provided by
the New Grace Certificate.
CUMULATIVE VOTING
Grace New York
The Grace New York Certificate does not provide for cumulative voting.
New Grace
The New Grace Certificate does not provide for cumulative voting.
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CONFLICT-OF-INTEREST TRANSACTIONS
Grace New York
Section 713 of the NYBCL permits contracts or transactions between a
corporation and an interested director if the material facts as to such
director's interests are disclosed in good faith or known to the board or a
committee thereof, and the board approves the contract or transaction by a vote
sufficient for such purpose without counting the interested director, or, if
such a vote is not possible, by unanimous vote of disinterested directors. The
NYBCL also provides that such contracts or transactions are also permitted if
the material facts as to such director's interests are disclosed in good faith
or known to the shareholders and are approved by a vote of the shareholders.
New Grace
Section 144 of the DGCL permits contracts or transactions between a
corporation and an interested director if the material facts as to such
director's interests are disclosed or are known to the board of directors or a
committee thereof and the board or committee in good faith authorizes the
contract or transaction by the affirmative vote of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum. The DGCL also provides that such contracts or transactions are also
permitted if the material facts as to such director's interests are disclosed or
are known to the shareholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by a vote of the
shareholders, or, if the contract or transaction is fair as to the corporation
as of the time it is authorized, approved or ratified by the board of directors,
a committee of the board or the shareholders.
DIVIDENDS AND OTHER DISTRIBUTIONS
Grace New York
The NYBCL generally allows dividends to be paid out of surplus of the
corporation only, so that the net assets of the corporation remaining after such
payment shall be at least equal to the amount of its stated capital.
New Grace
The DGCL generally allows dividends to be paid out of a company's surplus,
or, if there is no surplus, out of such company's net profits for the fiscal
year in which the dividend is declared and/or for the preceding fiscal year as
long as the amount of capital of the corporation following the declaration and
payment of the dividend is not less than the aggregate amount of the capital
represented by the issued and outstanding stock of all classes having a
preference upon the distribution of assets.
ISSUANCE OF RIGHTS OR OPTIONS TO PURCHASE SHARES
TO DIRECTORS, OFFICERS AND EMPLOYEES
Grace New York
The NYBCL requires that the issuance to directors, officers and/or
employees of rights or options to purchase shares must be authorized by a
majority of the total voting power of Grace New York's outstanding capital
stock.
New Grace
The DGCL does not contain any provision requiring the issuance of rights or
options to officers, directors and employees to be approved by a shareholder
vote.
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LOANS TO DIRECTORS
Grace New York
The NYBCL requires that any loan made by a corporation to any director must
be authorized by a vote of the shareholders. For purposes of this authorization,
the shares held by the director who would be the borrower are not entitled to
vote. A loan made in violation of the above conditions shall be a violation of
the duty to the corporation of the directors approving it, but the obligation of
the borrower with respect to the loan shall not be affected thereby.
New Grace
The DGCL allows loans to and guarantees of obligations of officers and
directors without any shareholder approval.
RIGHT TO INSPECT CORPORATE BOOKS AND RECORDS; RIGHT TO INSPECT SHAREHOLDER LISTS
Grace New York
Section 624 of the NYBCL provides a right of inspection of a corporation's
books, records and shareholder lists to any person who shall have been a
shareholder for at least six months immediately preceding his or her demand or
any person holding at least 5% of a class of outstanding shares on at least five
days' written demand.
New Grace
Section 219 of the DGCL allows any shareholder, following a written
request, the right to inspect the corporation's books and records, including the
shareholder list, during usual business hours for a proper purpose. In addition,
Section 220 of the DGCL provides that stockholders have a right, for a period of
at least ten days prior to any shareholder meeting, and during such meeting, to
examine a list of shareholders arranged in alphabetical order and showing the
address and the number of shares held by each shareholder, for any purposes
germane to such meeting.
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VALIDITY OF SECURITIES
The validity of the New Grace Common Stock and the New Grace Rights will be
passed upon for New Grace by Robert H. Beber, Esq., Executive Vice President and
General Counsel of Grace. Mr. Beber owns shares of Grace New York Common Stock,
as well as options to acquire shares of Grace New York Common Stock.
EXPERTS
The Consolidated Financial Statements included in this Prospectus have been
so included in reliance on the report of Price Waterhouse LLP, independent
certified public accountants, given on the authority of said firm as experts in
auditing and accounting.
ADDITIONAL INFORMATION
New Grace has filed with the Commission a registration statement on Form
S-1 (including exhibits and amendments thereto, the "Registration Statement")
under the Exchange Act with respect to the New Grace Common Stock and the
associated New Grace Rights. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all the information included in the
Registration Statement, certain items of which are contained in schedules and
exhibits to the Registration Statement, as permitted by the rules and
regulations of the Commission, but all material terms of each such document are
described herein. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily complete;
with respect to each such contract, agreement or other document filed as an
exhibit to the Registration Statement, reference is made to the exhibit for a
more complete description of the matter involved, and each such statement shall
be deemed qualified in its entirety by such reference. Items of information
omitted from this Prospectus but contained in the Registration Statement may be
inspected and copied at the public reference facilities of the Commission at 450
Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549; at the New York
Regional Office of the Commission, Seven World Trade Center, 13th Floor, New
York, New York 10048; and the Chicago Regional Office of the Commission, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can be obtained by mail from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549 at
prescribed rates. In addition, following the Distribution, reports, proxy
statements and other information concerning New Grace may be inspected at the
offices of the NYSE, 20 Broad Street, New York, New York 10005.
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INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Acquiring Person................... 55
ADRs............................... 8
ADSs............................... Cover
Amicon............................. 19
Code............................... 6
Commission......................... 25
Compensation Committee............. 45
Consolidated Financial
Statements....................... 21
Counsel............................ 6
Covered Period..................... 26
DGCL............................... 52
Dissenting Shares.................. 5
Distribution....................... Cover
Distribution Agent................. Cover
Distribution Agreement............. 2
Distribution Payment............... 2
DOE................................ 23
EHS................................ 20
EMS................................ 39
EPA................................ 23
Exchange Act....................... 49
Facility 2......................... 9
Facility 3......................... 9
Final Expiration Date.............. 57
First Quarter Financial
Statements....................... 21
Flip-in Right...................... 56
Florida Action..................... 10
FMC Ordinary Share................. Cover
FNMC............................... Cover
Fresenius AG....................... Cover
Fresenius Medical Care............. Cover
Fresenius Merger................... Cover
Fresenius USA...................... Cover
Government Claims.................. 10
Grace.............................. Cover
Grace Chemicals.................... Cover
Grace Cocoa........................ 18
Grace Construction................. 16
Grace Container.................... 17
Grace Davison...................... 15
Grace Merger....................... Cover
Grace New York..................... Cover
Grace New York 1996 Proxy
Excerpt.......................... 46
Grace New York Board............... 2
Grace New York Certificate......... Cover
Grace New York Common Stock........ Cover
Grace New York Preferred Stock..... Cover
Grace Packaging.................... 14
Grace TEC Systems.................. 18
Hatco.............................. 23
LTIP............................... 46
IRS................................ 6
Joint Proxy Statement-Prospectus... Cover
Lenders............................ 2
New Grace.......................... Cover
New Grace Board.................... 9
New Grace By-laws.................. 8
New Grace Certificate.............. Cover
New Grace Common Stock............. Cover
New Grace Employees................ 47
New Grace Junior Preferred Stock... 50
New Grace Preferred Stock.......... 50
New Grace Right.................... 7
New Preferred Share................ Cover
NMC................................ Cover
NMC Credit Agreement............... 2
NMC Credit Facility................ 2
NYSE............................... Cover
Obligations........................ 10
OIG................................ 26
OIG Agreements..................... 10
OIG Investigation.................. 26
Opinions........................... 7
Primary Guarantee.................. 10
Proceeding......................... 59
Prospectus......................... Cover
PRP................................ 23
Purchase Price..................... 55
Recapitalization................... Cover
Redemption Price................... 56
Registration Statement............. 70
Releasees.......................... 10
Reorganization..................... Cover
Reorganization Agreement........... Cover
Representations.................... 7
Research Division.................. 19
Rights Agreement................... 55
Rights Certificates................ 55
Rights Distribution Date........... 55
Secondary Guarantee................ 10
Securities Act..................... 8
Shareholder Notice Procedure....... 52
Time of Distribution............... Cover
TSCA............................... 24
Voting Stock....................... 54
Whole Board........................ 52
WRC................................ 19
</TABLE>
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ANNEX A
FORM OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
W. R. GRACE & CO.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
1. The name of the corporation (the "Corporation") is "W. R. Grace & Co."
2. The original Certificate of Incorporation was filed with the Secretary
of State of the State of Delaware on January 29, 1996, under the name W. R.
Grace & Co.
3. This Amended and Restated Certificate of Incorporation has been duly
proposed by resolutions adopted and declared advisable by the Board of Directors
of the Corporation, duly adopted by written consent of the sole stockholder of
the Corporation in lieu of a meeting and vote and duly executed and acknowledged
by the officers of the Corporation in accordance with the provisions of Sections
103, 228, 242 and 245 of the General Corporation Law of the State of Delaware
(the "GCL") and, upon filing with the Secretary of State in accordance with
Section 103, shall thenceforth supercede the original Certificate of
Incorporation and shall, as it may thereafter be amended in accordance with its
terms and applicable law, be the Certificate of Incorporation of the
Corporation.
4. The text of the Certificate of Incorporation of the Corporation is
hereby amended and restated to read in its entirety as follows:
ARTICLE I
The name of the Corporation is:
W. R. Grace & Co.
ARTICLE II
The address of the Corporation's registered office in the State of Delaware
is The Prentice-Hall Corporation System, Inc., 1013 Centre Road, Wilmington,
Delaware. The name of the Corporation's registered agent at such address is The
Prentice-Hall Corporation System, Inc.
ARTICLE III
The purpose of the Corporation shall be to engage in any lawful act or
activity for which corporations may be organized and incorporated under the GCL.
ARTICLE IV
(a) The total number of shares of stock which the Corporation shall have
authority to issue is Three Hundred and Fifty-Three Million (353,000,000),
consisting of Fifty-Three Million (53,000,000) shares of Preferred Stock, par
value $.01 per share (hereinafter referred to as "Preferred Stock"), and Three
Hundred Million (300,000,000) shares of Common Stock, par value $.01 per share
(hereinafter referred to as "Common Stock").
(b) The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized to provide for the issuance
of shares of Preferred Stock in series and, by filing a certificate pursuant to
the applicable law of the State of Delaware ("Preferred Stock Designation"), to
establish from
A-1
<PAGE> 80
time to time the number of shares to be included in each such series, and to fix
the designation, powers, preferences and rights of the shares of each such
series and the qualifications, limitations and restrictions thereof. The
authority of the Board of Directors with respect to each series shall include,
but not be limited to, determination of the following:
(1) The designation of the series, which may be by distinguishing
number, letter or title.
(2) The number of shares of the series, which number the Board of
Directors may thereafter (except where otherwise provided in the Preferred
Stock Designation) increase or decrease (but not below the number of shares
thereof then outstanding).
(3) Whether dividends, if any, shall be cumulative or noncumulative
and the dividend rate of the series.
(4) The dates on which dividends, if any, shall be payable.
(5) The redemption rights and price or prices, if any, for shares of
the series.
(6) The terms and amount of any sinking fund provided for the purchase
or redemption of shares of the series.
(7) The amounts payable on, and the preferences, if any, of shares of,
the series in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation.
(8) Whether the shares of the series shall be convertible into shares
of any other class or series, or any other security, of the Corporation or
any other corporation, and, if so, the specification of such other class or
series of such other security, the conversion price or prices or rate or
rates, any adjustments thereof, the date or dates at which such shares
shall be convertible and all other terms and conditions upon which such
conversion may be made.
(9) Restrictions on the issuance of shares of the same series or of
any other class or series.
(10) The voting rights, if any, of the holders of shares of the
series.
(c) The Common Stock shall be subject to the express terms of the Preferred
Stock and any series thereof. Each share of Common Stock shall be equal to each
other share of Common Stock. The holders of shares of Common Stock shall be
entitled to one vote for each such share upon all questions presented to the
stockholders.
Except as may be provided in this Certificate of Incorporation or in a
Preferred Stock Designation, or as may be required by law, the Common Stock
shall have the exclusive right to vote for the election of directors and for all
other purposes, and holders of Preferred Stock shall not be entitled to receive
notice of any meeting of stockholders at which they are not entitled to vote.
(d) The Corporation shall be entitled to treat the person in whose name any
share of its stock is registered as the owner thereof for all purposes and shall
not be bound to recognize any equitable or other claim to, or interest in, such
share on the part of any other person, whether or not the Corporation shall have
notice thereof, except as expressly provided by applicable law.
(e) There shall be designated a series of the Corporation's Preferred
Stock, as follows:
(1) Designation and Amount. The shares of such series shall be
designated as "Series A Junior Participating Preferred Stock" (the "Series
A Preferred Stock") and the number of shares constituting the Series A
Preferred Stock shall be 3,000,000. Such number of shares may be increased
or decreased by resolution of the Board of Directors; provided, that no
decrease shall reduce the number of shares of Series A Preferred Stock to a
number less than the number of shares then outstanding plus the number of
shares reserved for issuance upon the exercise of outstanding options,
rights or warrants or upon the conversion of any outstanding securities
issued by the Corporation convertible into Series A Preferred Stock.
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(2) Dividends and Distributions
a. Subject to the rights of the holders of any shares of any series
of Preferred Stock (or any similar stock) ranking prior and superior to
the Series A Preferred Stock with respect to dividends, the holders of
shares of Series A Preferred Stock, in preference to the holders of
Common Stock, par value $.01 per share (the "Common Stock"), of the
Corporation, and of any other junior stock, shall be entitled to
receive, when, as and if declared by the Board of Directors out of funds
legally available for the purpose, quarterly dividends payable in cash
on the first day of March, June, September and December in each year
(each such date being referred to herein as a "Quarterly Dividend
Payment Date"), commencing on the first Quarterly Payment Dividend
Payment Date after the first issuance of a share or fraction of a share
of Series A Preferred Stock, in an amount per share (rounded to the
nearest cent) equal to the greater of (a) $1 or (b) subject to the
provision for adjustment hereinafter set forth, 100 times the aggregate
per share amount of all cash dividends, and 100 times the aggregate per
share amount (payable in kind) of all non-cash dividends or other
distributions, other than a dividend payable in shares of Common Stock
or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date or, with respect
to the first Quarterly Dividend Payment Date, since the first issuance
of any share of a fraction of a share of Series A Preferred Stock. In
the event the Corporation shall at any time declare or pay any dividend
on the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of
Common Stock (by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) into a greater or lesser number of
shares of Common Stock, then in each such case the amount to which
holders of shares of Series A Preferred Stock were entitled immediately
prior to such event under clause (b) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction, the numerator of
which is the number of shares of Common Stock outstanding immediately
after such event and the denominator of which is the number of shares of
Common stock that were outstanding immediately prior to such event.
b. The Corporation shall declare a dividend or distribution on the
Series A Preferred Stock as provided in subparagraph a. of this
paragraph (2) immediately after it declares a dividend or distribution
on the Common Stock (other than a dividend payable in shares of Common
Stock); provided that, in the event no dividend or distribution shall
have been declared on the Common Stock during the period between any
Quarterly Dividend Payment Date and the next subsequent Quarterly
Dividend Payment Date, a dividend of $1 per share on the Series A
Preferred Stock shall nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.
c. Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred Stock from the Quarterly Dividend Payment
Date next preceding the date of issue of such shares, unless the date of
issue of such shares is prior to the record date for the first Quarterly
Dividend Payment Date, in which case dividends on such shares shall
begin to accrue from the date of issue of such shares, or unless the
date of issue is a Quarterly Dividend Payment Date or is a date after
the record date for the determination of holders of shares of Series A
Preferred Stock entitled to receive a quarterly dividend and before such
Quarterly Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such Quarterly
Dividend Payment Date. Accrued but unpaid dividends shall not bear
interest. Dividends paid on the shares of Series A Preferred Stock in an
amount less than the total amount of such dividends at the time accrued
and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding. The
Board of Directors may fix a record date for the determination of
holders of shares of Series A Preferred Stock entitled to receive
payment of a dividend or distribution declared thereon, which record
date shall be not more than 60 days prior to the date fixed for the
payment thereof.
(3) Voting Rights. The holders of shares of Series A Preferred Stock
shall have the following voting rights:
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a. Subject to the provision for adjustment hereinafter set forth,
each share of Series A Preferred Stock shall entitle the holder thereof
to 100 votes on all matters submitted to a vote of the stockholders of
the Corporation. In the event the Corporation shall at any time declare
or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise
than by payment of a dividend in shares of Common Stock) into a greater
or lesser number of shares of Common Stock, then in each such case the
number of votes per share to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event shall be
adjusted by multiplying such number by a fraction, the numerator of
which is the number of shares of Common Stock outstanding immediately
after such event and the denominator of which is the number of shares of
Common Stock that were outstanding immediately prior to such event.
b. Except as otherwise provided herein, in any other Certificate of
Designations creating a series of Preferred Stock or any similar stock,
or by law, the holders of shares of Series A Preferred Stock and the
holders of shares of Common Stock and any other capital stock of the
Corporation having general voting rights shall vote together as one
class on all matters submitted to a vote of stockholders of the
Corporation.
c. Except as set forth herein, or as otherwise provided by law,
holders of Series A Preferred Stock shall have no special voting rights
and their consent shall not be required (except to the extent they are
entitled to vote with holders of Common Stock as set forth herein) for
taking any corporate action.
(4) Certain Restrictions.
a. Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in paragraph (2) are
in arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Preferred
Stock outstanding shall have been paid in full, the Corporation shall
not:
(i) declare or pay dividends, or make any other distributions,
on any shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred
Stock;
(ii) declare or pay dividends, or make any other distributions,
on any shares of stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, except dividends paid ratably on the Series A
Preferred Stock, and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the
holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred
Stock, provided that the Corporation may at any time redeem, purchase
or otherwise acquire shares of any such junior stock in exchange for
shares of any stock of the Corporation ranking junior (either as to
dividends or upon dissolution, liquidation or winding up) to the
Series A Preferred Stock, or
(iv) redeem or purchase or otherwise acquire for consideration
any shares of Series A Preferred Stock, or any shares of stock
ranking on a parity with the Series A Preferred Stock, except in
accordance with a purchase offer made in writing or by publication
(as determined by the Board of Directors) to all holders of such
shares upon such terms as the Board of Directors, after consideration
of the respective annual dividend rates and other relative rights and
preferences of the respective series and classes, shall determine in
good faith will result in fair and equitable treatment among the
respective series of classes.
b. The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any
shares of stock of the Corporation unless the Corporation could, under
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subparagraph a. of this paragraph (4), purchase or otherwise acquire
such shares at such time and in such manner.
(5) Reacquired Shares. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All
such shares shall upon their cancellation become authorized but unissued
shares of Preferred Stock and may be reissued as part of a new series of
Preferred Stock subject to the conditions and restrictions on issuance set
forth herein, in the Certificate of Incorporation, or in any other
Certificate of Designations creating a series of Preferred Stock or any
similar stock or as otherwise required by law.
(6) Liquidation, Dissolution or Winding Up. Upon any liquidation,
dissolution or winding up of the Corporation, no distribution shall be made
(1) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series A
Preferred Stock unless, prior thereto, the holders of shares of Series A
Preferred Stock shall have received $100 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not
declared, to the date of such payment, provided that the holders of shares
of Series A Preferred Stock shall be entitled to receive an aggregate
amount per share, subject to the provision for adjustment hereinafter set
forth, equal to 100 times the aggregate amount to be distributed per share
to holders of shares of Common Stock, or (2) to the holders of shares of
stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Preferred Stock, except
distributions made ratably on the Series A Preferred Stock and all such
parity stock in proportion to the total amounts to which the holders of all
such shares are entitled upon such liquidation, dissolution or winding up.
In the event the Corporation shall at any time declare or pay any dividend
on the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of
Common Stock (by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) into a greater or lesser number of
shares of Common Stock, then in each such case the aggregate amount to
which holders of shares of Series A Preferred Stock were entitled
immediately prior to such event under the proviso in clause (1) of the
preceding sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately
prior to such event.
(7) Consolidation, Merger, etc. In case the Corporation shall enter
into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case each
share of Series A Preferred Stock shall at the same time be similarly
exchanged or changed into an amount per share, subject to the provision for
adjustment hereinafter set forth, equal to 100 times the aggregate amount
of stock, securities, cash and/or any other property (payable in kind), as
the case may be, into which or for which each share of Common Stock is
changed or exchanged. In the event the Corporation shall at any time
declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by re-classification or otherwise than
by payment of a dividend in shares of Common Stock) into a greater or
lesser number of shares of Common Stock, then in each such case the amount
set forth in the preceding sentence with respect to the exchange or change
of shares of Series A Preferred Stock shall be adjusted by multiplying such
amount by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator
of which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(8) No Redemption. The shares of Series A Preferred Stock shall not
be redeemable.
(9) Rank. The Series A Preferred Stock shall rank, with respect to
the payment of dividends and the distribution of assets, junior to all
series of any other class of the Corporation's Preferred Stock.
(10) Amendment. The Certificate of Incorporation of the Corporation
shall not be amended in any manner which would materially alter or change
the powers, preferences or special rights of the
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Series A Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of at least two-thirds of the outstanding
shares of Series A Preferred Stock, voting together as a single class.
ARTICLE V
The Board of Directors is hereby authorized to create and issue, whether or
not in connection with the issuance and sale of any of its stock or other
securities or property, rights entitling the holders thereof to purchase from
the Corporation shares of stock or other securities of the Corporation or any
other corporation. The times at which and the terms upon which such rights are
to be issued will be determined by the Board of Directors and set forth in the
contracts or instruments that evidence such rights. The authority of the Board
of Directors with respect to such rights shall include, but not be limited to,
determination of the following:
(1) The initial purchase price per share or other unit of the stock or
other securities or property to be purchased upon exercise of such rights.
(2) Provisions relating to the times at which and the circumstances
under which such rights may be exercised or sold or otherwise transferred,
either together with or separately from, any other stock or other
securities of the Corporation.
(3) Provisions which adjust the number or exercise price of such
rights or amount or nature of the stock or other securities or property
receivable upon exercise of such rights in the event of a combination,
split or recapitalization of any stock of the Corporation, a change in
ownership of the Corporation's stock or other securities or a
reorganization, merger, consolidation, sale of assets or other occurrence
relating to the Corporation or any stock of the Corporation, and provisions
restricting the ability of the Corporation to enter into any such
transaction absent an assumption by the other party or parties thereto of
the obligations of the Corporation under such rights.
(4) Provisions which deny the holder of a specified percentage of the
outstanding stock or other securities of the Corporation the right to
exercise such rights and/or cause the rights held by such holder to become
void.
(5) Provisions which permit the Corporation to redeem or exchange such
rights.
(6) The appointment of a rights agent with respect to such rights.
ARTICLE VI
In furtherance of, and not in limitation of, the powers conferred by law,
the Board of Directors is expressly authorized and empowered:
(1) to adopt, amend or repeal the By-laws of the Corporation;
provided, however, that the By-laws adopted by the Board of Directors under
the powers hereby conferred may be amended or repealed by the Board of
Directors or by the stockholders having voting power with respect thereto,
provided further that in the case of amendments by stockholders, the
affirmative vote of the holders of at least 80 percent of the voting power
of the then outstanding Voting Stock, voting together as a single class,
shall be required to alter, amend or repeal any provision of the By-laws;
and
(2) from time to time to determine whether and to what extent, and at
what times and places, and under what conditions and regulations, the
accounts and books of the Corporation, or any of them, shall be open to
inspection of stockholders; and, except as so determined or as expressly
provided in this Certificate of Incorporation or in any Preferred Stock
Designation, no stockholder shall have any right to inspect any account,
book or document of the Corporation other than such rights as may be
conferred by applicable law.
The Corporation may in its By-laws confer powers upon the Board of
Directors in addition to the foregoing and in addition to the powers and
authorities expressly conferred upon the Board of Directors by applicable law.
Notwithstanding anything contained in this Certificate of Incorporation to the
contrary, the
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affirmative vote of the holders of at least 80 percent of the voting power of
the then outstanding Voting Stock, voting together as a single class, shall be
required to amend, repeal or adopt any provision inconsistent with paragraph (1)
of this Article VI. For the purposes of this Certificate of Incorporation,
"Voting Stock" shall mean the outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors.
ARTICLE VII
Subject to the rights of the holders of any series of Preferred Stock or
any other series or class of stock as set forth in this Certificate of
Incorporation to elect additional directors under specific circumstances, any
action required or permitted to be taken by the stockholders of the Corporation
must be effected at a duly called annual or special meeting of stockholders of
the Corporation and may not be effected by any consent in writing in lieu of a
meeting of such stockholders. Notwithstanding anything contained in this
Certificate of Incorporation to the contrary, the affirmative vote of at least
80 percent of the voting power of the then outstanding Voting Stock, voting
together as a single class, shall be required to amend, repeal or adopt any
provision inconsistent with this Article VII.
ARTICLE VIII
Subject to the rights of the holders of any series of Preferred Stock or
any other series or class of stock as set forth in this Certificate of
Incorporation to elect additional directors under specified circumstances, the
number of directors of the Corporation shall be fixed, and may be increased or
decreased from time to time, in such manner as may be prescribed by the By-laws.
Unless and except to the extent that the By-laws of the Corporation shall
so require, the election of directors of the Corporation need not be by written
ballot.
The directors, other than those who may be elected by the holders of any
series of Preferred Stock or any other series or class of stock as set forth in
this Certificate of Incorporation, shall be divided into three classes, as
nearly equal in number as possible. One class of directors shall be initially
elected for a term expiring at the annual meeting of stockholders to be held in
1997, another class shall be initially elected for a term expiring at the annual
meeting of stockholders to be held in 1998, and another class shall be initially
elected for a term expiring at the annual meeting of stockholders to be held in
1999. Members of each class shall hold office until their successors are elected
and qualified. At each succeeding annual meeting of the stockholders of the
Corporation, the successors of the class of directors whose term expires at that
meeting shall be elected by a plurality vote of all votes cast at such meeting
to hold office for a term expiring at the annual meeting of stockholders held in
the third year following the year of their election.
Subject to the rights of the holders of any series of Preferred Stock or
any other series or class of stock as set forth in this Certificate of
Incorporation to elect additional directors under specified circumstances, any
director may be removed from office at any time by the shareholders, but only
for cause.
Notwithstanding anything contained in this Certificate of Incorporation to
the contrary, the affirmative vote of the holders of at least 80 percent of the
voting power of the then outstanding Voting Stock, voting together as a single
class, shall be required to amend, repeal or adopt any provision inconsistent
with this Article VIII.
ARTICLE IX
Each person who is or was or has agreed to become a director or officer of
the Corporation, or each such person who is or was serving or who has agreed to
serve at the request of the Board of Directors or an officer of the Corporation
as an employee or agent of the Corporation or as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans (including
the heirs, executor, administrators or estate of such person), shall be
indemnified by the Corporation, in accordance with the By-laws of the
Corporation, to the fullest extent
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permitted from time to time by the GCL as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights than
said law permitted prior to such amendment) or any other applicable laws as
presently or hereafter in effect. Without limiting the generality or the effect
of the foregoing, the Corporation may enter into one or more agreements with any
person which provide for indemnification greater than or different from that
provided in this Article IX. Any amendment or repeal of this Article IX shall
not adversely affect any right or protection existing hereunder in respect of
any act or omission occurring prior to such amendment or repeal.
ARTICLE X
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (1) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (2) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (3) under Section 174 of the GCL, or (4) for any transaction
from which the director derived an improper personal benefit. Any amendment or
repeal of this Article X shall not adversely affect any right or protection of a
director of the Corporation existing hereunder in respect of any act or omission
occurring prior to such amendment or repeal.
ARTICLE XI
Except as may be expressly provided in this Certificate of Incorporation,
the Corporation reserves the right at any time and from time to time to amend,
alter, change or repeal any provision contained in this Certificate of
Incorporation or a Preferred Stock Designation, and any other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted, in the manner now or hereafter prescribed herein or by
applicable law, and all rights, preferences and privileges of whatsoever nature
conferred upon stockholders, directors or any other persons whomsoever by and
pursuant to this Certificate of Incorporation in its present form or as
hereafter amended are granted subject to the right reserved in this Article XI;
provided, however, that any amendment or repeal of Article IX or Article X of
this Certificate of Incorporation shall not adversely affect any right or
protection existing hereunder in respect of any act or omission occurring prior
to such amendment or repeal; and provided further that no Preferred Stock
Designation shall be amended after the issuance of any shares of the series of
Preferred Stock created thereby, except in accordance with the terms of such
Preferred Stock Designation and the requirements of applicable law.
IN WITNESS WHEREOF, W. R. Grace & Co. has caused this Amended and Restated
Certificate of Incorporation to be signed by its President and attested by its
Secretary and has caused its corporate seal to be hereunto affixed, this
day of , 1996.
W. R. GRACE & CO.
By:
------------------------------------
President
Attest:
--------------------------------
Secretary
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ANNEX B
FORM OF
AMENDED AND RESTATED
BY-LAWS
OF
W. R. GRACE & CO.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
ARTICLE I
OFFICES AND RECORDS
Section 1.1. Delaware Office. The principal office of the Corporation in
the State of Delaware shall be located in Wilmington, Delaware, and the name and
address of its registered agent is The Prentice-Hall Corporation System, Inc.,
1013 Centre Road, Wilmington, Delaware.
Section 1.2. Other Offices. The Corporation may have such other offices,
either within or without the State of Delaware, as the Board of Directors may
designate or as the business of the Corporation may from time to time require.
Section 1.3. Books and Records. The books and records of the Corporation
may be kept outside the State of Delaware at such place or places as may from
time to time be designated by the Board of Directors.
ARTICLE II
STOCKHOLDERS
Section 2.1. Annual Meeting. The annual meeting of the stockholders of
the Corporation shall be held annually (a) on the tenth day of May, or (b) if
such day be a Saturday, Sunday or a holiday at the place where the meeting is to
be held, on the last business day preceding or on the first business day after
such tenth day of May, as may be fixed by the Board of Directors, or (c) on such
other date as may be fixed by the Board of Directors.
Section 2.2. Special Meeting. Subject to the rights of the holders of any
series of stock having a preference over the Common Stock of the Corporation as
to dividends or upon liquidation ("Preferred Stock") with respect to such series
of Preferred Stock, special meetings of the stockholders may be called only by
the Chairman, by the President or by the Board of Directors pursuant to a
resolution adopted by a majority of the total number of directors which the
Corporation would have if there were no vacancies (the "Whole Board").
Section 2.3. Place of Meeting. The Chairman, the President or the Board
of Directors, as the case may be, may designate the place of meeting for any
annual meeting or for any special meeting of the stockholders called by the
Chairman, the President or the Board of Directors. If no designation is so made,
the place of meeting shall be the principal office of the Corporation.
Section 2.4. Notice of Meeting. Written or printed notice, stating the
place, date and time of the meeting and the purpose or purposes for which the
meeting is called, shall be delivered by the Corporation not less than ten (10)
days nor more than sixty (60) days before the date of the meeting, either
personally or by mail, to each stockholder of record entitled to vote at such
meeting. If mailed, such notice shall be deemed to be delivered when deposited
in the U.S. mail with postage thereon prepaid, addressed to the stockholder at
his address as it appears on the stock transfer books of the Corporation. Such
further notice shall be given as may be required by law. Only such business
shall be conducted at a special meeting of stockholders as shall have been
brought before the meeting pursuant to the Corporation's notice of meeting.
Meetings may be held without notice if all stockholders entitled to vote are
present, or if notice is waived by those not present in accordance with Section
6.4 of these By-laws. Any previously scheduled meeting of the stockholders may
be postponed, and (unless the Certificate of Incorporation otherwise provides)
any special meeting of the stockholders may be cancelled, by resolution of the
Board of Directors upon public notice given prior to the date previously
scheduled for such meeting of stockholders.
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Section 2.5. Quorum and Adjournment. Except as otherwise provided by law
or by the Certificate of Incorporation, the holders of a majority of the
outstanding shares of the Corporation entitled to vote generally in the election
of directors (the "Voting Stock"), represented in person or by proxy, shall
constitute a quorum at a meeting of stockholders, except that when specified
business is to be voted on by a class or series of stock voting as a class, the
holders of a majority of the voting power of the shares of such class or series
shall constitute a quorum of such class or series for the transaction of such
business. The chairman of the meeting or a majority of the shares so represented
may adjourn the meeting from time to time, whether or not there is a quorum. No
notice of the time and place of adjourned meetings need be given except as
required by law. The stockholders present at a duly called meeting at which a
quorum is present may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum.
Section 2.6. Proxies. At all meetings of stockholders, a stockholder may
vote by proxy executed in writing (or in any other manner permitted by law) by
the stockholder, or by his duly authorized attorney in fact.
Section 2.7. Notice of Stockholder Business and Nominations. (A) Annual
Meetings of Stockholders. (1) Nominations of persons for election to the Board
of Directors of the Corporation and the proposal of business to be considered by
the stockholders may be made at an annual meeting of stockholders (a) pursuant
to the Corporation's notice of meeting, (b) by or at the direction of the Board
of Directors or (c) by any stockholder of the Corporation who was a stockholder
of record at the time of giving of the notice provided for in this Section 2.7,
who is entitled to vote at the meeting and who complies with the notice
procedures set forth in this Section 2.7.
(2) For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (c) of paragraph (A)(1) of
this Section 2.7, the stockholder must have given timely notice thereof in
writing to the Secretary of the Corporation, and such other business must
otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice shall be delivered to the Secretary at the principal
executive offices of the Corporation not later than the close of business on the
60th day nor earlier than the close of business on the 90th day prior to the
first anniversary of the preceding year's annual meeting; provided, however,
that in the event that the date of the annual meeting is more than 30 days
before or more than 60 days after such anniversary date, notice by the
stockholder to be timely must be so delivered not earlier than the close of
business on the 90th day prior to such annual meeting and not later than the
close of business on the later of the 60th day prior to such annual meeting or
the 10th day following the day on which public announcement of the date of such
meeting is first made by the Corporation. In no event shall the public
announcement of an adjournment of an annual meeting commence a new time period
for the giving of a stockholder's notice as described above. Such stockholder's
notice shall set forth (a) as to each person whom the stockholder proposes to
nominate for election or re-election as a director all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors in an election contest, or is otherwise required, in each
case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and Rule 14a-11 thereunder (including such
person's written consent to being named in the proxy statement as a nominee and
to serving as a director if elected); (b) as to any other business that the
stockholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (c) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the nomination or proposal is made (i) the name and
address of such stockholder, as they appear on the Corporation's books, and of
such beneficial owner and (ii) the class and number of shares of the Corporation
which are owned beneficially and of record by such stockholder and such
beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph (A)(2) of
this Section 2.7 to the contrary, in the event that the number of directors to
be elected to the Board of Directors of the Corporation is increased and there
is no public announcement by the Corporation naming all of the nominees for
election as director or specifying the size of the increased Board of Directors
at least 70 days prior to the first anniversary of the preceding year's annual
meeting, a stockholder's notice required by this Section 2.7 shall also be
considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall
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be delivered to the Secretary at the principal executive offices of the
Corporation not later than the close of business on the 10th day following the
day on which such public announcement is first made by the Corporation.
(B) Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Corporation's notice of meeting. Nominations of
persons for election to the Board of Directors may be made at a special meeting
of stockholders at which directors are to be elected pursuant to the
Corporation's notice of meeting (a) by or at the direction of the Board of
Directors or (b) provided that the Board of Directors has determined that
directors shall be elected at such meeting, by any stockholder of the
Corporation who is a stockholder of record at the time of giving of notice
provided for in this Section 2.7, who shall be entitled to vote at the meeting
and who complies with the notice procedures set forth in this Section 2.7. In
the event the Corporation calls a special meeting of stockholders for the
purpose of electing one or more directors to the Board of Directors, any such
stockholder may nominate a person or persons (as the case may be), for election
to such position(s) as specified in the Corporation's notice of meeting, if the
stockholder's notice required by paragraph (A)(2) of this Section 2.7 shall be
delivered to the Secretary at the principal executive offices of the Corporation
not earlier than the close of business on the 90th day prior to such special
meeting and not later than the close of business on the later of the 60th day
prior to such special meeting or the 10th day following the day on which public
announcement is first made of the date of the special meeting and of the
nominees proposed by the Board of Directors to be elected at such meeting. In no
event shall the public announcement of an adjournment of a special meeting
commence a new time period for the giving of a stockholder's notice as described
above.
(C) General. (1) Only such persons who are nominated in accordance with
the procedures set forth in this Section 2.7 shall be eligible to serve as
directors and only such business shall be conducted at a meeting of stockholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this Section 2.7. Except as otherwise provided by law, the
Certificate of Incorporation or these By-laws, the chairman of the meeting shall
have the power and duty to determine whether a nomination or any business
proposed to be brought before the meeting was made or proposed, as the case may
be, in accordance with the procedures set forth in this Section 2.7 and, if any
proposed nomination or business is not in compliance with this Section 2.7, to
declare that such defective proposal or nomination shall be disregarded.
(2) For purposes of this Section 2.7, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or a comparable national news service or in a document publicly filed by
the Corporation with the Securities and Exchange Commission pursuant to Section
13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Section 2.7, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this by-law. Nothing in this Section 2.7 shall be deemed to affect any
rights (i) of stockholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or
(ii) of the holders of any series of Preferred Stock to elect directors under
specified circumstances.
Section 2.8. Procedure for Election of Directors; Required Vote. Election
of directors at all meetings of the stockholders at which directors are to be
elected shall be by ballot, and, subject to the rights of the holders of any
series of Preferred Stock to elect directors under specified circumstances, a
plurality of the votes cast thereat shall elect directors. Except as otherwise
provided by law, the Certificate of Incorporation, or these By-laws, in all
matters other than the election of directors, the affirmative vote of a majority
of the shares present in person or represented by proxy at the meeting and
entitled to vote on the matter shall be the act of the stockholders.
Section 2.9. Inspectors of Elections; Opening and Closing the Polls. The
Board of Directors by resolution shall appoint one or more inspectors, which
inspector or inspectors may include individuals who serve the Corporation in
other capacities, including, without limitation, as officers, employees, agents
or representatives, to act at meetings of stockholders and make written reports
thereof. One or more persons may be designated as alternate inspectors to
replace any inspector who fails to act. If no inspector or alternate has
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been appointed to act or is able to act at a meeting of stockholders, the
chairman of the meeting shall appoint one or more inspectors to act at the
meeting. Each inspector, before discharging his or her duties, shall take and
sign an oath faithfully to execute the duties of inspector with strict
impartiality and according to the best of his or her ability. The inspectors
shall have the duties prescribed by law.
The chairman of the meeting shall fix and announce at the meeting the date
and time of the opening and the closing of the polls for each matter upon which
the stockholders will vote at a meeting.
ARTICLE III
BOARD OF DIRECTORS
Section 3.1. General Powers. The business and affairs of the Corporation
shall be managed under the direction of the Board of Directors. In addition to
the powers and authorities by these By-laws expressly conferred upon them, the
Board of Directors may exercise all such powers of the Corporation and do all
such lawful acts and things as are not by statute or by the Certificate of
Incorporation or by these By-laws required to be exercised or done by the
stockholders.
Section 3.2. Number, Tenure and Qualifications. Subject to the rights of
the holders of any series of Preferred Stock to elect directors under specified
circumstances, the number of directors shall be fixed from time to time
exclusively pursuant to a resolution adopted by a majority of the Whole Board.
The directors, other than those who may be elected by the holders of any series
of Preferred Stock under specified circumstances, shall be divided, with respect
to the time for which they severally hold office, into three classes, as nearly
equal in number as is reasonably possible, designated Class I, Class II and
Class III, with the initial term of office of the Class I directors to expire at
the 1997 annual meeting of stockholders, the initial term of office of the Class
II directors to expire at the 1998 annual meeting of stockholders and the
initial term of office of the Class III directors to expire at the 1999 annual
meeting of stockholders, with each director to hold office until his or her
successor shall have been duly elected and qualified. No person shall be
nominated for election as a director if such person will have attained the age
of 70 prior to the expiration of his or her term of office. At each annual
meeting of stockholders, commencing with the 1997 annual meeting, directors
elected to succeed those directors whose terms then expire shall be elected for
a term of office to expire at the third succeeding annual meeting of
stockholders after their election, with each director to hold office until his
or her successor shall have been duly elected and qualified.
Section 3.3. Regular Meetings. A regular meeting of the Board of
Directors shall be held without other notice than this Section 3.3 immediately
after, and at the same place as, the Annual Meeting of Stockholders. The Board
of Directors may fix the time and place for the holding of additional regular
meetings without notice.
Section 3.4. Special Meetings. Special meetings of the Board of Directors
shall be called at the request of the Chairman, the President or a majority of
the directors then in office. The person or persons authorized to call special
meetings of the Board of Directors may fix the place and time of such meetings.
Section 3.5. Notice. Notice of any special meeting or notice of a change
in the time or place of any regular meeting of the Board of Directors shall be
given to each director at his or her business or residence in writing by hand
delivery, first-class or overnight mail or courier service, telegram or
facsimile transmission, or orally by telephone. If mailed by first-class mail,
such notice shall be deemed adequately delivered when deposited in the U.S.
mails so addressed, with postage thereon prepaid, at least five (5) days before
such meeting. If by telegram, overnight mail or courier service, such notice
shall be deemed adequately delivered when the telegram is delivered to the
telegraph company or the notice is delivered to the overnight mail or courier
service company at least twenty-four (24) hours before such meeting. If by
facsimile transmission, such notice shall be deemed adequately delivered when
the notice is transmitted at least twelve (12) hours before such meeting. If by
telephone, the notice shall be communicated to the director or his or her
representative or answering machine. If by telephone or by hand delivery, the
notice shall be given at least twenty-four (24) hours prior to the time set for
the meeting. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board of Directors need be specified in the
notice of such meeting, except for amendments to these By-laws, as provided
under Section 8.1. A meeting may be held at
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any time without notice if all the directors are present or if those not present
waive notice of the meeting in accordance with Section 6.4 of these by-laws.
Section 3.6. Action by Consent of Board of Directors. Any action required
or permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if all members of the Board of
Directors or committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Board of
Directors or committee.
Section 3.7. Conference Telephone Meetings. Members of the Board of
Directors, or any committee thereof, may participate in a meeting of the Board
of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at such meeting.
Section 3.8. Quorum. Subject to Section 3.9, a number of directors equal
to at least a majority of the Whole Board shall constitute a quorum for the
transaction of business. If at any meeting of the Board of Directors there shall
be less than a quorum present, a majority of the directors present may adjourn
the meeting from time to time without further notice. The act of the majority of
the directors present at a meeting at which a quorum is present shall be the act
of the Board of Directors. The directors present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough directors to leave less than a quorum.
Section 3.9. Vacancies. Subject to applicable law and the rights of the
holders of any series of Preferred Stock with respect to such series of
Preferred Stock, and unless the Board of Directors otherwise determines,
vacancies resulting from death, resignation, retirement, disqualification,
removal from office or other cause, and newly created directorships resulting
from any increase in the authorized number of directors, may be filled only by
the affirmative vote of a majority of the remaining directors, though less than
a quorum of the Board of Directors, and directors so chosen shall hold office
for a term expiring at the annual meeting of stockholders at which the term of
office of the class to which they have been elected expires and until such
director's successor shall have been duly elected and qualified. No decrease in
the number of authorized directors constituting the Whole Board shall shorten
the term of any incumbent director.
Section 3.10. Committees. The Board of Directors may establish one or more
committees. Each Committee shall consist of two or more directors of the
Corporation designated by the Board of Directors. The Board of Directors may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. Any
such committee may to the extent permitted by law exercise such powers and shall
have such responsibilities as shall be specified in the designating resolution.
In the absence or disqualification of any member of such committee or
committees, the member or members thereof present at any meeting and not
disqualified from voting, whether or not constituting a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in the
place of any such absent or disqualified member. Each committee shall keep
written minutes of its proceedings and shall report such proceedings to the
Board of Directors when requested.
A majority of any committee may determine its action and fix the time and
place of its meetings, unless the Board of Directors shall otherwise provide.
Notice of such meetings shall be given to each member of the committee in the
manner provided for in Section 3.5 of these By-laws. The Board of Directors
shall have the power at any time to fill vacancies in, to change the membership
of, or to dissolve any such committee. Nothing herein shall be deemed to prevent
the Board of Directors from appointing one or more committees consisting in
whole or in part of persons who are not directors of the Corporation; provided,
however, that no such committee shall have or may exercise any authority of the
Board of Directors.
The term of office of a committee member shall be as provided in the
resolution of the Board designating him or her but shall not exceed his or her
term as a director. If prior to the end of his term, a committee member should
cease to be a director, he or she shall cease to be a committee member. Any
member of a committee may resign at any time by giving written notice to the
Board of Directors, the Chairman, the President or the Secretary. Such
resignation shall take effect as provided in Section 6.6 of these By-laws in the
case of resignations by directors. Any member of a committee may be removed from
such committee, either with or without cause, at any time, by resolution adopted
by a majority of the whole Board. Any vacancy in a
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committee shall be filled by the Board of Directors in the manner prescribed by
these By-Laws for the original designation of the members of such committee.
Section 3.11. Committee on Officers' Compensation. Pursuant to Section
3.10 of these By-laws, the Board of Directors shall designate a committee to
evaluate the performance of, and to recommend the appropriate level of
compensation for, officers of the Corporation. Such committee shall have access
to an advisor not otherwise serving the Corporation. Each member of such
committee shall be an "independent director", as that term is defined in the
following sentence. For purposes of this Section 3.11, an "independent director"
shall mean a person who (a) has not been employed by the Corporation within the
past five years; (b) is not, and is not affiliated with, a firm that is an
advisor or consultant to the Corporation; (c) is not affiliated with any
customer or supplier of the Corporation whose purchases from and/or sales to the
Corporation exceed 3% of the sales and revenues of such customer or supplier for
its most recently completed fiscal year; (d) has no personal services contract
with the Corporation; (e) is not affiliated with a tax-exempt entity, not
otherwise affiliated with the Corporation, that receives contributions from the
Corporation that exceed 3% of such entity's gross contributions for its most
recently completed fiscal year; and (f) is not a member of the "immediate
family" (as defined in Item 404(a) of Securities and Exchange Commission
Regulation S-K) of any person described in clauses (a) through (e).
Section 3.12. Removal. Subject to the rights of the holders of any series
of Preferred Stock with respect to such series of Preferred Stock, any director,
or the entire Board of Directors, may be removed from office at any time by the
shareholders, but only for cause.
Section 3.13. Records. The Board of Directors shall cause to be kept a
record containing the minutes of the proceedings of the meetings of the Board of
Directors and of the stockholders, appropriate stock books and registers and
such books of records and accounts as may be necessary for the proper conduct of
the business of the Corporation.
ARTICLE IV
OFFICERS
Section 4.1. Elected Officers. The elected officers of the Corporation
shall be a Chairman, a President, a Secretary, a Treasurer, and such other
officers (including, without limitation, a Chief Financial Officer) as the Board
of Directors may deem proper from time to time. The Chairman shall be chosen
from among the directors. Each officer elected by the Board of Directors shall
have such powers and duties as generally pertain to his or her respective
office, subject to the specific provisions of this ARTICLE IV. Such officers
shall also have such powers and duties as may be conferred from time to time by
the Board of Directors. The Board of Directors may from time to time elect, or
the Chairman or President may appoint, such assistant officers (including one or
more Assistant Vice Presidents, Assistant Secretaries, Assistant Treasurers and
Assistant Controllers) as may be necessary or desirable for the conduct of the
business of the Corporation. Such assistant officers shall have such duties and
shall hold their offices for such terms as shall be provided in these By-laws or
as may be prescribed by the Board of Directors or by the Chairman or President,
as the case may be.
Section 4.2. Election and Term of Office. The elected officers of the
Corporation shall be elected annually by the Board of Directors at the regular
meeting of the Board of Directors held after the annual meeting of the
stockholders or at any other time as the Board of Directors may deem proper.
Each officer shall hold office until his successor shall have been duly elected
and shall have qualified or until his death or until he shall resign, but any
officer may be removed from office at any time by the affirmative vote of a
majority of the Whole Board or, except in the case of an officer elected by the
Board of Directors, by the Chairman or President. Such removal shall be without
prejudice to the contractual rights, if any, of the person so removed.
Section 4.3. Chairman. The Chairman shall preside at all meetings of the
stockholders and of the Board of Directors and shall be the Chief Executive
Officer of the Company. The Chairman shall be responsible for the general
management of the affairs of the Corporation and shall perform all duties
incidental to his office which may be required by law and all such other duties
as are properly required of him by the Board of Directors. He shall make reports
to the Board of Directors and the stockholders, and shall see that all
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orders and resolutions of the Board of Directors and of any committee thereof
are carried into effect. The Chairman may also serve as President, if so elected
by the Board of Directors.
Section 4.4. President. The President shall act in a general executive
capacity and shall assist the Chairman in the administration and operation of
the Corporation's business and the general supervision of its policies and
affairs. In the absence of or the inability to act of the Chairman, the
President shall perform all duties of the Chairman and preside at all meetings
of stockholders and of the Board of Directors.
Section 4.5. Vice Presidents. Each Vice President shall have such powers
and shall perform such duties as shall be assigned to him by the Board of
Directors.
Section 4.6. Chief Financial Officer. The Chief Financial Officer (if any)
shall be a Vice President and act in an executive financial capacity. He shall
assist the Chairman and the President in the general supervision of the
Corporation's financial policies and affairs.
Section 4.7. Treasurer. The Treasurer shall exercise general supervision
over the receipt, custody and disbursement of corporate funds. The Treasurer
shall cause the funds of the Corporation to be deposited in such banks as may be
authorized by the Board of Directors, or in such banks as may be designated as
depositaries in the manner provided by resolution of the Board of Directors. He
shall have such further powers and duties and shall be subject to such
directions as may be granted or imposed upon him from time to time by the Board
of Directors, the Chairman or the President.
Section 4.8. Secretary. The Secretary shall keep or cause to be kept in
one or more books provided for that purpose, the minutes of all meetings of the
Board of Directors, the committees of the Board of Directors and the
stockholders; he shall see that all notices are duly given in accordance with
the provisions of these By-laws and as required by law; he shall be custodian of
the records and the seal of the Corporation and affix and attest the seal to all
stock certificates of the Corporation (unless the seal of the Corporation on
such certificates shall be a facsimile, as hereinafter provided) and affix and
attest the seal to all other documents to be executed on behalf of the
Corporation under its seal; and he shall see that the books, reports,
statements, certificates and other documents and records required by law to be
kept and filed are properly kept and filed; and in general, he shall perform all
the duties incident to the office of Secretary and such other duties as from
time to time may be assigned to him by the Board of Directors, the Chairman or
the President.
Section 4.9. Controller. The Controller shall have general control, charge
and supervision of the accounts of the Corporation. He shall see that proper
accounts are maintained and that all accounts are properly credited from time to
time. He shall prepare or cause to be prepared the financial statements of the
Corporation.
Section 4.10. Removal. Any officer elected by the Board of Directors may
be removed by the affirmative vote of a majority of the Whole Board whenever, in
their judgment, the best interests of the Corporation would be served thereby.
Any assistant officer appointed by the Chairman or the President may be removed
by him whenever, in his judgment, the best interests of the Corporation would be
served thereby. No elected officer shall have any contractual rights against the
Corporation for compensation by virtue of such election beyond the date of the
election of his successor, his death, his resignation or his removal, whichever
event shall first occur, except as otherwise provided in an employment contract
or under an employee deferred compensation plan.
Section 4.11. Vacancies. A newly created elected office and a vacancy in
any elected office because of death, resignation, or removal may be filled by
the Board of Directors for the unexpired portion of the term at any meeting of
the Board of Directors.
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ARTICLE V
STOCK CERTIFICATES AND TRANSFERS
Section 5.1. Stock Certificates and Transfers. The interest of each
stockholder of the Corporation shall be evidenced by certificates for shares of
stock in such form as the appropriate officers of the Corporation may from time
to time prescribe. The shares of the stock of the Corporation shall be
transferred on the books of the Corporation by the holder thereof in person or
by his attorney, upon surrender for cancellation of certificates for at least
the same number of shares, with an assignment and power of transfer endorsed
thereon or attached thereto, duly executed, with such proof of the authenticity
of the signature as the Corporation or its agents may reasonably require.
The certificates of stock shall be signed, countersigned and registered in
such manner as the Board of Directors may by resolution prescribe, which
resolution may permit all or any of the signatures on such certificates to be in
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate has ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the Corporation with the same effect as if he were such
officer, transfer agent or registrar at the date of issue.
Section 5.2. Lost, Stolen or Destroyed Certificates. No certificate for
shares of stock in the Corporation shall be issued in place of any certificate
alleged to have been lost, destroyed or stolen, except on production of such
evidence of such loss, destruction or theft and on delivery to the Corporation
of a bond of indemnity in such amount, upon such terms and secured by such
surety, as the Board of Directors or any financial officer may in its or his
discretion require.
ARTICLE VI
MISCELLANEOUS PROVISIONS
Section 6.1. Fiscal Year. The fiscal year of the Corporation shall begin
on the first day of January and end on the thirty-first day of December of each
year.
Section 6.2. Dividends. The Board of Directors may from time to time
declare, and the Corporation may pay, dividends on its outstanding shares in the
manner and upon the terms and conditions provided by law and the Certificate of
Incorporation.
Section 6.3. Seal. The corporate seal shall have enscribed thereon the
words "Corporate Seal", the year of incorporation and around the margin thereof
the words "W. R. Grace & Co."
Section 6.4. Waiver of Notice. Whenever any notice is required to be given
to any stockholder or director of the Corporation under the provisions of the
General Corporation Law of the State of Delaware or these by-laws, a waiver
thereof in writing, signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed equivalent to
the giving of such notice. The attendance of any shareholder at a meeting in
person or by proxy, without protesting at the beginning of the meeting the lack
of notice of such meeting, shall constitute a waiver of notice of such
shareholder. Neither the business to be transacted at, nor the purpose of, any
annual or special meeting of the stockholders or the Board of Directors or
committee thereof need be specified in any waiver of notice of such meeting.
Section 6.5. Audits. The accounts, books and records of the Corporation
shall be audited upon the conclusion of each fiscal year by an independent
certified public accountant selected by the Board of Directors, and it shall be
the duty of the Board of Directors to cause such audit to be done annually.
Section 6.6. Resignations. Any director or any officer or assistant
officer, whether elected or appointed, may resign at any time by giving written
notice of such resignation to the Chairman, the President, or the Secretary, and
such resignation shall be deemed to be effective as of the close of business on
the date said notice is received by the Chairman, the President, or the
Secretary, or at such later time as is specified therein. No formal action shall
be required of the Board of Directors or the stockholders to make any such
resignation effective.
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Section 6.7. Indemnification and Insurance. (A) Each person who was or is
made a party or is threatened to be made a party to or is involved in any
action, suit, or proceeding, whether civil, criminal, administrative or
investigative (hereinafter, a "proceeding"), by reason of the fact that he or
she or a person of whom he or she is the legal representative is or was a
director or officer of the Corporation or is or was serving at the request of
the Corporation as a director, officer, employee or agent of another corporation
or of a partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans maintained or sponsored by the
Corporation, whether the basis of such proceeding is alleged action in an
official capacity as a director, officer, employee or agent or in any other
capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the General Corporation Law of the State of Delaware as the same
exists or may hereafter be amended (but, in the case of any such amendment, only
to the extent that such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation to provide prior
to such amendment), against all expense, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid or to be paid in settlement) reasonably incurred or suffered by such person
in connection therewith, and such indemnification shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of his or her heirs, executors and administrators; provided,
however, that except as provided in paragraph (C) of this Section 6.7, the
Corporation shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by such person only if
such proceeding (or part thereof) was authorized by the Board of Directors. The
right to indemnification conferred in this Section 6.7 shall be a contract right
and shall include the right to be paid by the Corporation the expenses incurred
in defending any such proceeding in advance of its final disposition, such
advances to be paid by the Corporation within 20 days after the receipt by the
Corporation of a statement or statements from the claimant requesting such
advance or advances from time to time; provided, however, that if the General
Corporation Law of the State of Delaware requires, the payment of such expenses
incurred by a director or officer in his or her capacity as a director or
officer (and not in any other capacity in which service was or is rendered by
such person while a director or officer, including, without limitation, service
to an employee benefit plan) in advance of the final disposition of a
proceeding, shall be made only upon delivery to the Corporation of an
undertaking by or on behalf of such director or officer, to repay all amounts so
advanced if it shall ultimately be determined that such director or officer is
not entitled to be indemnified under this Section 6.7 or otherwise.
(B) To obtain indemnification under this Section 6.7, a claimant shall
submit to the Corporation a written request, including therein or therewith such
documentation and information as is reasonably available to the claimant and is
reasonably necessary to determine whether and to what extent the claimant is
entitled to indemnification. Upon written request by a claimant for
indemnification pursuant to the first sentence of this paragraph (B), a
determination, if required by applicable law, with respect to the claimant's
entitlement thereto shall be made as follows: (1) if requested by the claimant,
by Independent Counsel (as hereinafter defined), or (2) if no request is made by
the claimant for a determination by Independent Counsel, (i) by the Board of
Directors by a majority vote of a quorum consisting of Disinterested Directors
(as hereinafter defined), or (ii) if a quorum of the Board of Directors
consisting of Disinterested Directors is not obtainable or, even if obtainable,
such quorum of Disinterested Directors so directs, by Independent Counsel in a
written opinion to the Board of Directors, a copy of which shall be delivered to
the claimant, or (iii) if a quorum of Disinterested Directors so directs, by the
stockholders of the Corporation. In the event the determination of entitlement
to indemnification is to be made by Independent Counsel at the request of the
claimant, the Independent Counsel shall be selected by the Board of Directors
unless there shall have occurred within two years prior to the date of the
commencement of the action, suit or proceeding for which indemnification is
claimed a "Change of Control", as defined below, in which case the Independent
Counsel shall be selected by the claimant unless the claimant shall request that
such selection be made by the Board of Directors. If it is so determined that
the claimant is entitled to indemnification, payment to the claimant shall be
made within 10 days after such determination.
(C) If a claim under paragraph (A) of this Section 6.7 is not paid in full
by the Corporation within 30 days after a written claim pursuant to paragraph
(B) of this Section 6.7 has been received by the Corporation, the claimant may
at any time thereafter bring suit against the Corporation to recover the unpaid
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amount of the claim and, if successful in whole or in part, the claimant shall
be entitled to be paid also the expense of prosecuting such claim. It shall be a
defense to any such action (other than an action brought to enforce a claim for
expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any is required, has been
tendered to the Corporation) that the claimant has not met the standard of
conduct which makes it permissible under the General Corporation Law of the
State of Delaware for the Corporation to indemnify the claimant for the amount
claimed, but the burden of proving such defense shall be on the Corporation.
Neither the failure of the Corporation (including its Board of Directors,
Independent Counsel or stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he or she has met the applicable standard of conduct
set forth in the General Corporation Law of the State of Delaware, nor an actual
determination by the Corporation (including its Board of Directors, Independent
Counsel or stockholders) that the claimant has not met such applicable standard
of conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
(D) If a determination shall have been made pursuant to paragraph (B) of
this Section 6.7 that the claimant is entitled to indemnification, the
Corporation shall be bound by such determination in any judicial proceeding
commenced pursuant to paragraph (C) of this Section 6.7.
(E) The Corporation shall be precluded from asserting in any judicial
proceeding commenced pursuant to paragraph (C) of this Section 6.7 that the
procedures and presumptions of this Section 6.7 are not valid, binding and
enforceable and shall stipulate in such proceeding that the Corporation is bound
by all the provisions of this Section 6.7.
(F) The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
Section 6.7 shall not be exclusive of any other right which any person may have
or hereafter acquire under any statute, provision of the Certificate of
Incorporation, these By-laws, agreement, vote of stockholders or Disinterested
Directors or otherwise. No repeal or modification of this Section 6.7 shall in
any way diminish or adversely affect the rights of any director, officer,
employee or agent of the Corporation hereunder in respect of any occurrence or
matter arising prior to any such repeal or modification.
(G) The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the General Corporation Law of the State of Delaware. To the extent that
the Corporation maintains any policy or policies providing such insurance, each
such director or officer, and each such agent or employee to which rights to
indemnification have been granted as provided in paragraph (H) of this Section
6.7, shall be covered by such policy or policies in accordance with its or their
terms to the maximum extent of the coverage thereunder for any such director,
officer, employee or agent.
(H) The Corporation may, to the extent authorized from time to time by the
Board of Directors, grant rights to indemnification, and rights to be paid by
the Corporation the expenses incurred in defending any proceeding in advance of
its final disposition, to any employee or agent of the Corporation to the
fullest extent of the provisions of this Section 6.7 with respect to the
indemnification and advancement of expenses of directors and officers of the
Corporation.
(I) If any provision or provisions of this Section 6.7 shall be held to be
invalid, illegal or unenforceable for any reason whatsoever: (1) the validity,
legality and enforceability of the remaining provisions of this Section 6.7
(including, without limitation, each portion of any paragraph of this By-law
containing any such provision held to be invalid, illegal or unenforceable, that
is not itself held to be invalid, illegal or unenforceable) shall not in any way
be affected or impaired thereby; and (2) to the fullest extent possible, the
provisions of this Section 6.7 (including, without limitation, each such portion
of any paragraph of this By-law containing any such provision held to be
invalid, illegal or unenforceable) shall be construed so as to give effect to
the intent manifested by the provision held invalid, illegal or unenforceable.
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(J) For purposes of this Section 6.7:
(1) "Disinterested Director" means a director of the Corporation who
is not and was not a party to the matter in respect of which
indemnification is sought by the claimant.
(2) "Independent Counsel" means a law firm, a member of a law firm, or
an independent practitioner, that is experienced in matters of corporation
law and shall include any person who, under the applicable standards of
professional conduct then prevailing, would not have a conflict of interest
in representing either the Corporation or the claimant in an action to
determine the claimant's rights under this Section 6.7.
(3) "Change of Control" has the meaning given such term in the
Corporation's 1996 Stock Incentive Plan, as the same may be amended or
superseded from time to time.
(K) Any notice, request or other communication required or permitted to be
given to the Corporation under this Section 6.7 shall be in writing and either
delivered in person or sent by telecopy, telex, telegram, overnight mail or
courier service, or certified or registered mail, postage prepaid, return
receipt requested, to the Secretary of the Corporation and shall be effective
only upon receipt by the Secretary.
ARTICLE VII
CONTRACTS, PROXIES, ETC.
Section 7.1. Contracts. Except as otherwise required by law, the
Certificate of Incorporation or these By-laws, any contracts or other
instruments may be executed and delivered in the name and on the behalf of the
Corporation by such officer or officers of the Corporation as the Board of
Directors may from time to time direct. Such authority may be general or
confined to specific instances as the Board may determine. The Chairman, the
President or any Vice President may execute bonds, contracts, deeds, leases and
other instruments to be made or executed for or on behalf of the Corporation.
Subject to any restrictions imposed by the Board of Directors or the Chairman,
the President or any Vice President of the Corporation may delegate contractual
powers to others under his jurisdiction, it being understood, however, that any
such delegation of power shall not relieve such officer of responsibility with
respect to the exercise of such delegated power.
Section 7.2. Proxies. Unless otherwise provided by resolution adopted by
the Board of Directors, the Chairman, the President or any Vice President may
from time to time appoint an attorney or attorneys or agent or agents of the
Corporation, in the name and on behalf of the Corporation, to cast the votes
which the Corporation may be entitled to cast as the holder of stock or other
securities in any other corporation, any of whose stock or other securities may
be held by the Corporation, at meetings of the holders of the stock or other
securities of such other corporation, or to consent in writing, in the name of
the Corporation as such holder, to any action by such other corporation, and may
instruct the person or persons so appointed as to the manner of casting such
votes or giving such consent, and may execute or cause to be executed in the
name and on behalf of the Corporation and under its corporate seal or otherwise,
all such written proxies or other instruments as he may deem necessary or proper
in the premises.
ARTICLE VIII
AMENDMENTS
Section 8.1. Amendments. These By-laws may be altered, amended, or
repealed at any meeting of the Board of Directors or of the stockholders,
provided notice of the proposed change was given in the notice of the meeting
and, in the case of a meeting of the Board of Directors, in a notice given not
less than two days prior to the meeting; provided, however, that, in the case of
amendments by stockholders, notwithstanding any other provisions of these
By-laws or any provision of law which might otherwise permit a lesser vote or no
vote, but in addition to any affirmative vote of the holders of any particular
class or series of the capital stock of the Corporation required by law, the
Certificate of Incorporation or these By-laws, the affirmative vote of the
holders of at least 80 percent of the voting power of all the then outstanding
shares of the Voting Stock, voting together as a single class, shall be required
to alter, amend or repeal any provision of these By-laws.
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ANNEX C
SUMMARY OF GRACE HOLDING, INC.
1996 STOCK INCENTIVE PLAN
Before the Distribution, New Grace will adopt, and Grace New York will
approve, as sole shareholder of New Grace, the Grace Holding, Inc. 1996 Stock
Incentive Plan (the "1996 Plan"). The 1996 Plan is designed to enable New Grace
to attract and retain key employees and to link their incentives directly to the
performance of New Grace. The terms of the 1996 Plan are substantially similar
to those of the New Grace New York 1994 Stock Incentive Plan.
The 1996 Plan will be administered by the Compensation Committee (although
the Board of Directors may exercise the powers of the Compensation Committee
under certain circumstances). Under the 1996 Plan, stock incentives may be
granted to key employees, including directors who are employees. Stock
incentives under the 1996 Plan may be granted in the form of stock options,
stock awards or a combination thereof, for such consideration and upon such
other terms as the Compensation Committee may determine.
STOCK OPTIONS. The 1996 Plan permits New Grace to grant to key employees
options to purchase New Grace Common Stock at a purchase price equal to not less
than 100% of the fair market value of the New Grace Common Stock on the date an
option is granted. The maximum term of an option is ten years and one month from
the date of grant. The purchase price and any withholding tax that may be due on
the exercise of an option may be paid in cash, in shares of New Grace Common
Stock (subject to certain conditions), or a combination thereof. Each option is
exercisable at the time or times determined by the Compensation Committee (or
the Board of Directors). In general, unless otherwise specifically provided, an
option terminates three months after the optionee ceases to be an employee,
except that it terminates (i) immediately, if the employee resigns without the
consent of the Compensation Committee (or the Board of Directors), or if his
employment is terminated for cause and (ii) three years after death, incapacity
or retirement.
The 1996 Plan authorizes the grant of Incentive Stock Options ("ISOs")
(which are accorded special tax treatment under Section 422 of the Code, as
discussed below), as well as nonstatutory options.
The 1996 Plan authorizes New Grace to cancel an option to the extent it is
exercisable and either (i) pay the holder of the option cash equal to the
excess, if any, of the fair market value of the shares covered by the option
over their purchase price on the date of cancellation, (ii) transfer to the
holder New Grace Common Stock with a fair market value equal to such excess, or
(iii) pay such excess partly in cash and partly in New Grace Common Stock; the
right to cancel an option is referred to as a "stock appreciation right" or
"SAR." However, New Grace is not expected to grant SARs in the future.
Under the 1996 Plan, an outstanding option may be amended by the
Compensation Committee, provided that the holder of the option agrees to any
amendment that would adversely affect the option and that the option as so
amended is consistent with the 1996 Plan. The 1996 Plan does not preclude the
surrender of an outstanding option and the grant of a new option with a lower
purchase price. However, New Grace is not expected to engage in such
transactions.
The foregoing outlines certain provisions of the 1996 Plan relating to
stock options; documentation relating to individual stock options may have
additional permitted terms.
STOCK AWARDS. The 1996 Plan permits New Grace to grant stock awards to key
employees. A stock award is an issuance of shares of New Grace Common Stock or
an undertaking to issue such shares in the future (other than an option). Shares
subject to a stock award are valued at not less than 100% of their fair market
value on the date the award is granted, whether or not they are subject to
restrictions. If the shares subject to a stock award are not issued at the time
of grant, payments may be made, in cash or in shares of New Grace Common Stock,
in amounts not exceeding the dividends that would have been paid if the shares
awarded had been issued at the time of grant. It is anticipated that stock
awards will in some cases be (i) made contingent upon the attainment of one or
more specified performance objectives and/or (ii) subject to restrictions on the
sale or other disposition of the stock awards.
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The foregoing outlines certain features of stock awards required or
permitted under the 1996 Plan. The documentation relating to individual stock
awards, however, may contain other permitted terms.
LIMITATIONS. Up to 7,000,000 shares of New Grace Common Stock (subject to
adjustment for stock splits, stock dividends and the like) may be issued
pursuant to stock incentives under the 1996 Plan. These shares of New Grace
Common Stock would represent 7.6% of the New Grace Common Stock estimated to be
outstanding immediately following the Time of Distribution. Shares not issued
pursuant to stock incentives because of their termination or other reasons, and
shares issued pursuant to stock incentives and subsequently reacquired by New
Grace or a subsidiary from the recipient of his/her estate, will again be
available for grants under the 1996 Plan. In addition, (i) stock options granted
to any one person may not represent more than 10% of the total number of shares
issuable pursuant to stock incentives under the 1996 Plan; (ii) stock incentives
granted to any one person may not represent more than 15% of such total number
of shares; and (iii) no more than 3% of such shares may be subject to stock
awards that are neither contingent upon the attainment of performance objectives
nor subject to restrictions on sale or other disposition. In addition, the 1996
Plan imposes certain limitation upon the grant of ISOs.
Options are not assignable or transferable except as may be provided in the
relevant option agreement and except by will or the laws of descent and
distribution and, in the case of nonstatutory options, pursuant to a qualified
domestic relations order (as defined in the Code).
CHANGE IN CONTROL PROVISIONS. Upon a "Change in Control" of New Grace (as
defined in the 1996 Plan), all stock options will vest and become fully
exercisable, and all stock awards will vest and become free of all restrictions.
In addition, option holders will have the right, subject to certain
restrictions, to elect, within the 60-day period following a "Change in
Control", to receive, in cancellation of their options, a cash payment equal to
(i) the difference between the change in control price (as defined in the 1996
Plan) and the purchase price per share under their options times (ii) the number
of shares as to which they are exercising this right.
TAX TREATMENT OF STOCK INCENTIVES. Under the present provisions of the
Code, the federal income tax treatment of stock incentives under the 1996 Plan
is as follows. Generally, holders are not taxed upon the receipt of options, but
recognize ordinary income upon the exercise of nonstatutory stock options in an
amount equal to the difference between the fair market value of the stock
acquired and the purchase price paid for such stock. Holders of ISOs do not
recognize ordinary income as a result of the exercise of such options if certain
holding period requirements are met. Holders of stock awards are generally taxed
when stock is delivered and vested or when cash is paid pursuant to such awards.
New Grace will generally be permitted a tax deduction upon recognition of
ordinary income by an award holder, in the same amount. However, the ability of
New Grace to take a tax deduction with respect to an option or stock award of a
holder who is the chief executive officer or one of the four other most highly
compensated executive officers of New Grace in any year may be limited if it
fails to comply with the requirements for "qualified performance-based
compensation" under the Code. Moreover, the acceleration of vesting of options
and stock awards as a result of a change in control could result in "excess
parachute payments," which could also reduce or eliminate New Grace's deduction.
THE FOREGOING DISCUSSION IS PROVIDED AS GENERAL INFORMATION ONLY AND IS NOT
INTENDED TO BE AND DOES NOT CONSTITUTE SPECIFIC TAX ADVICE. IN ADDITION, IT DOES
NOT ADDRESS THE IMPACT OF STATE AND LOCAL TAXES OR SECURITIES LAWS RESTRICTIONS.
WITHHOLDING. New Grace has a right to withhold any sums required by
federal, state or local tax laws with respect to the exercise of any option or
SAR or the vesting of any stock award, or to require payment of such amounts
before shares are delivered under a stock option or award.
ACCOUNTING TREATMENT OF STOCK INCENTIVES. No expense is incurred when an
option not containing an SAR is granted or exercised, so long as the purchase
price equals the fair market value of the New Grace Common Stock on the date of
grant. New Grace's tax deduction described above in the case of nonstatutory
options is reported as an adjustment to stockholders' equity. Stock awards
result in compensation expense
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based on the fair market value of the shares covered by the awards, the timing
and recording of which depend on the terms of the individual award.
GENERAL. Authorized but unissued shares of New Grace Common Stock, as well
as shares held by New Grace or a subsidiary, may be used for purposes of the
1996 Plan.
The 1996 Plan permits certain variations from the terms described above in
the case of grants of stock incentives to foreign employees and the assumption
of, or the grant of options in substitution for, options held by employees of
acquired companies. The 1996 Plan may be amended or terminated by the New Grace
Board upon the recommendation of the Compensation Committee without shareholder
approval, except as specified in the 1996 Plan, and except that no amendment or
termination of the 1996 Plan may adversely affect any stock incentive granted
under the 1996 Plan without the consent of the holder thereof. No preemptive
rights are applicable to the shares covered by the 1996 Plan. Any cash proceeds
to be received by New Grace in connection with stock incentives granted under
the 1996 Plan are expected to be used for general corporate purposes.
It is not possible to state which key employees will be granted stock
incentives under the 1996 Plan, or the value or number of shares subject to any
particular stock incentive, since these matters will be determined by the
Compensation Committee in the future based on an individual's ability to
contribute to the profitability, growth and success of New Grace. However,
subject to such considerations, it is anticipated that stock incentives will be
granted under the 1996 Plan to key employees in executive, operating,
administrative, professional and technical positions on a basis generally
comparable to prior grants under stock incentive plans of Grace New York.
The text of the 1996 Plan is set forth in full below.
GRACE HOLDING, INC.
1996 STOCK INCENTIVE PLAN
1. Purposes. The purposes of this Plan are (a) to enable Key Persons to
have incentives related to Common Stock, (b) to encourage Key Persons to
increase their interest in the growth and prosperity of the Company and to
stimulate and sustain constructive and imaginative thinking by Key Persons, (c)
to further the identity of interests of Key Persons with the interests of the
Company's stockholders, and (d) to induce the service or continued service of
Key Persons and to enable the Company to compete with other organizations
offering similar or other incentives in obtaining and retaining the services of
the most highly qualified individuals.
2. Definitions. When used in this Plan, the following terms shall have
the meanings set forth in this section 2.
Board of Directors: The Board of Directors of the Company.
cessation of service (or words of similar import): When a person ceases to
be an employee of the Company or a Subsidiary. For purposes of this definition,
if an entity that was a Subsidiary ceases to be a Subsidiary, persons who
immediately thereafter remain employees of that entity (and are not employees of
the Company or an entity that is a Subsidiary) shall be deemed to have ceased
service.
Change in Control: Shall be deemed to have occurred if (a) the Company
determines that any "person" (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act), other than a trustee or other fiduciary holding securities
under an employee benefit plan of the Company or a corporation owned, directly
or indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company, has become the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of 20% or more of the outstanding Common Stock of the Company;
(b) individuals who are "Continuing Directors" (as defined below) cease to
constitute a majority of any class of the Board of Directors; (c) there occurs a
reorganization, merger, consolidation or other corporate transaction involving
the Company (a "Corporate Transaction"), in each case, with respect to which the
stockholders of the Company immediately prior to such Corporate Transaction do
not, immediately after the
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Corporate Transaction, own more than 60% of the combined voting power of the
corporation resulting from such Corporate Transaction; or (d) the stockholders
of the Company approve a complete liquidation or dissolution of the Company.
Notwithstanding any other provision of this Plan, the distribution of all of the
shares of Common Stock of the Company to the shareholders of W. R. Grace & Co.
shall not be deemed a Change in Control.
Change in Control Price: The higher of (a) the highest reported sales
price, regular way, as reported in The Wall Street Journal or another newspaper
of general circulation, of a share of Common Stock in any transaction reported
on the New York Stock Exchange Composite Tape or other national exchange on
which such shares are listed or on NASDAQ during the 60-day period prior to and
including the date of a Change in Control or (b) if the Change in Control is the
result of a tender or exchange offer or a Corporate Transaction, the highest
price per share of Common Stock paid in such tender or exchange offer or
Corporate Transaction; provided, however, that in the case of Incentive Stock
Options, the Change in Control Price shall be in all cases the Fair Market Value
of the Common Stock on the date such Incentive Stock Option is exercised. To the
extent that the consideration paid in any Corporate Transaction or other
transaction described above consists in whole or in part of securities or other
noncash consideration, the value of such securities or other noncash
consideration shall be determined in the sole discretion of the Board of
Directors.
Code: The Internal Revenue Code of 1986, as amended.
Committee: The Compensation, Employee Benefits and Stock Incentive
Committee of the Board of Directors of the Company or any other committee
designated by the Board of Directors to administer stock incentive and stock
option plans of the Company and the Subsidiaries generally or this Plan
specifically.
Common Stock: The common stock of the Company, par value $.01 per share,
or such other class of shares or other securities or property as may be
applicable pursuant to the provisions of section 8.
Company: Grace Holding, Inc., a Delaware corporation.
Corporate Transaction: The meaning set forth in the definition of "Change
in Control" above.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Exercise Period: The meaning set forth in section 14(b) of this Plan.
Fair Market Value: (a) The mean between the high and low sales prices of a
share of Common Stock in New York Stock Exchange composite transactions on the
applicable date, as reported in The Wall Street Journal or another newspaper of
general circulation, or, if no sales of shares of Common Stock were reported for
such date, for the next preceding date for which such sales were so reported, or
(b) the fair market value of a share of Common Stock determined in accordance
with any other reasonable method approved by the Committee.
Incentive Stock Option: A stock option that states that it is an incentive
stock option and that is intended to meet the requirements of Section 422 of the
Code and the regulations thereunder applicable to incentive stock options, as in
effect from time to time.
issuance (or words of similar import): The issuance of authorized but
unissued Common Stock or the transfer of issued Common Stock held by the Company
or a Subsidiary.
Key Person: An employee of the Company or a Subsidiary who, in the opinion
of the Committee, has contributed or can contribute significantly to the growth
and successful operations of the Company or one or more Subsidiaries. The grant
of a Stock Incentive to an employee shall be deemed a determination by the
Committee that such person is a Key Person.
Nonstatutory Stock Option: An Option that is not an Incentive Stock
Option.
Option: An option granted under this Plan to purchase shares of Common
Stock.
Option Agreement: An agreement setting forth the terms of an Option.
Plan: The 1996 Stock Incentive Plan of the Company herein set forth, as
the same may from time to time be amended.
service: Service to the Company or a Subsidiary as an employee. "To serve"
has a correlative meaning.
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Spread: The meaning set forth in section 14(b) of this Plan.
Stock Award: An issuance of shares of Common Stock or an undertaking
(other than an Option) to issue such shares in the future.
Stock Incentive: A stock incentive granted under this Plan in one of the
forms provided for in section 3.
Subsidiary: A corporation (or other form of business association) of which
shares (or other ownership interests) having 50% or more of the voting power
regularly entitled to vote for directors (or equivalent management rights) are
owned, directly or indirectly, by the Company, or any other entity designated as
such by the Board of Directors; provided, however, that in the case of an
Incentive Stock Option, the term "Subsidiary" shall mean a Subsidiary (as
defined by the preceding clause) that is also a "subsidiary corporation" as
defined in section 424(f) of the Code and the regulations thereunder, as in
effect from time to time.
3. Grants of Stock Incentives. (a) Subject to the provisions of this
Plan, the Committee may at any time and from time to time grant Stock Incentives
under this Plan to, and only to, Key Persons.
(b) The Committee may grant a Stock Incentive to be effective at a
specified future date or upon the future occurrence of a specified event. For
the purposes of this Plan, any such Stock Incentive shall be deemed granted on
the date it becomes effective. An agreement or other commitment to grant a Stock
Incentive that is to be effective in the future shall not be deemed the grant of
a Stock Incentive until the date on which such Stock Incentive becomes
effective.
(c) A Stock Incentive may be granted in the form of:
(i) a Stock Award, or
(ii) an Option, or
(iii) a combination of a Stock Award and an Option.
4. Stock Subject to this Plan. (a) Subject to the provisions of paragraph
(c) of this section 4 and the provisions of section 8, the maximum number of
shares of Common Stock that may be issued pursuant to Stock Incentives granted
under this Plan shall not exceed seven million (7,000,000).
(b) Authorized but unissued shares of Common Stock and issued shares of
Common Stock held by the Company or a Subsidiary, whether acquired specifically
for use under this Plan or otherwise, may be used for purposes of this Plan.
(c) If any shares of Common Stock subject to a Stock Incentive shall not be
issued and shall cease to be issuable because of the termination, in whole or in
part, of such Stock Incentive or for any other reason, or if any such shares
shall, after issuance, be reacquired by the Company or a Subsidiary from the
recipient of such Stock Incentive, or from the estate of such recipient, for any
reason, such shares shall no longer be charged against the limitation provided
for in paragraph (a) of this section 4 and may again be made subject to Stock
Incentives.
(d) Of the total number of shares specified in paragraph (a) of this
section 4 (subject to adjustment as specified therein), during the term of this
Plan as defined in section 9, (i) no more than 10% may be subject to Options
granted to any one Key Person and (ii) no more than 15% may be subject to Stock
Incentives granted to any one Key Person.
5. Stock Awards. Except as otherwise provided in section 12, Stock
Incentives in the form of Stock Awards shall be subject to the following
provisions:
(a) For purposes of this Plan, all shares of Common Stock subject to a
Stock Award shall be valued at not less than 100% of the Fair Market Value
of such shares on the date such Stock Award is granted, regardless of
whether or when such shares are issued pursuant to such Stock Award and
whether or not such shares are subject to restrictions affecting their
value.
(b) Shares of Common Stock subject to a Stock Award may be issued to a
Key Person at the time the Stock Award is granted, or at any time
subsequent thereto, or in installments from time to time. In the event that
any such issuance shall not be made at the time the Stock Award is granted,
the Stock
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Award may provide for the payment to such Key Person, either in cash or
shares of Common Stock, of amounts not exceeding the dividends that would
have been payable to such Key Person in respect of the number of shares of
Common Stock subject to such Stock Award (as adjusted under section 8) if
such shares had been issued to such Key Person at the time such Stock Award
was granted. Any Stock Award may provide that the value of any shares of
Common Stock subject to such Stock Award may be paid in cash, on each date
on which shares would otherwise have been issued, in an amount equal to the
Fair Market Value on such date of the shares that would otherwise have been
issued.
(c) The material terms of each Stock Award shall be determined by the
Committee. Each Stock Award shall be evidenced by a written instrument
consistent with this Plan. It is intended that a Stock Award would be (i)
made contingent upon the attainment of one or more specified performance
objectives and/or (ii) subject to restrictions on the sale or other
disposition of the Stock Award or the shares subject thereto for a period
of three or more years; provided, however, that (x) a Stock Award may
include restrictions and limitations in addition to those provided for
herein and (y) of the total number of shares specified in paragraph (a) of
section 4 (subject to adjustment as specified therein), up to 3% may be
subject to Stock Awards not subject to clause (i) or clause (ii) of this
sentence.
(d) A Stock Award shall be granted for such lawful consideration as
may be provided for therein.
6. Options. Except as otherwise provided in section 12, Stock Incentives
in the form of Options shall be subject to the following provisions:
(a) The purchase price per share of Common Stock shall be not less
than 100% of the Fair Market Value of a share of Common Stock on the date
the Option is granted. The purchase price and any withholding tax that may
be due on the exercise of an Option may be paid in cash, or, if so provided
in the Option Agreement, (i) in shares of Common Stock (including shares
issued pursuant to the Option being exercised and shares issued pursuant to
a Stock Award granted subject to restrictions as provided for in paragraph
(c) of section 5), or (ii) in a combination of cash and such shares;
provided, however, that no shares of Common Stock delivered in payment of
the purchase price may be "immature shares," as determined in accordance
with generally accepted accounting principles in effect at the time. Any
shares of Common Stock delivered to the Company in payment of the purchase
price or withholding tax shall be valued at their Fair Market Value on the
date of exercise. No certificate for shares of Common Stock shall be issued
upon the exercise of an Option until the purchase price for such shares has
been paid in full.
(b) If so provided in the Option Agreement, the Company shall, upon
the request of the holder of the Option and at any time and from time to
time, cancel all or a portion of the Option then subject to exercise and
either (i) pay the holder an amount of money equal to the excess, if any,
of the Fair Market Value, at such time or times, of the shares subject to
the portion of the Option so canceled over the purchase price for such
shares, or (ii) issue shares of Common Stock to the holder with a Fair
Market Value, at such time or times, equal to such excess, or (iii) pay
such excess by a combination of money and shares.
(c) Each Option may be exercisable in full at the time of grant, or
may become exercisable in one or more installments and at such time or
times or upon the occurrence of such events, as may be specified in the
Option Agreement, as determined by the Committee. Unless otherwise provided
in the Option Agreement, an Option, to the extent it is or becomes
exercisable, may be exercised at any time in whole or in part until the
expiration or termination of such Option.
(d) Each Option shall be exercisable during the life of the holder
only by him and, after his death, only by his estate or by a person who
acquires the right to exercise the Option by will or the laws of descent
and distribution. An Option, to the extent that it shall not have been
exercised or canceled, shall terminate as follows after the holder ceases
to serve: (i) if the holder shall voluntarily cease to serve without the
consent of the Committee or shall have his service terminated for cause,
the Option shall terminate immediately upon cessation of service; (ii) if
the holder shall cease to serve by reason of death, incapacity or
retirement under a retirement plan of the Company or a Subsidiary, the
Option shall terminate three years after the date on which he ceased to
serve; and (iii) except as provided in the next
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sentence, in all other cases the Option shall terminate three months after
the date on which the holder ceased to serve unless the Committee shall
approve a longer period (which approval may be given before or after
cessation of service) not to exceed three years. If the holder shall die or
become incapacitated during the three-month period (or such longer period
as the Committee may approve) referred to in the preceding clause (iii),
the Option shall terminate three years after the date on which he ceased to
serve. A leave of absence for military or governmental service or other
purposes shall not, if approved by the Committee (which approval may be
given before or after the leave of absence commences), be deemed a
cessation of service within the meaning of this paragraph (d).
Notwithstanding the foregoing provisions of this paragraph (d) or any other
provision of this Plan, no Option shall be exercisable after expiration of
a period of ten years and one month from the date the Option is granted.
Where a Nonstatutory Option is granted for a term of less than ten years
and one month, the Committee may, at any time prior to the expiration of
the Option, extend its term for a period ending not later than ten years
and one month from the date the Option was granted. Such an extension shall
not be deemed the grant of a new Option under this Plan.
(e) No Option nor any right thereunder may be assigned or transferred
except by will or the laws of descent and distribution and except, in the
case of a Nonstatutory Option, pursuant to a qualified domestic relations
order (as defined in the Code), unless otherwise provided in the Option
Agreement.
(f) An Option may, but need not, be an Incentive Stock Option. All
shares of Common Stock that may be made subject to Stock Incentives under
this Plan may be made subject to Incentive Stock Options; provided,
however, that (i) no Incentive Stock Option may be granted more than ten
years after the effective date of this Plan, as provided in section 9; and
(ii) the aggregate Fair Market Value (determined as of the time an
Incentive Stock Option is granted) of the shares subject to each
installment becoming exercisable for the first time in any calendar year
under Incentive Stock Options granted on or after January 1, 1987 (under
all plans, including this Plan, of his employer corporation and its parent
and subsidiary corporations) to the Key Employee to whom such Incentive
Stock Option is granted shall not exceed $100,000.
(g) The material terms of each Option shall be determined by the
Committee. Each Option shall be evidenced by a written instrument
consistent with this Plan, and shall specify whether the Option is an
Incentive Stock Option or a Nonstatutory Option. An Option may include
restrictions and limitations in addition to those provided for in this
Plan.
(h) Options shall be granted for such lawful consideration as may be
provided for in the Option.
7. Combination of Stock Awards and Options. Stock Incentives authorized
by paragraph (c)(iii) of section 3 in the form of combinations of Stock Awards
and Options shall be subject to the following provisions: (a) A Stock Incentive
may be a combination of any form of Stock Award and any form of Option;
provided, however, that the terms and conditions of such Stock Incentive
pertaining to a Stock Award are consistent with section 5 and the terms and
conditions of such Stock Incentive pertaining to an Option are consistent with
section 6.
(b) Such combination Stock Incentive shall be subject to such other terms
and conditions as may be specified therein, including without limitation a
provision terminating in whole or in part a portion thereof upon the exercise in
whole or in part of another portion thereof.
(c) The material terms of each combination Stock Incentive shall be
determined by the Committee. Each combination Stock Incentive shall be evidenced
by a written instrument consistent with this Plan.
8. Adjustment Provisions. (a) In the event that any reclassification,
split-up or consolidation of the Common Stock shall be effected, or the
outstanding shares of Common Stock are, in connection with a merger or
consolidation of the Company or a sale by the Company of all or a part of its
assets, exchanged for a different number or class of shares of stock or other
securities or property of the Company or for shares of the stock or other
securities or property of any other corporation or person, or a record date for
determination of holders of Common Stock entitled to receive a dividend payable
in Common Stock shall occur, (i) the number, kind and class of shares or other
securities or property that may be issued pursuant to Stock Incentives
thereafter granted, (ii) the number, kind and class of shares or other
securities or property that
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have not been issued under outstanding Stock Incentives, (iii) the purchase
price to be paid per share or other unit under outstanding Stock Incentives, and
(iv) the price to be paid per share or other unit by the Company or a Subsidiary
for shares or other securities or property issued pursuant to Stock Incentives
that are subject to a right of the Company or a Subsidiary to re-acquire such
shares or other securities or property, shall in each case be equitably adjusted
as determined by the Committee.
(b) In the event that there shall occur any spin-off or other distribution
of assets of the Company to its shareholders (including without limitation an
extraordinary dividend), (i) the number, kind and class of shares or other
securities or property that may be issued pursuant to Stock Incentives
thereafter granted, (ii) the number, kind and class of shares or other
securities or property that have not been issued under outstanding Stock
Incentives, (iii) the purchase price to be paid per share or other unit under
outstanding Stock Incentives, and (iv) the price to be paid per share or other
unit by the Company or a Subsidiary for shares or other securities or property
issued pursuant to Stock Incentives that are subject to a right of the Company
or a Subsidiary to re-acquire such shares or other securities or property, shall
in each case be equitably adjusted as determined by the Committee.
9. Term. This Plan shall be deemed adopted and shall become effective on
the date as of which it is approved by W. R. Grace & Co., as sole shareholder of
the Company. No Stock Incentives shall be granted under this Plan after the
tenth anniversary of such date.
10. Administration. (a) This Plan shall be administered by the Committee.
No director shall be designated as or continue to be a member of the Committee
unless he shall at the time of designation and at all times during service as a
member of the Committee be an "outside director" within the meaning of Section
162(m) of the Code. The Committee shall have full authority to act in the matter
of selection of Key Persons and in granting Stock Incentives to them and such
other authority as is granted to the Committee by this Plan. Notwithstanding any
other provision of this Plan, the Board of Directors may exercise any and all
powers of the Committee with respect to this Plan, except to the extent that the
possession or exercise of any power by the Board of Directors would cause any
Stock Incentive to become subject to, or to lose an exemption from, Section
162(m) of the Code or Section 16(b) of the Exchange Act.
(b) The Committee may establish such rules and regulations, not
inconsistent with the provisions of this Plan, as it deems necessary to
determine eligibility to be granted Stock Incentives under this Plan and for the
proper administration of this Plan, and may amend or revoke any rule or
regulation so established. The Committee may make such determinations and
interpretations under or in connection with this Plan as it deems necessary or
advisable. All such rules, regulations, determinations and interpretations shall
be binding and conclusive upon the Company, its Subsidiaries, its shareholders
and its directors, officers and employees, and upon their respective legal
representatives, beneficiaries, successors and assigns, and upon all other
persons claiming under or through any of them.
(c) Members of the Board of Directors and members of the Committee acting
under this Plan shall be fully protected in relying in good faith upon the
advice of counsel and shall incur no liability in the performance of their
duties, except as otherwise provided by applicable law.
11. General Provisions. (a) Nothing in this Plan or in any instrument
executed pursuant hereto shall confer upon any person any right to continue in
the service of the Company or a Subsidiary, or shall affect the right of the
Company or of a Subsidiary to terminate the service of any person with or
without cause.
(b) No shares of Common Stock shall be issued pursuant to a Stock Incentive
unless and until all legal requirements applicable to the issuance of such
shares have, in the opinion of counsel to the Company, been complied with. In
connection with any such issuance, the person acquiring the shares shall, if
requested by the Company, give assurances, satisfactory to counsel to the
Company, in respect of such matters as the Company or a Subsidiary may deem
desirable to assure compliance with all applicable legal requirements.
(c) No person (individually or as a member of a group), and no beneficiary
or other person claiming under or through him, shall have any right, title or
interest in or to any shares of Common Stock allocated or reserved for the
purposes of this Plan or subject to any Stock Incentive except as to such shares
of Common Stock, if any, as shall have been issued to him.
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(d) In the case of a grant of a Stock Incentive to a Key Person who is
employed by a Subsidiary, such grant may provide for the issuance of the shares
covered by the Stock Incentive to the Subsidiary, for such consideration as may
be provided, upon the condition or understanding that the Subsidiary will
transfer the shares to the Key Person in accordance with the terms of the Stock
Incentive.
(e) In the event the laws of a country in which the Company or a Subsidiary
has employees prescribe certain requirements for Stock Incentives to qualify for
advantageous tax treatment under the laws of that country (including, without
limitation, laws establishing options analogous to Incentive Stock Options), the
Committee, may, for the benefit of such employees, amend, in whole or in part,
this Plan and may include in such amendment additional provisions for the
purposes of qualifying the amended plan and Stock Incentives granted thereunder
under such laws; provided, however, that (i) the terms and conditions of a Stock
Incentive granted under such amended plan may not be more favorable to the
recipient than would be permitted if such Stock Incentive had been granted under
this Plan as herein set forth, (ii) all shares allocated to or utilized for the
purposes of such amended plan shall be subject to the limitations of section 4,
and (iii) the provisions of the amended plan may restrict but may not extend or
amplify the provisions of sections 9 and 13.
(f) The Company or a Subsidiary may make such provisions as either may deem
appropriate for the withholding of any taxes that the Company or a Subsidiary
determines is required to be withheld in connection with any Stock Incentive.
(g) Nothing in this Plan is intended to be a substitute for, or shall
preclude or limit the establishment or continuation of, any other plan, practice
or arrangement for the payment of compensation or benefits to directors,
officers or employees generally, or to any class or group of such persons, that
the Company or any Subsidiary now has or may hereafter put into effect,
including, without limitation, any incentive compensation, retirement, pension,
group insurance, stock purchase, stock bonus or stock option plan.
12. Acquisitions. If the Company or any Subsidiary should merge or
consolidate with, or purchase stock or assets or otherwise acquire the whole or
part of the business of, another entity, the Company, upon the approval of the
Committee, (a) may assume, in whole or in part and with or without modifications
or conditions, any stock incentives granted by the acquired entity to its
directors, officers, employees or consultants in their capacities as such, or
(b) may grant new Stock Incentives in substitution therefor. Any such assumed or
substitute Stock Incentives may contain terms and conditions inconsistent with
the provisions of this Plan (including the limitations set forth in paragraph
(d) of section 4), including additional benefits for the recipient; provided,
however, that if such assumed or substitute Stock Incentives are Incentive Stock
Options, such terms and conditions are permitted under the plan of the acquired
entity. For the purposes of any applicable plan provision involving time or a
date, a substitute Stock Incentive shall be deemed granted as of the date of
grant of the original stock incentive.
13. Amendments and Termination. (a) This Plan may be amended or terminated
by the Board of Directors upon the recommendation of the Committee; provided,
however, that, without the approval of the stockholders of the Company, no
amendment shall be made which (i) causes this Plan to cease to comply with
applicable law, (ii) permits any person who is not a Key Person to be granted a
Stock Incentive (except as otherwise provided in section 12), (iii) amends the
provisions of paragraph (d) of section 4, paragraph (a) of section 5 or
paragraph (a) or paragraph (f) of section 6 to permit shares to be valued at, or
to have a purchase price of, respectively, less than the percentage of Fair
Market Value specified therein, (iv) amends section 9 to extend the date set
forth therein, or (v) amends this section 13.
(b) No amendment or termination of this Plan shall adversely affect any
Stock Incentive theretofore granted, and no amendment of any Stock Incentive
granted pursuant to this Plan shall adversely affect such Stock Incentive,
without the consent of the holder thereof.
14. Change in Control Provisions. (a) Notwithstanding any other provision
of this Plan to the contrary, in the event of a Change in Control:
(i) Any Options outstanding as of the date on which such Change in
Control occurs, and which are not then exercisable and vested, shall become
fully exercisable and vested to the full extent of the original grant; and
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(ii) All restrictions and deferral limitations applicable to Stock
Incentives shall lapse, and Stock Incentives shall become free of all
restrictions and become fully vested and transferable to the full extent of
the original grant.
(b) Notwithstanding any other provision of this Plan, during the 60-day
period from and after a Change in Control (the "Exercise Period"), unless the
Committee shall determine otherwise at the time of grant, the holder of an
Option shall have the right, in lieu of the payment of the purchase price for
the shares of Common Stock being purchased under the Option, by giving notice to
the Company, to elect (within the Exercise Period) to surrender all or part of
the Option to the Company and to receive cash, within 30 days after such notice,
in an amount equal to the amount by which the Change in Control Price per share
of Common Stock on the date of such election shall exceed the purchase price per
share of Common Stock under the Option (the "Spread") multiplied by the number
of shares of Common Stock subject to the Option as to which the right subject to
this Section 14(b) shall have been exercised.
(c) Notwithstanding any other provision of this Plan, if any right granted
pursuant to this Plan to receive cash in respect of a Stock Incentive would make
a Change in Control transaction ineligible for pooling-of-interests accounting
that, but for the nature of such grant, would otherwise be eligible for such
accounting treatment, the Committee shall have the ability to substitute for
such cash Common Stock with a Fair Market Value equal to the amount of such
cash.
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ANNEX D
SUMMARY OF GRACE HOLDING, INC. 1996 STOCK RETAINER
PLAN FOR NONEMPLOYEE DIRECTORS
Before the Distribution, New Grace will adopt, and Grace New York will
approve, as sole shareholder of New Grace, the Grace Holding, Inc. 1996 Stock
Retainer Plan for Nonemployee Directors (the "Retainer Plan"). Among other
things, the Retainer Plan contemplates that each nonemployee director will
receive an annual retainer of $24,000, payable in shares of New Grace Common
Stock. The payment of an annual retainer to nonemployee directors in shares of
New Grace Common Stock is expected to further unite the interests of the New
Grace Board with those of New Grace's shareholders and to be of substantial
value in attracting, motivating and retaining the most highly qualified
nonemployee directors. The terms of the Retainer Plan will be substantially
similar to those of the Grace New York 1994 Stock Employee Plan for Nonemployee
Directors.
The Retainer Plan provides that, beginning on July 1, 1997, and on each
subsequent July 1 through July 1, 2002, each person serving as a nonemployee
director will be paid a retainer consisting of a whole number of shares of
Common Stock equal to the quotient obtained by dividing (1) $24,000 ("Retainer
Amount") by (2) the fair market value of the New Grace Common Stock on such July
1; any fractional share resulting from such calculation will be rounded upwards
to the next whole share. The Retainer Amount will be proportionately decreased
with respect to a person whose service as a nonemployee director commenced
subsequent to January 1 of such calendar year and increased for a person whose
service as a nonemployee director commenced subsequent to July 1 of the prior
calendar year. No shares will be issued in a calendar year to a nonemployee
director who, prior to July 1 of such calendar year, is removed from the New
Grace Board for cause or voluntarily terminates service prior to retirement
under the directors' retirement plan. However, once shares are issued to a
nonemployee director under the Retainer Plan, they are not forfeited upon the
director's termination of service, regardless of the reason for such
termination.
As defined in the Retainer Plan, a nonemployee director is an individual
not employed by New Grace or any subsidiary.
LIMITATIONS. Up to 75,000 shares of Common Stock (subject to adjustment
for stock splits, stock dividends and the like) may be issued pursuant to the
Retainer Plan. This number of shares is expected to be sufficient to pay
retainers to nonemployee directors through at least July 1, 2002; the Retainer
Plan does not provide for the payment of retainers with respect to any period
after July 1, 2002.
TAX TREATMENT OF RETAINERS. Under the present provisions of the Code, a
nonemployee director will realize taxable compensation equal to the fair market
value of the shares delivered in payment of his annual retainer. Such
nonemployee director's tax basis for such shares will be the amount of such
taxable compensation. If such shares are subsequently sold, the nonemployee
director will realize a capital gain (or loss) equal to the amount by which the
proceeds of the sale exceed (or are less than) his basis for such New Grace
Common Stock.
New Grace will generally be entitled to a tax deduction in the amount of
taxable compensation realized by the nonemployee director.
THE FOREGOING DISCUSSION IS PROVIDED AS GENERAL INFORMATION ONLY AND IS NOT
INTENDED TO BE AND DOES NOT CONSTITUTE SPECIFIC TAX ADVICE. IN ADDITION, IT DOES
NOT ADDRESS THE IMPACT OF STATE AND LOCAL TAXES OR SECURITIES LAWS RESTRICTIONS.
ACCOUNTING TREATMENT OF RETAINERS. The issuance of shares in payment of
annual retainers will result in compensation expense based on the fair market
value of such shares.
GENERAL. Authorized but unissued shares of New Grace Common Stock, as well
as shares held by New Grace or a subsidiary, may be used for purposes of the
Retainer Plan.
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The Retainer Plan may be amended or terminated by the New Grace Board upon
the recommendation of the Compensation Committee without shareholder approval,
except as specified in Section 9 of the Retainer Plan.
The text of the Retainer Plan is set forth in full below.
GRACE HOLDING, INC.
1996 STOCK RETAINER PLAN FOR NONEMPLOYEE DIRECTORS
1. Purposes: The purposes of this Plan are (a) to further the identity of
interests of nonemployee directors of the Company with the interests of the
Company's shareholders, (b) to stimulate and sustain constructive and
imaginative thinking by such nonemployee directors, and (c) to induce the
service or continued service of the most highly qualified individuals to serve
as nonemployee directors of the Company.
2. Definitions: When used in this Plan, the following terms shall have
the meanings set forth in this section 2.
Board of Directors: The Board of Directors of the Company.
Common Stock: The common stock of the Company, par value $.01 per share,
or such other class of shares or other securities or property as may be
applicable pursuant to the provisions of section 6.
Company: Grace Holding, Inc., a Delaware corporation.
Fair Market Value: (a) The mean between the high and low sales prices of a
share of Common Stock in New York Stock Exchange composite transactions for the
applicable date, as reported in The Wall Street Journal or another newspaper of
general circulation, or, if no sales of shares of Common Stock were reported for
such date, for the next preceding date for which such sales were so reported, or
(b) the fair market value of a share of Common Stock determined in accordance
with any other reasonable method.
issuance (or words of similar import): The issuance of authorized but
unissued Common Stock or the transfer of issued Common Stock held by the
Company or a Subsidiary.
Nonemployee Director: An individual, not employed by the Company or a
Subsidiary, who is serving as a director of the Company.
Plan: The 1996 Stock Retainer Plan for Nonemployee Directors herein set
forth, as the same may from time to time be amended.
service: Service to the Company as a nonemployee director. "To serve" has
a correlative meaning.
Stock Retainer: An issuance of shares of Common Stock in payment of an
annual retainer for service as a nonemployee director.
Subsidiary: A corporation (or other form of business association) of which
shares (or other ownership interests) having 50% or more of the voting power
regularly entitled to vote for directors (or equivalent management rights) are
owned, directly or indirectly, by the Company.
3. Eligibility and Participation: All nonemployee directors are eligible
to participate in the Plan and each such director will participate as described
in section 5.
4. Stock Subject to this Plan:
(a) Subject to the provisions of paragraph (c) of this section 4 and
the provisions of section 6, the maximum number of shares of Common Stock
that may be issued pursuant to Stock Retainers under this Plan shall be
75,000 shares of Common Stock.
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<PAGE> 110
(b) Authorized but unissued shares of Common Stock and issued shares
of Common Stock held by the Company or a Subsidiary, whether acquired
specifically for use under this Plan or otherwise, may be used for purposes
of this Plan.
(c) If any shares of Common Stock issued pursuant to a Stock Retainer
shall, after issuance, be reacquired by the Company or a Subsidiary from
the recipient of such Stock Retainer, or from the estate of such recipient,
for any reason, such shares shall no longer be charged against the
limitation provided for in paragraph (a) of this section 4 and may be
issued pursuant to Stock Retainers.
5. Stock Retainers. Stock Retainers shall be subject to the following
provisions:
(a) For the purposes of this Plan, all shares of Common Stock issued
pursuant to a Stock Retainer shall be valued at not less than 100% of the
Fair Market Value of such shares on the effective date as of which such
Stock Retainer is paid, regardless of when such shares are actually issued
to the nonemployee director and whether or not such shares are subject to
restrictions that affect their value.
(b) Except as provided in paragraph (c) of this section 5, effective
as of July 1, 1997, and on each following July 1 through July 1, 2002, each
person serving as a nonemployee director on such July 1 will, for service
as such, be paid a Stock Retainer consisting of a whole number of shares of
Common Stock equal to the quotient obtained by dividing (i) $24,000 (the
"Retainer Amount") by (ii) the Fair Market Value of a share of Common Stock
on such July 1. To the extent that such calculation does not result in a
whole number of shares, the fractional share shall be rounded upwards to
the next whole number so that no fractional shares shall be issued.
(c) (i) In the event that a Stock Retainer is to be paid, effective
July 1 of any calendar year, to a person who shall have commenced service
as a nonemployee director subsequent to January 1 of such calendar year,
the Retainer Amount shall be proportionately reduced to reflect the
percentage of such calendar year prior to such commencement of service.
(ii) In the event that a Stock Retainer is to be paid, effective July
1 of any calendar year, to a person who shall have commenced service as a
nonemployee director prior to January 1 of such calendar year but
subsequent to July 1 of the prior calendar year, the Retainer Amount shall
be proportionately increased to reflect the percentage of the prior
calendar year during which such nonemployee director served as such;
provided, however, that this subsection shall not apply with respect to any
individual who commenced service as a nonemployee director in 1996 in
connection with the distribution of shares of Common Stock by W. R. Grace &
Co., a New York corporation.
(d) The shares referred to in paragraph (b) of this section 5 shall be
delivered to each nonemployee director as soon as practicable following
each July 1 during the term of this Plan. After the delivery of the shares,
each nonemployee director shall have all the rights of a shareholder with
respect to such shares (including the right to vote such shares and the
right to receive all dividends paid with respect to such shares).
(e) No shares will be issued in a calendar year to a nonemployee
director who, prior to July 1 of such calendar year, is removed for cause
or who voluntarily terminates service prior to retirement under the
Company's Retirement Plan for Outside Directors, as the same may be
amended.
6. Adjustment Provisions:
(a) In the event that any reclassification, split-up or consolidation
of the Common Stock shall be effected, or the outstanding shares of Common
Stock are, in connection with a merger or consolidation of the Company or a
sale by Company of all or a part of its assets, exchanged for a different
number or class of shares of stock or other securities or property of the
Company or for shares of the stock or other securities or property of any
other corporation or person, or a record date for determination of holders
of Common Stock entitled to receive a dividend payable in Common Stock
shall occur, (i) the number, class and kind of shares that may be issued
pursuant to Stock Retainers thereafter paid, and (ii) the
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<PAGE> 111
number, class and kind of shares that have not been issued under effective
Stock Retainers, shall in each case be equitably adjusted.
(b) In the event that any spin-off or other distribution of assets of
the Company to its shareholders (including without limitation an
extraordinary dividend) shall occur, the number, class and kind of shares
that may be issued pursuant to Stock Retainers thereafter paid shall be
equitably adjusted.
7. Term: This Plan shall be deemed adopted and shall become effective on
the date it is approved by the shareholders of the Company. No Stock Retainers
shall be paid under this Plan with respect to any period beginning after July 1,
2002.
8. General Provisions:
(a) Nothing in this Plan or in any instrument executed pursuant hereto
shall confer upon any person any right to continue to serve as a
nonemployee director of the Company.
(b) No shares of Common Stock shall be issued pursuant to a Stock
Retainer unless and until all legal requirements applicable to the issuance
of such shares have, in the opinion of counsel to the Company, been
complied with. In connection with any such issuance, the person acquiring
the shares shall, if requested by the Company, give assurances,
satisfactory to counsel to the Company, in respect of such matters as the
Company or a Subsidiary may deem desirable to assure compliance with all
applicable legal requirements.
(c) No person, individually or as a member of a group, and no
beneficiary or other person claiming under or through him, shall have any
right, title or interest in or to any shares of Common Stock allocated or
reserved for the purposes of this Plan or subject to any Stock Retainer
except as to such shares of Common Stock if any, as shall have been issued
to him.
(d) Nothing in this Plan is intended to be a substitute for, or shall
preclude or limit the establishment or continuation of, any other plan,
practice or arrangement for the payment of compensation or benefits to
nonemployee directors that the Company now has or may hereafter put into
effect.
9. Amendments and Termination:
(a) This Plan may be terminated, suspended or amended at any time by
the Board of Directors upon the recommendation of its Compensation,
Employee Benefits and Stock Incentive Committee; provided, however, that no
amendment shall become effective without the approval of the shareholders
of the Company to the extent shareholder approval is required by applicable
law.
(b) No termination, suspension or amendment of this Plan shall
adversely affect any Stock Retainer theretofore paid.
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<PAGE> 112
ANNEX E
The following is an excerpt from the Grace New York's 1996 Proxy Statement.
The following excerpt does not purport to be complete and is qualified in its
entirety by reference to such Proxy Statement itself, which has been filed with
the Securities and Exchange Commission. As used herein, the "Company" refers to
Grace New York and/or one or more of its subsidiaries.
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth information concerning
the 1995 compensation of (1) Mr. Costello, the Company's chief executive officer
since May 1, 1995; (2) the other four most highly compensated executive officers
of the Company who were serving as such at year-end 1995; (3) J.P. Bolduc, who
served as the Company's chief executive officer from January 1 to March 2, 1995;
(4) Mr. Holmes, who was the Company's Acting President and Chief Executive
Officer from March 2 to May 1, 1995; and (5) F. Peter Boer and Brian J. Smith,
who resigned as executive officers on June 15, 1995 and July 18, 1995,
respectively, and whose compensation would have been reportable under clause (2)
above but for the fact that they were not executive officers of the Company at
year-end 1995. Certain information has been omitted from the Summary
Compensation Table because it is not applicable or because it is not required
under SEC rules. See "Resignations of Executive Officers" below for additional
information.
Mr. Holmes did not participate in any of the Company's executive
compensation plans and programs during his tenure as Acting President and Chief
Executive Officer of the Company; accordingly, the disclosures relating to such
plans and programs in and following the Summary Compensation Table do not
contain any information concerning Mr. Holmes.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
--------------------------
AWARDS(A) PAYOUTS
ANNUAL COMPENSATION ------------- ----------
------------------------------------------- NO. OF SHARES
OTHER UNDERLYING
NAME AND ANNUAL OPTIONS LTIP ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION GRANTED PAYOUTS(B) COMPENSATION (C)
- ---------------------- ---- -------- ---------- ------------ ------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
A. J. Costello........ 1995 $600,000 $ 900,000 $106,599 300,000
Chairman, President
and Chief Executive
Officer
J-L. Greze............ 1995 335,000 320,000 42,191 36,000 $ 108,905 $ 50,191
Executive Vice 1994 323,333 400,000 22,166 30,000 31,451
President 1993 300,000 175,000 14,676 30,000 108,905 30,841
C. L. Hampers......... 1995 821,068 422,755 210,915(d) 70,000 105,564
Executive Vice 1994 786,250 720,000 85,425 70,000 89,278
President 1993 736,000 600,000 52,098 70,000 1,012,000 90,391
P. D. Houchin......... 1995 250,604 250,000 638 22,000 21,389 25,941
Senior Vice
President and Chief
Financial Officer(e)
D. H. Kohnken......... 1995 371,725 394,000 9,576 60,000 153,716 55,567
Executive Vice 1994 357,000 410,000 86 50,000 36,200
President 1993 357,000 310,000 2,372 50,000 157,167 33,948
J. P. Bolduc.......... 1995 225,000 122,809(f) 391,201 6,496,477
President and Chief 1994 883,333 1,262,000 283,320 100,000 176,969
Executive Officer 1993 800,000 986,000 9,470 100,000 389,700 177,756
T. A. Holmes.......... 1995 174,231 5,709
Acting President and
Chief Executive
Officer
F. P. Boer............ 1995 343,400 180,000 9,467 30,000 132,779 59,349
Executive Vice 1994 343,400 180,000 52,759 30,000 43,407
President 1993 343,400 150,000 5,696 30,000 132,223 46,855
</TABLE>
E-1
<PAGE> 113
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
--------------------------
AWARDS(A) PAYOUTS
ANNUAL COMPENSATION ------------- ----------
------------------------------------------- NO. OF SHARES
OTHER UNDERLYING
NAME AND ANNUAL OPTIONS LTIP ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION GRANTED PAYOUTS(B) COMPENSATION (C)
- ---------------------- ---- -------- ---------- ------------ ------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
B. J. Smith........... 1995 345,000 400,000 9,087 50,000 176,746 65,675
Executive Vice 1994 335,333 400,000 333 40,000 43,373
President and Chief 1993 316,000 300,000 5,414 40,000 176,022 42,250
Financial Officer
</TABLE>
- ---------------
(a) No restricted share awards have been made to any of the executive officers
named in the above table since 1992. The number and dollar values of the
restricted shares held at December 31, 1995 by the persons named in the
table were as follows: Mr. Kohnken -- 12,676 shares ($749,469); and Mr.
Smith -- 11,150 shares ($659,244). Recipients of restricted shares receive
all dividends paid on such shares.
(b) Except as to Dr. Hampers, the amounts in this column represent the second
installment and the third and final installment (paid or payable in 1993 and
1995, respectively) of awards under the Company's Long-Term Incentive
Program ("LTIP") for the 1990-1992 Performance Period; the 1993 payments
were to have been made in early 1994 but were made in 1993 to facilitate tax
planning. Dr. Hampers did not participate in the LTIP for the 1990-1992
Performance Period. No payments were made under the LTIP in 1994. See Note
(c) below for information concerning payments made to Mr. Bolduc with
respect to the 1993-1995 and 1994-1996 Performance Periods under the LTIP in
connection with his resignation.
The amount shown in this column for Dr. Hampers represents the second of two
payments in connection with the Company's 1989 purchase of the NMC stock not
already owned by the Company. In early 1989, the Company agreed to purchase
such stock in 1992 for approximately $27 million, subject to NMC's
achievement of certain targets relating to earnings and return on capital;
approximately 79% of such stock was owned by Dr. Hampers. However, later in
1989, the Company purchased the stock for approximately $14 million ($13
million less than initially agreed to). In consideration for their agreement
to accelerate the transaction, the Company agreed to make a payment to the
NMC shareholders (including Dr. Hampers) in 1993 based on NMC's earnings
during the 1990-1992 period. As a result of NMC's performance during this
period, the payment to Dr. Hampers amounted to $27,480,000, of which
$26,468,000 was paid in 1992 to facilitate tax planning.
(c) The amounts in this column for 1995 consist of the following: (1) the
actuarially determined value of Company-paid premiums on "split-dollar" life
insurance, as follows: Mr. Greze -- $12,918; Dr. Hampers -- $59,332; Mr.
Houchin -- $9,433; Mr. Kohnken -- $10,737; Mr. Bolduc -- $75,419; Dr.
Boer -- $25,087; and Mr. Smith -- $18,619; (2) payments made to persons
whose personal and/or Company contributions to the Company's Salaried
Employees Savings and Investment Plan ("Savings Plan") would be subject to
limitations under federal income tax law, as follows: Mr. Greze -- $17,550;
Dr. Hampers -- $46,232; Mr. Houchin -- $9,018; Mr. Kohnken -- $18,951; Mr.
Bolduc -- $40,110; Dr. Boer -- $11,202; and Mr. Smith -- $17,850; (3)
Company contributions to such Plan of $4,500 for each of Messrs. Greze,
Houchin, Kohnken, Bolduc and Smith and Dr. Boer; (4) $9,557 of imputed
interest on a loan made to Mr. Bolduc in 1987 (see "Relationships and
Transactions with Management and Others" below); (5) interest on
involuntarily deferred payments of awards under the LTIP, as follows: Mr.
Greze -- $15,223; Mr. Houchin -- $2,990; Mr. Kohnken -- $21,469; Mr.
Bolduc -- $54,683; Dr. Boer -- $18,560; and Mr. Smith -- $24,706; and (6) in
the case of Mr. Bolduc, $6,312,208 paid in connection with the termination
of his employment agreement and with respect to the 1993-1995 and 1994-1996
Performance Periods under the LTIP (see "Resignations of Executive Officers"
below for additional information).
(d) This amount includes the value of personal benefits received by Dr. Hampers
during 1995, including $111,481 attributable to his personal use of
corporate aircraft.
(e) Mr. Houchin became an executive officer of the Company during 1995.
E-2
<PAGE> 114
(f) This amount includes the value of personal benefits received by Mr. Bolduc
during 1995, including $80,526 attributable to an automobile transferred to
him as part of his termination arrangements. See "Resignations of Executive
Officers" below for additional information.
Stock Options. The following table sets forth information concerning stock
options granted in 1995, including the potential realizable value of each grant
assuming that the market value of the Company's Common Stock appreciates from
the date of grant to the expiration of the option at annualized rates of (a) 5%
and (b) 10%, in each case compounded annually over the term of the option. These
assumed rates of appreciation have been specified by the SEC for illustrative
purposes only and are not intended to predict future prices of the Company's
Common Stock, which will depend upon various factors, including market
conditions and the Company's future performance and prospects. For example, the
option granted to Mr. Costello in 1995 would produce the pretax gain of
$25,041,690 shown in the table only if the market price of the Common Stock
rises to nearly $136 per share by the time the option is exercised. Based on the
number and market price of the shares outstanding at year-end 1995, such an
increase in the price of the Common Stock would produce a corresponding
aggregate pretax gain of $9.2 billion for the Company's shareholders. Options
become exercisable at the time or times determined by the Compensation
Committee. Except for the options granted to Mr. Costello, the options shown
below were exercisable in full at the date of grant; Mr. Costello's options
become exercisable in three approximately equal annual installments beginning
one year after the date of grant or upon the earlier occurrence of a "change in
control" of the Company or certain other events, as specified in his employment
agreement (see "Employment Agreements" below). All of the options shown below
have exercise prices equal to the fair market value of the Common Stock at the
date of grant.
<TABLE>
<CAPTION>
1995 GRANTS
--------------------------------------------------- POTENTIAL REALIZABLE VALUE AT
% OF TOTAL ASSUMED ANNUAL RATES OF STOCK
NO. OF SHARES OPTIONS PRICE APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE TERM
OPTIONS EMPLOYEES PRICE EXPIRATION -------------------------------
NAME GRANTED IN 1995* ($/SHARE) DATE 5% 10%
- -------------------------- ------------- ---------- --------- ---------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
A.J. Costello............. 300,000 17.6% $52.375 4/30/05 $ 9,881,520 $ 25,041,690
J-L. Greze................ 36,000 2.1 44.50 3/1/05 1,007,489 2,553,174
C.L. Hampers.............. 70,000 4.1 44.50 3/1/05 1,959,006 4,964,505
P.D. Houchin.............. 22,000 1.3 44.50 3/1/05 615,688 1,560,273
D.H. Kohnken.............. 60,000 3.5 44.50 3/1/05 1,679,148 4,255,290
J.P. Bolduc............... -0- -- -- -- -- --
F.P. Boer................. 30,000 1.8 44.50 3/1/05 839,574 2,127,645
B.J. Smith................ 50,000 2.9 44.50 3/1/05 1,399,290 3,546,075
All Shareholders.......... -- -- -- -- 3,622,755,348 9,180,769,818
Named Executive Officers'
Percentage of Realizable
Value Gained by All
Shareholders............ -- -- -- -- 0.5% 0.5%
</TABLE>
- ---------------
* In 1995, options were granted covering 1,704,150 shares of Common Stock,
including an option covering 40,000 shares granted to D. Walter Robbins, Jr.,
a former director of the Company, in his capacity as a consultant to the
Company (see "Directors' Compensation and Consulting Arrangements" below).
E-3
<PAGE> 115
The following table sets forth information concerning stock options
exercised in 1995, including the "value realized" upon exercise (the difference
between the total exercise price of the options exercised and the market value,
at the date of exercise, of the shares acquired), and the value of unexercised
"in-the-money" options held at December 31, 1995 (the difference between the
aggregate exercise price of all such options held and the market value of the
shares covered by such options at December 31, 1995).
<TABLE>
<CAPTION>
OPTION EXERCISES IN 1995 AND OPTION VALUES AT 12/31/95
----------------------------------------------------------------------
NUMBER OF VALUE OF
SHARES UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
NO. OF SHARES 12/31/95 12/31/95
ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE REALIZED($) UNEXERCISABLE UNEXERCISABLE*
- --------------------------------- ------------- ----------- ----------------- --------------------
<S> <C> <C> <C> <C>
A.J. Costello.................... -0- -0- 0/300,000 $ -/2,006,250
J-L. Greze....................... -0- -0- 168,000/0 3,391,344/-
P.D. Houchin..................... -0- -0- 94,000/0 1,732,000/-
C.L. Hampers..................... -0- -0- 290,000/0 5,305,625/-
D.H. Kohnken..................... -0- -0- 275,500/49,000 5,822,875/869,441
J.P. Bolduc...................... 655,000 $13,094,423 0/0 0/0
F.P. Boer........................ 130,000 2,833,438 177,500/0 3,054,071/-
B.J. Smith....................... 170,000 3,850,938 35,000/47,500 509,688/842,826
</TABLE>
- ---------------
* Except for Messrs. Costello, Kohnken and Smith, none of the individuals listed
in the table held unexercisable options at year-end 1995.
LTIP. Under the LTIP as in effect during 1995, executive officers and
other senior managers could be granted contingent "Performance Units" under
which awards could be earned based on (1) value contribution performance
(measured by the extent to which the return on gross assets of the participant's
product line or other unit, or, in the case of corporate participants, the
Company, exceeds the cost of capital by a specified targeted amount), and/or (2)
shareholder value performance (measured by appreciation in the price of the
Common Stock and dividends paid) as compared to that of the companies in the
Standard & Poor's Industrials, during a three-year "Performance Period." It is
anticipated that a new three-year Performance Period will commence each year and
that contingent Performance Units will be granted for each such Performance
Period (however, the terms of such contingent Performance Units granted
subsequent to 1995 will differ from those granted in 1995, as discussed below
under "Approval of Long-Term Incentive Program"). Performance Units granted in
1995 to employees of product lines were weighted 67% on the value contribution
performance of their respective product lines or other units, and 33% on
shareholder value performance, during the Performance Period; Performance Units
granted to corporate employees were weighted 50% on the basis of the Company's
value contribution performance and 50% on the basis of shareholder value
performance during the Performance Period. The number of Performance Units
earned under the LTIP may be decreased by up to 20%, at the discretion of the
Compensation Committee, based upon individual performance.
Amounts, if any, earned under Performance Units are paid following the end
of each Performance Period. In keeping with the Company's compensation
philosophy of uniting executive interests with those of the shareholders (see
"Report of the Compensation Committee on Executive Compensation -- Stock
Ownership Guidelines" below), any such payments may be made up to 100% in shares
of Common Stock issued under the Company's stock incentive plans (subject to
shareholder approval, as discussed below under "Approval of Long-Term Incentive
Program"); however, the Compensation Committee has authority to reduce the
portion of earned Performance Units payable in Common Stock or to pay such Units
entirely in cash.
E-4
<PAGE> 116
The following table shows the Performance Units granted during 1995 to the
executive officers named in the Summary Compensation Table. Half of the
Performance Units granted to Mr. Greze and Dr. Hampers are weighted 50%/50%, as
discussed above, and the other half are weighted 67%/33%, as discussed above;
the Performance Units granted to the other recipients are all weighted 50%/50%.
<TABLE>
<CAPTION>
1995 AWARDS OF CONTINGENT PERFORMANCE UNITS UNDER LTIP
---------------------------------------------------------------
MAXIMUM
NUMBER PERFORMANCE NUMBER OF
NAME OF UNITS PERIOD THRESHOLD(A)(B) TARGET(B)(C) UNITS (D)
- -------------------------------------- --------- ---------- -------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
A. J. Costello........................ 5,600 1993-1995 $0 or $ 55,164 $ 330,750 56,000
13,950 1994-1996 0 or 162,750 976,500 139,500
22,275 1995-1997 0 or 80 1,782,000 222,750
J.L. Greze............................ 9,000 1995-1997 0 or 80 720,000 90,000
C.L. Hampers.......................... 17,500 1995-1997 0 or 80 1,400,000 175,000
P.D. Houchin.......................... 5,500 1995-1997 0 or 80 440,000 55,000
D.H. Kohnken.......................... 15,000 1995-1997 0 or 80 1,200,000 150,000
J.P. Bolduc........................... -0- -- -- -- -- --
B.J. Smith............................ 12,500 1995-1997 0 or 80 1,000,000 125,000
F.P. Boer............................. 7,500 1995-1997 0 or 80 600,000 75,000
</TABLE>
- ---------------
(a) Refers to the minimum amount payable under the LTIP with respect to the
indicated Performance Period. No payment will be made unless the minimum
targeted level of pretax earnings or shareholder value performance is
achieved with respect to the 1993-1995 and 1994-1996 Performance Periods,
and no payment will be made unless the minimum targeted level of value
contribution or shareholder value performance is achieved with respect to
the 1995-1997 Performance Period. The "threshold" payments will be made if
the minimum targeted level of value contribution performance is achieved
with regard to the 1995-1997 Performance Period. With respect to the
1993-1995 and 1994-1996 Performance Periods, the "threshold" payments will
be made if either the minimum targeted level of pretax earnings or
shareholder value performance is achieved.
(b) The threshold and target payments shown in the table have been calculated on
the basis of a per share market price of the Common Stock of $59.0625 at the
end of the 1993-1995 Performance Period, and on assumed per share market
prices of $70 and $80 at the end of the 1994-1996 and 1995-1997 Performance
Periods, respectively.
(c) Refers to the amount payable with respect to the 1995-1997 Performance
Period if the minimum targeted levels of both value contribution and
shareholder value performance are achieved.
(d) Refers to the maximum number of Performance Units that can be earned with
respect to the Performance Periods under the LTIP, as amended.
Employees to whom Performance Units are granted also receive grants of
stock options based on the number of Performance Units granted. Information
concerning options granted to the above executive officers in 1995 appears under
"Stock Options" above.
Additional information concerning the LTIP is set forth below under
"Approval of Long-Term Incentive Program."
Pension Arrangements. Salaried employees of designated units of the
Company who are 21 or older and who have one or more years of service are
eligible to participate in the Company's Retirement Plan for Salaried Employees.
Under this basic retirement plan, pension benefits are based upon (1) the
employee's average annual compensation for the 60 consecutive months in which
his or her compensation is highest during the last 180 months of continuous
participation and (2) the number of years of the employee's credited service.
For purposes of this basic retirement plan, compensation generally includes
nondeferred base salary and nondeferred annual incentive compensation (bonus)
awards; however, for 1995, federal income tax law limited to $150,000 the annual
compensation on which benefits under this plan may be based.
E-5
<PAGE> 117
The Company also has a Supplemental Executive Retirement Plan under which a
covered employee will receive the full pension to which he or she would be
entitled in the absence of the above and other limitations imposed under federal
income tax law. In addition, this supplemental plan recognizes deferred base
salary, deferred annual incentive compensation awards and, in some cases,
periods of employment with the Company during which an employee was ineligible
to participate in the basic retirement plan. An employee will generally be
eligible to participate in the supplemental plan if he or she has an annual base
salary of at least $75,000 and is earning credited service under the basic
retirement plan.
The following table shows the annual pensions payable under the basic and
supplemental plans for different levels of compensation and years of credited
service. The amounts shown have been computed on the assumption that the
employee retired at age 65 on January 1, 1996, with benefits payable on a
straight life annuity basis. Such amounts are subject to (but do not reflect) an
offset of 1.25% of the employee's primary Social Security benefit at retirement
age for each year of credited service under the basic and supplemental plans.
<TABLE>
<CAPTION>
HIGHEST YEARS OF CREDITED SERVICE
AVERAGE ANNUAL ---------------------------------------------------------------------
COMPENSATION 10 YEARS 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
- -------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 100,000...................... $ 15,000 $ 22,500 $ 30,000 $ 37,500 $ 45,000 $ 52,500
200,000...................... 30,000 45,000 60,000 75,000 90,000 105,000
300,000...................... 45,000 67,500 90,000 112,500 135,000 157,000
400,000...................... 60,000 90,000 120,000 150,000 180,000 210,000
500,000...................... 75,000 112,500 150,000 187,500 225,000 262,500
600,000...................... 90,000 135,000 180,000 225,000 270,000 315,000
700,000...................... 105,000 157,500 210,000 262,500 315,000 367,500
800,000...................... 120,000 180,000 240,000 300,000 360,000 420,000
900,000...................... 135,000 202,500 270,000 337,500 405,000 472,500
1,000,000...................... 150,000 225,000 300,000 375,000 450,000 525,000
1,100,000...................... 165,000 247,500 330,000 412,500 495,000 577,500
1,200,000...................... 180,000 270,000 360,000 450,000 540,000 630,000
1,300,000...................... 195,000 292,500 390,000 487,500 585,000 682,500
1,400,000...................... 210,000 315,000 420,000 525,000 630,000 735,000
1,500,000...................... 225,000 337,500 450,000 562,500 675,000 787,500
</TABLE>
Messrs. Costello, Houchin, Kohnken, Bolduc and Smith and Dr. Boer had 0, 3,
27, 11, 21 and 12 years of credited service, respectively, under the basic and
supplemental retirement plans at year-end 1995 (March 31, 1995 in the case of
Mr. Bolduc). For purposes of those plans, the 1995 compensation of such
executive officers was as follows: Mr. Costello -- $600,000; Mr.
Houchin -- $450,604; Mr. Kohnken -- $781,725; Mr. Bolduc -- $1,487,000; Dr.
Boer -- $523,400; and Mr. Smith -- $745,000. Neither Mr. Greze nor Dr. Hampers
is covered by the basic or supplemental plan. At year-end 1995, the accrued
annual benefit payable to Mr. Greze at age 65 under the Company's Swiss pension
plan was approximately $314,040, and the accrued annual benefit payable to Dr.
Hampers at age 65 under the NMC retirement plan (in which he is an inactive
participant) was approximately $120,000. The Company has agreed to provide
certain pension benefits to Messrs. Bolduc and Greze and Dr. Hampers (see
"Employment Agreements" and "Resignations of Executive Officers" below).
Directors' Compensation and Consulting Arrangements. Under the Company's
compensation program for nonemployee directors, (1) each nonemployee director
receives an annual retainer of $24,000, payable in shares of the Company's
Common Stock; (2) the Chairmen of the Audit and Compensation Committees receive
annual cash retainers of $12,000, and the Chairmen of the Nominating Committee
and the Committee on Corporate Responsibility receive annual cash retainers of
$2,000; and (3) each nonemployee director receives $2,000 in cash for each Board
meeting and $1,000 for each committee meeting attended (except that committee
chairmen receive $1,200 per committee meeting).
E-6
<PAGE> 118
Nonemployee directors are reimbursed for expenses they incur in attending
Board and committee meetings, and the Company maintains business travel accident
insurance coverage for them. In addition, nonemployee directors receive a fee of
$1,000 per day for work performed at the Company's request.
A director may defer payment of all or part of the fees received for
attending Board and committee meetings and/or the cash retainers referred to
above. The amounts deferred (plus an interest equivalent) are payable to the
director or his or her heirs or beneficiaries in a lump sum or in quarterly
installments over two to 20 years following a date specified by the director.
The interest equivalent on amounts deferred is computed at the higher of (1) the
prime rate plus two percentage points and (2) 120% of the prime rate, in either
case compounded semiannually. This program provides for the payment of
additional survivors' benefits in certain circumstances.
The Company also has a retirement plan under which a person who has been a
nonemployee director for more than four years will receive annual payments of
$24,000 for a period equal to the length of service as a nonemployee director
(but not more than 15 years) after the director ceases to be eligible to receive
directors' fees. In the event of a director's death, payments are made to his or
her surviving spouse.
The Company has consulting agreements with Kamsky Associates Inc. (of which
Ms. Kamsky is president and co-chief executive officer) relating to the
Company's interests in The People's Republic of China. The agreements expire in
1997 (subject to earlier termination) and provide for monthly fees of $25,000,
plus additional payments based on the extent to which the Company establishes
certain business relationships in The People's Republic of China. In 1995, the
Company paid fees totaling $300,000 under these agreements. The Company also has
a consulting agreement with another company of which Ms. Kamsky is a principal
relating to business opportunities in nine other countries in the Asia Pacific
region. The agreement expires in 1997 (or earlier, in certain cases) and
currently provides for monthly fees of $10,000, plus additional payments based
on the extent to which the Company establishes certain business relationships in
the relevant countries. The Company paid Ms. Kamsky $120,000 under this
agreement in 1995. The foregoing description does not purport to be complete and
is qualified in its entirety by reference to the agreements referred to above,
which have been filed with the SEC as exhibits to the Company's Annual Reports
on Form 10-K for the years ended December 31, 1992 and 1994, respectively, and
the Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
1995.
George P. Jenkins, D. Walter Robbins, Jr. and David L. Yunich were
directors of the Company who retired on May 10, 1995. The Company had consulting
arrangements with Mr. Jenkins (relating to pension and savings plan investment
management), Mr. Robbins (relating to pension investment management and
divestitures) and Mr. Yunich (relating to corporate investments) under which
they received fees totaling $200,000, $350,000 and $225,000, respectively, in
1995. During 1995, the Company also granted a stock option covering 40,000
shares of Common Stock to Mr. Robbins (in his capacity as a consultant) at an
exercise price of $44.50 per share (see "Stock Options" above). In addition,
during 1995 the Company provided car services to Messrs. Jenkins and Yunich at a
cost to the Company of approximately $47,000 and $13,000, respectively. The
consulting arrangements with Messrs. Jenkins, Robbins and Yunich were terminated
by the Company during 1995.
As previously reported, in 1991 the Company granted Mr. Yunich an option to
purchase a portion of a minority investment held by the Company; in 1995, he
received net proceeds of $126,000 upon the cancellation of the option in
connection with the Company's sale of such investment.
Effective December 1, 1995, the Company entered into a consulting agreement
with Gordon J. Humphrey, who resigned as a director in November 1995. Under the
agreement, Mr. Humphrey is to provide such services as are assigned to him by
the Company, including promoting projects related to the Company's business
interests in the Commonwealth of Independent States. The agreement expires in
November 1997 (subject to earlier termination in certain circumstances) and
provides for a monthly retainer of $5,000 plus such additional fees as may be
agreed to in connection with specific projects. During 1995, Mr. Humphrey earned
$5,000 under the agreement. The foregoing description does not purport to be
complete and is qualified in its entirety by reference to the agreement, which
has been filed as an exhibit to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995.
E-7
<PAGE> 119
Arrangements with J. Peter Grace, Jr. J. Peter Grace, Jr. served as the
Company's Chief Executive Officer for 48 years until his retirement at year-end
1992; following his retirement, he continued to serve as the Company's Chairman
until his death in April 1995. Upon his retirement as Chief Executive Officer,
Mr. Grace entered into an agreement ("Grace Retirement Agreement") with the
Company under which, among other things, he agreed to act as a consultant to the
Company and provide such consulting services as the Board requested; for such
consulting arrangement, Mr. Grace received a fee of $50,000 per month from
January 1993 until his death.
The Grace Retirement Agreement provided for a pension of $1 million per
year to Mr. Grace until his death (and thereafter, to his wife until her death)
in lieu of any other pension to which Mr. Grace might otherwise have been
entitled. The Grace Retirement Agreement also provided benefits and arrangements
to Mr. Grace consisting of: (1) a continuation of insurance benefits in effect
on the date of such Agreement, consisting of (a) basic life insurance in the
amount of $900,000 (for which the cost to the Company was approximately $33,695
in 1995), (b) payment of a portion of the premium for supplemental life
insurance in the amount of $750,000 (for which the cost to the Company was
approximately $18,046 in 1995), (c) business travel accident insurance in the
amount of $1.5 million (for which the cost to the Company was approximately
$1,338 in 1995) and (d) voluntary group accident insurance in the amount of
$350,000 (for which Mr. Grace paid the full premium); (2) a "gross-up" payment
to cover income tax obligations for 1995 in respect of the foregoing insurance
benefits (with respect to which the Company paid approximately $31,633 in 1995);
and (3) a continuation of all other benefits and arrangements provided to Mr.
Grace as Chief Executive Officer, which included private nursing services and
related expenses (for which the cost to the Company was approximately $96,900 in
1995), security services (for which the cost to the Company was approximately
$102,400 in 1995), the services of a cook (for which the cost to the Company was
approximately $12,700 in 1995), the use of an apartment (for which the cost to
the Company was approximately $81,430 in 1995), limousine services (for which
the cost to the Company was approximately $59,700 in 1995), and club membership
dues (for which the cost to the Company was approximately $8,700 in 1995). In
addition, the Grace Retirement Agreement provided for Mr. Grace's continued use
of Company aircraft, consistent with the Company's policy of making Company
aircraft available for the use of certain senior executives. The value of such
usage to Mr. Grace in 1995, calculated in accordance with the Standard Industry
Fare Level method of Internal Revenue Service guidelines, was approximately
$3,600. The costs for the benefits and arrangements listed in this paragraph
have been stated on a pre-tax basis. In addition, until his death, the Company
provided Mr. Grace with office space, secretarial services and business expense
reimbursement (including reimbursement for business travel and entertainment
expenses), as well as medical insurance coverage in accordance with the
Company's policies applicable to retirees generally, subject to payment by Mr.
Grace of a portion of the premium on the same basis as other retirees.
Employment Agreements. The Company has an employment agreement with Mr.
Costello providing for his service as the Company's Chairman, President and
Chief Executive Officer through April 1998, subject to (1) earlier termination
in certain circumstances and (2) automatic one-year extensions unless either
party gives notice that the agreement is not to be extended. The agreement also
provides that Mr. Costello will stand for election as a director during its
term. Under the agreement, Mr. Costello is entitled to an annual base salary of
at least $900,000; an annual incentive compensation award (bonus) of at least
$900,000 for 1995 and awards thereafter based on the performance of the Company,
in accordance with its annual incentive compensation program; participation in
the LTIP on the same basis as other senior executives (including the grant of
the awards for the 1993-1995, 1994-1996 and 1995-1997 Performance Periods set
forth above under "LTIP"); grants of stock options (including those granted to
him in 1995, as set forth above under "Stock Options"); and participation in all
other compensation and benefit plans and programs generally available to senior
executives of the Company. The agreement also provides for payments in the case
of Mr. Costello's disability or death, or the termination of his employment with
or without cause, including termination following a "change in control" and
termination by Mr. Costello for "good reason." For purposes of the agreement,
"change in control" means the acquisition of 20% or more of the Company's Common
Stock, the failure of Company-nominated directors to constitute a majority of
any class of the Board of Directors, or the occurrence of a transaction in which
the Company's shareholders immediately preceding such transaction do not own
more than 50% of the combined voting power of the corporation resulting from
such transaction;
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<PAGE> 120
however, the Board of Directors has authorized, and Mr. Costello has agreed to,
the amendment of the agreement so as to (1) increase such percentage from 50% to
60%, (2) exempt from the definition of "change in control" the previously
reported transaction between the Company and Fresenius AG (which is described in
the Company's Annual Report on Form 10-K for the year ended December 31, 1995)
and (3) expand such definition to include the liquidation or dissolution of the
Company. In the event of the termination of Mr. Costello's employment following
a change in control, he would receive a multiple of the sum of his annual base
salary plus bonus, pro rated bonus and LTIP awards, earned but unpaid
compensation, and the balance of the LTIP awards for all Performance Periods
during which the change in control takes place. The foregoing description of Mr.
Costello's employment agreement does not purport to be complete and is qualified
in its entirety by reference to such agreement, which has been filed with the
SEC as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995.
Prior to his retirement in February 1996, the Company had an agreement with
Mr. Greze relating to his assignment an Executive Vice President of the Company
and head of its global packaging business and his related relocation from
Switzerland to the United States. The agreement provided that the Company would
pay tuition and related fees in connection with the education of Mr. Greze's son
(up to, but not including, college); reimburse Mr. Greze for the cost of one
round trip between Florida and Switzerland for his family each year; and provide
Mr. Greze with a Company-leased car. The agreement also provided for the loan
referred to below under "Relationships and Transactions with Management and
Others;" for arrangements relating to his return to Switzerland following the
end of his assignment (including reimbursement for the cost of his family's move
to Switzerland and provisions relating to the sale of his Florida residence in
accordance with the Company's policy applicable to expatriate employees
generally); and for Mr. Greze's continued participation in the Company's Swiss
pension plan and the payment of pension benefits under that plan based on a
schedule of final average salary, including payment if Mr. Greze's employment
had been involuntarily terminated (not for cause) prior to August 1, 1996.
Dr. Hampers has an employment agreement that originally provided for his
employment as an Executive Vice President of the Company and head of its health
care business through March 1996, at which time he would have the right to
become a consultant to the Company for a five-year period for an annual
consulting fee equal to 50% of his annual base salary, subject to cost-of-living
adjustments. In March 1996, the Company and Dr. Hampers agreed to extend his
employment until the first to occur of (1) December 31, 1996 or (2) completion
of the transaction with Fresenius AG. The agreement, as extended, provides that
Dr. Hampers will resign from the Board upon termination of his employment, as
described above. Under the agreement, Dr. Hampers was initially entitled to an
annual base salary of at least $675,000, subject to increases of at least 9%
every 18 months, and to participate in the Company's annual incentive
compensation (bonus) program. The agreement also provides for benefits generally
available to senior executives of the Company, as well as the use of a corporate
aircraft (and an option to purchase the aircraft at its fair market value upon
the termination of his employment or consulting relationship). Further, the
agreement entitles Dr. Hampers to a supplementary annual pension benefit equal
to the amount by which (1) the lesser of (a) $300,000 and (b) three times his
actual annual pension benefit exceeds (2) such actual pension benefit, subject
to certain cost-of-living adjustments. The agreement prohibits Dr. Hampers from
engaging in certain competitive activities during its term and for three years
thereafter and provides for the continuation of compensation for the term of the
agreement in the event his employment terminates other than for cause. The
foregoing description of Dr. Hampers' employment agreement does not purport to
be complete and is qualified in its entirety by reference to such agreement,
which was filed with the SEC as an exhibit to the Company's Annual Report on
Form 10-K for the year ended December 31, 1991.
The Company has an employment agreement with Mr. Bolduc that was terminated
in connection with his resignation in March 1995. The agreement provided for his
employment as Chief Executive Officer of the Company through July 1999 (subject
to earlier termination in certain circumstances), but provided for automatic
one-year extensions unless either party gave notice that the agreement was not
to be extended. The agreement also provided that Mr. Bolduc would be nominated
for election as a director during the term of the agreement. Under the
agreement, Mr. Bolduc was entitled to participate in all incentive compensation
and bonus plans maintained by the Company for its senior executives and to
participate in all benefit plans
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<PAGE> 121
available to employees generally, as well as to the following: an annual base
salary of at least $800,000; an annual incentive compensation award (bonus)
equal to at least 50% of his base salary for the relevant year; an annual grant
of options covering at least 30,000 shares of Common Stock; and an annual
supplementary pension equal to the sum of the amounts payable annually under the
Company's basic and supplemental retirement plans (see "Pension Arrangements"
above), but in no event less than 50% of Mr. Bolduc's "pensionable compensation"
(annual base salary and annual incentive compensation, without giving effect to
any voluntary deferrals) during specified periods of his employment. The
agreement also provided for payments in the case of Mr. Bolduc's disability or
death or the termination of his employment with or without cause; in the latter
case, the agreement provided that Mr. Bolduc would be entitled to receive 150%
of his annual base salary for the remaining term of the agreement, subject to a
reduction of up to 50% for income earned for personal services following the
termination of his employment by the Company.
See "Resignations of Executive Officers" below for information concerning
arrangements with respect to Mr. Bolduc's resignation.
Severance Agreements. The Company has severance agreements with all of its
executive officers (other than Mr. Costello, whose employment agreement,
discussed above, provides for severance arrangements), as well as its other
officers. Each agreement provides that in the event of the involuntary
termination of the individual's employment or consulting services or a material
reduction in his or her authority or responsibility, in either case without
cause, following a change in control of the Company, he or she will receive a
severance payment equal to 2.99 times his or her average annual taxable
compensation for the five years preceding the change in control, plus certain
additional benefits, subject to reduction in certain cases to prevent the
recipient from incurring liability for excise taxes and the Company from
incurring nondeductible compensation expense. Dr. Hampers may instead elect to
receive the payments provided for under his employment agreement, if applicable.
For purposes of these severance agreements, a change in control would occur upon
the acquisition of 20% or more of the Company's Common Stock or the failure of
Company-nominated directors to constitute a majority of any class of the Board
of Directors.
The Board of Directors has authorized the amendment of such severance
agreements to conform the definition of "change in control" contained in such
agreements to the definition contained in Mr. Costello's employment agreement,
as it is to be amended (see "Employment Agreements" above). In addition,
pursuant to such amendment, the severance payment to be made under each
agreement would, until 1999, equal the greater of (1) the severance payment
described in the preceding paragraph or (2) three times the individual's annual
base salary plus bonus, plus a "gross up" payment to cover any excise tax
obligations resulting from the severance payment; in the event a change in
control occurs in 1999 or a subsequent year, the severance payment would be made
solely in accordance with clause (2).
Resignations of Executive Officers. In connection with his resignation in
March 1995, Mr. Bolduc and the Company entered into agreements providing for his
resignation and related matters ("Bolduc Resignation Arrangements"). Pursuant to
the Bolduc Resignation Arrangements, Mr. Bolduc's employment agreement with the
Company was terminated, he received a lump sum payment of $5,062,208 in
connection with the termination of the agreement and in lieu of monthly
severance payments that would otherwise have been due thereunder, and the
Company acquired from him 268,348 shares of the Company's Common Stock
(including 101,148 shares subject to restrictions on resale and 5,725 shares not
previously vested) for a purchase price of $12,075,660 (or $45 per share), less
$4,900 repaid to the Company pursuant to Section 16 of the Securities Exchange
Act of 1934, and less $400,000 in repayment of a loan made in 1987 to Mr. Bolduc
by a subsidiary of the Company. The Bolduc Resignation Arrangements also
provided for the payment to Mr. Bolduc of deferred compensation owed to him in
the aggregate principal amount of $1,529,604, plus interest, in quarterly
installments over a 10-year period commencing June 30, 1995, and for the payment
of gross pension benefits to Mr. Bolduc until his death (and, if his wife shall
survive him, to her until her death) of $848,585 per year commencing in April
1995, such pension benefits having been calculated as though Mr. Bolduc were
retiring at age 62 (rather than at his actual age of 55 years and 7 months).
Under the Bolduc Resignation Arrangements, Mr. Bolduc and his wife will continue
to receive medical coverage under the Company's retiree medical plan (subject to
payment by Mr. Bolduc of a portion of the premium on the same basis as other
retirees) and continued coverage under the Company's "split-dollar" life
insurance policy in the face amount
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<PAGE> 122
of $4.5 million previously maintained for Mr. Bolduc by the Company (with annual
premiums continuing to be shared by Mr. Bolduc and the Company in accordance
with the terms of the policy at a cost to the Company of approximately $300,000
per year until 2008, at which time the Company will receive a full return of all
premiums paid). In addition, Mr. Bolduc continued to hold previously granted
options covering 655,000 shares of the Company's Common Stock (including
previously unexercisable options covering 290,000 shares that, pursuant to the
Bolduc Resignation Arrangements, became exercisable immediately and at any time
through March 31, 1998). Mr. Bolduc received a payment of $1,250,000 in payment
of his rights under the LTIP, and his balance of approximately $620,000 under
the Savings Plan was paid to him in accordance with his election under the terms
of that Plan. The Bolduc Resignation Arrangements also provided Mr. Bolduc with
ownership of a car and certain office furniture previously provided to him by
the Company for his use and provided that the Company would reimburse Mr. Bolduc
for certain legal fees associated with his resignation and that he would be
entitled to the benefit of certain rights of indemnification by the Company, as
provided in its By-laws. In addition, in connection with Mr. Bolduc's
resignation as a director, the Company confirmed to Mr. Bolduc that he would be
entitled to indemnification by the Company to the full extent permitted by New
York law with respect to his service as a director. Mr. Bolduc agreed, in the
Bolduc Resignation Arrangements, not to engage in any business which is in
substantial competition with the Company in any of the Company's then core
businesses until he reaches the age of 62. Pursuant to the Bolduc Resignation
Arrangements, Mr. Bolduc released the Company and its affiliates, as well as
certain individuals, and the Company released Mr. Bolduc, with respect to all
claims, including any matters arising out of or related to Mr. Bolduc's
employment by the Company and his resignation (other than claims arising under
the Bolduc Resignation Arrangements). The agreements providing for the Bolduc
Resignation Arrangements were filed with the SEC as exhibits to the Company's
Annual Report on Form 10-K for the year ended December 31, 1994; the foregoing
description of such agreements does not purport to be complete and is qualified
in its entirety by reference to such agreements.
In connection with Dr. Boer's resignation as an executive officer of the
Company on June 15, 1995, he entered into an agreement with the Company
providing that (1) he would remain an employee, and continue to receive salary
and participate in the Company's benefit plans and program (other than its
Long-Term Disability Plan), through year-end 1995, at which time he would be
entitled to receive severance pay for 5 1/2 months (which, combined with the
salary received from June 15 to December 31, 1995, would equal one year of
severance pay); (2) he would be considered for an annual incentive compensation
award for 1995 consistent with the award paid to him in respect of 1994; (3) he
would remain a participant in the LTIP for the 1993-1995 Performance Period and,
on a pro rata basis, the 1994-1996 and 1995-1997 Performance Periods; (4)
certain restrictions on shares and stock options granted to him in 1991 would be
removed; and (5) his participation in the Company's split-dollar life insurance
program would be terminated, although he could elect to purchase the policy by
reimbursing the Company for the premiums paid on his behalf (approximately
$408,000). The agreement also provided that he would receive payment of amounts
due him under other Company plans and programs in accordance with their terms.
In connection with Mr. Smith's resignation as an executive officer of the
Company on July 18, 1995, he entered into arrangements with the Company
providing that (1) he would remain an employee, and continue to receive salary
and participate in the Company's benefit plans and programs (other than its
Long-Term Disability Plan), through July 1996; (2) he would be considered for an
annual incentive compensation award for 1995 consistent with the award paid to
him in respect of 1994; (3) he would remain a participant in the LTIP for the
1993-1995 Performance Period and, on a pro rata basis, the 1994-1996 and
1995-1997 Performance Periods; (4) certain restrictions on shares and stock
options granted to him in 1991 would be removed; and (5) his participation in
the Company's split-dollar life insurance program would be terminated, although
he could elect to purchase the policy by reimbursing the Company for the
premiums paid on his behalf (approximately $325,000). The agreement also
provided that he would receive payment of amounts due him under other Company
plans and programs in accordance with their terms.
The foregoing descriptions of the agreements with Dr. Boer and Mr. Smith do
not purport to be complete and are qualified in their entirety by reference to
such agreements, which have been filed with the SEC as exhibits to the Company's
Annual Report on Form 10-K for the year ended December 31, 1995.
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<PAGE> 123
Compensation Committee Interlocks and Insider Participation. Prior to May
10, 1995, the Compensation Committee consisted of Mr. Eckmann, as well as Roger
Milliken, John A. Puelicher and Eben W. Pyne (who retired from the Board on that
date); Peter S. Lynch (a director who has advised the Company that he will
resign from the Board effective the date of the Annual Meeting); and Robert C.
Macauley (a director who is not standing for re-election at the Annual Meeting).
On May 10, 1995, the Compensation Committee was reconstituted to consist of its
current members: Messrs. Eckmann, Holmes, Lynch and Phipps, as well as Edward W.
Duffy (a director who is not standing for re-election at the Annual Meeting). In
addition, Mr. Gossage served on the Compensation Committee from August 1995
until March 1996. As noted above, Mr. Holmes served as Acting President and
Chief Executive Officer of the Company from March 2 to May 1, 1995. During 1995,
the Company purchased approximately $1.1 million of products from, and sold
approximately $46,000 of products to, Hercules, of which Mr. Gossage is Chairman
and Chief Executive Officer. See "Report of the Compensation Committee on
Executive Compensation" below for information concerning the modification of the
Company's executive compensation program by the reconstituted Compensation
Committee.
RELATIONSHIPS AND TRANSACTIONS WITH MANAGEMENT AND OTHERS
The following are descriptions of certain relationships and transactions
between the Company and its directors and executive officers (or members of
their families) and/or businesses with which they are affiliated. Information
regarding certain consulting arrangements appears above under "Directors'
Compensation and Consulting Arrangements" and "Arrangements with J. Peter Grace,
Jr." under the heading "Executive Compensation."
Commercial Transactions. Mr. Costello is a director of FMC Corp. ("FMC").
During 1995, various units of the Company purchased approximately $3.4 million
of materials and/or products from, and sold approximately $161,000 of materials
and/or products to, units of FMC.
Mr. Gossage, Chairman and Chief Executive Officer of Hercules, was a
director of the Company from July 1995 to March 1996. During 1995, the Company
purchased approximately $1.1 million of products from, and sold approximately
$46,000 of products to, Hercules.
The foregoing transactions were in the ordinary course of business and were
on terms believed to be similar to those with unaffiliated parties.
Loans to Officers. In 1987, a subsidiary of the Company made an
interest-free loan of $400,000 to Mr. Bolduc in connection with his previous
relocation to the New York City area; this loan was repaid in 1995 in connection
with Mr. Bolduc's severance arrangements (see "Executive
Compensation -- Resignations of Executive Officers" above). The Company has also
made interest-free loans to the following executive officers in connection with
relocations: Mr. Greze -- $400,000; Fred Lempereur (a Senior Vice President) --
$350,000; and Ian Priestnell (a Vice President) -- $458,000. Mr. Greze's loan is
to be repaid upon the sale of his Florida residence or, if earlier, December 31,
1996.
J. Peter Grace, III. J. Peter Grace, III is a son of J. Peter Grace, Jr.
From July 1990 until his resignation in November 1994, Mr. Grace III was the
Chairman of Grace Hotel Services Corporation ("GHSC"), a wholly owned subsidiary
of the Company engaged in the business of providing food and beverage service at
hotels. As reported in the Proxy Statement for the Company's 1995 Annual
Meeting, in connection with discussions between Mr. Grace III and the Company
regarding the possible acquisition of GHSC by Mr. Grace III and others, Mr.
Grace III formed a new corporation, HSC Holding Co., Inc. ("HSC"), to facilitate
such acquisition. Following Mr. Grace III's resignation, the Company, GHSC, Mr.
Grace III and HSC entered into negotiations providing for the repayment of all
funds that had been provided to HSC by GHSC. As a result of these negotiations,
HSC, GHSC and the Company entered into a letter agreement in December 1994
("December 1994 Letter Agreement").
Pursuant to the December 1994 Letter Agreement, HSC paid $1 million to GHSC
and deposited $381,000 into an escrow account ("Escrow Amount") pending a final
determination of the amounts due to GHSC in repayment of all working capital
provided by GHSC to HSC and for other costs and expenses
E-12
<PAGE> 124
incurred by GHSC on behalf of HSC. In March 1995, $213,425 of the Escrow Amount
was released to the Company. The Company claimed that HSC owed an additional
$201,069 to GHSC; HSC disputed this claim. Following the commencement of an
arbitration proceeding in accordance with the terms of the December 1994 Letter
Agreement, the Company and GHSC entered into a settlement agreement with HSC
pursuant to which (1) GHSC was paid $110,313 of the remaining Escrow Amount
(together with interest) and (2) the balance of the Escrow Amount was returned
to HSC.
To date, no demands from any third party have been made against either GHSC
or the Company arising out of the activities of HSC that have resulted in any
payment by either GHSC or the Company. The December 1994 Letter Agreement also
granted HSC the opportunity, on a nonexclusive basis, to acquire GHSC on or
before March 14, 1995, subject to terms and conditions to be agreed upon.
However, neither Mr. Grace III nor HSC has entered into any agreement or
understanding with the Company concerning the acquisition of GHSC, and this
provision of the December 1994 Letter Agreement has lapsed in accordance with
its terms.
The December 1994 Letter Agreement and other agreements relating to the
above matters were filed as exhibits to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994, and the settlement agreement referred to
above was filed as an exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995. The foregoing description of such
documents does not purport to be complete and is qualified in its entirety by
reference to such documents and to the Proxy Statement for the Company's 1995
Annual Meeting, which contained additional information concerning the foregoing
matters.
Legal Proceedings; Insurance; Indemnification.
[Text omitted.]
In March 1996, two purported shareholder derivative class actions were
filed in New York State Supreme Court, New York County, against the Company and
Mr. Costello alleging that the defendants breached their fiduciary duties to the
Company's shareholders by failing to investigate and consider fully a proposal
by Hercules to acquire or merge with Grace. The lawsuits seek injunctive relief
ordering defendants to carry out their fiduciary duties by considering and
evaluating such proposal, unspecified monetary damages, costs and counsel fees
and such other relief as the Court deems proper.
[Text omitted.]
The Company maintains director and officer liability insurance covering
directors and officers of the Company and its subsidiaries. Such insurance
includes, among other things, coverage with respect to claims made against
directors and officers within six years after May 10, 1995 relating to conduct
prior to that date. However, such insurance provides for various deductibles and
exclusions, some of which are substantial, and may therefore not provide
coverage with respect to all or a portion of certain claims, including certain
of the lawsuits described above. Such insurance is currently provided by
Corporate Officers' and Directors' Assurance Ltd., X.L. Insurance Company Ltd.,
Gulf Insurance Company and A.C.E. Insurance Company Ltd. under contracts dated
November 4, 1995. The annual premiums for such insurance total approximately
$1.2 million.
In April 1995, the Board of Directors resolved that the Company would
provide certain contractual rights of indemnification (including related
reimbursement and advances of expenses) to directors, and would seek to maintain
directors' and officers' liability insurance covering certain potential
obligations for at least six years, provided that the Company would not be
obligated to spend more than 150% of the then current annual premiums to
maintain such insurance.
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<PAGE> 125
SECURITY OWNERSHIP OF MANAGEMENT AND OTHERS
MANAGEMENT SECURITY OWNERSHIP
The following tables set forth the Common and Preferred Stock of the
Company beneficially owned at February 1, 1996 by each current director and
nominee, by each of the executive officers named in the Summary Compensation
Table set forth under "Election of Directors -- Executive Compensation" above
(other than those who resigned in 1995), and by such directors and executive
officers as a group. The tables include shares owned by (1) those persons and
their spouses, minor children and certain relatives, (2) trusts and
custodianships for their benefit and (3) trusts and other entities as to which
the persons have the power to direct the voting or investment of securities
(including shares as to which the persons disclaim beneficial ownership). The
Common Stock table includes shares in accounts under the Savings Plan and shares
covered by currently exercisable stock options; it does not reflect shares
covered by unexercisable stock options (see "Election of Directors -- Executive
Compensation -- Stock Options" above). The bracketed figures in the tables
indicate the percentage of the class represented by the shares shown (if over
1%), based on the shares outstanding at March 21, 1996. The Common and Preferred
Stocks owned by directors and executive officers as a group (excluding option
shares) at February 1, 1996 represent approximately 1.7% of the voting power of
all the Company's stock outstanding at March 21, 1996.
COMMON STOCK
<TABLE>
<CAPTION>
AMOUNT/NATURE
OF OWNERSHIP
-------------
<S> <C>
A. J. Costello*................ 5,000
G. C. Dacey.................... 1,195
E. W. Duffy.................... 2,490
H. A. Eckmann.................. 2,923
M. A. Fox...................... 200
J. W. Frick.................... 2,400
J. L. Greze.................... 26,695
168,000(O)
C. L. Hampers.................. 8,600
50,000(T)
290,000(O)
T. A. Holmes................... 3,590
P.D. Houchin................... 7,719
94,000(O)
V. A. Kamsky................... 2,100
<CAPTION>
AMOUNT/NATURE
OF OWNERSHIP
-------------
<S> <C>
D. H. Kohnken.................. 37,731
275,500(O)
P. S. Lynch.................... 6,505
R. C. Macauley................. 2,005
J. E. Phipps................... 11,090
17,450(T,S)
E. J. Sullivan................. 2,700
T. A. Vanderslice.............. 0
Various directors, executive
officers and others, as
Trustees..................... 2,696(T,S)
Directors and executive
officers as a group.......... 170,886*
50,000(T)
20,146(T,S)
1,390,834(O)
</TABLE>
PREFERRED STOCKS
<TABLE>
<CAPTION>
AMOUNT/NATURE OF OWNERSHIP
--------------------------------------
CLASS B
6% PREFERRED PREFERRED
------------------ ---------------
<S> <C> <C>
Various executive officers and others, with respect to
the W. R. Grace & Co. Retirement Plan for Salaries
Employees........................................... 9,648 (T,S)[26.5%] 959 (T,S)[4.4%]
Directors and executive officers as a group........... 9,648 (T,S)[26.5%] 959 (T,S)[4.4%]
</TABLE>
- ---------------
* Does not include 20,100 shares purchased by Mr. Costello in February 1996.
(O) Shares covered by stock options exercisable on or within 60 days after
February 1, 1996.
(T) Shares owned by trusts and other entities as to which the person has the
power to direct voting and/or investment.
(S) Shares as to which the person shares voting and/or investment power with
others.
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<PAGE> 126
ANNEX F
FINANCIAL SUPPLEMENT
TO
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1995
W. R. GRACE & CO. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE AND EXHIBITS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Certified Public Accountants on Financial Statement
Schedule........................................................................ F-2
Consent of Independent Certified Public Accountants............................... F-2
Report of Independent Certified Public Accountants................................ F-3
Consolidated Statement of Operations for the three years in the period ended
December 31, 1995............................................................... F-4
Consolidated Statement of Cash Flows for the three years in the period ended
December 31, 1995............................................................... F-5
Consolidated Balance Sheet at December 31, 1995 and 1994.......................... F-6
Consolidated Statement of Shareholders' Equity for the three years in the period
ended December 31, 1995......................................................... F-7
Notes to Consolidated Financial Statements........................................ F-8-F-26
Quarterly Summary and Statistical Information -- Unaudited........................ F-27
Capital Expenditures, Net Fixed Assets and Depreciation and Lease Amortization.... F-28
Financial Summary................................................................. F-29
Management's Discussion and Analysis of Results of Operations and Financial
Condition....................................................................... F-30
Financial Statement Schedule
Schedule VIII-Valuation and Qualifying Accounts and Reserves.................... F-36
Exhibit 11: Weighted Average Number of Shares and Earnings Used in Per Share
Computations.................................................................... F-37
Exhibit 12: Computation of Ratio of Earnings to Fixed Charges and Combined Fixed
Charges and Preferred Stock Dividends........................................... F-38
</TABLE>
The financial data listed above appearing in this Financial Supplement are
incorporated by reference herein. The Financial Statement Schedule should be
read in conjunction with the Consolidated Financial Statements and Notes
thereto. Financial statements of 50%- or less-owned persons and other persons
accounted for by the equity method have been omitted as provided in Rule 3-09 of
Securities and Exchange Commission Regulation S-X. Financial Statement Schedules
not included have been omitted because they are not applicable or the required
information is shown in the Consolidated Financial Statements or Notes thereto.
F-1
<PAGE> 127
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Shareholders and Board of Directors of W. R. Grace & Co.
Our audits of the consolidated financial statements referred to in our report
dated January 31, 1996 appearing on page 50 of the 1995 Annual Report to
Shareholders of W. R. Grace & Co. (which report and consolidated financial
statements are included in this Annual Report on Form 10-K) also included an
audit of the Financial Statement Schedule listed on page F-1 in the Index to
Consolidated Financial Statements and Financial Statement Schedule and Exhibits
of this Form 10-K. In our opinion, this Financial Statement Schedule presents
fairly, in all material respects, the information set forth therein when read
in conjunction with the related consolidated financial statements.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Ft. Lauderdale, Florida
January 31, 1996
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting parts of the Registration Statements on Form S-3 (Nos. 33-51041,
33-50983 and 33-25962) and Form S-8 (Nos. 33-7504, 33-15182, 33-27960,
33-54201, 33-54203 and 33-59041) of W. R. Grace & Co. of our report dated
January 31, 1996 appearing on page 50 of the 1995 Annual Report to
Shareholders, which report is included at page F-3 of this Annual Report on
Form 10-K. We also consent to the incorporation by reference of our report on
the Financial Statement Schedule, which appears above.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Ft. Lauderdale, Florida
March 29, 1996
F-2
<PAGE> 128
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
Management is responsible for the preparation, as well as the integrity and
objectivity, of the consolidated financial statements and other financial
information included in this report. Such financial information has been
prepared in conformity with generally accepted accounting principles and
accordingly includes certain amounts that represent management's best
estimates and judgments.
For many years, management has maintained internal control systems to
assist it in fulfilling its responsibility for financial reporting,
including careful selection of personnel; segregation of duties; formal
business, accounting and reporting policies and procedures; and an internal
audit function. While no system can ensure elimination of all errors and
irregularities, Grace's systems, which are reviewed and modified in response
to changing conditions, have been designed to provide reasonable assurance
that assets are safeguarded, policies and procedures are followed and
transactions are properly executed and reported. The concept of reasonable
assurance is based on the recognition that there are limitations in all
systems and that the cost of such systems should not exceed the benefits to
be derived.
The Audit Committee of the Board of Directors, which is comprised of
directors who are neither officers nor employees of nor consultants to
Grace, meets regularly with Grace's senior financial personnel, internal
auditors and independent certified public accountants to review audit plans
and results as well as the actions taken by management in discharging its
responsibilities for accounting, financial reporting and internal control
systems. The Audit Committee reports its findings, and recommends the
selection of independent certified public accountants, to the Board of
Directors. Grace's management, internal auditors and independent certified
public accountants have direct and confidential access to the Audit
Committee at all times.
The independent certified public accountants are engaged to conduct the
audits of and render a report on the consolidated financial statements in
accordance with generally accepted auditing standards. These standards
require a review of the systems of internal controls and tests of
transactions to the extent considered necessary by the independent certified
public accountants for purposes of supporting their opinion as set forth in
their report.
Albert J. Costello Peter D. Houchin
Chairman, President and Senior Vice President
Chief Executive Officer and Chief Financial Officer
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
PRICE WATERHOUSE LLP January 31, 1996
One East Broward Boulevard
Ft. Lauderdale, FL 33301
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF W. R. GRACE & CO.
In our opinion, the consolidated financial statements appearing on pages F-4
through F-25 of this report present fairly, in all material respects, the
financial position of W. R. Grace & Co. and subsidiaries (Grace) at December
31, 1995 and 1994, and the results of their operations and their cash flows
for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of Grace's management; our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
Price Waterhouse LLP
F-3
<PAGE> 129
CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
W. R. Grace & Co. and Subsidiaries
CONSOLIDATED STATEMENT OF OPERATIONS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Dollars in millions, except per share amounts 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales and revenues .................................................................. $3,665.5 $3,218.2 $2,895.5
Other income (Note 4) ............................................................... 41.9 42.6 57.8
-------- -------- --------
Total ........................................................................... 3,707.4 3,260.8 2,953.3
-------- -------- --------
Cost of goods sold and operating expenses ........................................... 2,243.7 1,900.8 1,746.7
Selling, general and administrative expenses ........................................ 905.6 773.6 673.1
Depreciation and amortization ....................................................... 186.3 165.0 153.5
Interest expense and related financing costs (Note 10) .............................. 71.3 49.5 42.9
Research and development expenses ................................................... 120.6 106.8 111.5
Corporate expenses previously allocated to health care operations ................... 37.8 37.1 37.4
Restructuring costs and asset impairments (Note 5) .................................. 179.5 -- --
Provision relating to asbestos-related liabilities and insurance coverage (Note 2) .. 275.0 316.0 159.0
-------- -------- --------
Total ........................................................................... 4,019.8 3,348.8 2,924.1
-------- -------- --------
(Loss)/income from continuing operations before income taxes ........................ (312.4) (88.0) 29.2
(Benefit from)/provision for income taxes (Note 6) .................................. (115.8) (46.6) 10.1
-------- -------- --------
(Loss)/income from continuing operations ............................................ (196.6) (41.4) 19.1
(Loss)/income from discontinued operations (Note 7) ................................. (129.3) 124.7 6.9
-------- -------- --------
Net (loss)/income ................................................................... $ (325.9) $ 83.3 $ 26.0
======== ======== ========
(Loss)/earnings per share:
Continuing operations ........................................................... $ (2.05) $ (.45) $ .20
Net (loss)/earnings ............................................................. $ (3.40) $ .88 $ .28
Fully diluted (loss)/earnings per share:
Continuing operations ........................................................... $ - (1)$ - (1)$ .20
Net (loss)/earnings ............................................................. $ - (1)$ .88 $ .28
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The Notes to Consolidated Financial Statements, pages F-8 to F-25, are integral
parts of these statements.
(1) Not presented as the effect is anti-dilutive.
F-4
<PAGE> 130
CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Dollars in millions 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
(Loss)/income from continuing operations before income taxes ...................... $ (312.4) $ (88.0) $ 29.2
Reconciliation to cash provided by operating activities:
Depreciation and amortization ................................................. 186.3 165.0 153.5
Provision relating to asbestos-related liabilities and insurance coverage ..... 275.0 316.0 159.0
Noncash charge relating to restructuring costs and asset impairments .......... 159.9 -- --
Changes in assets and liabilities, excluding effect of businesses
acquired/divested and foreign exchange:
Increase in notes and accounts receivable, net ............................ (44.7) (159.5) (103.2)
Increase in inventories ................................................... (62.1) (43.4) (50.5)
Net (payments for)/proceeds from settlements of interest rate agreements .. -- (4.0) 67.9
Proceeds from asbestos-related insurance settlements ...................... 257.3 138.6 74.6
Payments made for asbestos-related litigation settlements, judgments and
defense costs ............................................................ (160.3) (198.6) (177.7)
(Decrease)/increase in accounts payable ................................... (48.3) 10.3 50.1
Other ..................................................................... (21.0) 74.5 (173.9)
-------- ------- -------
Net pretax cash provided by operating activities of continuing operations ......... 229.7 210.9 29.0
Net pretax cash provided by operating activities of discontinued operations ....... 114.2 328.6 316.8
-------- ------- -------
Net pretax cash provided by operating activities .................................. 343.9 539.5 345.8
Income taxes paid ................................................................. (236.9) (86.0) (102.7)
-------- ------- -------
Net cash provided by operating activities ......................................... 107.0 453.5 243.1
-------- ------- -------
INVESTING ACTIVITIES (1)
Capital expenditures .............................................................. (537.6) (444.6) (309.6)
Businesses acquired in purchase transactions, net of cash acquired and debt assumed (37.4) (276.9) (306.6)
Increase in net assets of discontinued operations ................................. (295.2) (32.9) (43.1)
Net proceeds from divestments ..................................................... 56.7 583.9 464.8
Net proceeds from sale/leaseback transactions ..................................... -- -- 27.2
Proceeds from disposals of assets ................................................. 17.9 34.0 15.4
Other ............................................................................. (6.0) 34.9 --
-------- ------- -------
Net cash used for investing activities ............................................ (801.6) (101.6) (151.9)
-------- ------- -------
FINANCING ACTIVITIES (2)
Dividends paid .................................................................... (112.6) (132.0) (128.4)
Repayments of borrowings having original maturities in excess of three months ..... (68.1) (141.2) (512.6)
Increase in borrowings having original maturities in excess of three months ....... 148.5 535.1 373.0
Net increase in/(repayments of) borrowings having original maturities
of less than three months. ....................................................... 414.9 (605.8) 155.7
Stock options exercised ........................................................... 164.1 20.9 21.0
Increase/(decrease) in net financing activities of discontinued operations ........ 120.8 .2 (15.5)
Other ............................................................................. (11.9) -- .9
-------- ------- -------
Net cash provided by/(used for) financing activities .............................. 655.7 (322.8) (105.9)
-------- ------- -------
Effect of exchange rate changes on cash and cash equivalents ...................... 1.2 1.6 (.5)
-------- ------- -------
(Decrease)/increase in cash and cash equivalents .................................. (37.7) 30.7 (15.2)
-------- ------- -------
Cash and cash equivalents, beginning of year ...................................... 78.3 47.6 62.8
-------- ------- -------
Cash and cash equivalents, end of year ............................................ $ 40.6 $ 78.3 $ 47.6
======== ======= =======
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The Notes to Consolidated Financial Statements, pages F-8 to F-25, are integral
parts of these statements.
(1) See Note 3 to the Consolidated Financial Statements for supplemental
information relating to noncash investing activities.
(2) See Notes 3 and 10 to the Consolidated Financial Statements for
supplemental information relating to noncash financing activities.
F-5
<PAGE> 131
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Dollars in millions, except par value December 31, 1995 1994
- -------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents ............................................. $ 40.6 $ 78.3
Notes and accounts receivable, net (Note 8) ........................... 596.8 975.7
Inventories (Note 8) .................................................. 491.9 514.2
Net assets of discontinued operations (Note 7) ........................ 323.7 335.6
Deferred income taxes ................................................. 206.1 295.4
Other current assets .................................................. 22.2 29.7
-------- --------
TOTAL CURRENT ASSETS ............................................... 1,681.3 2,228.9
Properties and equipment, net (Note 9) ................................ 1,736.1 1,730.1
Goodwill, less accumulated amortization of $20.6 (1994 - $71.8) ....... 111.8 672.5
Net assets of discontinued operations - health care (Note 7) .......... 1,435.3 --
Asbestos-related insurance receivable (Note 2) ........................ 321.2 512.6
Deferred income taxes ................................................. 386.6 115.7
Other assets (Note 8) ................................................. 625.3 970.8
-------- --------
TOTAL ASSETS ....................................................... $6,297.6 $6,230.6
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt (Note 10) ............................................. $ 638.3 $ 430.9
Accounts payable ...................................................... 339.2 433.7
Income taxes .......................................................... 103.3 197.0
Other current liabilities ............................................. 836.4 872.9
Minority interest (Note 13) ........................................... 297.0 297.0
-------- --------
TOTAL CURRENT LIABILITIES .......................................... 2,214.2 2,231.5
Long-term debt (Note 10) .............................................. 1,295.5 1,098.8
Other liabilities ..................................................... 789.0 690.9
Deferred income taxes ................................................. 44.8 92.5
Noncurrent liability for asbestos-related litigation (Note 2) ......... 722.3 612.4
-------- --------
TOTAL LIABILITIES .................................................. 5,065.8 4,726.1
-------- --------
COMMITMENTS AND CONTINGENCIES (Notes 2, 7, 10 and 12)
SHAREHOLDERS' EQUITY (Note 14)
Preferred stocks, $100 par value ...................................... 7.4 7.4
Common stock, $1 par value; 300,000,000 shares authorized;
outstanding at December 31: 1995 - 97,375,000; 1994 - 94,083,000 .. 97.4 94.1
Paid in capital ....................................................... 459.8 308.8
Retained earnings ..................................................... 709.0 1,147.5
Cumulative translation adjustments .................................... (39.4) (53.3)
Treasury stock, 53,000 common shares, at cost ......................... (2.4) --
-------- --------
TOTAL SHAREHOLDERS' EQUITY ......................................... 1,231.8 1,504.5
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ......................... $6,297.6 $6,230.6
======== ========
- -------------------------------------------------------------------------------------------
</TABLE>
The Notes to Consolidated Financial Statements, pages F-8 to F-25, are
integral parts of these statements.
F-6
<PAGE> 132
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------
Dollars in millions 1995 1994 1993
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PREFERRED STOCKS
Balance, beginning of year ............................................ $ 7.4 $ 7.4 $ 7.5
Other ................................................................. -- -- (.1)
--------- -------- --------
Balance, end of year .................................................. 7.4 7.4 7.4
--------- -------- --------
COMMON STOCK
Balance, beginning of year ............................................ 94.1 93.5 89.9
Conversion of notes and debentures .................................... -- -- 2.8
Stock options and awards .............................................. 3.3 .6 .7
Acquisition ........................................................... -- -- .1
--------- -------- --------
Balance, end of year .................................................. 97.4 94.1 93.5
--------- -------- --------
PAID IN CAPITAL
Balance, beginning of year ............................................ 308.8 287.8 151.4
Conversion of notes and debentures .................................... -- -- 109.7
Stock options and awards .............................................. 151.1 20.5 22.9
Acquisition ........................................................... -- -- 3.7
Other ................................................................. (.1) .5 .1
--------- -------- --------
Balance, end of year .................................................. 459.8 308.8 287.8
--------- -------- --------
RETAINED EARNINGS
Balance, beginning of year ............................................ 1,147.5 1,196.2 1,298.6
Net (loss)/income ..................................................... (325.9) 83.3 26.0
Dividends paid ........................................................ (112.6) (132.0) (128.4)
--------- -------- --------
Balance, end of year .................................................. 709.0 1,147.5 1,196.2
--------- -------- --------
CUMULATIVE TRANSLATION ADJUSTMENTS
Balance, beginning of year ............................................ (53.3) (67.3) (2.4)
Translation adjustments ............................................... 13.9 14.0 (64.9)
--------- -------- --------
Balance, end of year .................................................. (39.4) (53.3) (67.3)
--------- -------- --------
TREASURY STOCK
Balance, beginning of year ............................................ -- -- --
Purchases of common stock ............................................. (12.1) -- --
Shares issued under stock option plans ................................ 9.7 -- --
--------- -------- --------
Balance, end of year .................................................. (2.4) -- --
--------- -------- --------
TOTAL SHAREHOLDERS' EQUITY ............................................ $1,231.8 $1,504.5 $1,517.6
======== ======== ========
- ------------------------------------------------------------------------------------------------------
</TABLE>
The Notes to Consolidated Financial Statements, pages F-8 to F-25, are
integral parts of these statements.
F-7
<PAGE> 133
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Dollars in millions, except per share amounts
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING AND FINANCIAL REPORTING POLICIES
- --------------------------------------------------------------------------------
W. R. Grace & Co., through its subsidiaries, is primarily engaged in the
packaging and specialty chemicals businesses on a worldwide basis. W. R.
Grace & Co. has classified its other businesses as discontinued operations,
the most significant of which are its health care and cocoa businesses. As
used in these notes to the consolidated financial statements, the term
"Company" refers to W. R. Grace & Co., a New York corporation, and the term
"Grace" refers to the Company and/or one or more of its subsidiaries.
PRINCIPLES OF CONSOLIDATION The consolidated financial statements include
the accounts of Grace and majority-owned companies. Intercompany
transactions and balances are eliminated in consolidation. Investments in
affiliated companies (20%-50% owned) are accounted for under the equity
method.
RECLASSIFICATIONS Certain amounts in the prior years' consolidated
financial statements and related notes have been reclassified to conform to
the current year's presentation and as required with respect to discontinued
operations.
USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions affecting the reported amounts of assets and
liabilities (including disclosed amounts of contingent assets and
liabilities) at the date of the consolidated financial statements and the
reported revenues and expenses during the reporting period. Actual amounts
could differ from those estimates.
CASH EQUIVALENTS Cash equivalents consist of highly liquid instruments with
maturities of three months or less when purchased. The recorded amounts
approximate fair value because of the short maturities of these investments.
INVENTORIES Inventories are stated at the lower of cost or market. The
methods used to determine cost include first-in/first-out and, for
substantially all U.S. chemical inventories, last-in/first-out. Market
values for raw and packaging materials are based on current cost and, for
other inventory classifications, on net realizable value.
PROPERTIES AND EQUIPMENT Properties and equipment are stated at the lower
of cost or net realizable value. Depreciation of properties and equipment
is generally computed using the straight-line method over the estimated
useful lives of the assets. Interest is capitalized in connection with
major project expenditures and amortized, generally on a straight-line
basis, over the estimated useful lives of the assets.
Fully depreciated assets are retained in properties and equipment and
related accumulated depreciation accounts until they are removed from
service. In the case of disposals, assets and related depreciation are
removed from the accounts and the net amount, less any proceeds from
disposal, is charged or credited to income.
GOODWILL Goodwill arises from certain purchase transactions and is
amortized using the straight-line method over appropriate periods not
exceeding 40 years.
IMPAIRMENT Grace has adopted Statement of Financial Accounting Standards
(SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." In accordance with this Statement,
Grace reviews long-lived assets and related goodwill for impairment whenever
events or changes in circumstances indicate that the carrying amount of such
assets may not be fully recoverable.
INCOME TAXES Grace uses an asset and liability approach for the accounting
and financial reporting of income taxes.
FOREIGN CURRENCY TRANSLATION Foreign currency transactions and financial
statements (except for those relating to countries with highly inflationary
economies) are translated into U.S. dollars at current exchange rates,
except that revenues, costs and expenses are translated at average exchange
rates during each reporting period. The financial statements of
subsidiaries located in countries with highly inflationary economies must be
remeasured as if the functional currency were the U.S. dollar. The
remeasurement creates translation adjustments that are reflected in net
income. Allocations for income taxes included in the translation
adjustments account in shareholders' equity were not significant.
F-8
<PAGE> 134
FINANCIAL INSTRUMENTS Grace enters into interest rate agreements and
foreign exchange forward and option contracts to manage exposure to
fluctuations in interest and foreign currency exchange rates.
The cash differentials paid or received on interest rate agreements are
accrued and recognized as adjustments to interest expense. Gains and losses
realized upon settlement of these agreements (recorded as other liabilities
and other assets, respectively) are deferred and either amortized to
interest expense over a period relevant to the agreement if the underlying
hedged instrument remains outstanding, or recognized immediately if the
underlying hedged instrument is settled. Cash flows related to the
agreements are classified as operating activities in the Consolidated
Statement of Cash Flows, consistent with the interest payments on the
underlying debt.
Gains and losses on foreign currency forward and option contracts
offset gains and losses resulting from the underlying transactions. Gains
and losses on contracts that hedge specific foreign currency commitments are
deferred and recorded in net income in the period in which the related
transaction is consummated. Gains and losses on contracts that hedge net
investments in foreign subsidiaries are recorded in the cumulative
translation adjustments account in shareholders' equity.
EARNINGS PER SHARE Primary earnings per share are computed on the basis of
the weighted average number of common shares outstanding. Fully diluted
earnings per share assume the issuance of common stock equivalents related
to employee stock options and, prior to 1994, the conversion of convertible
debt (with an increase in net income for the after-tax interest savings).
- -------------------------------------------------------------------------------
2. ASBESTOS AND RELATED INSURANCE LITIGATION
- -------------------------------------------------------------------------------
Grace is a defendant in lawsuits relating to previously sold
asbestos-containing products and anticipates that it will be named as a
defendant in additional asbestos-related lawsuits in the future. Grace was
a defendant in approximately 40,800 asbestos-related lawsuits at December
31, 1995 (47 involving claims for property damage and the remainder
involving approximately 92,400 claims for personal injury), as compared to
approximately 38,700 lawsuits at December 31, 1994 (65 involving claims for
property damage and the remainder involving approximately 67,900 claims for
personal injury).
PROPERTY DAMAGE LITIGATION
The plaintiffs in property damage lawsuits generally seek, among other
things, to have the defendants absorb the cost of removing, containing or
repairing the asbestos-containing materials in the affected buildings.
Through December 31, 1995, 129 asbestos property damage cases were dismissed
with respect to Grace without payment of any damages or settlement amounts;
judgments were entered in favor of Grace in 10 cases (excluding cases
settled following appeals of judgments in favor of Grace and a case in which
the plaintiff was granted a new trial on appeal); Grace was held liable for
a total of $74.7 in 7 cases (2 of which are on appeal); and 177 property
damage suits and claims were settled for a total of $421.8.
Included in the asbestos property damage lawsuits pending against Grace
and others at year-end 1995 was a class action, conditionally certified by
the U.S. Court of Appeals for the Fourth Circuit in 1993 and pending in a
U.S. District Court in South Carolina, covering all public and private
colleges and universities in the U.S. whose buildings contain asbestos
materials.
In July 1994, a South Carolina state court judge dismissed the claims
of most class members from another purported nationwide class action
asbestos property damage lawsuit. In his ruling, the judge held that a
South Carolina statute prohibits nonresidents from pursuing claims in the
South Carolina state courts with respect to buildings located outside the
state. The plaintiffs have requested that the court reconsider its
decision.
In December 1995, Grace entered into an agreement to settle a
Pennsylvania state court action, certified as a class action in 1992,
covering all commercial buildings in the U.S. leased in whole or in part to
the U.S. government on or after May 30, 1986. The terms of the settlement
agreement (which is subject to judicial review and approval after class
members have an opportunity to be heard) are not expected to have a
significant effect on Grace's consolidated results of operations or
financial position.
PERSONAL INJURY LITIGATION
Through December 31, 1995, approximately 10,100 asbestos personal injury
lawsuits involving 24,500 claims were dismissed with respect to Grace
without payment of any damages or settlement amounts (primarily on the basis
that Grace products were not involved), and approximately 23,700 such suits
involving 29,600 claims were disposed of for a total of $109.0.
ASBESTOS-RELATED LIABILITY
Subject to the factors discussed below, Grace estimates that its probable
liability with respect to the defense and disposition of asbestos property
damage and personal injury lawsuits and claims pending at December 31, 1995
and 1994 (and, in the case of the 1995 estimate, personal injury lawsuits
and claims expected to be filed through 1998), is as follows:
F-9
<PAGE> 135
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
December 31, 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
Current liability for asbestos-related litigation (1) .. $100.0 $100.0
Noncurrent liability for asbestos-related litigation ... 722.3 612.4
------ ------
Total asbestos-related liability ..................... $822.3 $712.4
- --------------------------------------------------------------------------------
</TABLE>
(1) Included in "Other current liabilities" in the Consolidated Balance Sheet.
In the fourth quarter of 1995, Grace recorded a noncash pretax charge
of $260.0 ($169.0 after-tax) for asbestos-related liabilities, primarily to
reflect the estimated costs to defend against and dispose of personal injury
claims expected to be filed through 1998; Grace believes that it now has
adequate experience to reasonably estimate the number of personal injury
claims to be filed through 1998 and the costs of defending against and
disposing of these claims. Other components of the 1995 provision include
increases in the estimated costs of defending against and disposing of
certain property damage cases pending at year-end 1995 and personal injury
lawsuits and claims filed during 1995.
While personal injury cases and claims are generally similar to each
other (differing only in the type of asbestos-related illness allegedly
suffered by the plaintiff), Grace's estimated liability for such cases and
claims is influenced by numerous variables that are difficult to predict
(including the insolvency of other former asbestos producers, cross-claims
by co-defendants, the rate at which new cases and claims are filed and the
defense and disposition costs associated with these cases and claims).
Consequently, actual costs may vary from any estimate. For these reasons,
Grace believes that it is not possible to reasonably estimate the number of
cases and claims to be filed after 1998 or the costs of defending against
and disposing of such cases and claims.
Each property damage case is unique in that the age, type, size and use
of the building, and the difficulty of asbestos abatement, if necessary,
vary from structure to structure; thus, the amounts involved in prior
dispositions of property damage cases are not necessarily indicative of the
amounts that may be required to dispose of such cases in the future. In
addition, in property damage cases, information regarding product
identification on a building-by-building basis (i.e., whether or not Grace
products were actually used in the construction of the building), the age,
type, size and use of the building, the jurisdictional history of prior
cases and the court in which the case is pending provide the only meaningful
guidance as to potential future costs. However, much of this information is
not yet available in some of the property damage cases currently pending
against Grace. Accordingly, it is not possible to estimate with precision
the costs of defending against and disposing of these cases. Further, Grace
believes that the number of property damage cases to be filed in the future
and the costs associated with these filings are not estimable.
ASBESTOS-RELATED INSURANCE RECEIVABLE
Grace's ultimate exposure with respect to its asbestos-related lawsuits and
claims will depend on the extent to which its insurance will cover damages
for which it may be held liable, amounts paid in settlement and litigation
costs. The following table shows Grace's total estimated insurance
recoveries in reimbursement for past and estimated future payments to defend
against and dispose of asbestos-related litigation and claims:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
December 31, 1995 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Notes receivable from insurance carriers - current, net of discounts of $4.3 in 1995 (1) ..... $ 62.0 $127.0
Notes receivable from insurance carriers - noncurrent, net of discounts of $7.3 in 1995 (2) .. 56.4 60.0
Asbestos-related insurance receivable ........................................................ 321.2 512.6
------ ------
Total amounts due from insurance carriers ................................................ $439.6 $699.6
====== ======
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Included in "Notes and accounts receivable, net" in the Consolidated
Balance Sheet.
(2) Included in "Other assets" in the Consolidated Balance Sheet.
At December 31, 1995, settlements with certain insurance carriers
provided for the future receipt by Grace of $130.0, which Grace has recorded
as notes receivable (both current and noncurrent) of $118.4, after
discounts. In 1995, Grace received a total of $257.3 pursuant to
settlements with insurance carriers in reimbursement for monies previously
expended by Grace in connection with asbestos-related litigation; of this
amount, $127.0 was received pursuant to settlements entered into in 1993 and
1994, which had previously been classified as notes receivable.
During 1995, Grace settled with an affiliated group of carriers that
had agreed to a settlement in 1993, had made a series of payments under that
agreement and had subsequently notified Grace that it would no longer honor
the agreement. Pursuant to the 1995 settlement, the group of carriers paid
Grace $44.0 in 1995 and agreed to make additional payments totalling $60.2
in 1996 and 1997 (which Grace has recorded as notes receivable, after
discounts, of $54.5). Pursuant to a settlement with another group of
carriers, Grace received $26.8 in 1995 and expects to receive an additional
payment of $9.7 in 1996. Under both settlements, Grace will continue to
receive payments based on future cash outflows for asbestos-related
litigation and claims; such payments are estimated to represent
approximately $237.3 of the asbestos-related receivable of $321.2 at
December 31, 1995.
F-10
<PAGE> 136
As a result of these settlements and a reassessment of its insurance
receivable, Grace recorded a noncash net pretax charge of $15.0 ($9.7
after-tax) during the fourth quarter of 1995 to reflect a reduction in the
receivable, primarily due to lower than anticipated settlements with
insurance carriers and a discount on notes receivable in connection with
prior settlements, partially offset by an increase in expected future
reimbursements of costs to defend against and dispose of property damage
cases pending at year-end 1995 and personal injury claims to be filed
through 1998.
INSURANCE LITIGATION
Grace continues to seek to recover from its excess insurers the balance of
the payments it has made with respect to asbestos-related litigation. As
part of this effort, Grace continues to be involved in litigation with
certain of its insurance carriers (having previously settled with certain
primary and excess carriers, as discussed above). For the period October
1962 through June 1985 -- the most relevant period for asbestos-related
litigation -- Grace purchased, on an annual basis, as much as eight levels
of excess insurance coverage. (In general, excess policies provide that
when claims paid exhaust coverage at one level, the insured may seek payment
from the carriers at the next higher level.) For that 23-year period, the
first six levels of excess insurance available from the insurance companies
that Grace believes to be solvent (based primarily upon reports from a
leading independent insurance rating service) provide nominal coverage of
approximately $1,200.0 (including the amounts reflected in the receivable
discussed above). However, (a) a portion of the personal injury lawsuits
and claims pending at year-end 1995 and expected to be filed against Grace
through 1998 will likely relate to periods for which no excess coverage is
available; and (b) even where such excess coverage is available, the number
of personal injury lawsuits and claims expected to be filed against Grace in
the future is not expected to be sufficient to result in significant
payments under such coverage. Further, as a result of the May 1994 decision
of the U.S. Court of Appeals for the Second Circuit, discussed below, a
significant portion of the nominal excess coverage is not available in
connection with property damage lawsuits. In addition, $142.0 of the
$1,200.0 relates to excess coverage written by a group of insurance carriers
that, while currently solvent, has experienced financial difficulties in
recent years. This group of carriers settled with Grace in 1995 (as
discussed above). The asbestos-related receivable of $321.2 at December 31,
1995 includes $54.7 to be paid by this group; management believes this
amount is fully collectible.
As previously reported, in September 1993 the U.S. Court of Appeals for
the Second Circuit ruled that, under New York law (which governs a
significant portion of the policies that provide Grace's asbestos-related
insurance coverage), such coverage is triggered based on the date of
installation of asbestos-containing materials. As a result of this decision
(which had the effect of reducing the amount of insurance coverage available
to Grace with respect to asbestos property damage litigation and claims),
Grace recorded a noncash pretax charge of $475.0 ($300.0 after-tax) in the
1993 third quarter. Grace reversed $316.0 ($200.0 after-tax) of the pretax
charge in the 1993 fourth quarter after the court withdrew its September
1993 decision and agreed to rehear the case, but reinstated the $316.0
pretax charge ($200.0 after-tax) in the second quarter of 1994, when the
court issued a new decision confirming its September 1993 decision. Because
Grace's insurance covers both property damage and personal injury lawsuits
and claims, the May 1994 decision has had the concomitant effect of reducing
the insurance coverage available with respect to Grace's asbestos personal
injury lawsuits and claims. However, in Grace's opinion, it is probable
that recoveries from its insurance carriers (including amounts reflected in
the receivable discussed above), along with other funds, will be available
to satisfy the personal injury and property damage lawsuits and claims
pending at December 31, 1995, as well as personal injury lawsuits and claims
expected to be filed through 1998. Consequently, Grace believes that the
resolution of its asbestos-related litigation will not have a material
adverse effect on its consolidated results of operations or financial
position.
- -------------------------------------------------------------------------------
3. ACQUISITIONS AND DIVESTMENTS
- -------------------------------------------------------------------------------
ACQUISITIONS
During 1995, Grace made acquisitions totalling $260.8 (inclusive of cash
acquired and debt assumed), all of which involved cash purchases of kidney
dialysis centers and medical imaging facilities by National Medical Care,
Inc. (NMC), Grace's principal health care subsidiary. Acquisitions in the
first quarter of 1995, prior to the classification of NMC as a discontinued
operation (see Note 7), totalled $41.1 (inclusive of cash acquired and debt
assumed). Acquisitions by NMC subsequent to the first quarter of 1995 are
presented as an investing activity and are included in "Increase in net
assets of discontinued operations" in the Consolidated Statement of Cash
Flows.
In 1994, Grace made acquisitions totalling $351.7 (inclusive of cash
acquired and debt assumed), primarily in health care. Grace acquired Home
Nutritional Services, Inc. for approximately $131.8 (inclusive of cash and
assumed debt totalling $30.4) and acquired kidney dialysis centers and other
health care businesses during 1994 for an aggregate of approximately $145.3
in cash. 1994 acquisitions also included construction chemicals businesses
and a European flexible packaging business.
In 1993, Grace acquired Home Intensive Care, Inc. for approximately
$129.0 in cash and acquired other health care businesses for an aggregate of
$115.0 in cash and $3.8 in common stock. Additionally, during 1993 Grace
acquired Latin America's largest water treatment business for approximately
$57.6 in cash.
F-11
<PAGE> 137
DIVESTMENTS
During 1995, Grace realized gross proceeds of $58.8 (inclusive of debt
assumed by the buyers) from divestments, including payments received in
connection with divestments completed in prior years. The operations
divested in 1995 consisted of three small units of Grace's construction
products business, the composite materials business (previously classified
as a discontinued operation), Grace's transportation services business and
various investments.
In 1994, Grace realized gross proceeds of $646.2 (inclusive of debt
assumed by the buyers) from divestments, including payments received in
connection with divestments completed in prior years. Substantially all of
the businesses divested during 1994 had previously been classified as
discontinued operations. Divestment proceeds received in 1994 included
$42.8 for Grace's remaining interest in The Restaurant Enterprises Group,
Inc. (REG).
In 1993, Grace completed the sale of substantially all of its oil and
gas operations, as well as certain corporate investments, all of which had
previously been classified as discontinued operations. Other noncore
businesses divested during 1993 included a 50% interest in a Japanese
chemical operation and a food industry hygiene services business for
approximately $31.4 and $11.2, respectively.
See Note 7 for a discussion of divestment activity related to
discontinued operations.
- -------------------------------------------------------------------------------
4. OTHER INCOME
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income ............................. $15.8 $1.3 $22.6
Equity in earnings of affiliated companies .. .2 2.1 .6
Gains on sales of investments ............... 3.1 27.3 22.9
Other, net .................................. 22.8 11.9 11.7
----- ----- -----
$41.9 $42.6 $57.8
===== ===== =====
- -------------------------------------------------------------------------------
</TABLE>
Interest income in 1995 and 1993 includes $9.8 and $20.0, respectively,
relating to the settlement of prior years' Federal income tax returns.
Gains on sales of investments include a 1994 gain of $27.0 on the sale of
Grace's remaining interest in REG and a 1993 gain of $21.7 on the sale of a
50% interest in a Japanese chemical operation (see Note 3). Other, net in
1995 includes a $5.4 gain on the sale of Grace's transportation services
business.
- -------------------------------------------------------------------------------
5. RESTRUCTURING COSTS AND ASSET IMPAIRMENTS
- -------------------------------------------------------------------------------
RESTRUCTURING COSTS
During the third quarter of 1995, Grace began implementing a worldwide
restructuring program aimed at streamlining processes and reducing general
and administrative expenses, factory administration costs and noncore
corporate research and development expenses. The program is expected to be
substantially completed by the end of 1996. In the third and fourth
quarters of 1995, Grace recorded pretax charges totalling $44.3 and $91.7
($27.2 and $61.9 after-tax), respectively, comprised of $77.4 for employee
termination benefits; $13.4 for plant closure and related costs, including
lease termination costs; $15.5 for prior business exits and related costs;
$20.8 for asset writedowns; and $8.9 for other costs. The $77.4 for
employee termination benefits primarily represents severance pay and other
benefits associated with the elimination of approximately 1,000 positions
worldwide; more than 50% of the total cost reductions will come from
corporate staff functions worldwide.
Through December 31, 1995, Grace recorded approximately $25.4 in costs
against its 1995 restructuring reserve, of which $19.6 represented cash
expenditures and $5.8 represented the noncash effects of asset writedowns
and losses on asset sales. The $19.6 of cash expenditures were comprised of
$13.0 in partial payments of employee termination benefits for over 500
employees, $3.0 for consulting services to develop the restructuring
program, and $3.6 of other costs.
ASSET IMPAIRMENTS
During 1995, Grace determined that, due to various events and changes in
circumstances (including the worldwide restructuring program described
above), certain long-lived assets and related goodwill were impaired. As a
result, in the fourth quarter of 1995, Grace recorded a $43.5 pretax charge
($29.0 after-tax), the majority of which related to assets that will
continue to be held and used in Grace's continuing operations; the charge
included no significant individual components. Grace determined the amount
of the charge based on various valuation techniques, including discounted
cash flow, replacement cost and net realizable value for assets to be
disposed of.
F-12
<PAGE> 138
- --------------------------------------------------------------------------------
6. INCOME TAXES
- --------------------------------------------------------------------------------
Grace applies SFAS No. 109, "Accounting for Income Taxes," which uses an
asset and liability approach requiring the recognition of deferred tax
assets and liabilities with respect to the expected future tax consequences
of events that have been recorded in the consolidated financial statements
and tax returns. If it is more likely than not that all or a portion of a
deferred tax asset will not be realized, a valuation allowance must be
recognized.
The components of (loss)/income from continuing operations before
income taxes and the related (benefit from)/provision for domestic and
foreign taxes are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
1995 1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic ................................ $ (424.0) $ (181.7) $ (70.5)
Foreign ................................. 111.6 93.7 99.7
-------- --------- -------
$ (312.4) $ (88.0) $ 29.2
======== ========= =======
Federal income taxes:
Current ................................ $ 34.3 $ (80.9) $ (.6)
Deferred ............................... (160.0) (6.4) (30.5)
State and local income taxes - current .. .7 1.9 3.0
Foreign income taxes:
Current ................................ 61.0 44.0 39.8
Deferred ............................... (51.8) (5.2) (1.6)
-------- --------- -------
$ (115.8) $ (46.6) $ 10.1
======== ========= =======
- ---------------------------------------------------------------------------
</TABLE>
The components of (loss)/income from consolidated operations before
income taxes and the related (benefit from)/provision for domestic and
foreign taxes are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic ............................................................................ $ (480.5) $ 44.3 $ (4.6)
Foreign ............................................................................. 72.7 94.8 95.9
-------- ------ -------
$ (407.8) $139.1 $ 91.3
======== ====== =======
Federal income taxes:
Current ......................................................................... $ 105.6 $ 25.3 $ 114.9
Deferred ........................................................................ (226.3) (34.8) (147.4)
State and local income taxes - current .............................................. 21.7 21.8 32.7
Foreign income taxes:
Current ......................................................................... 68.5 49.1 44.4
Deferred ........................................................................ (51.4) (5.6) 20.7
-------- ------ -------
$ (81.9) $ 55.8 $ 65.3
======== ====== =======
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
The components of consolidated (benefit from)/provision for taxes are as
follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Continuing operations ............................................................ $ (115.8) $(46.6) $ 10.1
Discontinued operations:
Operations .................................................................... 82.6 102.4 77.5
Loss on disposals of operations................................................ (48.7) -- (22.3)
-------- ------ -------
$ (81.9) $ 55.8 $ 65.3
======== ====== =======
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
F-13
<PAGE> 139
At December 31, 1995 and 1994, deferred tax assets and liabilities
consisted of the following items:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Reserves not yet deductible for tax purposes ...................................................... $223.6 $254.4
Provision relating to net asbestos-related expenses ............................................... 219.4 36.2
Research and development expenses ................................................................. 115.8 107.3
Postretirement benefits other than pensions ....................................................... 88.9 93.3
State deferred taxes .............................................................................. 70.1 37.5
Pension and insurance reserves .................................................................... 35.2 14.8
Capitalized inventory costs and inventory reserves ................................................ 11.9 15.3
Net operating loss carryforwards .................................................................. 47.1 54.4
Tax credit carryforwards .......................................................................... 27.2 49.0
Other ............................................................................................. 43.9 54.4
------ ------
Total deferred tax assets ..................................................................... 883.1 716.6
------ ------
Depreciation and amortization ..................................................................... 112.6 167.4
Prepaid pension cost .............................................................................. 104.8 72.3
Other ............................................................................................. 20.1 21.3
------ ------
Total deferred tax liabilities ................................................................ 237.5 261.0
------ ------
Valuation allowance for deferred tax assets ....................................................... 97.7 137.0
------ ------
Net deferred tax assets ....................................................................... $547.9 $318.6
====== ======
</TABLE>
The valuation allowance shown above arises from uncertainty as to the
realization of certain deferred tax assets, including U.S. tax credit
carryforwards, state and local net operating loss carryforwards and net
deferred tax assets. As a result of the favorable resolution of an audit,
the valuation allowance on net operating loss carryforwards in foreign
jurisdictions was reversed in 1995. Based upon anticipated future results,
Grace has concluded, after consideration of the valuation allowance, that it
is more likely than not that the remaining balance of the net deferred tax
assets will be realized.
At December 31, 1995, there were $25.3 of tax credit carryforwards with
expiration dates primarily through 1996 and $1.9 of tax credit carryforwards
with no expiration. Additionally, there were state and local and foreign
net operating loss carryforwards with a tax benefit of $47.1 and various
expiration dates.
The U.S. Federal corporate tax rate reconciles to the effective tax
rate for continuing operations as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Federal corporate tax rate ........................................ (35.0)% (35.0)% 35.0%
Increase/(decrease) in tax rate resulting from:
Nontaxable income/nondeductible expenses .............................. (.7) (1.4) (29.5)
Basis difference on sale of investment ................................ -- (10.5) --
State and local income taxes, net of U.S. Federal income tax benefit .. .2 1.5 6.8
U.S. and foreign taxes on foreign operations .......................... 9.8 .3 75.0
Utilization of general business credits ............................... (.5) (9.1) (18.5)
Impact of U.S. and foreign tax rate changes on deferred taxes ......... -- -- (25.2)
Valuation allowance for deferred tax assets ........................... (14.4) -- (2.8)
Other, net ............................................................ 3.5 1.2 (6.2)
------- ------- ------
Effective tax rate ..................................................... (37.1)% (53.0)% 34.6%
======= ======= ======
- --------------------------------------------------------------------------------------------------
</TABLE>
U.S. and foreign taxes have not been provided on approximately $256.1
of undistributed earnings of certain foreign subsidiaries, as such earnings
are expected to be retained indefinitely by such subsidiaries for
reinvestment. The distribution of these earnings would result in additional
foreign withholding taxes of approximately $14.9 and additional U.S. Federal
income taxes to the extent they are not offset by foreign tax credits. It
is not practicable to estimate the total tax liability that would be
incurred upon such a distribution.
F-14
<PAGE> 140
- --------------------------------------------------------------------------------
7. DISCONTINUED OPERATIONS
- --------------------------------------------------------------------------------
HEALTH CARE
In June 1995, the Company announced that its Board of Directors had approved
a plan to spin off NMC. As a result, Grace classified its health care
business as a discontinued operation in the second quarter of 1995 and,
accordingly, NMC's operations are included in "(Loss)/income from
discontinued operations" in the Consolidated Statement of Operations.
Following NMC's receipt in October 1995 of five investigative subpoenas
from the Office of the Inspector General of the U.S. Department of Health
and Human Services (OIG), as discussed below, the completion of the spin-off
of NMC, originally expected in the 1995 fourth quarter, was delayed.
In February 1996, Grace and Fresenius AG (Fresenius) entered into a
definitive agreement to combine NMC with Fresenius' worldwide dialysis
business (FWD) to create Fresenius Medical Care (FMC). As a result of the
combination, FMC would acquire NMC, which would remain responsible for all
liabilities arising out of the investigations, discussed below. However,
Grace would retain certain health care assets, primarily a bioseparation
sciences business, a health care services company and other assets
(including cash and marketable securities).
The combination would follow a borrowing of approximately $2.3 billion
by NMC, a tax-free distribution of the proceeds by NMC to Grace, and a
tax-free distribution by the Company, with respect to each share of its
Common Stock, of one share of a newly formed corporation holding all of
Grace's businesses (principally its specialty chemicals businesses) other
than NMC. As a result of the separation of Grace's specialty chemicals
businesses from NMC and the subsequent combination of NMC and FWD, the
holders of the Company's Common Stock would own 100% of the specialty
chemicals company and 44.8% of FMC, and Fresenius and other shareholders
would own 55.2% of FMC. The holders of the Company's Common Stock would
also own preferred stock, the value of which would be linked to the
performance of FMC. Completion of the various transactions is subject to
customary conditions, including the approval of the shareholders of the
Company and Fresenius; U.S., German and European regulatory actions; and
obtaining financing on satisfactory terms. Commitments for financing have
been received, and it is expected that the various transactions will be
completed by the third quarter of 1996.
OIG Investigative Subpoenas
In October 1995, NMC received five investigative subpoenas from the OIG.
The subpoenas call for the production of extensive documents relating to
various aspects of NMC's business. A letter accompanying the subpoenas
stated that they had been issued in conjunction with an investigation being
conducted by the OIG, the U.S. Attorney for the District of Massachusetts
and others, concerning possible violations of Federal laws relating to
health care payments and reimbursements.
The five subpoenas cover the following areas: (a) NMC's corporate
management, personnel and employees, organizational structure, financial
information and internal communications; (b) NMC's dialysis services
business, principally medical director contracts and compensation; (c) NMC's
treatment of credit balances resulting from overpayments received under the
Medicare end stage renal disease (ESRD) program and its payment of
supplemental medical insurance premiums on behalf of indigent patients; (d)
NMC's LifeChem laboratory business, including documents relating to testing
procedures, marketing, customers, competition and certain overpayments
totalling approximately $4.9 that were received by LifeChem from the
Medicare program with respect to laboratory services rendered between 1989
and 1993; and (e) NMC's Homecare Division and, in particular, information
concerning the intradialytic parenteral nutrition (IDPN) business described
below, including billing practices related to various services, equipment
and supplies and payments made to third parties as compensation for
administering IDPN therapy.
The results of the investigation and its impact, if any, cannot be
predicted at this time. In the event that a U.S. government agency believes
that any wrongdoing has occurred, civil and/or criminal proceedings could be
instituted, and if any such proceedings were to be instituted and the
outcome were unfavorable, NMC could be subject to fines, penalties and
damages or could become excluded from government reimbursement programs.
Any such result could have a material adverse effect on NMC's financial
position or the results of operations of NMC and Grace.
OBRA 93
The Omnibus Budget Reconciliation Act of 1993 (OBRA 93) affected the payment
of benefits under Medicare and employer health plans for certain eligible
ESRD patients. In July 1994, the Health Care Financing Administration
(HCFA) issued an instruction to Medicare claims processors to the effect
that Medicare benefits for the patients affected by OBRA 93 would be subject
to a new 18-month "coordination of benefits" period. This instruction had a
positive impact on NMC's dialysis revenues because, during the 18-month
coordination of benefits period, the patient's employer health plan was
responsible for payment, which was generally at a rate higher than that
provided under Medicare.
In April 1995, HCFA issued a new instruction, reversing its original
instruction in a manner that would substantially diminish the positive
effect of the initial instruction on NMC's dialysis business. Under the new
instruction, no 18-month coordination of benefits period would arise, and
Medicare would remain the primary payor. HCFA further proposed that its new
instruction be effective retroactive to August 1993, the effective date of
OBRA 93. Consequently, NMC may be required to refund payments
F-15
<PAGE> 141
received from employer health plans for services provided after August 1993
under HCFA's original instruction and to re-bill Medicare for the same
services, which would result in a cumulative reduction of net revenues to
NMC totalling approximately $120.0 as of December 31, 1995. Effective July
1, 1995, NMC ceased to recognize the incremental revenue realized under the
original instruction, which has resulted in a material reduction in NMC's
operating earnings in comparison to prior periods in which NMC recognized
such incremental revenue. However, NMC continued to bill the employer
health plans as primary payors through December 31, 1995, at which time NMC
commenced billing Medicare for the patients affected by OBRA 93.
In May 1995, NMC filed suit in the U.S. District Court for the District
of Columbia seeking a declaratory judgment with respect to HCFA's
instructions relating to OBRA 93. In June 1995, the court granted NMC's
motion for a preliminary injunction to preclude HCFA from retroactively
enforcing its new instruction. The litigation is continuing with respect to
NMC's request to permanently enjoin HCFA's new instruction, both
retroactively and prospectively. While there can be no assurance that a
permanent injunction will be issued, NMC believes that it will ultimately
prevail in its claim that the retroactive reversal by HCFA of its original
instruction relating to OBRA 93 was impermissible under applicable law. If
HCFA's revised instruction is upheld, NMC's business, financial position and
results of operations would be materially adversely affected, particularly
if the revised instruction is applied retroactively.
IDPN Therapy
NMC administers IDPN therapy to chronic dialysis patients who suffer from
severe gastrointestinal malfunctions. Since late 1993, Medicare claims
processors have applied medical coverage interpretations in a manner that
has sharply reduced the number of IDPN claims approved for payment as
compared to prior periods. NMC believes that the reduction in IDPN claims
currently being paid by Medicare represents an unauthorized policy coverage
change. Accordingly, NMC and other IDPN providers are pursuing various
administrative and legal remedies, including administrative appeals, to
address this reduction. In November 1995, NMC filed a complaint in the U.S.
District Court for the Middle District of Pennsylvania seeking a declaratory
judgment and injunctive relief to prevent the implementation to this policy
coverage change.
NMC management believes that its IDPN claims are consistent with
published Medicare coverage guidelines and ultimately will be approved for
payment. Such claims represent substantial accounts receivable of NMC,
amounting to approximately $93.0 and $28.0 as of December 31, 1995 and 1994,
respectively, and currently increasing at the rate of approximately $5.0 per
month. If NMC is unable to collect its IDPN receivable, or if IDPN coverage
is reduced or eliminated, depending on the amount of the receivable that is
not collected and/or the nature of the coverage change, NMC's business,
financial position and results of operations could be materially adversely
affected. In addition, a current draft of a new coverage policy would limit
or preclude continued coverage of IDPN therapy and thereby have a material
adverse effect on NMC's financial position and results of operations.
Other Legal Proceedings
NMC has received multiple subpoenas from a Federal grand jury in the
District of New Jersey investigating, among other things, NMC's efforts to
persuade the U.S. Food and Drug Administration to lift a January 1991 import
hold issued with respect to NMC's Dublin, Ireland facility, whether NMC sold
defective products, the manner in which NMC handled customer complaints and
the development of a new dialyzer product line. Grace has also received two
subpoenas relating to this investigation. In February 1996, the U.S.
Attorney for the District of New Jersey notified NMC that it is a target of
the New Jersey grand jury investigation, insofar as it relates to possible
violations of Federal criminal law in connection with efforts to affect the
January 1991 import hold referred to above; the material element of the
import hold was lifted in 1992. In addition, in December 1994, a subsidiary
of NMC received a subpoena from a Federal grand jury in the Eastern District
of Virginia investigating the contractual relationships between subsidiaries
of NMC that provide dialysis services and third parties that provide medical
directorship and related services to those subsidiaries. The outcome of
these investigations and their impact, if any, on NMC's business, financial
condition and results of operations cannot be predicted at this time.
COCOA, BATTERY SEPARATORS AND ENGINEERED MATERIALS AND SYSTEMS
In the second quarter of 1993, Grace classified as discontinued operations
its cocoa business; its battery separators business; certain engineered
materials businesses, principally its printing products, material technology
and electromagnetic radiation control businesses (collectively, EMS); and
other noncore businesses. At that time, a provision of $105.0 (net of an
applicable tax benefit of $22.3) was recorded to reflect the losses expected
on the divestment of these businesses.
During the fourth quarter of 1995, Grace revised the divestment plan
for its cocoa business. The revised plan focuses on the improvement of
operating cash flow through the adoption of new strategies and a new global
organizational structure, while simultaneously positioning the business for
sale. Grace expects to implement the revised plan and to conclude the sale
of its cocoa business by the fourth quarter of 1996. As a result of this
revised divestment plan, recent trends and a reassessment of forecasts for
all remaining discontinued operations, Grace recorded an additional
provision of $151.3 (net of an applicable tax benefit of $48.7) related to
its remaining discontinued operations, principally the cocoa business.
F-16
<PAGE> 142
During 1994, Grace sold its battery separators business and other EMS
businesses for gross proceeds of $316.2, approximating prior estimates. In
February 1995, Grace sold its composite materials business for gross
proceeds of $3.0, leaving its microwave business as the only unsold EMS
business.
GRACE ENERGY
In 1994, Grace sold substantially all of its interests in Colowyo Coal
Company (Colowyo), Grace's only remaining significant energy operation, for
proceeds of $218.3, including $192.8 of proceeds from a nonrecourse
financing secured by a portion of the revenues from certain long-term coal
contracts. Grace retained a limited partnership interest in Colowyo,
entitling it to share in the revenues from these coal contracts. In 1993,
Grace sold substantially all of its oil and gas operations for net cash
proceeds of $386.0. The total proceeds received from these divestments
approximated prior estimates.
OTHER
In 1994, Grace sold its animal genetics and Caribbean fertilizer operations
for proceeds of $44.1. These and other businesses were classified as
discontinued operations in 1993. In 1993, Grace completed the sale of its
minority interests in Canonie Environmental Services Corporation and
Grace-Sierra Horticultural Products Company for total proceeds of $41.3.
Losses from Grace's discontinued operations, other than its
discontinued health care operations, subsequent to their classification as
such were $45.2, $14.2 and $54.6 in 1995, 1994 and 1993, respectively; these
amounts have been charged against established reserves, including
adjustments to those reserves in 1995. The sales and revenues and results
of the discontinued health care operations for 1995, 1994 and 1993, and the
1993 sales and revenues and results of the other discontinued operations,
prior to their classification as such, are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------
1995 1994 1993
- -----------------------------------------------------------------------------------
HEALTH CARE
Sales and revenues ................................ $2,076.8 $1,875.1 $1,512.9
-------- -------- --------
Income from operations before taxes (1) ........... $ 104.6 $ 227.1 $ 192.0
Income tax provision .............................. 82.6 102.4 76.7
-------- -------- --------
Income from discontinued operations ............... $ 22.0 $ 124.7 $ 115.3
-------- -------- --------
- -----------------------------------------------------------------------------------
COCOA, BATTERY SEPARATORS AND EMS
Sales and revenues ................................ $ -- $ -- $ 235.9
-------- -------- --------
Loss from operations before taxes (1) ............. $ -- $ -- $ (.9)
Income tax provision .............................. -- -- (1.1)
-------- -------- --------
Loss from discontinued operations ................. $ -- $ -- $ (2.0)
-------- -------- --------
- -----------------------------------------------------------------------------------
OTHER
Sales and revenues ................................ $ -- $ -- $ 14.4
-------- -------- --------
Loss from operations before taxes (1) ............. $ -- $ -- $ (1.7)
Income tax benefit ................................ -- -- .3
-------- -------- --------
Loss from discontinued operations ................. $ -- $ -- $ (1.4)
-------- -------- --------
Total operating results of discontinued operations .. $ 22.0 $ 124.7 $ 111.9
Net pretax loss on disposals of operations .......... (200.0) -- (127.3)
Income tax benefit on disposals of operations ....... 48.7 -- 22.3
-------- -------- --------
Total (loss)/income from discontinued operations .... $ (129.3) $ 124.7 $ 6.9
======== ======== ========
- -----------------------------------------------------------------------------------
</TABLE>
(1) Reflects an allocation of interest expense based on the ratio of the
net assets of the businesses classified as discontinued operations as
compared to Grace's total capital. The above operating results include
interest expense allocations of $93.5, $60.4 and $43.9 for 1995, 1994
and 1993, respectively.
For financial reporting purposes, the assets, liabilities, results of
operations and cash flows of Grace Cocoa Associates, L.P. (LP) (see Note 13)
are included in Grace's consolidated financial statements as a component of
discontinued operations, and the outside investors' interest in LP is
reflected as a minority interest in the Consolidated Balance Sheet.
F-17
<PAGE> 143
The net assets of Grace's remaining discontinued operations (excluding
intercompany assets) at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
HEALTH
CARE COCOA OTHER TOTAL
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current assets ....................................... $ 665.9 $280.4 $21.1 $ 967.4
Properties and equipment, net ........................ 399.3 193.8 21.9 615.0
Investments in and advances to affiliated companies .. -- -- 35.2 35.2
Other assets ......................................... 993.7 62.2 18.0 1,073.9
-------- ------ ----- --------
Total assets ...................................... $2,058.9 $536.4 $96.2 $2,691.5
-------- ------ ----- --------
Current liabilities .................................. $ 533.8 $193.1 $12.7 $ 739.6
Other liabilities .................................... 89.8 92.5 10.6 192.9
-------- ------ ----- --------
Total liabilities ................................. $ 623.6 $285.6 $23.3 $ 932.5
-------- ------ ----- --------
Net assets ........................................ $1,435.3 $250.8 $72.9 $1,759.0
======== ====== ===== ========
- -----------------------------------------------------------------------------------------
</TABLE>
8. OTHER BALANCE SHEET ITEMS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
NOTES AND ACCOUNTS RECEIVABLE
Trade receivables, less allowances of $12.8 (1994 - $95.1) ............................... $488.5 $742.0
Notes receivable from insurance carriers - current, net of discounts of $4.3 in 1995 ..... 62.0 127.0
Other receivables, less allowances of $.1 (1994 - $.1) ................................... 46.3 106.7
------ ------
$596.8 $975.7
====== ======
- ----------------------------------------------------------------------------------------------------------
INVENTORIES
Raw and packaging materials .............................................................. $137.1 $129.8
In process ............................................................................... 78.0 75.3
Finished products ........................................................................ 248.6 289.5
General merchandise ...................................................................... 76.6 62.7
Less: Adjustment of certain inventories to a last-in/first-out (LIFO) basis .............. (48.4) (43.1)
------ ------
$491.9 $514.2
====== ======
- ----------------------------------------------------------------------------------------------------------
OTHER ASSETS
Prepaid pension costs .................................................................... $245.8 $226.6
Patient relationships, less accumulated amortization of $117.2 in 1994 ................... -- 214.9
Deferred charges ......................................................................... 106.9 124.9
Long-term receivables, less allowances of $24.7 (1994 - $20.6) ........................... 83.5 92.3
Long-term investments .................................................................... 69.4 79.3
Notes receivable from insurance carriers - noncurrent, net of discounts of $7.3 in 1995 .. 56.4 60.0
Patents and licenses ..................................................................... 34.0 39.9
Investments in and advances to affiliated companies ...................................... 17.4 56.0
Other .................................................................................... 11.9 76.9
------ ------
$625.3 $970.8
====== ======
- ----------------------------------------------------------------------------------------------------------
</TABLE>
During 1995 and 1994, Grace entered into agreements to sell up to $120.0 and
$320.0, respectively, of interests in designated pools of trade receivables
(excluding $180.0 in 1995 pertaining to the discontinued health care
operations). At December 31, 1995 and 1994, $116.0 and $296.8,
respectively, had been received pursuant to such sales (excluding $179.8 in
1995 pertaining to the discontinued health care operations); these amounts
are reflected as reductions to trade accounts receivable. Under the terms
of these agreements, new interests in trade receivables are sold as
collections reduce previously sold trade receivables. While only interests
in designated pools of trade receivables are sold, the entire designated
pools are available as the sole recourse with respect to the interests sold.
There is no further recourse to Grace, nor is Grace required to repurchase
any of the trade receivables in the pools. The costs related to such sales
are expensed as incurred and recorded as interest expense and related
financing costs. There were no gains or losses on these transactions.
Inventories valued at LIFO cost comprised 21.6% and 18.9% of total
inventories at December 31, 1995 and 1994, respectively. The liquidation of
prior years' LIFO inventory layers in 1995, 1994 and 1993 did not materially
affect cost of goods sold in any of these years.
F-18
<PAGE> 144
- -------------------------------------------------------------------------------
9. PROPERTIES AND EQUIPMENT
- -------------------------------------------------------------------------------
<TABLE>
1995 1994
- -------------------------------------------------------------------------
<S> <C> <C>
Land ....................................... $ 44.1 $ 52.4
Buildings .................................. 595.5 698.3
Machinery, equipment and other ............. 1,967.1 2,080.2
Projects under construction ................ 548.2 397.4
--------- ---------
Properties and equipment, gross ........... 3,154.9 3,228.3
Accumulated depreciation and amortization .. (1,418.8) (1,498.2)
--------- ---------
Properties and equipment, net ............. $ 1,736.1 $ 1,730.1
========= =========
- -------------------------------------------------------------------------
</TABLE>
Interest costs are incurred in connection with the financing of certain
assets prior to placing them in service. Interest costs capitalized in
1995, 1994 and 1993 were $21.3, $9.4 and $7.4, respectively.
Depreciation and lease amortization expense relating to properties and
equipment amounted to $170.4, $158.0 and $146.3 in 1995, 1994 and 1993,
respectively.
Grace's rental expense for operating leases amounted to $25.7, $28.8
and $34.3 in 1995, 1994 and 1993, respectively. See Note 12 for information
regarding contingent rentals.
At December 31, 1995, minimum future payments for operating leases are:
<TABLE>
- -------------------------------------------------------------------------
<S> <C>
1996 .......................... $ 28.0
1997 .......................... 22.6
1998 .......................... 19.0
1999 .......................... 15.4
2000 .......................... 14.5
Later years ................... 26.8
------
Total minimum lease payments .. $126.3
======
- -------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------
The above minimum lease payments reflect sublease income of $11.6 per
year for 1996 through 2000 and a total of $28.0 in later years.
- -------------------------------------------------------------------------
10. DEBT
- -------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM DEBT
Bank borrowings (6.2% weighted average interest rate at year-end 1995) (1) ................................ $ 295.3 $ --
Current maturities of long-term debt ...................................................................... 22.2 166.6
Other short-term borrowings (2) ........................................................................... 320.8 264.3
-------- --------
$ 638.3 $ 430.9
======== ========
LONG-TERM DEBT
Commercial paper (6.2% and 6.0% weighted average interest rates at year-end
1995 and 1994, respectively) (1) $ 45.7 $ 5.5
Bank borrowings (6.2% and 5.8% weighted average interest rates at year-end 1995 and 1994, respectively) (1) 304.3 103.5
8.0% Notes Due 2004 (3) ................................................................................... 300.0 300.0
7.4% Notes Due 2000 (4) ................................................................................... 287.0 300.0
7.75% Notes Due 2002 (5) .................................................................................. 131.0 150.0
6.5% Notes Due 1995 (6) ................................................................................... -- 150.0
Term Loan Agreement (6.3% weighted average interest rate at year-end 1995) (7) ............................ 30.0 --
Medium-Term Notes, Series A (6.9% weighted average interest rate at year-end 1995 and 1994) (8) ........... 128.5 128.5
Sundry indebtedness with various maturities through 2002 .................................................. 91.2 127.9
-------- --------
1,317.7 1,265.4
Less current maturities of long-term debt ................................................................. 22.2 166.6
-------- --------
$1,295.5 $1,098.8
======== ========
Full-year weighted average interest rate on total debt (9) ................................................ 7.8% 5.8%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-19
<PAGE> 145
(1) Under bank revolving credit agreements in effect at year-end 1995,
Grace may borrow up to $950.0 at interest rates based upon the
prevailing prime, Federal funds and/or Eurodollar rates. Of that
amount, $600.0 is available under short-term facilities, with $350.0
expiring on August 29, 1996 and $250.0 expiring on September 30, 1996;
and $350.0 is available under a long-term facility expiring on
September 1, 1999. These agreements also support the issuance of
commercial paper and bank borrowings, $645.3 of which was outstanding
at December 31, 1995 (included in Short-Term and Long-Term Debt above).
At December 31, 1995, the aggregate amount of net unused and
unreserved borrowings under the short-term and long-term facilities was
$304.7. Grace's ability to borrow under the current facilities is
subject to compliance with various covenants, including maintenance of
ratios of total debt to total capitalization and interest coverage.
(2) Represents borrowings under various lines of credit and other
miscellaneous borrowings, primarily of non-U.S. subsidiaries.
(3) During the third quarter of 1994, Grace sold $300.0 of 8.0% Notes Due
2004 at an initial public offering price of 99.794% of par, to yield
8.03%. Interest is payable semiannually, and the Notes may not be
redeemed prior to maturity.
(4) During the first quarter of 1993, Grace sold at par $300.0 of 7.4%
Notes Due 2000. Interest is payable semiannually, and the Notes may
not be redeemed prior to maturity; however, Grace has repurchased Notes
from time to time in response to unsolicited offers received through
banks and brokers.
(5) During the third quarter of 1992, Grace sold at par $150.0 of 7.75%
Notes Due 2002. Interest is payable semiannually, and the Notes may
not be redeemed prior to maturity; however, Grace has repurchased Notes
from time to time in response to unsolicited offers received through
banks and brokers.
(6) During the fourth quarter of 1992, Grace sold $150.0 of 6.5% Notes Due
1995 at an initial public offering price of 99.758% of par, to yield
6.59%. The Notes were paid at maturity in the fourth quarter of 1995.
(7) During the second quarter of 1995, Grace entered into a three-year
term loan agreement with a maturity date of April 24, 1998. The
agreement provides for interest at a Eurodollar floating rate, with
interest payable semiannually.
(8) During the second quarter of 1994, Grace entered into an agreement
providing for the issuance and sale from time to time of its
Medium-Term Notes, Series A (MTNs), with an aggregate issue price of up
to $300.0. The MTNs may bear interest at either fixed or floating
rates and have maturity dates more than nine months from their
respective dates of issuance. Interest on each fixed rate MTN is
payable semiannually, and interest on each floating rate MTN is payable
as established at the time of issuance.
(9) Computation includes interest expense allocated to discontinued
operations.
Payment of a majority of Grace's borrowings may be accelerated, and its
principal borrowing agreements terminated, upon the occurrence of a default
under certain Grace borrowings.
Scheduled maturities of long-term debt outstanding at December 31, 1995
are: 1996 - $22.2; 1997 - $113.2; 1998 - $46.4; 1999 - $351.2; 2000 -
$350.3; and thereafter - $434.4.
Interest expense, excluding related financing costs and amounts
allocated to discontinued operations, for 1995, 1994 and 1993 amounted to
$53.3, $30.9 and $33.7, respectively. Including amounts allocated to
discontinued operations, interest payments made in 1995, 1994 and 1993,
excluding related financing costs, amounted to $183.1, $101.8 and $109.0,
respectively.
A registration statement that became effective in 1994 covers $750.0 of
debt and/or equity securities that may be sold from time to time. At
December 31, 1995, $321.5 (including up to $171.5 of MTNs) remain available
under the registration statement.
- --------------------------------------------------------------------------------
11. FINANCIAL INSTRUMENTS
- -------------------------------------------------------------------------------
LONG-TERM DEBT/INTEREST RATE AGREEMENTS
To manage exposure to changes in interest rates, Grace enters into interest
rate agreements, most of which have the effect of converting fixed-rate debt
into variable-rate debt based on the London Interbank Offered Rate. At
December 31, 1995 and 1994, the notional amounts of Grace's interest rate
swaps consist of the following: $1,219.5 and $1,013.5, respectively, which
convert fixed-rate debt into variable-rate debt; and $626.0 and $1,200.0,
respectively, which convert variable-rate debt into fixed-rate debt.
Notional amounts do not quantify risk or represent assets or liabilities of
Grace, but are used in the calculation of cash settlements under the
agreements.
Grace's debt and interest rate management objective is to reduce its
cost of funding over the long term, considering economic conditions and
their potential impact on Grace. The strategy emphasizes improving
liquidity by developing and maintaining access to a variety of long-term and
short-term capital markets. Grace enters into standard interest rate swaps
that have readily identifiable impacts on interest cost and are
characterized by broad market liquidity. Grace is not a party to leveraged
interest rate agreements.
During 1995 and 1994, Grace realized (negative)/positive cash flows of
$(16.5) and $10.0, respectively, from interest rate agreements. Realized
gains and losses on interest rate agreements are amortized to interest
expense over a period relevant to the agreement (1 - 10 years); at December
31, 1995 and 1994, unamortized net gains were $31.7 and $43.0, respectively.
At December 31, 1995 and 1994, Grace would have been required to pay $32.5
and $118.1, respectively, to retire these agreements. The maturities and
notional amounts of the swaps closely match underlying debt instruments.
This will result in the changes in the fair value of swaps being
substantially offset by changes in the fair value of the debt.
FAIR VALUE OF FINANCIAL INSTRUMENTS
At December 31, 1995 and 1994, the recorded value of financial instruments
such as cash, short-term investments, trade receivables and payables and
short-term debt approximated their fair values, based on the short-term
maturities and floating rate characteristics
F-20
<PAGE> 146
of these instruments. Additionally, the recorded value of both long-term
investments and receivables approximated fair values. At December 31, 1995
and 1994, the fair value of long-term debt was $1,361.1 and $1,212.1,
respectively. Fair value is determined based on expected future cash flows
(discounted at market interest rates), quotes from financial institutions
and other appropriate valuation methodologies. Grace does not hold or issue
financial instruments for trading purposes.
FOREIGN CURRENCY CONTRACTS
Grace conducts business in a wide variety of currencies and consequently
enters into foreign exchange forward and option contracts to manage its
exposure to fluctuations in foreign currency exchange rates. These
contracts generally involve the exchange of one currency for another at a
future date. At December 31, 1995 and 1994, Grace had notional principal
amounts of approximately $45.5 and $10.0, respectively, in contracts to buy
or sell foreign currency in the future. The recorded values at December 31,
1995 and 1994, which approximated fair value based on exchange rates at
December 31, 1995 and 1994, were not significant.
CREDIT RISK
Grace is exposed to credit risk to the extent of potential nonperformance by
counterparties on financial instruments. The counterparties to Grace's
interest rate swap agreements and currency exchange contracts comprise a
diversified group of major financial institutions, all of which are rated
investment grade. Credit risk is further reduced by bilateral netting
agreements between Grace and its counterparties. As of December 31, 1995,
Grace's credit exposure was insignificant and limited to the fair value
stated above; Grace believes the risk of incurring losses due to credit risk
is remote.
MARKET RISK
Exposure to market risk on financial instruments results from fluctuations
in interest and currency rates during the periods in which the contracts are
outstanding. The mark-to-market valuations of interest rate, foreign
currency agreements and of associated underlying exposures are closely
monitored at all times. Grace uses portfolio sensitivities and stress tests
to monitor risk. Overall financial strategies and the effects of using
derivatives are reviewed periodically.
- --------------------------------------------------------------------------------
12. COMMITMENTS AND CONTINGENT LIABILITIES
- --------------------------------------------------------------------------------
Grace is the named tenant or guarantor with respect to certain leases
entered into by previously divested businesses. The leases, some of which
extend through the year 2015, have future minimum lease payments aggregating
$121.6 (including leases assigned to the previously divested Hermans
business having future minimum lease payments of $14.6), offset by $119.8 of
future minimum rental income from tenants and subtenants.
In addition, Grace is the named tenant or guarantor with respect to
leases entered into by a previously divested home center business that had
been rejected in bankruptcy. These leases have future minimum lease
payments of $47.0, fully offset by $48.5 of future minimum rental income
from tenants and subtenants.
Grace is also contingently liable with respect to leases entered into
by REG's subsidiaries. After undergoing a reorganization in 1993, REG (now
named Family Restaurants, Inc.) has agreed to indemnify Grace with respect
to these leases. At December 31, 1995, these leases have future minimum
lease payments of $64.2, fully offset by future minimum rental income from
tenants and subtenants.
Grace believes that the risk of significant loss from the above lease
obligations is remote, except that Grace may incur losses relating to the
Hermans and REG leases as the result of recent developments. The likelihood
and amounts of these losses cannot be reasonably estimated. In addition,
Grace is liable for other expenses (primarily property taxes) relating to
the above leases; these expenses are paid by the tenants and subtenants.
Grace is subject to loss contingencies resulting from environmental
laws and regulations that, among other things, impose obligations to remove
or mitigate the effects on the environment of the disposal or release of
substances at various sites. Grace accrues for anticipated costs associated
with investigatory and remediation efforts where an assessment has indicated
that a loss is probable and can be reasonably estimated. At December 31,
1995, Grace's liability for environmental investigatory and remediation
costs related to continuing and discontinued operations totalled
approximately $280.3, as compared to $216.0 at December 31, 1994. The
principal reason for this increase is a change in the estimated costs of
remediation at former manufacturing sites.
In 1995 and 1994, periodic provisions were recorded for environmental
and plant closure expenses, which include the costs of future environmental
investigatory and remediation activities. Additionally, in the fourth
quarter of 1995 and first quarter of 1994, Grace recorded pretax provisions
of $77.0 and $40.0 ($50.0 and $26.0 after-tax), respectively, principally
to provide for future costs related to remediation activities required at
former manufacturing sites. These provisions are included in the
Consolidated Statement of Operations as part of cost of goods sold and
operating expenses. In 1995, 1994 and 1993, Grace incurred costs of $31.3,
$30.8 and $44.4, respectively, to remediate its environmentally impaired
sites. These amounts have been charged against the previously established
reserves. Future cash outlays for remediation costs are expected to total
$30.0 in 1996 and $20.0 in 1997. Grace considers its current reserves to be
adequate to cover its environmental liabilities. Additionally, Grace's
classification between
F-21
<PAGE> 147
current and noncurrent liabilities with respect to its environmental
reserves is considered appropriate in relation to expected future cash
outlays.
Grace's environmental liabilities are reassessed whenever circumstances
become better defined and/or remediation efforts and their costs can be
better estimated. The measurement of the liability is evaluated quarterly
based on currently available information, including the progress of remedial
investigation at each site, the current status of discussions with
regulatory authorities regarding the method and extent of remediation at
each site, and the apportionment of costs among potentially responsible
parties. As some of these issues are decided (the outcome of which is
subject to various uncertainties) and/or new sites are assessed and costs
can be reasonably estimated, Grace will continue to review and analyze the
need for adjustments to the recorded accruals.
See Note 7 for a discussion of commitments and contingent liabilities
pertaining to NMC.
- --------------------------------------------------------------------------------
13. MINORITY INTEREST
- --------------------------------------------------------------------------------
Minority interest consists of a limited partnership interest in LP. The
total capital of LP at December 31, 1995 was approximately $1,488.0. LP's
assets consist of Grace Cocoa's worldwide cocoa and chocolate business,
long-term notes and demand loans due from various Grace entities and
guaranteed by the Company and its principal operating subsidiary, and cash.
Grace had $347.0 of borrowings from LP at December 31, 1995. Four Grace
entities serve as general partners of LP and own general partnership
interests totalling 79.03% in LP; the sole limited partner of LP, which
initially acquired its interest in LP in exchange for a $300.0 cash capital
contribution ($297.0 of which was funded by outside investors), owns a
20.97% limited partnership interest in LP. LP is a separate and distinct
legal entity from each of the Grace entities and has separate assets,
liabilities, business functions and operations. For financial reporting
purposes, the assets, liabilities, results of operations and cash flows of
LP are included in Grace's consolidated financial statements as a component
of discontinued operations and the outside investors' interest in LP is
reflected as a minority interest.
- --------------------------------------------------------------------------------
14. SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
The weighted average number of shares of common stock outstanding during
1995 was 95,822,000 (1994 - 93,936,000; 1993 - 91,461,000).
The Company is authorized to issue 300,000,000 shares of common stock.
Of the common stock unissued at December 31, 1995, approximately 7,655,000
shares were reserved for issuance pursuant to stock options and other stock
incentives. In addition, at December 31, 1995, approximately 105,084,000
shares were reserved for issuance under Common Stock Purchase Rights
(Rights). A Right is issued for each outstanding share of common stock; the
Rights are not and will not become exercisable unless and until certain
events occur, and at no time will the Rights have any voting power.
Preferred stocks authorized, issued and outstanding are:
<TABLE>
<CAPTION>
Par Value of
Shares as of December 31, 1995 Shares Outstanding
---------------------------------------------------- -----------------------------
Authorized In Out-
and Issued Treasury standing 1995 1994 1993
------------------- ------------------- ---------- ------ ------------- ------
<S> <C> <C> <C> <C> <C> <C>
6% Cumulative (1) 40,000 3,540 36,460 $3.6 $3.6 $3.6
8% Cumulative Class A (2) 50,000 33,644 16,356 1.6 1.6 1.6
8% Noncumulative Class B (2) 40,000 18,423 21,577 2.2 2.2 2.2
------ --------- ------
$7.4 $7.4 $7.4
====== ========= ======
- --------------------------------------------------------------------------------
</TABLE>
(1) 160 votes per share.
(2) 16 votes per share.
Dividends paid on the preferred stocks amounted to $.5 in each of 1995,
1994 and 1993.
The Certificate of Incorporation also authorizes 5,000,000 shares of
Class C Preferred Stock, $1 par value, none of which
has been issued.
- --------------------------------------------------------------------------------
15. STOCK INCENTIVE PLANS
- --------------------------------------------------------------------------------
Stock options are granted under the Company's stock incentive plans. Each
option has an exercise price equal to the fair market value of the Company's
Common Stock on the date of grant. Options become exercisable at the time
or times determined by the Compensation Committee and may have terms of up
to ten years and one month.
F-22
<PAGE> 148
Changes in outstanding common stock options are summarized below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
1995 1994 1993
--------------------- ------------------------- -------------------------
AVERAGE Average Average
NUMBER EXERCISE Number Exercise Number Exercise
OF SHARES PRICE of Shares Price of Shares Price
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of year .... 7,612,888 $38.08 6,965,304 $36.48 6,365,187 $35.09
Options granted ................. 1,704,150 46.66 1,358,900 42.27 1,461,425 38.00
----------- --------- ---------
9,317,038 8,324,204 7,826,612
Options exercised ............... (3,551,123) 38.30 (606,444) 29.21 (683,255) 25.89
Options terminated or canceled .. (71,719) 42.27 (104,872) 37.33 (178,053) 40.13
----------- --------- ---------
Balance at end of year .......... 5,694,196 40.45 7,612,888 38.08 6,965,304 36.48
=========== ========= =========
- --------------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1995, options covering 4,172,391 shares (1994 -
5,633,761; 1993 - 5,056,256) were exercisable and 1,913,163 shares (1994 -
3,547,094; 1993 - 1,804,122) were available for additional grants.
Currently outstanding options expire on various dates between February 1996
and July 2005.
Grace will adopt the disclosure requirements of SFAS No. 123,
"Accounting for Stock-Based Compensation" in 1996. However, Grace
anticipates that it will continue to follow the measurement provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," as permitted by SFAS No. 123.
- --------------------------------------------------------------------------------
16. PENSION PLANS
- --------------------------------------------------------------------------------
Grace maintains defined benefit pension plans covering employees of certain
units who meet age and service requirements. Benefits are generally based
on final average salary and years of service. Grace funds its U.S. pension
plans in accordance with Federal laws and regulations. Non-U.S. pension
plans are funded under a variety of methods because of differing local laws
and customs and therefore cannot be summarized. Approximately 60% of U.S.
and non-U.S. plan assets at December 31, 1995 were common stocks, with the
remainder primarily fixed income securities.
Pension cost/(benefit) is comprised of the following components:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
1995 1994 1993
-------------------- ---------------- ---------------------
U.S. NON-U.S. U.S. Non-U.S. U.S. Non-U.S.
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost on benefits earned during the year .... $ 14.6 $ 10.5 $ 19.8 $ 13.4 $ 12.7 $ 9.5
Interest cost on benefits earned in prior years .... 50.6 21.4 46.9 19.3 33.8 17.1
Actual (return)/loss on plan assets ................ (132.3) (52.0) 16.9 10.6 (101.7) (56.7)
Deferred loss/(gain) on plan assets ................ 71.1 26.2 (84.6) (37.4) 55.1 36.0
Amortization of net gains and prior service costs .. (.8) (.8) (7.1) (1.6) (4.9) (1.7)
------- ------ ------ ------ ------- ------
Net pension cost/(benefit) ......................... $ 3.2 $ 5.3 $ (8.1) $ 4.3 $ (5.0) $ 4.2
======= ====== ====== ====== ======= ======
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The funded status of these plans was as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
U.S. NON-U.S.
- ---------------------------------------------------------------------------------------------------------------------
ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS BENEFITS EXCEED ASSETS
------------- -------------- ------------- -------------
1995 1994 1995 1994 1995 1994 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Actuarial present value of benefit obligation:
Vested........................................... $679.6 $536.2 $ 52.0 $ 39.0 $133.5 $114.2 $ 67.5 $ 57.2
------ ------ ------ ------ ------ ------ ------ ------
Accumulated benefit obligation................... $680.4 $540.8 $ 52.0 $ 39.0 $133.9 $115.3 $ 75.1 $ 64.4
------ ------ ------ ------ ------ ------ ------ ------
Total projected benefit obligation............... $710.0 $596.3 $ 55.7 $ 40.4 $189.4 $158.5 $ 92.4 $ 81.8
Plan assets at fair value........................ 795.8 751.6 -- -- 302.5 255.8 7.3 12.5
------ ------ ------ ------ ------ ------ ------ ------
Plan assets in excess of/(less than) projected
benefit obligation............................... 85.8 155.3 (55.7) (40.4) 113.1 97.3 (85.1) (69.3)
Unamortized net (gain)/loss at initial adoption.. (73.7) (89.5) 4.9 5.6 (6.3) (8.4) 4.5 4.6
Unamortized prior service cost................... 41.7 13.0 16.3 18.3 3.6 4.0 -- --
Unrecognized net loss/(gain)..................... 97.6 62.3 8.6 1.1 (16.0) (7.4) (3.2) (5.6)
------ ------ ------ ------ ------ ------ ------ ------
Prepaid/(accrued) pension cost................... $151.4 $141.1 $(25.9) $(15.4) $ 94.4 $ 85.5 $(83.8) $(70.3)
====== ====== ====== ====== ====== ====== ====== ======
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
F-23
<PAGE> 149
The following significant assumptions were used in 1995, 1994 and 1993:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993
-------------------- -------------------- --------------------
U.S. NON-U.S. U.S. Non-U.S. U.S. Non-U.S.
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Discount rate at December 31, ...................... 7.25% 5.1 - 11.6% 8.5% 5.0 - 12.0% 7.5% 4.5 - 9.2%
Expected long-term rate of return .................. 9.0 6.0 - 10.5 9.0 6.0 - 10.5 9.0 6.0 - 10.5
Rate of compensation increase ...................... 4.5 4.0 - 7.5 5.5 4.0 - 7.5 5.5 3.5 - 7.5
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Grace's Retirement Plan for Salaried Employees (Plan) contains
provisions under which the Plan would automatically terminate in the event
of a change in control of the Company, and Plan benefits would be secured
through the purchase of annuity contracts. Upon such termination, a portion
of the Plan's excess assets would be placed in an irrevocable trust to fund
various employee benefit plans and arrangements of Grace, and any balance
would be returned to Grace.
During 1995, Grace approved a cost-of-living increase, effective
January 1, 1996, for retirees under the Plan and Grace's Retirement Plan for
Hourly Employees of Canadian subsidiaries.
- --------------------------------------------------------------------------------
17. OTHER POSTRETIREMENT BENEFIT PLANS
- --------------------------------------------------------------------------------
Grace provides certain other postretirement health care and life insurance
benefits for retired employees of specified U.S. units. These retiree
medical and life insurance plans provide various levels of benefits to
employees (depending on their date of hire) who retire from Grace after age
55 with at least 10 years of service. The plans are currently unfunded.
Grace applies SFAS No. 106, which requires the accrual method of
accounting for the future costs of postretirement health care and life
insurance benefits over the employees' years of service. Grace pays the
costs of postretirement benefits as they are incurred.
Included in other liabilities as of December 31, 1995 and 1994 are the
following:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees ..................................... $209.0 $192.6
Fully eligible participants .................. 15.2 12.1
Active ineligible participants ............... 34.4 26.3
------ ------
Accumulated postretirement benefit obligation .. 258.6 231.0
Unrecognized net loss ........................ (54.9) (28.5)
Unrecognized prior service benefit ........... 44.3 48.6
------ ------
Accrued postretirement benefit obligation ...... $248.0 $251.1
====== ======
- -----------------------------------------------------------------------------
</TABLE>
Net periodic postretirement benefit cost for the years ended December
31, 1995, 1994 and 1993 is comprised of the following components:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
1995 1994 1993
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost .................................................... $ 1.6 $ 2.1 $ 2.2
Interest cost on accumulated postretirement benefit obligation .. 18.3 16.2 13.2
Amortization of net loss ........................................ .2 1.2 .2
Amortization of prior service benefit ........................... (4.3) (4.3) (4.5)
----- ----- -----
Net periodic postretirement benefit cost ........................ $15.8 $15.2 $11.1
===== ===== =====
- ----------------------------------------------------------------------------------------
</TABLE>
During 1992, Grace's retiree medical plans were amended to increase
cost sharing by employees retiring after January 1, 1993. This amendment
decreased the accumulated postretirement benefit obligation by $44.3 at
December 31, 1995 and will be amortized over an average remaining future
service life of approximately 11 years.
Medical care cost trend rates were projected at 10.7% in 1995,
declining to 6.0% through 2003 and remaining level thereafter. A one
percentage point increase in each year's assumed medical care cost trend
rate, holding all other assumptions constant, would increase the annual net
periodic postretirement benefit cost by $2.5 and the accumulated
postretirement benefit obligation by $20.2. The discount rates at December
31, 1995, 1994 and 1993 were 7.25%, 8.5% and 7.5%, respectively.
Effective January 1, 1994, Grace adopted SFAS No. 112, "Employers'
Accounting for Postemployment Benefits," which requires accrual accounting
for nonaccumulating postemployment benefits. Grace's primary postemployment
obligation is for disabled workers' medical benefits. These are currently
included in accrued postretirement costs under SFAS No. 106. The adoption
of SFAS No. 112 did not have a material effect on Grace's results of
operations or financial position.
F-24
<PAGE> 150
- --------------------------------------------------------------------------------
18. GEOGRAPHIC AREA INFORMATION
- --------------------------------------------------------------------------------
The table below presents information related to Grace's specialty chemicals
segment (its only industry segment) by geographic area for the years 1995
- -1993.
<TABLE>
<CAPTION>
United Asia Latin
States Canada Europe Pacific America Total
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales and revenues .................. 1995 $1,693 $128 $1,147 $445 $253 $3,666
1994 1,558 121 955 366 218 3,218
1993 1,432 123 852 307 182 2,896
Pretax operating (loss)/income (1) .. 1995 (120) 23 39 62 10 14
1994 (133) 9 69 56 20 21
1993 23 7 38 44 13 125
Identifiable assets (2) ............. 1995 2,031 101 998 411 246 3,787
1994 1,796 83 905 308 208 3,300
1993 2,042 81 720 243 154 3,240
- ---------------------------------------------------------------------------------------------
</TABLE>
Pretax operating income and total identifiable assets for the specialty
chemicals segment are reconciled below to income from continuing operations
before income taxes and consolidated total assets, respectively, as
presented in the Consolidated Statement of Operations and the Consolidated
Balance Sheet. Grace allocates to its specialty chemicals segment general
corporate overhead expenses, general corporate research expenses and certain
other income and expense items that can be identified with specialty
chemicals operations.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pretax operating income - specialty chemicals segment (1) ....................... $ 14 $ 21 $ 125
Interest expense and related financing costs .................................... (71) (50) (43)
Corporate restructuring costs and asset impairments/other activities ............ (122) -- --
Provisions relating to environmental liabilities at former manufacturing sites .. (77) (40) --
Provision for corporate governance .............................................. (30) -- --
Gain on sale of remaining interest in REG ....................................... -- 27 --
Corporate expenses previously allocated to health care operations (3) ........... (38) (37) (37)
Other income/(expenses), net .................................................... 12 (9) (16)
------ ------ ------
(Loss)/income from continuing operations before income taxes .................... $ (312) $ (88) $ 29
====== ====== ======
- ---------------------------------------------------------------------------------------------------------
Identifiable assets - specialty chemicals segment (2) ........................... $3,787 $3,300 $3,240
General corporate assets (4) .................................................... 752 860 811
Discontinued operations' net assets ............................................. 1,759 2,071 2,058
------ ------ ------
Total assets .................................................................... $6,298 $6,231 $6,109
====== ====== ======
</TABLE>
- --------------------------------------------------------------------------------
(1) Includes (a) 1995, 1994 and 1993 pretax provisions of $275, $316 and
$159, respectively, relating to asbestos-related liabilities and
insurance coverage (see Note 2 for further information); and (b) a 1995
pretax charge of $98 relating to restructuring costs, asset impairments
and other costs (see Note 5 for further information).
(2) Includes asbestos-related receivables and settlements due from
insurance carriers, net of discounts, of $321 and $118, respectively,
in 1995; $513 and $187, respectively, in 1994; and $962 and $114,
respectively, in 1993.
(3) These costs will not be assumed by NMC following the completion of its
proposed separation from Grace, and it is expected that these costs
will be eliminated.
(4) General corporate assets consist principally of deferred tax assets,
prepaid pension costs, and corporate receivables and investments.
- --------------------------------------------------------------------------------
19. SUBSEQUENT EVENTS
- --------------------------------------------------------------------------------
As more fully discussed in Note 7, in February 1996, Grace and Fresenius
entered into a definitive agreement to combine NMC with Fresenius' worldwide
dialysis business. The transaction is expected to be completed by the third
quarter of 1996.
In March 1996, Grace announced that it had entered into a definitive
agreement to sell its Grace Dearborn water treatment and process chemicals
business to Betz Laboratories, Inc. for $632.0. The transaction is expected
to be completed in the second quarter of 1996.
F-25
<PAGE> 151
- -------------------------------------------------------------------------------
NOTE 20. SUBSEQUENT EVENT -- GUARANTEE (UNAUDITED)
- -------------------------------------------------------------------------------
Under the terms of the combination of FWD and NMC described in Note 7, NMC
will remain responsible for all liabilities, if any, resulting from the OIG
investigation. In July 1996, an agreement was reached with the United States
government under which, subject to certain conditions and limitations, upon such
combination, (a) FMC is to guarantee the payment of the obligations, if any, of
NMC to the United States in respect of the OIG investigation; (b) the
corporation holding Grace's packaging and specialty chemicals businesses (Grace
Chemicals) is to guarantee the collection of the amounts, if any, due under the
foregoing guarantee of FMC; (c) NMC is to deliver a standby letter of credit in
the principal amount of $150 million in favor of the United States to support
its payment of such obligations; and (d) Grace Chemicals is to guarantee
repayment of such amount to the issuer of such letter of credit. At the present
time, management does not believe that the liability, if any, with respect to
the OIG investigation is estimable. See Note 7 for additional information.
In connection with the matters discussed above, the United States has
agreed to release Grace, NMC, and certain other parties from certain fraudulent
conveyance and related claims arising from or related to the combination (or any
transaction comprising a part thereof).
F-26
<PAGE> 152
- --------------------------------------------------------------------------------
QUARTERLY SUMMARY AND STATISTICAL INFORMATION Unaudited - dollars in
millions, except per share
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
QUARTER ENDED 1Q 2Q 3Q 4Q
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995
Total sales and revenues ................... $ 853.4 $ 932.3 $ 946.4 $ 933.4
Cost of goods sold and operating expenses .. 500.9 550.7 566.0 626.1
Net income/(loss) .......................... 47.5(3) 78.7 21.7(4) (473.8)(5)
Earnings/(loss) per share: (1)
Net earnings/(loss) .................... $ .50 $ .83 $ .22 $ (4.87)
Fully diluted earnings per share:
Net earnings/(loss) .................... $ .49 $ .80 $ .22 $ -- (6)
Dividends declared per common share ........ $ .35 $ .35 $ .35 $ .125
Market price of common stock: (2)
High ................................... $54 1/2 $65 1/8 $71 1/4 $66 1/4
Low .................................... 38 1/2 51 3/8 61 9/16 54 3/4
Close .................................. 53 1/4 61 3/8 66 3/4 59 1/8
- -------------------------------------------------------------------------------------------------------
1994 (7)
Total sales and revenues ................... $ 675.4 $ 782.9 $ 815.5 $ 944.4
Cost of goods sold and operating expenses .. 437.8 464.5 475.0 523.5
Net income/(loss) .......................... 38.2(8) (134.3)(9) 76.0 103.4
Earnings/(loss) per share: (1)
Net earnings/(loss) .................... $ .41 $ (1.43) $ .81 $ 1.10
Fully diluted earnings per share:
Net earnings/(loss) .................... $ .40 $ -- (6) $ .80 $ 1.09
Dividends declared per common share ........ $ .35 $ .35 $ .35 $ .35
Market price of common stock: (2)
High ................................... $46 1/2 $ 43 $42 3/8 $41 1/8
Low .................................... 40 3/8 39 38 1/4 36
Close .................................. 41 1/4 39 7/8 41 1/2 38 5/8
- -------------------------------------------------------------------------------------------------------
</TABLE>
(1) Per share results for the four quarters differ from full-year per
share results, as a separate computation of earnings per share is made
for each quarter presented.
(2) Principal market: New York Stock Exchange.
(3) Includes a $12.5 charge for matters relating to corporate governance.
(4) Includes a $27.1 charge for restructuring costs; a $6.1 charge for
matters relating to corporate governance; and a $33.5 charge to the
discontinued health care operations, primarily relating to asset
impairments.
(5) Includes a $178.7 provision relating to asbestos-related liabilities
and insurance coverage; a $50.0 provision for environmental
liabilities; a $116.9 charge for restructuring costs, asset impairments
and other items; a $151.3 provision for other discontinued operations;
and a $68.9 charge to the discontinued health care operations,
primarily relating to asset impairments and other items.
(6) Not presented as the effect is anti-dilutive.
(7) Certain amounts have been reclassified to conform to the 1995
presentation.
(8) Includes a $27.0 gain on the sale of Grace's remaining interest in The
Restaurant Enterprises Group, Inc. (REG), offset by a $26.0 provision,
primarily for environmental liabilities.
(9) Includes a $200.0 reinstatement of a provision relating to
asbestos-related insurance coverage.
F-27
<PAGE> 153
<TABLE>
- -------------------------------------------------------------------------------------------------------------
CAPITAL EXPENDITURES, NET FIXED ASSETS AND DEPRECIATION AND
LEASE AMORTIZATION Dollars in millions
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
Depreciation and
Capital Expenditures (1) Net Fixed Assets Lease Amortization (2)
------------------------ -------------------------- ---------------------
1995 1994 1993 1995 1994 1993 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING GROUP
Specialty chemicals .......... $459 $329 $209 $1,581 $1,262 $1,049 $155 $144 $135
General corporate ............ 49 30 21 155 144 128 15 14 11
---- ---- ---- ------ ------ ------ ---- ---- ----
Total continuing operations .. 508 359 230 1,736 1,406 1,177 170 158 146
Discontinued operations ...... 30 86 80 -- 324 277 -- -- --
---- ---- ---- ------ ------ ------ ---- ---- ----
Total ........................ $538 $445 $310 $1,736 $1,730 $1,454 $170 $158 $146
==== ==== ==== ====== ====== ====== ==== ==== ====
- -------------------------------------------------------------------------------------------------------------
GEOGRAPHIC LOCATION
United States and Canada ..... $246 $202 $126 $ 869 $ 714 $ 608 $ 75 $ 77 $ 74
Europe ....................... 100 75 57 441 382 321 59 51 46
Other areas .................. 113 52 26 271 166 120 21 16 15
---- ---- ---- ------ ------ ------ ---- ---- ----
Subtotal ..................... 459 329 209 1,581 1,262 1,049 155 144 135
General corporate ............ 49 30 21 155 144 128 15 14 11
---- ---- ---- ------ ------ ------ ---- ---- ----
Total continuing operations .. 508 359 230 1,736 1,406 1,177 170 158 146
Discontinued operations ...... 30 86 80 -- 324 277 -- -- --
---- ---- ---- ------ ------ ------ ---- ---- ----
Total ........................ $538 $445 $310 $1,736 $1,730 $1,454 $170 $158 $146
==== ==== ==== ====== ====== ====== ==== ==== ====
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Excludes capital expenditures of discontinued operations subsequent to
their classification as such.
(2) Certain 1994 and 1993 amounts have been reclassified to conform to the
1995 presentation.
F-28
<PAGE> 154
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
FINANCIAL SUMMARY (1) Dollars in millions, except per share amounts
- ---------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
Sales and revenues ............................................ $3,665.5 $3,218.2 $2,895.5 $3,061.8 $3,326.2
Cost of goods sold and operating expenses ..................... 2,243.7 1,900.8 1,746.7 1,871.8 2,027.9
Depreciation and amortization ................................. 186.3 165.0 153.5 164.5 178.3
Interest expense and related financing costs .................. 71.3 49.5 42.9 49.4 73.7
Research and development expenses ............................. 120.6 106.8 111.5 105.2 102.0
(Loss)/income from continuing operations before
income taxes................................................. (312.4) (88.0) 29.2 81.3 256.5
(Benefit from)/provision for income taxes ..................... (115.8) (46.6) 10.1 79.9 99.1
Income from continuing operations before special items (2) .... 194.7 157.6 119.1 146.5 153.9
(Loss)/income from continuing operations ...................... (196.6) (41.4) 19.1 1.4 157.4
(Loss)/income from discontinued operations (3) ................ (129.3) 124.7 6.9 (105.9) 61.2
Cumulative effect of accounting changes ....................... -- -- -- (190.0) --
Net (loss)/income ............................................. (325.9) 83.3 26.0 (294.5) 218.6
- ---------------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Current assets ................................................ $1,681.3 $2,228.9 $2,077.6 $2,091.4 $1,990.0
Current liabilities ........................................... 2,214.2 2,231.5 1,992.6 1,639.6 1,622.1
Properties and equipment, net ................................. 1,736.1 1,730.1 1,454.1 1,707.9 2,558.2
Total assets .................................................. 6,297.6 6,230.6 6,108.6 5,598.6 6,007.1
Total debt .................................................... 1,933.8 1,529.7 1,706.1 1,819.2 2,259.4
Shareholders' equity - common stock ........................... 1,224.4 1,497.1 1,510.2 1,537.5 2,017.7
- ---------------------------------------------------------------------------------------------------------------------------------
DATA PER COMMON SHARE
Earnings from continuing operations before special items (2) .. $ 2.03 $ 1.68 $ 1.30 $ 1.63 $ 1.76
(Loss)/earnings from continuing operations .................... (2.05) (.45) .20 .01 1.80
Cumulative effect of accounting changes ....................... -- -- -- (2.12) --
Net (loss)/earnings ........................................... (3.40) .88 .28 (3.29) 2.50
Dividends ..................................................... 1.175 1.40 1.40 1.40 1.40
Book value .................................................... 12.57 15.91 16.16 17.10 22.77
Average common shares outstanding (thousands) ................. 95,822 93,936 91,461 89,543 87,236
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER STATISTICS
Dividends paid on common stock ................................ $ 112.1 $ 131.5 $ 127.9 $ 125.4 $ 122.0
Capital expenditures .......................................... 537.6 444.6 309.6 398.4 447.0
% Total debt to total capital ................................. 61.1% 50.4% 52.9% 54.1% 52.7%
Common shareholders of record ................................. 19,496 18,501 19,358 20,869 21,949
Common stock price range ..................................... 71 1/4-38 1/2 46 1/2-36 41 1/4-34 5/8 45-32 40 3/4-23 3/8
Number of employees - continuing operations (thousands) ....... 21.2 20.6 20.4 20.0 21.5
- ---------------------------------------------------------------------------------------------------------------------------------
(1) Certain prior year amounts have been reclassified to conform to the
1995 presentation.
(2) Income from continuing operations before special items reconciles to
(loss)/income from continuing operations as follows:
<CAPTION>
1995 1994 1993 1992 1991
-------- ------- ------- ------- ------
<C> <C> <C> <C> <C> <C>
Income from continuing operations before special items .... $ 194.7 $ 157.6 $ 119.1 $ 146.5 $153.9
Special items (after-tax):
Provision for corporate governance ....................... (18.6) -- -- -- --
Gain on sale of remaining interest in REG ................ -- 27.0 -- -- --
Restructuring costs and asset impairments/other activities (144.0) -- -- -- --
Provisions for environmental liabilities at former
manufacturing sites ................................... (50.0) (26.0) -- -- --
Provision relating to a fumed silica plant ............... -- -- -- (140.0) --
Postretirement benefits prior to plan amendments ......... -- -- -- (5.1) --
Strategic restructuring gain ............................. -- -- -- -- 3.5
Provisions relating to asbestos-related liabilities
and insurance coverage ................................ (178.7) (200.0) (100.0) -- --
-------- ------- ------- ------- ------
(Loss)/income from continuing operations .................. $ (196.6) $ (41.4) $ 19.1 $ 1.4 $157.4
======== ======= ======= ======= ======
</TABLE>
The special items included in the foregoing table have also been excluded
in determining earnings per common share from continuing operations before
special items.
(3) Includes income of $22.0, $124.7 and $115.3 in 1995, 1994 and 1993,
respectively, from the discontinued health care operations. 1995
health care results reflect special charges totalling $102.4, relating
to asset impairments of $83.6, the phase-out of certain of Grace's
health care research programs of $5.6, additional costs associated with
Grace's long-term incentive programs applicable to NMC of $4.8, changes
in accounting estimates of $1.8 and other items totalling $6.6.
F-29
<PAGE> 155
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
REVIEW OF OPERATIONS
OVERVIEW
Sales and revenues increased 14% in 1995 over 1994, as compared to an
increase of 11% in 1994 over 1993.
(Loss)/income from continuing operations was $(196.6) million, $(41.4)
million and $19.1 million in 1995, 1994 and 1993, respectively. These
results reflected (a) 1995, 1994 and 1993 pretax provisions of $275.0
million, $316.0 million and $159.0 million ($178.7 million, $200.0 million
and $100.0 million after-tax), respectively, relating to asbestos-related
liabilities and insurance coverage (see "Financial Condition:
Asbestos-Related Matters" below and Note 2 to the Consolidated Financial
Statements for further information); (b) 1995 and 1994 pretax provisions of
$77.0 million and $40.0 million ($50.0 million and $26.0 million after-tax),
respectively, relating to environmental liabilities (see "Financial
Condition: Environmental Matters" below for further information); (c) a 1995
pretax charge of $220.0 million ($144.0 million after-tax) relating to
restructuring costs, asset impairments and other costs (see "Statement of
Operations: Restructuring Costs, Asset Impairments and Other Costs" below
for further information); (d) a 1995 pretax charge of $30.0 million ($18.6
million after-tax) relating to corporate governance matters; and (e) a 1994
gain of $27.0 million (pre- and after-tax) on the sale of Grace's remaining
interest in The Restaurant Enterprises Group, Inc. Excluding these
provisions and charges from all years, income from continuing operations in
1995 increased 24%, to $194.7 million, as compared to 1994, and in 1994
increased 32%, to $157.6 million, over 1993.
Income from continuing operations reflects corporate expenses of $37.8
million, $37.1 million and $37.4 million in 1995, 1994 and 1993,
respectively, previously allocated to the discontinued health care
operations. These expenses will not be assumed by National Medical Care,
Inc. (NMC), Grace's principal health care subsidiary, following completion
of its proposed separation from Grace, and it is expected that these costs
will be eliminated. See below for additional information regarding the
proposed separation of NMC from Grace and Grace's cost management efforts.
For all periods presented, the Consolidated Statement of Operations has
been restated to reflect the classification of certain businesses as
discontinued operations, as discussed in Note 7 to the Consolidated
Financial Statements.
SPECIALTY CHEMICALS
Operating Results - 1995 Compared to 1994
As noted above, sales and revenues increased 14% in 1995 as compared to
1994, reflecting favorable volume, price/product mix and currency
translation variances estimated at 7%, 4% and 3%, respectively. All product
lines experienced improved volumes in 1995. Packaging volume increases
reflected higher sales of bags and films in all regions, and higher sales of
laminates in all regions other than Latin America. Volume increases in
catalysts and other silica-based products reflected higher sales in all
regions, especially refinery catalysts in Asia Pacific and Europe, and
silica/adsorbent products in Europe and Asia Pacific. Container volume
increases were due to increased sales of specialty polymers and can sealing
products in Asia Pacific, and coating products in Latin America. Volume
increases in water treatment reflected higher paper industry process
chemicals sales in Europe and North America caused by market share gains, as
well as higher water treatment chemicals sales in Latin America.
Construction products experienced volume increases, primarily in Asia
Pacific, due to increased construction activity, partially offset by volume
decreases in both fire protection products in North America (due to a small
market share loss) and waterproofing products in Europe and North America.
Operating income before taxes (which excludes for all years the items
discussed in the second paragraph of "Overview" above) increased by 15% in
1995 as compared to 1994. North American results in 1995 improved,
reflecting strong growth in packaging due to the volume increases noted
above (especially in bags). However, this was partially offset by reduced
profitability in refinery catalysts, as North American refiners continued to
experience low margins. The narrow spread between light and heavy crude oil
prices led customers to crack higher quality light crude rather than heavy
crude oil (which requires more catalysts). In addition, water treatment
chemicals in North America experienced lower profitability due to ongoing
market consolidations. European results in 1995 improved significantly
versus 1994, primarily in packaging, reflecting volume increases caused by
an economic recovery that revitalized key markets, partially offset by
unfavorable results in construction waterproofing products due to higher
material costs and a slowdown in the nonresidential construction market.
European results also benefited from the absence of costs incurred in 1994
to streamline European packaging, water treatment and container operations.
In Asia Pacific, favorable results were achieved versus 1994, primarily in
refinery catalysts and silica/adsorbent and construction products (due to
the volume increases noted above), partially offset by higher operating
costs incurred to increase market share in the region. Latin American 1995
results declined slightly versus 1994, primarily due to the effect of
inflation indexation on wage and employee benefit costs in the Brazilian
water treatment operations, partially offset by increased profitability in
packaging due to improved volumes and in container products due to market
share gains in coating products. The above results reflect the allocation
of corporate overhead and corporate research expenses; corporate interest
and financing costs and nonallocable expenses are not reflected in the
results of specialty chemicals.
F-30
<PAGE> 156
Operating Results - 1994 Compared to 1993
Sales and revenues increased by 11%, and operating income before taxes
increased by 19%, in 1994 as compared to 1993. The increase in sales and
revenues reflected favorable volume, price/product mix and currency
translation variances estimated at 9%, 1% and 1%, respectively. Volume
increases were experienced by all core product lines. North American
results in 1994 were positively affected by strong growth in construction
and packaging, mainly due to the volume increases, partially offset by
reduced profitability in refinery catalysts due to volume decreases as a
result of customers' use of higher quality crude oil and an increase in
customer maintenance shutdowns. European results in 1994 improved
significantly versus 1993, primarily due to improvements in refinery and
polyolefin catalysts and construction products (due to the volume
increases), partially offset by costs associated with streamlining European
operations. In Asia Pacific, favorable results were achieved versus 1993,
primarily due to volume increases in refinery and polyolefin catalysts and
container products. Latin American 1994 results improved versus 1993,
primarily due to increased profitability in packaging (due to increased
volumes in bags, films and laminates). Latin American results also
benefited from improved economic conditions in Brazil; however, this was
partially offset by the devaluation of the Mexican peso in late 1994.
STATEMENT OF OPERATIONS
OTHER INCOME
See Note 4 to the Consolidated Financial Statements for information relating
to other income.
INTEREST EXPENSE AND RELATED FINANCING COSTS
Excluding amounts allocated to discontinued operations (as discussed in Note
7 to the Consolidated Financial Statements), interest expense and related
financing costs of $71.3 million in 1995 increased 44% versus 1994.
Including amounts allocated to discontinued operations, interest expense and
related financing costs increased 50% in 1995 over 1994, to $164.8 million,
primarily due to higher average effective short-term interest rates and
higher debt levels.
Grace's debt and interest rate management objectives are to reduce its
cost of funding over the long term, considering economic conditions and
their potential impact on Grace, and to improve liquidity by developing and
maintaining access to a variety of long-term and short-term capital markets.
To manage its exposure to changes in interest rates, Grace enters into
interest rate agreements; during 1995, most of these agreements effectively
converted fixed-rate debt into variable-rate debt. These agreements have
readily identifiable impacts on interest cost and are characterized by broad
market liquidity. See Note 11 to the Consolidated Financial Statements for
further information on interest rate agreements.
See "Financial Condition: Liquidity and Capital Resources" below and
Note 10 to the Consolidated Financial Statements for information on
borrowings.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development spending increased 13% in 1995 versus 1994.
Research and development spending continues to be directed toward Grace's
core specialty chemicals businesses. As discussed below, during 1995 Grace
undertook a worldwide restructuring program, including a study of
company-wide research and development expenses. Certain actions have
already been taken based on this study, including the shutdown of Grace's
Japan research center and the phase-out of certain research programs related
to noncore operations.
RESTRUCTURING COSTS, ASSET IMPAIRMENTS AND OTHER COSTS
Restructuring Costs
As discussed in Note 5 to the Consolidated Financial Statements, during the
third quarter of 1995, Grace began implementing a worldwide restructuring
program aimed at streamlining processes and reducing general and
administrative expenses, factory administration costs and noncore corporate
research and development expenses. The program is expected to be
substantially completed by the end of 1996. In the third and fourth
quarters of 1995, Grace recorded pretax charges totalling $44.3 million and
$91.7 million ($27.2 million and $61.9 million after-tax), respectively,
comprised of $77.4 million for employee termination benefits; $13.4 million
for plant closure and related costs, including lease termination costs;
$15.5 million for prior business exits and related costs; $20.8 million for
asset writedowns; and $8.9 million for other costs. The $77.4 million for
employee termination benefits primarily represents severance pay and other
benefits associated with the elimination of approximately 1,000 positions
worldwide; more than 50% of the total cost reductions will come from
corporate staff functions worldwide.
Grace expects to implement additional cost reductions and efficiency
improvements beyond those discussed above, as its businesses further
evaluate and reengineer their operations. These reductions and efficiencies
are expected in areas such as purchasing, logistics, working capital
management and manufacturing.
F-31
<PAGE> 157
Asset Impairments
During 1995, Grace determined that, due to various events and changes
in circumstances (including the worldwide restructuring program described
above), certain long-lived assets and related goodwill were impaired. As a
result, in the fourth quarter of 1995, Grace recorded a $43.5 million pretax
charge ($29.0 million after-tax), the majority of which related to assets
that will continue to be held and used in Grace's continuing operations; the
charge included no significant individual components. Grace determined the
amount of the charge based on various valuation techniques, including
discounted cash flow, replacement cost and net realizable value for assets
to be disposed of.
Other Costs
Also, in the fourth quarter of 1995, Grace recorded pretax charges
totalling $40.5 million ($25.9 million after-tax) relating to the writedown
of corporate assets ($27.0 million) and working capital assets ($13.5
million). These amounts are included in "Cost of goods sold and operating
expenses" in the Consolidated Statement of Operations.
INCOME TAXES
Grace's effective tax rates were (37.1)%, (53.0)% and 34.6% in 1995, 1994
and 1993, respectively. Excluding the items discussed in the second
paragraph of "Review of Operations: Overview" above, Grace's effective tax
rates were 32.8%, 34.6% and 36.7% in 1995, 1994 and 1993, respectively. The
lower effective tax rate in 1995, as compared to 1994, was largely due to
the reversal of the valuation allowance on foreign net operating losses and
lower state income taxes, partially offset by higher taxes on foreign
operations. The lower effective tax rate in 1994, as compared to 1993, was
largely due to lower taxes on foreign operations.
Grace has recognized a valuation allowance relating to uncertainty as
to the realization of certain deferred tax assets, including U.S. tax credit
carryforwards, state and local net operating loss carryforwards and net
deferred tax assets. As a result of the favorable resolution of an audit,
the valuation allowance on net operating loss carryforwards in foreign
jurisdictions was reversed in 1995. Based upon anticipated future results,
Grace has concluded, after consideration of the valuation allowance, that it
is more likely than not that the remaining balance of the net deferred tax
assets will be realized.
See Note 6 to the Consolidated Financial Statements for further
information on income taxes.
DISCONTINUED OPERATIONS
HEALTH CARE
In June 1995, the Company announced that its Board of Directors had approved
a plan to spin off NMC. As a result, Grace classified its health care
business as a discontinued operation in the second quarter of 1995 and,
accordingly, NMC's operations are included in "(Loss)/income from
discontinued operations" in the Consolidated Statement of Operations.
Following NMC's receipt in October 1995 of five investigative subpoenas
from the Office of the Inspector General of the U.S. Department of Health
and Human Services (OIG), as discussed below, the completion of the spin-off
of NMC, originally expected in the 1995 fourth quarter, was delayed.
In February 1996, Grace and Fresenius AG (Fresenius) entered into a
definitive agreement to combine NMC with Fresenius' worldwide dialysis
business (FWD) to create Fresenius Medical Care (FMC). As a result of the
combination, FMC would acquire NMC, which would remain responsible for all
liabilities arising out of the investigations, discussed below. However,
Grace would retain certain health care assets, primarily a bioseparation
sciences business, a health care services company and other assets
(including cash and marketable securities).
The combination would follow a borrowing of approximately $2.3 billion
by NMC, a tax-free distribution of the proceeds by NMC to Grace, and a
tax-free distribution by the Company, with respect to each share of its
Common Stock, of one share of a newly formed corporation holding all of
Grace's businesses (principally its specialty chemicals businesses) other
than NMC. As a result of the separation of Grace's specialty chemicals
businesses from NMC and the subsequent combination of NMC and FWD, the
holders of the Company's Common Stock would own 100% of the specialty
chemicals company and 44.8% of FMC, and Fresenius and other shareholders
would own 55.2% of FMC. The holders of the Company's Common Stock would
also own preferred stock, the value of which would be linked to the
performance of FMC. Completion of the various transactions is subject to
customary conditions, including the approval of the shareholders of the
Company and Fresenius; U.S., German and European regulatory actions; and
obtaining financing on satisfactory terms. Commitments for financing have
been received, and it is expected that the various transactions will be
completed by the third quarter of 1996.
Operating Results - 1995 Compared to 1994
Health care sales and revenues for 1995 increased by 11% over 1994, due to
increases of 13%, 3% and 10%, respectively, in kidney dialysis services,
home health care and medical products operations. The increase in kidney
dialysis services reflects acquisitions in 1995 and 1994, and the increase
in home health care reflects the full-year ownership of Home Nutritional
Services, Inc., a national provider of home infusion therapy services
acquired in April 1994. The number of centers providing dialysis and
related services increased 15%, from 590 at December 31, 1994 to 681 at
December 31, 1995 (574 in North America, 62 in Europe, 33 in Latin America
and 12 in Asia Pacific).
F-32
<PAGE> 158
Operating income before taxes in 1995 increased 10%, to $315.6 million,
as compared to 1994, excluding 1995 pretax charges totalling $117.5 million
($102.4 million after-tax). These pretax charges are comprised of (a) asset
impairments of $84.3 million ($83.6 million after-tax); (b) the phase-out of
certain of Grace's health care research programs of $8.8 million ($5.6
million after-tax); (c) changes in accounting estimates totalling $8.7
million ($1.8 million after-tax); (d) additional costs associated with
Grace's long-term incentive programs applicable to NMC of $8.3 million ($4.8
million after-tax); and (e) other items totalling $7.4 million ($6.6 million
after-tax). Health care results reflect the allocation of Grace's health
care-related research expenses; however, corporate interest and financing
costs allocated to the health care business are not reflected in operating
income before taxes. These allocations are not necessarily indicative of
the costs that would be incurred by the health care business on a
stand-alone basis.
The 1995 asset impairments totalling $84.3 million pretax, referred to
above, are comprised of: (a) NMC's investment in a German dialysis machine
manufacturing operation - $39.8 million (pre- and after-tax); (b) NMC's
investment in a dialyzer development operation in Ireland - $16.6 million
(pre- and after-tax); (c) Grace's investment in a health care services
company - $26.2 million (pre- and after-tax); and (d) other items of $1.7
million pretax ($1.0 million after-tax).
Operating Results - 1994 Compared to 1993
Sales and revenues for 1994 increased by 24% over 1993, due to increases of
28% and 47%, respectively, in kidney dialysis services and home health care
operations, partially offset by a decrease of 7% in medical products
revenues. The decrease in medical products operations reflects a decline in
bloodline sales resulting from warning letters and import alerts issued by
the U.S. Food and Drug Administration (FDA) in the second quarter of 1993.
Operating income before income taxes for 1994 increased 23%, to $287.5
million, over 1993, reflecting the continued growth of all health care
businesses, as well as improvements in cost controls, operating efficiencies
and capacity utilization. These favorable results were partially offset by
the costs of improving and expanding quality assurance systems for medical
products manufacturing operations, as a result of the FDA warning letters
and import alerts.
Other Significant Health Care Matters
In October 1995, NMC received five investigative subpoenas from the OIG.
The subpoenas call for the production of extensive documents relating to
various aspects of NMC's business. A letter accompanying the subpoenas
stated that they had been issued in conjunction with an investigation being
conducted by the OIG, the U.S. Attorney for the District of Massachusetts
and others concerning possible violations of Federal laws relating to health
care payments and reimbursements. The results of the investigation and its
impact, if any, cannot be predicted at this time. In the event that any
government agency believes that wrongdoing related to the investigation has
occurred, civil and/or criminal proceedings could be instituted, and if any
such proceedings were to be instituted and the outcome were unfavorable, NMC
could be subject to fines, penalties and damages or could become excluded
from government reimbursement programs. Any such result could have a
material adverse effect on NMC's financial position or the results of
operations of NMC and Grace.
NMC's business, financial position and results of operations could also
be materially adversely affected by (a) an adverse outcome in the pending
litigation concerning the implementation of certain provisions of the
Omnibus Budget Reconciliation Act of 1993 relating to the coordination of
benefits between Medicare and employer health plans in the case of certain
dialysis patients; (b) an adverse outcome in the pending challenge by NMC of
changes effected by Medicare in approving reimbursement claims relating to
the administration of intradialytic parenteral nutrition (IDPN) therapy; or
(c) the adoption of pending Medicare proposals to change IDPN coverage
prospectively.
See Note 7 to the Consolidated Financial Statements for additional
information relating to the above matters.
COCOA AND OTHER BUSINESSES
In the second quarter of 1993, Grace classified as discontinued operations
its cocoa business; its battery separators business; certain engineered
materials businesses, principally its printing products, material technology
and electromagnetic radiation control businesses (collectively, EMS); and
other noncore businesses. At that time, a provision of $105.0 million (net
of an applicable tax benefit of $22.3 million) was recorded to reflect the
losses expected on the divestment of these businesses.
During the fourth quarter of 1995, Grace revised the divestment plan
for its cocoa business. As a result of this revised divestment plan, recent
trends and a reassessment of forecasts for all remaining discontinued
operations, Grace recorded an additional provision of $151.3 million (net of
an applicable tax benefit of $48.7 million) related to its remaining
discontinued operations, principally the cocoa business.
See Note 7 to the Consolidated Financial Statements for additional
information relating to the above matters.
F-33
<PAGE> 159
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
During 1995, the net pretax cash provided by Grace's continuing operating
activities was $229.7 million, versus $210.9 million in 1994. The increase
was primarily due to net cash inflows of $97.0 million in 1995 from
settlements with certain insurance carriers for asbestos-related litigation,
net of amounts paid for the defense and disposition of asbestos-related
litigation (see discussion below), as compared to the net outflow of $60.0
million for asbestos-related litigation in 1994. However, the 1995 increase
was offset by an increase in the use of operating working capital. After
giving effect to the net pretax cash provided by operating activities of
discontinued operations (including an increase in the use of operating
working capital by NMC in 1995) and increased payments of income taxes
(attributable to taxable income resulting from settlements of
asbestos-related litigation, as well as audit adjustments to prior years'
Federal income tax returns), the net cash provided by operating activities
was $107.0 million in 1995 versus $453.5 million in 1994.
Investing activities used $801.6 million of cash in 1995, largely
reflecting capital expenditures of $537.6 million (more than 75% of which
relates to Grace's packaging and catalyst and other silica-based businesses)
and the acquisition of dialysis centers and medical products facilities for
a total of $37.4 million in the first quarter of 1995. Also, investing
activities of discontinued operations for 1995 used $295.2 million,
primarily reflecting the classification of the health care segment as a
discontinued operation in the second quarter. Management anticipates that
the level of capital expenditures in 1996 will approximate that of 1995. In
1995, Grace launched a $350.0 million global capital expansion program in
its packaging product line, including $50.0 million to build a plant in
Seneca, South Carolina to serve the fresh-cut produce market. In 1996,
Grace is also scheduled to open new silica and packaging plants in Kuantan,
Malaysia.
Net cash provided by financing activities in 1995 was $655.7 million,
primarily reflecting an increase in total debt from December 31, 1994 and
the exercise of employee stock options, offset by the payment of $112.6
million of dividends. Total debt was $1,933.8 million at December 31, 1995,
an increase of $404.1 million from December 31, 1994. Grace's total debt as
a percentage of total capital (debt ratio) increased from 50.4% at December
31, 1994 to 61.1% at December 31, 1995, primarily due to the reduction in
shareholders' equity (due to the charges discussed in the second paragraph
of "Review of Operations: Overview" and "Statement of Operations:
Discontinued Operations" above) and the increase in total debt. At December
31, 1995, the net assets of the discontinued health care segment included
$226.7 million of debt.
Grace expects to receive a substantial amount of cash in 1996 from the
expected distribution by NMC (as discussed in "Statement of Operations:
Discontinued Operations" above and Note 7 to the Consolidated Financial
Statements), the sale of the Grace Dearborn water treatment and process
chemicals business (see discussion below), and, to a lesser extent, funds
generated by operations. Grace expects to apply a substantial portion of
the cash proceeds generated by these transactions to the reduction of
borrowings. Any net excess is expected to be applied to the repurchase of
shares of the Company's Common Stock and selected strategic acquisitions
that complement existing businesses.
In the third quarter of 1995, Grace announced that its Board of
Directors had authorized management to pursue options to maximize the value
of its Grace Dearborn water treatment and process chemicals business. In
March 1996, Grace announced that it had entered into a definitive agreement
to sell Grace Dearborn to Betz Laboratories, Inc. for $632.0 million. The
transaction is expected to be completed in the second quarter of 1996.
In October 1995, in anticipation of the then pending spin-off of NMC,
the Company's Board of Directors declared a quarterly cash dividend of 12.5
cents per share on the Company's Common Stock, a reduction from the previous
quarterly cash dividend of 35 cents per share. At that time, the Board also
approved a policy of paying dividends at a rate of 20% - 30% of the prior
year's net earnings and authorized the repurchase of up to 10 million shares
of the Company's Common Stock. In February 1996, after entering into the
definitive agreement to combine NMC with FWD, the Board increased the number
of shares that may be repurchased to 20% of the Company's outstanding Common
Stock (see "Statement of Operations: Discontinued Operations" above and Note
7 to the Consolidated Financial Statements).
ASBESTOS-RELATED MATTERS
As reported in Note 2 to the Consolidated Financial Statements, Grace is a
defendant in lawsuits relating to previously sold asbestos-containing
products and is involved in related litigation with certain of its insurance
carriers. In 1995, Grace received $97.0 million under settlements with
certain insurance carriers, net of amounts paid for the defense and
disposition of asbestos-related property damage and personal injury
litigation. During the fourth quarter of 1995, Grace recorded a noncash
pretax charge of $275.0 million ($178.7 million after-tax), primarily to
reflect the estimated costs of defending against and disposing of personal
injury lawsuits and claims expected to be filed through 1998. The balance
sheet at December 31, 1995 includes a receivable due from insurance
carriers, a portion of which is subject to litigation, of $321.2 million.
Grace has also recorded notes receivable of $130.0 million ($118.4 million
after discounts) for amounts to be received in 1996 to 1999 pursuant to
settlement agreements previously entered into with certain insurance
carriers.
F-34
<PAGE> 160
Although the amounts to be paid in 1996 in respect of asbestos-related
lawsuits and claims cannot be precisely estimated, Grace expects that it
will be required to expend approximately $40.0 million (pretax) in 1996 to
defend against and dispose of such lawsuits and claims (after giving effect
to payments to be received from certain insurance carriers, as discussed
above and in Note 2 to the Consolidated Financial Statements). As indicated
therein, the amounts reflected in the Consolidated Financial Statements with
respect to the probable cost of defending against and disposing of
asbestos-related lawsuits and claims and probable recoveries from insurance
carriers represent estimates; neither the outcomes of such lawsuits and
claims nor the outcomes of Grace's continuing litigations with certain of
its insurance carriers can be predicted with certainty.
ENVIRONMENTAL MATTERS
Grace incurs costs to comply with environmental laws and regulations and to
fulfill its commitment to industry initiatives and Grace standards.
Worldwide expenses of continuing operations related to the operation and
maintenance of environmental facilities and the disposal of hazardous and
nonhazardous wastes totalled $43.5 million, $35.7 million and $40.7 million
in 1995, 1994 and 1993, respectively. Such costs are estimated to be
approximately $45.0 million and $47.0 million in 1996 and 1997,
respectively. In addition, worldwide capital expenditures for continuing
operations relating to environmental protection totalled $14.9 million in
1995, compared to $21.5 million and $19.3 million in 1994 and 1993,
respectively. Capital expenditures to comply with environmental initiatives
in future years are estimated to be $20.0 million and $17.0 million in 1996
and 1997, respectively. Grace has also incurred costs to remediate
environmentally impaired sites. These costs were $31.3 million, $30.8
million and $44.4 million in 1995, 1994 and 1993, respectively. These
amounts have been charged against previously established reserves. Future
cash outlays for remediation costs are expected to total $30.0 million in
1996 and $20.0 million in 1997. Expenditures have been funded from internal
sources of cash and are not expected to have a significant effect on
liquidity.
Grace accrues for anticipated costs associated with investigatory and
remediation efforts relating to the environment in accordance with Statement
of Financial Accounting Standards No. 5, "Accounting for Contingencies,"
which requires estimating the probability and amount of future costs. At
December 31, 1995, Grace's liability for environmental investigatory and
remediation costs related to continuing and discontinued operations totalled
approximately $280.3 million, which amount does not take into account any
discounting for future expenditures or possible future insurance recoveries.
The measurement of the liability is evaluated quarterly based on currently
available information. In 1995 and 1994, periodic provisions were recorded
for environmental and plant closure expenses, which include the costs of
future environmental investigatory and remediation activities.
Additionally, in the fourth quarter of 1995 and first quarter of 1994, Grace
recorded pretax provisions of $77.0 million and $40.0 million ($50.0 million
and $26.0 million after-tax), respectively, principally to provide for
future costs related to remediation activities required at former
manufacturing sites.
F-35
<PAGE> 161
SCHEDULE VIII
W. R. GRACE & CO. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(in millions)
<TABLE>
<CAPTION>
For the Year 1995
Additions (deductions)
---------------------
Charged
Balance at (credited) to Balance
beginning costs and Other, at end
Description of period expenses net** of period
----------- --------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Valuation and qualifying accounts deducted from assets:
Allowances for notes and accounts receivable................. $ 95.2 $ 131.2 $ (213.5) $ 12.9
------------ ---------- ----------- -----------
Allowances for long-term receivables......................... $ 20.6 $ 3.7 $ .4 $ 24.7
------------ ---------- ----------- -----------
Securities of divested businesses............................ $ 4.9 $ - $ (1.4) $ 3.5
------------ ---------- ----------- -----------
Valuation allowance for deferred tax assets.................. $ 137.0 $ (32.0) $ (7.3) $ 97.7
------------ ---------- ----------- -----------
Reserves:
Foreign employee benefit obligations* ....................... $ 82.5 $ 10.6 $ 2.2 $ 95.3
------------ ---------- ----------- -----------
Discontinued operations...................................... $ 239.3 $ 127.4 $ - $ 366.7
------------ ---------- ----------- -----------
For the Year 1994
Additions (deductions)
---------------------
Charged
Balance at (credited) to Balance
beginning costs and Other, at end
Description of period expenses net** of period
----------- --------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Valuation and qualifying accounts deducted from assets:
Allowances for notes and accounts receivable................. $ 50.3 $ 102.2 $ (57.3) $ 95.2
------------ --------- --------- -----------
Allowances for long-term receivables......................... $ 13.4 $ 6.9 $ .3 $ 20.6
------------ --------- --------- -----------
Securities of divested businesses............................ $ 161.2 $ - $ (156.3) $ 4.9
------------ --------- --------- -----------
Valuation allowance for deferred tax assets.................. $ 129.7 $ - $ 7.3 $ 137.0
------------ --------- --------- -----------
Reserves:
Foreign employee benefit obligations* ....................... $ 64.4 $ 11.6 $ 6.5 $ 82.5
------------ --------- --------- -----------
Discontinued operations ..................................... $ 132.1 $ 107.2 $ - $ 239.3
------------ --------- --------- -----------
For the Year 1993
Additions (deductions)
---------------------
Charged
Balance at (credited) to Balance
beginning costs and Other, at end
Description of period expenses net** of period
----------- --------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Valuation and qualifying accounts deducted from assets:
Allowances for notes and accounts receivable................. $ 39.3 $ 67.4 $ (56.4) $ 50.3
------------ --------- --------- -----------
Allowances for long-term receivables......................... $ 8.4 $ 5.3 $ (.3) $ 13.4
------------ --------- --------- -----------
Securities of divested businesses............................ $ 152.9 $ 8.3 $ - $ 161.2
------------ --------- --------- -----------
Valuation allowance for deferred tax assets.................. $ 143.1 $ - $ (13.4) $ 129.7
------------ --------- --------- -----------
Reserves:
Foreign employee benefit obligations* ....................... $ 83.4 $ 12.2 $ (31.2) $ 64.4
------------ --------- --------- -----------
Discontinued operations ..................................... $ 144.7 $ (12.6) $ - $ 132.1
------------ --------- --------- -----------
</TABLE>
* Represents legally mandated employee benefit obligations, primarily
pension benefits, relating to Grace's operations in Europe.
** Consists of additions and deductions applicable to businesses
acquired, disposals of businesses, bad debt write-offs, foreign
currency translation, reclassifications (including the deconsolidation
of amounts relating to discontinued operations) and miscellaneous
other adjustments.
F-36
<PAGE> 162
Exhibit 11
W. R. GRACE & CO. AND SUBSIDIARIES
WEIGHTED AVERAGE NUMBER OF SHARES AND EARNINGS USED IN PER SHARE COMPUTATIONS
The weighted average number of shares of Common Stock outstanding were as
follows:
<TABLE>
<CAPTION>
(in thousands)
-----------------------------------
1995 1994 1993
-------- ----------- --------
<S> <C> <C> <C>
Weighted average number of shares of Common
Stock outstanding . . . . . . . . . . . . . . . . . 95,822 93,936 91,461
Conversion of convertible debt obligations . . . . . . . . . - - 46
Additional dilutive effect of outstanding options
(as determined by the application of the treasury
stock method) . . . . . . . . . . . . . . . . . . 2,189 659 680
------ ------ ------
Weighted average number of shares of Common
Stock outstanding assuming full dilution . . . . . 98,011 94,595 92,187
====== ====== ======
</TABLE>
(Loss)/income used in the computation of (loss)/earnings per share were as
follows:
<TABLE>
<CAPTION>
(in millions, except per share)
----------------------------------------
1995 1994 1993
--------- ----------- ---------
<S> <C> <C> <C>
Net (loss)/income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (325.9) $ 83.3 $ 26.0
Dividends paid on preferred stocks . . . . . . . . . . . . . . . . . . . . . . (.5) (.5) (.5)
--------- ----------- ---------
(Loss)/income used in per share computation of earnings and in
per share computation of earnings assuming full dilution . . . . . . $ (326.4) $ 82.8 $ 25.5
========= =========== =========
(Loss)/earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . $ (3.40) $ .88 $ .28
(Loss)/earnings per share assuming full dilution . . . . . . . . . . . . . . . $ (3.33) $ .88 $ .28
</TABLE>
F-37
<PAGE> 163
EXHIBIT 12
W.R. GRACE & CO. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND
COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(in millions, except ratios)
(Unaudited)
<TABLE>
<CAPTION> Years Ended December 31, (b)
-----------------------------------------------------------------
1995(c) 1994(d) 1993(e) 1992(f) 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net (loss)/income from continuing operations.......... $ (196.6) $ (41.4) $ 19.1 $ 1.4 $ 157.4
Add (deduct):
(Benefit from)/provision for income taxes ....... (115.8) (46.6) 10.1 79.9 99.1
Income taxes of 50%-owned companies ............ - - .1 2.1 1.5
Minority interest in income of
majority-owned subsidiaries................... - - - - -
Equity in unremitted losses/(earnings)
of less than 50%-owned companies.............. .8 (.6) (.5) (2.0) (.9)
Interest expense and related financing costs,
including amortization of capitalized interest 179.8 138.5 122.7 162.7 209.6
Estimated amount of rental expense
deemed to represent the interest factor....... 8.5 10.1 11.3 14.0 12.7
------ ------- ------- ------- -------
(Loss)/income as adjusted............................ $ (123.3) $ 60.0 $ 162.8 $ 258.1 $ 479.4
========= ======== ======= ======= =======
Combined fixed charges and preferred stock dividends:
Interest expense and related financing costs,
including capitalized interest................ $ 195.5 $ 143.2 $ 122.8 $ 176.3 $ 224.5
Estimated amount of rental expense
deemed to represent the interest factor...... 9.1 10.1 11.3 14.0 12.7
-------- ------- ------- ------- -------
Fixed charges........................................ 204.6 153.3 134.1 190.3 237.2
Preferred stock dividend requirements(a)............. .5 .5 .8 .8 .9
-------- ------- ------- ------- -------
Combined fixed charges and preferred
stock dividends................................. $ 205.1 $ 153.8 $ 134.9 $ 191.1 $ 238.1
======== ======= ======== ======= =======
Ratio of earnings to fixed charges................... (g) (g) 1.21 1.36 2.02
======== ======= ======== ======= =======
Ratio of earnings to combined fixed charges and
preferred stock dividends....................... (g) (g) 1.21 1.35 2.01
======== ======= ======== ======= =======
</TABLE>
(a) For each period with an income tax provision, the preferred stock
dividend requirements are increased to an amount representing the
pretax earnings required to cover such requirements based on
Grace's effective tax rate.
(b) Certain amounts have been restated to conform to the 1995
presentation.
(c) Includes pretax provisions of $275.0 for asbestos-related
liabilities and insurance coverage; $220.0 relating to
restructuring costs, asset impairments and other activities;
$77.0 for environmental liabilities at former manufacturing sites;
and $30.0 for corporate governance activities.
(d) Includes a pretax provision of $316.0 relating to asbestos-related
liabilities and insurance coverage.
(e) Includes a pretax provision of $159.0 relating to asbestos-related
liabilities and insurance coverage.
(f) Includes a pretax provision of $140.0 relating to a fumed silica
plant in Belgium.
(g) As a result of the losses incurred for the years ended December 31,
1995 and 1994, Grace was unable to fully cover the indicated fixed
charges.
F-38
<PAGE> 164
PART I. FINANCIAL INFORMATION ANNEX G
Item 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
W. R. Grace & Co. and Subsidiaries Three Months Ended
Consolidated Statement of Operations (Unaudited) March 31,
------------------------------------------------------------------------------------- ----------------------
Dollars in millions, except per share 1996 1995
------------------------------------------------------------------------------------- ---------- ----------
<S> <C> <C>
Sales and revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $886.0 $853.4
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.8 4.3
------ ------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 889.8 857.7
------ ------
Cost of goods sold and operating expenses . . . . . . . . . . . . . . . . . . . . . 531.8 500.9
Selling, general and administrative expenses . . . . . . . . . . . . . . . . . . . . 199.3 230.8
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . 45.5 38.2
Interest expense and related financing costs . . . . . . . . . . . . . . . . . . . . 18.4 15.8
Research and development expenses . . . . . . . . . . . . . . . . . . . . . . . . . 28.8 30.5
Corporate expenses previously allocated to health care operations . . . . . . . . . - 10.1
------ ------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 823.8 826.3
------ ------
Income from continuing operations before income taxes . . . . . . . . . . . . . . . 66.0 31.4
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24.4 8.5
------ ------
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . 41.6 22.9
Income from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . 22.0 24.6
------ ------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 63.6 $ 47.5
====== ======
-----------------------------------------------------------------------------------------------------------------
Earnings per share:
Continuing Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .42 $ .24
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .65 $ .50
Fully diluted earnings per share:
Continuing Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .41 $ .24
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .63 $ .49
Dividends declared per common share . . . . . . . . . . . . . . . . . . . . . . . . $ .125 $ .35
-----------------------------------------------------------------------------------------------------------------
</TABLE>
The Notes to Consolidated Financial Statements
are integral parts of these statements.
G-1
<PAGE> 165
<TABLE>
<CAPTION>
W. R. Grace & Co. and Subsidiaries Three Months Ended
Consolidated Statement of Cash Flows (Unaudited) March 31,
- ---------------------------------------------------------------------------------------------- -------------------------
Dollars in millions 1996 1995
- ---------------------------------------------------------------------------------------------- ---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Income from continuing operations before income taxes . . . . . . . . . . . . . . . . . . $ 66.0 $ 31.4
Reconciliation to cash used for operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . 45.5 38.2
Changes in assets and liabilities, excluding effect of businesses
acquired/divested and foreign exchange:
Increase in notes and accounts receivable, net . . . . . . . . . . . . . . . . . (34.4) (.1)
Decrease/(increase) in inventories . . . . . . . . . . . . . . . . . . . . . . . 9.0 (41.6)
Proceeds from asbestos-related insurance settlements . . . . . . . . . . . . . . 23.7 100.0
Payments made for asbestos-related litigation settlements
and defense costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (31.2) (30.9)
Decrease in accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . (11.5) (70.4)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (114.8) (95.1)
-------- -------
Net pretax cash used for operating activities of continuing operations . . . . . . . . . . (47.7) (68.5)
Net pretax cash (used for)/provided by operating activities
of discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (32.1) 65.6
-------- -------
Net pretax cash used for operating activities . . . . . . . . . . . . . . . . . . . . . . (79.8) (2.9)
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11.5) (59.6)
-------- -------
Net cash used for operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . (91.3) (62.5)
-------- -------
INVESTING ACTIVITIES
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (112.5) (110.4)
Businesses acquired in purchase transactions, net of
cash acquired and debt assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . - (31.3)
Increase in net assets of discontinued operations . . . . . . . . . . . . . . . . . . . . (33.8) (3.3)
Net proceeds from divestments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.9 7.1
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4.4) .7
-------- -------
Net cash used for investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . (139.8) (137.2)
-------- -------
FINANCING ACTIVITIES
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12.4) (33.1)
Repayments of borrowings having original maturities in excess of three months . . . . . . (33.8) (10.5)
Increase in borrowings having original maturities in excess of three months . . . . . . . - 9.3
Net increase in borrowings having original maturities of less than three months . . . . . 264.9 209.6
Stock options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44.8 16.1
Decrease in net financing activities of discontinued operations . . . . . . . . . . . . . (16.2) -
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (.5) (12.0)
--------- -------
Net cash provided by financing activities . . . . . . . . . . . . . . . . . . . . . . . . 246.8 179.4
--------- -------
Effect of exchange rate changes on cash and cash equivalents . . . . . . . . . . . . . . . . . .2 3.2
--------- -------
Increase/(decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . $ 15.9 $ (17.1)
========= =======
</TABLE>
The Notes to Consolidated Financial Statements
are integral parts of these statements.
G-2
<PAGE> 166
<TABLE>
<CAPTION>
W. R. Grace & Co. and Subsidiaries
Consolidated Balance Sheet (Unaudited)
March 31, December 31,
Dollars in millions, except par value 1996 1995
------------------------------------------------------------------- ------------ ------------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . $ 56.5 $ 40.6
Notes and accounts receivable, net . . . . . . . . . . . . . . 666.8 596.8
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . 481.1 491.9
Net assets of discontinued operations . . . . . . . . . . . . . 314.4 323.7
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . 193.5 206.1
Other current assets . . . . . . . . . . . . . . . . . . . . . 35.6 22.2
------------ -----------
Total Current Assets . . . . . . . . . . . . . . . . . . . . 1,747.9 1,681.3
Properties and equipment, net of accumulated
depreciation and amortization of $1,446.7
and $1,418.8, respectively . . . . . . . . . . . . . . . . 1,810.0 1,736.1
Goodwill, less accumulated amortization of $20.9
and $20.6, respectively . . . . . . . . . . . . . . . . . 112.5 111.8
Net assets of discontinued operations - health care . . . . . . . 1,540.5 1,435.3
Asbestos-related insurance receivable . . . . . . . . . . . . . . 281.5 321.2
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . 381.6 386.6
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 611.5 625.3
------------ -----------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,485.5 $ 6,297.6
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . $ 895.2 $ 638.3
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . 278.0 339.2
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . 102.5 103.3
Other current liabilities . . . . . . . . . . . . . . . . . . . 816.5 836.4
Minority interest . . . . . . . . . . . . . . . . . . . . . . . 297.0 297.0
------------ -----------
Total Current Liabilities . . . . . . . . . . . . . . . . . 2,389.2 2,214.2
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . 1,265.4 1,295.5
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . 769.9 789.0
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . 37.7 44.8
Noncurrent liability for asbestos-related litigation . . . . . . . 692.4 722.3
------------ -----------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . 5,154.6 5,065.8
------------ -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stocks, $100 par value . . . . . . . . . . . . . . . 7.4 7.4
Common stock, $1 par value . . . . . . . . . . . . . . . . . . 98.5 97.4
Paid in capital . . . . . . . . . . . . . . . . . . . . . . . . 503.1 459.8
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . 760.2 709.0
Cumulative translation adjustments . . . . . . . . . . . . . . (35.9) (39.4)
Treasury stock, 53,000 common shares, at cost . . . . . . . . . (2.4) (2.4)
------------ -----------
Total Shareholders' Equity . . . . . . . . . . . . . . . . . 1,330.9 1,231.8
------------ -----------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,485.5 $ 6,297.6
============ ===========
</TABLE>
The Notes to Consolidated Financial Statements
are integral parts of these statements.
G-3
<PAGE> 167
W. R. Grace & Co. and Subsidiaries
Notes to Consolidated Financial Statements
------------------------------------------
(Dollars in millions)
(a) The financial statements in this Report are unaudited and should be read
in conjunction with the consolidated financial statements in the Company's
1995 Annual Report on Form 10-K. Such interim financial statements reflect
all adjustments that, in the opinion of management, are necessary for a fair
presentation of the results of the interim periods presented; all such
adjustments are of a normal recurring nature. Certain amounts in the prior
period's consolidated financial statements have been reclassified to
conform to the current basis of presentation.
The results of operations for the three-month interim period ended
March 31, 1996 are not necessarily indicative of the results of operations
for the fiscal year ending December 31, 1996.
(b) As previously reported, Grace is a defendant in lawsuits relating to
previously sold asbestos-containing products and anticipates that it will be
named as a defendant in additional asbestos-related lawsuits in the future.
Grace was a defendant in approximately 42,900 asbestos-related lawsuits at
March 31, 1996 (44 involving claims for property damage and the remainder
involving approximately 100,200 claims for personal injury), as compared to
approximately 40,800 lawsuits at December 31, 1995 (47 involving claims for
property damage and the remainder involving approximately 92,400 claims for
personal injury). During the first quarter of 1996, Grace settled one
property damage lawsuit for a total of $4.0 and two property damage lawsuits
were dismissed; in addition, approximately 200 personal injury claims
against Grace were dismissed without payment and $7.1 was recorded to
reflect settlements in approximately 2,100 personal injury claims.
Based upon and subject to the factors discussed in Note 2 to Grace's
consolidated financial statements for the year ended December 31, 1995,
Grace estimates that its probable liability with respect to the defense and
disposition of asbestos property damage and personal injury lawsuits and
claims pending at March 31, 1996 and December 31, 1995, and personal injury
lawsuits and claims expected to be filed through 1998, is as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current liability for asbestos-related litigation (1) . . . . . . . . . . . . . . . $100.0 $100.0
Noncurrent liability for asbestos-related litigation . . . . . . . . . . . . . . . . 692.4 (2) 722.3
------ ------
Total asbestos-related liability . . . . . . . . . . . . . . . . . . . . . . . . . . $792.4 $822.3
====== ======
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Included in "Other current liabilities" in the Consolidated Balance
Sheet.
(2) The decrease from December 31, 1995 reflects payments made by Grace
for settlements and defense costs in connection with asbestos-related
lawsuits and claims during the first quarter of 1996.
G-4
<PAGE> 168
W. R. Grace & Co. and Subsidiaries
Notes to Consolidated Financial Statements
------------------------------------------
(Dollars in millions)
The following table shows Grace's total estimated insurance recoveries in
reimbursement for past and estimated future payments to defend against and
dispose of asbestos-related lawsuits and claims:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Notes receivable from insurance carriers - current, net of discounts of $5.7 (1995 - $4.3) (1) . . . . $ 99.3 $ 62.0
Notes receivable from insurance carriers - noncurrent, net of discounts of $4.8 (1995 - $7.3) (2). . . 37.5 56.4
Asbestos-related insurance receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 281.5 (3) 321.2
------ -------
Total amounts due from insurance carriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $418.3 $ 439.6
====== =======
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Included in "Notes and accounts receivable, net" in the Consolidated
Balance Sheet.
(2) Included in "Other assets" in the Consolidated Balance Sheet.
(3) The decrease from December 31, 1995 reflects the receipt of net
insurance proceeds of $12.6 and the reclassification of $27.1 from
"Asbestos-related insurance receivable" to "Notes receivable from
insurance carriers - current and noncurrent" as the result of a first
quarter 1996 settlement of a dispute with an insurance carrier.
At March 31, 1996, settlements with certain insurance carriers provided
for the future receipt by Grace of $147.3, which Grace has recorded as
notes receivable (both current and noncurrent) of $136.8, net of
discounts. In the first quarter of 1996, Grace received net proceeds
of $23.7 pursuant to settlements with insurance carriers in
reimbursement for monies previously expended by Grace in connection
with asbestos-related lawsuits and claims; of this amount, $9.7 was
received pursuant to settlements entered into in 1995, which had
previously been classified as notes receivable. Pursuant to
settlements with two groups of carriers in 1995, Grace will continue
to receive payments based on future cash outflows for asbestos-related
lawsuits and claims; such payments are estimated to represent
approximately $223.3 of the asbestos-related receivable of $281.5 at
March 31, 1996.
Grace continues to seek to recover from its excess insurers the balance
of the payments it has made with respect to asbestos-related lawsuits
and claims. As part of this effort, Grace continues to be involved in
litigation with certain of its excess insurance carriers (having
previously settled with its primary and certain of its excess
carriers). However, in Grace's opinion, it is probable that recoveries
from its insurance carriers (including amounts reflected in the
receivable discussed above), along with other funds, will be available
to satisfy the personal injury and property damage lawsuits and claims
pending at March 31, 1996, as well as personal injury lawsuits and
claims expected to be filed through 1998. Consequently, Grace
believes that the resolution of its asbestos-related litigation will
not have a material adverse effect on its consolidated results of
operations or financial position.
For additional information, see Note 2 to the consolidated financial
statements in the Company's 1995 Annual Report on Form 10-K.
G-5
<PAGE> 169
W. R. Grace & Co. and Subsidiaries
Notes to Consolidated Financial Statements
------------------------------------------
(Dollars in millions)
(c) As previously reported, in February 1996 Grace and Fresenius AG
(Fresenius) entered into a definitive agreement to combine National
Medical Care, Inc. (NMC), Grace's principal health care subsidiary,
with Fresenius' worldwide dialysis business (FWD) to create Fresenius
Medical Care AG (FMC). The combination would follow the borrowing
and/or assumption of debt aggregating approximately $2.3 billion by
NMC, a tax-free distribution of the net cash proceeds by NMC to Grace,
and a tax-free distribution by the Company, with respect to each share
of its Common Stock, of one share of a newly formed corporation
holding all of Grace's businesses (principally its packaging and
specialty chemicals businesses) other than NMC. As a result of these
transactions, the holders of the Company's Common Stock would own 100%
of the packaging and specialty chemicals company and would be
allocated an aggregate of approximately 44.8% of FMC's ordinary
shares, and Fresenius and other shareholders would be allocated 55.2%
of such shares. The holders of the Company's Common Stock would also
own preferred stock, the value of which would be linked to the
performance of FMC. It is expected that the various transactions will
be completed by the third quarter of 1996. See Note 7 to the
consolidated financial statements in the Company's 1995 Annual Report
on Form 10-K for additional information.
Grace classified its health care business as a discontinued operation
in the second quarter of 1995. Summary results of operations for the
health care business are as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
1996 1995
------- --------
<S> <C> <C>
Sales and revenues $539.7 $ 491.8
====== =======
Income from discontinued operations - health care $ 38.2 $ 44.0
before income taxes
Provision for income taxes 16.2 19.4
------ -------
Income from discontinued operations - health care $ 22.0 $ 24.6
====== =======
</TABLE>
The operating results of Grace's cocoa business and other discontinued
operations have been charged against previously established reserves
and are therefore not reflected in the above results.
The net operating income of the health care business reflects an
allocation of Grace's interest expense ($26.8 and $20.1 for the first
quarters of 1996 and 1995, respectively) based on a ratio of the net
assets of the health care business as compared to Grace's total
capital. Taxes have been allocated to the health care business as if
it were a stand-alone taxpayer; however, these allocations are not
necessarily indicative of the taxes attributable to the health care
business in the future. For the 1995 period, net operating income
of the health care business also reflects an allocation of Grace's
health care-related research expenses (Grace management initiated the
phase-out of certain of its health care research programs in the third
quarter of 1995).
G-6
<PAGE> 170
W. R. Grace & Co. and Subsidiaries
Notes to Consolidated Financial Statements
------------------------------------------
(Dollars in millions)
Minority interest consists of a limited partnership interest in Grace
Cocoa Associates, L.P. (LP). LP's assets consist of Grace Cocoa's
worldwide cocoa and chocolate business, long-term notes and demand
loans due from various Grace entities and guaranteed by the Company
and its principal operating subsidiary, and cash. LP is a separate
and distinct legal entity from each of the Grace entities and has
separate assets, liabilities, business functions and operations. For
financial reporting purposes, the assets, liabilities, results of
operations and cash flows of LP are included in Grace's consolidated
financial statements as components of discontinued operations and the
outside investors' interest in LP is reflected as a minority interest.
The intercompany notes held by LP are eliminated in preparing the
consolidated financial statements and, therefore, have not been
classified as pertaining to discontinued operations.
The net assets, excluding intercompany assets, of Grace's cocoa
business and other discontinued operations (classified as current
assets) and Grace's health care business (classified as noncurrent
assets) included in the consolidated balance sheet at March 31, 1996,
are as follows:
<TABLE>
<CAPTION>
Sub- Health
Cocoa Other Total Care Total
------- ----- --------- ------- ------
<S> <C> <C> <C> <C> <C>
Current assets $327.5 $ 10.3 $337.8 $ 667.2 $1,005.0
Properties and equipment, net 187.0 21.1 208.1 412.3 620.4
Investments in and advances to
affiliated companies - 30.6 30.6 - 30.6
Other assets 61.7 10.5 72.2 1,002.0 1,074.2
------ ------- ------ -------- --------
Total assets $576.2 $ 72.5 $648.7 $2,081.5 $2,730.2
------ ------- ------ -------- --------
Current liabilities $234.6 $ 10.9 $245.5 $ 454.2 $ 699.7
Other liabilities 84.3 4.5 88.8 86.8 175.6
------ ------- ------ -------- --------
Total liabilities $318.9 $ 15.4 $334.3 $ 541.0 $ 875.3
------ ------- ------ -------- --------
Net assets $257.3 $ 57.1 $314.4 $1,540.5 $1,854.9
====== ======= ====== ======== ========
</TABLE>
(d) Inventories consist of:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---------------- ----------------
<S> <C> <C>
Raw and packaging materials $ 137.4 $137.1
In process 89.0 78.0
Finished products 304.2 325.2
------- ------
$ 530.6 $540.3
Less: Adjustment of certain inventories
to a last-in/first-out (LIFO) basis (49.5) (48.4)
------- ------
Total Inventories $ 481.1 $491.9
======= ======
</TABLE>
(e) Earnings per share are calculated on the basis of the following
weighted average number of common shares outstanding:
Three Months Ended March 31:
1996 - 97,888,000
1995 - 94,137,000
G-7
<PAGE> 171
] EXHIBIT 11
W. R. GRACE & CO. AND SUBSIDIARIES
WEIGHTED AVERAGE NUMBER OF SHARES AND EARNINGS USED IN PER SHARE COMPUTATIONS
(Unaudited)
The weighted average number of shares of Common Stock outstanding were as
follows (in thousands):
<TABLE>
<CAPTION>
3 Mos. Ended
------------
3/31/96 3/31/95
------- -------
<S> <C> <C>
Weighted average number of shares of Common
Stock outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97,888 94,137
Additional dilutive effect of outstanding options
(as determined by the application of the treasury
stock method) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,166 2,018
------- ------
Weighted average number of shares of Common
Stock outstanding assuming full dilution . . . . . . . . . . . . . . . . . . 100,054 96,155
======= ======
</TABLE>
Income used in the computation of earnings per share were as follows (in
millions, except per share):
<TABLE>
<CAPTION>
3 Mos. Ended
----------------------
3/31/96 3/31/95
------- -------
<S> <C> <C>
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $63.6 $47.5
Dividends paid on preferred stocks . . . . . . . . . . . . . . . . . . . . . . . . (.1) (.1)
----- -----
Income used in per share computation of earnings and in per
share computation of earnings assuming full dilution . . . . . . . . . . . . $63.5 $47.4
===== =====
Earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .65 $ .50
Earnings per share assuming full dilution . . . . . . . . . . . . . . . . . . . . . $ .63 $ .49
</TABLE>
G-8
<PAGE> 172
EXHIBIT 12
W. R. GRACE & CO. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND
COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(in millions except ratios)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
Years Ended December 31, March 31,
-------------------------------------------------- -----------------------
1995 (b) 1994 (c) 1993 (d) 1992 (e) 1991 1996 1995 (f)
--------- --------- -------- ---------- ------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net (loss)/income from continuing operations...... $(196.6) $ (41.4) $ 19.1 $ 1.4 $157.4 $ 41.6 $22.9
Add/(deduct):
(Benefit from)/provision for income taxes...... (115.8) (46.6) 10.1 79.9 99.1 24.4 8.5
Income taxes of 50%-owned companies............ - - .1 2.1 1.5 - -
Equity in unremitted losses/(earnings)
of less than 50%-owned companies............. .8 (.6) (.5) (2.0) (.9) .2 -
Interest expense and related financing costs,
incl. amortization of capitalized interest 179.8 138.5 122.7 162.7 209.6 47.6 40.1
Estimated amount of rental expense
deemed to represent the interest factor...... 8.5 10.1 11.3 14.0 12.7 2.8 2.5
------- ------- ------- ------- ------ ------- -----
(Loss)/Income as adjusted......................... $(123.3) $ 60.0 $ 162.8 $ 258.1 $479.4 $ 116.6 $74.0
======= ======= ======= ======= ====== ======= =====
Combined fixed charges and pref. stock dividends:
Interest expense and related financing costs,
including capitalized interest............... $ 195.5 $ 143.2 $ 122.8 $ 176.3 $224.5 $ 53.1 $43.0
Estimated amount of rental expense
deemed to represent the interest factor ..... 8.5 10.1 11.3 14.0 12.7 2.8 2.5
------- ------- ------- ------- ------ ------- -----
Fixed charges .................................... 204.0 153.3 134.1 190.3 237.2 55.9 45.5
Preferred stock dividend requirements (a)......... .5 .5 .8 .8 .9 .2 .2
------- ------- ------- ------- ------ ------- -----
Combined fixed charges and preferred
stock dividends .............................. $ 204.5 $ 153.8 $ 134.9 $ 191.1 $238.1 $ 56.1 $45.7
======= ======= ======= ======= ====== ======= =====
Ratio of earnings to fixed charges .............. (g) (g) 1.21 1.36 2.02 2.09 1.63
======= ======= ======= ======= ====== ======= =====
Ratio of earnings to combined fixed charges
and preferred stock dividends ................. (g) (g) 1.21 1.35 2.01 2.08 1.62
======= ======= ======= ======= ====== ======= =====
</TABLE>
(a) For each period with an income tax provision, the preferred stock
dividend requirements are increased to include the pretax earnings
required to cover such requirements based on Grace's effective tax
rate for that period.
(b) Includes pretax provisions of $275.0 for asbestos-related
liabilities and insurance coverage; $220.0 relating to
restructuring costs, asset impairments and other activities; $77.0
for environmental liabilities at former manufacturing sites; and
$30.0 for corporate governance activities.
(c) Includes a pretax provision of $316.0 relating to asbestos-related
liabilities and insurance coverage.
(d) Includes a pretax provision of $159.0 relating to asbestos-related
liabilities and insurance coverage.
(e) Includes a pretax provision of $140.0 relating to a fumed silica
plant in Belgium.
(f) Includes a pretax provision of $20.0 for corporate governance
activities.
(g) As a result of the losses incurred for the years ended December 31,
1995 and 1994, Grace was unable to fully cover the indicated fixed
charges.
G-9
<PAGE> 173
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following are the estimated expenses of the issuance and distribution
of the securities being registered.
<TABLE>
<S> <C>
Registration fee................................................. $1,000,000
NYSE listing fee................................................. 5,000
Blue Sky fees and expenses....................................... 25,000
Printing and engraving expenses.................................. 600,000
Legal fees and expenses.......................................... 500,000
Accounting fees and expenses..................................... 150,000
Miscellaneous.................................................... 50,000
----------
Total.................................................. $2,330,000
=========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
LIMITATION OF LIABILITY OF DIRECTORS
The New Grace Certificate provides that a director will not be personally
liable for monetary damages to New Grace or its shareholders for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to New Grace or its shareholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) for paying a dividend or approving a stock repurchase in
violation of Section 174 of the DGCL, or (iv) for any transaction from which the
director derived an improper personal benefit.
While the New Grace Certificate provides directors with protection against
awards for monetary damages for breaches of their duty of care, it does not
eliminate such duty. Accordingly, the New Grace Certificate will have no effect
on the availability of equitable remedies such as an injunction or rescission
based on a director's breach of his or her duty of care. The provisions of the
New Grace Certificate described above apply to an officer of New Grace only if
he or she is a director of New Grace and is acting in his or her capacity as
director, and do not apply to officers of New Grace who are not directors.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The New Grace Certificate provides that each individual who is or was or
has agreed to become a director or officer of New Grace, or each such person who
is or was serving or who has agreed to serve at the request of the New Grace
Board as an employee or agent of New Grace or as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans (also
including the heirs, executors, administrators or estate of such person), will
be indemnified by New Grace, in accordance with the New Grace By-laws, to the
fullest extent permitted by the DGCL, as the same exists or may in the future be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits New Grace to provide broader indemnification rights than said
law permitted prior to such amendment). The New Grace Certificate also
specifically authorizes New Grace to enter into agreements with any person
providing for indemnification greater than or different from that provided by
the New Grace Certificate.
The New Grace By-laws provide that each person who was or is made a party
or is threatened to be made a party to or is involved in any action, suit, or
proceeding, whether civil, criminal, administrative or investigative (a
"Proceeding"), by reason of the fact that he or she or a person of whom he or
she is the legal representative is or was a director, officer or employee of New
Grace or is or was serving at the request of New Grace as a director, officer,
employee or agent of another corporation or of a partnership, joint venture,
trust or
II-1
<PAGE> 174
other enterprise, including service with respect to employee benefit plans,
whether the basis of such Proceeding is an alleged action in an official
capacity as a director, officer, employee or agent or in any other capacity
while serving as a director, officer, employee or agent, will be indemnified and
held harmless by New Grace to the fullest extent authorized by the DGCL as the
same exists or may in the future be amended (but, in the case of any such
amendment, only to the extent that such amendment permits New Grace to provide
broader indemnification rights than said law permitted prior to such amendment),
against all expense, liability and loss (including, without limitation,
attorneys' fees, judgments, fines, excise taxes or penalties and amounts paid or
to be paid in settlement) reasonably incurred or suffered by such person in
connection therewith, and such indemnification will continue as to a person who
has ceased to be a director, officer, employee or agent and will inure to the
benefit of his or her heirs, executors and administrators; however, except as
described in the next paragraph with respect to Proceedings seeking to enforce
rights to indemnification, New Grace will indemnify any such person seeking
indemnification in connection with a Proceeding (or part thereof) initiated by
such person only if such Proceeding (or part thereof) was authorized by the New
Grace Board.
Pursuant to the New Grace By-laws, if a claim for indemnification as
described in the preceding paragraph is not paid in full by New Grace within 30
days after a written claim has been received by New Grace, the claimant may, at
any time thereafter, bring suit against New Grace to recover the unpaid amount
of the claim and, if successful, in whole or in part, the claimant will be
entitled to be paid also the expense of prosecuting such claim. The New Grace
By-laws provide that it will be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
Proceeding in advance of its final disposition where the required undertaking,
if any, has been tendered to New Grace, as discussed below) that the claimant
has not met the standards of conduct which make it permissible under the DGCL
for New Grace to indemnify the claimant for the amount claimed, but the burden
of proving such defense will be on New Grace. Neither the failure of New Grace
(including the New Grace Board, independent legal counsel or shareholders) to
have made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because he or she
has met the applicable standard of conduct set forth in the DGCL, nor an actual
determination by New Grace (including the New Grace Board, independent legal
counsel or shareholders) that the claimant has not met such applicable standard
of conduct, will be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
The New Grace By-laws provide that the right conferred in the New Grace
By-laws to indemnification and the payment of expenses incurred in defending a
Proceeding in advance of its final disposition will not be exclusive of any
other right which any person may have or may in the future acquire under any
statute, provision of the New Grace Certificate or the New Grace By-laws,
agreement, vote of shareholders or disinterested directors or otherwise. The New
Grace By-laws permit New Grace to maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of New Grace or another
corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss, whether or not New Grace would have the power to
indemnify such person against such expense, liability or loss under the DGCL.
New Grace intends to obtain directors and officers liability insurance providing
coverage to its directors and officers. In addition, the New Grace By-laws
authorize New Grace, to the extent authorized from time to time by the New Grace
Board, to grant rights to indemnification, and rights to be paid by New Grace
the expenses incurred in defending any Proceeding in advance of its final
disposition, to any agent of New Grace to the fullest extent of the provisions
of the New Grace By-laws with respect to the indemnification and advancement of
expenses of directors, officers and employees of New Grace.
The New Grace By-laws provide that the right to indemnification conferred
therein will be a contract right and will include the right to be paid by New
Grace the expenses incurred in defending any such Proceeding in advance of its
final disposition, except that if the DGCL requires, the payment of such
expenses incurred by a director or officer in his or her capacity as a director
or officer (and not in any other capacity in which service was or is rendered by
such person while a director or officer, including, without limitation, service
to an employee benefit plan) in advance of the final disposition of a Proceeding
will be made only upon delivery to New Grace of an undertaking by or on behalf
of such director or officer to repay all amounts so advanced if it is ultimately
determined that such director or officer is not entitled to be indemnified under
the New Grace By-laws or otherwise.
II-2
<PAGE> 175
Grace New York is currently advancing the defense costs being incurred by
certain current and former directors (including the estate of a deceased
director) in certain of the litigations discussed in the Grace New York 1996
Proxy Excerpt and the Joint Proxy Statement-Prospectus. As contemplated by New
York law, such individuals (and the estate) are entering into agreements in
which they undertake to reimburse Grace New York for such advances in the event
it is determined that they were not entitled thereto.
CERTAIN OTHER INFORMATION
There has not been in the past and there is not presently pending any
litigation or proceeding involving a director, officer, employee or agent of New
Grace, acting in such capacity, in which indemnification would be required or
permitted by the New Grace By-Laws. In addition, the New Grace Board is not
aware of any threatened litigation or proceeding which may result in a claim for
indemnification under the New Grace By-Laws. However, certain litigation and
proceedings involving such persons in their respective capacities with Grace New
York are pending. Under the Distribution Agreement, Grace Chemicals has agreed
to indemnify Grace New York and NMC with respect to such pending litigations and
proceedings. For information with respect to the above, reference is hereby made
to the Grace New York 1996 Proxy Excerpt.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In connection with the formation of New Grace, 1,000 shares of its Common
Stock were issued to Grace, New York in exchange for $1,000.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The following documents are filed as exhibits to this registration
statement:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- ---------------------------------------------------------------------------------
<C> <C> <S>
2.1 -- Agreement and Plan of Reorganization, dated as of February 4, 1996, between W. R.
Grace & Co. and Fresenius AG including, as exhibits thereto, the Distribution
Agreement, dated as of February 4, 1996, between W. R. Grace & Co., Fresenius AG
and W. R. Grace & Co.-Conn., and the Contribution Agreement, dated as of February
4, 1996, among W. R. Grace & Co., Fresenius AG, Steril Pharma GmbH and W. R.
Grace & Co.-Conn. (attached as Appendix A to the Joint Proxy Statement-Prospectus
and incorporated herein by reference).
*3.1 -- Form of Amended and Restated Certificate of Incorporation of W. R. Grace & Co.
(attached as Annex A to the Prospectus and incorporated herein by reference).
*3.2 -- Form of Amended and Restated By-laws of W. R. Grace & Co. (attached as Annex B to
the Prospectus and incorporated herein by reference).
*4.1 -- Form of Rights Agreement by and between W. R. Grace & Co. and The Chase Manhattan
Bank, as Rights Agent.
4.2 -- Indenture dated as of September 29, 1992 among W. R. Grace & Co.-Conn., W. R.
Grace & Co. and Bankers Trust Company (filed as Exhibit 4.2 to the Annual Report
on Form 10-K of W. R. Grace & Co. filed March 26, 1993 and incorporated herein by
reference).
4.3 -- Indenture dated as of January 28, 1993 among W. R. Grace & Co.-Conn., W. R. Grace
& Co. and Bank of New York (successor to NationsBank of Georgia, N.A.) (filed as
Exhibit 4.4 to the Annual Report on Form 10-K of W. R. Grace & Co. filed March
26, 1993 and incorporated herein by reference).
*4.4 -- 364-Day Credit Agreement, dated as of May 17, 1996, among W. R. Grace &
Co.-Conn., W. R. Grace & Co., Grace Holding, Inc., the several banks parties
thereto, NationsBank, N.A. (South), as documentation agent, and Chemical Bank, as
administrative agent, for such banks.
*4.5 -- Amended and Restated Credit Agreement, dated as of May 17, 1996, among W. R.
Grace & Co.-Conn., W. R. Grace & Co., Grace Holding, Inc., the several banks
parties thereto and Chemical Bank, as agent for such banks.
</TABLE>
II-3
<PAGE> 176
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- ---------------------------------------------------------------------------------
<C> <C> <S>
*4.6 -- Form of W. R. Grace & Co. Common Stock Certificate.
*4.7 -- Commitment Letter for the NMC Credit Agreement.
*5.1 -- Opinion of Robert H. Beber Esq., Executive Vice President and General Counsel of
W. R. Grace & Co.
*10.1 -- Form of Grace Holding, Inc. 1996 Stock Incentive Plan (attached as Annex C to the
Prospectus and incorporated herein by reference).
*10.2 -- Form of Grace Holding, Inc. 1996 Stock Retainer Plan for Nonemployee Directors
(attached as Annex D to the Prospectus and incorporated herein by reference).
10.3 -- W. R. Grace & Co. Supplemental Executive Retirement Plan, as amended (filed as
Exhibit 10.25 to the Annual Report on Form 10-K of W. R. Grace & Co. filed March
28, 1994 and incorporated herein by reference).
10.4 -- W. R. Grace & Co. Executive Salary Protection Plan, as amended (filed as Exhibit
19(f) to the Report on Form 8-K of W. R. Grace & Co. filed June 19, 1990 and
incorporated herein by reference).
10.5 -- W. R. Grace & Co. 1981 Stock Incentive Plan, as amended (filed as Exhibit 10.02
to the Annual Report on Form 10-K of W. R. Grace & Co. filed March 29, 1996 and
incorporated herein by reference).
10.6 -- W. R. Grace & Co. 1986 Stock Incentive Plan, as amended (filed as Exhibit 10.03
to the Annual Report on Form 10-K of W. R. Grace & Co. filed March 29, 1996 and
incorporated herein by reference).
10.7 -- W. R. Grace & Co. 1989 Stock Incentive Plan, as amended (filed as Exhibit 10.04
to the Annual Report on Form 10-K of W. R. Grace & Co. filed March 29, 1996 and
incorporated herein by reference).
10.8 -- W. R. Grace & Co. 1994 Stock Incentive Plan, as amended (filed as Exhibit 10.05
to the Annual Report on Form 10-K of W. R. Grace & Co. filed March 29, 1996 and
incorporated herein by reference).
10.9 -- W. R. Grace & Co. 1994 Stock Retainer Plan for Nonemployee Directors, as amended
(filed as Exhibit 10.06 to the Annual Report on Form 10-K of W. R. Grace & Co.
filed March 29, 1996 and incorporated herein by reference).
10.10 -- Forms of Stock Option Agreements (filed as Exhibit 10(h) to the Annual Report on
Form 10-K of W. R. Grace & Co. filed March 28, 1992 and incorporated herein by
reference).
10.11 -- Forms of Restricted Share Award Agreements (filed as Exhibit 10(i) to the Annual
Report on Form 10-K of W. R. Grace & Co. filed March 28, 1992 and incorporated
herein by reference).
10.12 -- Information concerning W. R. Grace & Co. Incentive Compensation Program, Deferred
Compensation Program and Long-Term Incentive Program (pages 7-12 and 28-33 of the
Proxy Statement of W. R. Grace & Co. filed April 10, 1996, incorporated herein by
reference).
*10.13 -- Form of Long-Term Incentive Program Award.
*10.14 -- Form of Stock Option Agreement.
10.15 -- W. R. Grace & Co. Retirement Plan for Outside Directors, as amended (filed as
Exhibit 10(o) to the Annual Report on Form 10-K of W. R. Grace & Co. filed March
28, 1992 and incorporated herein by reference).
10.16 -- Employment Agreement dated as of April 1, 1991 between W. R. Grace & Co.-Conn.
and Constantine L. Hampers, as amended (filed as Exhibit 10(x) to the Annual
Report on Form 10-K of W. R. Grace & Co. filed March 28, 1992 and incorporated
herein by reference).
10.17 -- Letter Agreement dated as of March 29, 1996 between W. R. Grace & Co. and
Constantine L. Hampers (filed as Exhibit 10.1 to the Quarterly Report on Form
10-Q of W. R. Grace & Co. filed May 15, 1996 and incorporated herein by
reference).
</TABLE>
II-4
<PAGE> 177
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- ---------------------------------------------------------------------------------
<C> <C> <S>
10.18 -- Housing Loan Agreement dated as of August 1, 1987 between W. R. Grace & Co. and
J. P. Bolduc, related Amendment and Assignment dated May 10, 1988 (filed as
Exhibit 10(q) to the Annual Report on Form 10-K of W. R. Grace & Co. filed March
29, 1988 and incorporated herein by reference).
10.19 -- Employment Agreement dated August 1, 1993 between J. P. Bolduc and W. R. Grace &
Co. (filed as Exhibit 10.13 to the Annual Report on Form 10-K of W. R. Grace &
Co. filed March 28, 1994 and incorporated herein by reference).
10.20 -- Retirement Agreement between W. R. Grace & Co. and J. Peter Grace dated December
21, 1992 (filed as Exhibit 10.23 to the Annual Report on Form 10-K of W. R. Grace
& Co. filed March 26, 1993 and incorporated herein by reference).
10.21 -- Executive Severance Agreement dated September 1, 1992 between W. R. Grace & Co.
and Constantine L. Hampers (filed as Exhibit 10.26 to the Annual Report on Form
10-K of W. R. Grace & Co. filed March 26, 1993 and incorporated herein by
reference).
*10.22 -- Form of Executive Severance Agreement between W. R. Grace & Co. and others.
*10.23 -- Form of Executive Severance Agreement between W. R. Grace & Co. and new officers.
10.24 -- Consulting Agreement dated June 1, 1992 between W. R. Grace & Co. and Kamsky
Associates, Inc. (filed as Exhibit 10.29 to the Annual Report on Form 10-K of W.
R. Grace & Co. filed March 26, 1993 and incorporated herein by reference).
10.25 -- Incentive Compensation Agreement dated June 1, 1992 between National Medical
Care, Inc. and Kamsky Associates, Inc. (filed as Exhibit 10.30 to the Annual
Report on Form 10-K of W. R. Grace & Co. filed March 26, 1993).
10.26 -- Consulting Agreement dated as of December 1993 between National Medical Care,
Inc. and Virginia A. Kamsky (filed as Exhibit 10.23 to the Annual Report on Form
10-K of W. R. Grace & Co. filed March 31, 1995 and incorporated herein by
reference).
10.27 -- Amendment to Consulting Agreement, dated as of May 1, 1995, among National
Medical Care, Inc., Virginia A. Kamsky and Southeast Asia Markets, Inc. (filed as
Exhibit 10.1 to the Quarterly Report on Form 10-Q of W. R. Grace & Co. filed May
12, 1995 and incorporated herein by reference).
10.28 -- Agreement dated March 1, 1995 between W. R. Grace & Co. and Jean-Louis Greze
(filed as Exhibit 10.27 to the Annual Report on Form 10-K of W. R. Grace & Co.
filed March 31, 1995 and incorporated herein by reference).
10.29 -- Letter Agreement dated February 12, 1996 between W. R. Grace & Co. and Jean-Louis
Greze (filed as Exhibit 10.23 to the Annual Report on Form 10-K of W. R. Grace &
Co. filed March 29, 1996 and incorporated herein by reference).
10.30 -- Letter Agreement dated June 15, 1995 between W. R. Grace & Co. and Dr. F. Peter
Boer (filed as Exhibit 10.24 to the Annual Report on Form 10-K of W. R. Grace &
Co. filed March 29, 1996 and incorporated herein by reference).
10.31 -- Letter Agreement dated July 31, 1995 between W. R. Grace & Co. and Brian J. Smith
and letter dated August 9, 1995 from W. R. Grace & Co. to Brian J. Smith (filed
as Exhibit 10.25 to the Annual Report on Form 10-K of W. R. Grace & Co. filed
March 29, 1996 and incorporated herein by reference).
10.32 -- Agreements dated March 2 and March 7, 1995 between J. P. Bolduc and W. R. Grace &
Co. (filed as Exhibit 10.28 to the Annual Report on Form 10-K of W. R. Grace &
Co. filed March 31, 1995 and incorporated herein by reference).
10.33 -- Agreement dated April 1, 1991 between National Medical Care, Inc. and Constantine
L. Hampers (filed as Exhibit 10.29 to the Annual Report on Form 10-K of W. R.
Grace & Co. filed March 31, 1995 and incorporated herein by reference).
10.34 -- Employment Agreement dated as of May 1, 1995 between W. R. Grace & Co. and Albert
J. Costello (filed as Exhibit 10.1 to the Quarterly Report on Form 10-Q of W. R.
Grace & Co. filed August 14, 1995 and incorporated herein by reference).
</TABLE>
II-5
<PAGE> 178
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
*10.35 -- Letter Agreement dated June 14, 1996 between W. R. Grace & Co. and Constantine L.
Hampers.
*10.36 -- Option Agreement between W. R. Grace & Co. and Albert J. Costello, dated May 1,
1995.
*10.37 -- Option Agreement between W. R. Grace & Co. and Albert J. Costello, dated March 6,
1996.
10.38 -- Annual Report on Form 10-K of W. R. Grace & Co. filed March 29, 1996 and
incorporated herein by reference.
*10.39 -- Form of Indemnification Agreement between W. R. Grace & Co. and certain
directors.
*10.41 -- Primary Guarantee dated July 31, 1996.
*10.42 -- Secondary Guarantee dated July 31, 1996.
*10.43 -- Letter Agreement dated July 31, 1996.
*11.1 -- Statement re weighted average number of shares and earnings used in per share
computation (included in Annex F to the Prospectus and incorporated herein by
reference).
*12.1 -- Statement re computation of ratio of earnings to fixed charges and preferred
stock dividends (included in Annex F to the Prospectus and incorporated herein by
reference).
*23.1 -- Consent of Price Waterhouse LLP.
*23.2 -- Consent of Robert H. Beber, Esq., Executive Vice President and General Counsel of
W. R. Grace & Co. (included in Exhibit 5.1 and incorporated herein by reference).
*24.1 -- Powers of Attorney.
27 -- Financial Data Schedule (filed in connection with the Annual Report on Form 10-K
of W. R. Grace & Co. filed March 31, 1995 and the quarterly report on Form 10-Q
of W. R. Grace & Co. filed May 15, 1996 and incorporated herein by reference).
99.1 -- Letter of Intent dated November 5, 1993 between W. R. Grace & Co. and J. Peter
Grace III, as amended (filed as Exhibit 99.01 to the Annual Report on Form 10-K
of W. R. Grace & Co. filed March 31, 1995 and incorporated herein by reference).
99.2 -- Agency Agreement dated June 13, 1994 between HSC Holding Co., Inc. and Grace
Hotel Services Corporation (filed as Exhibit 99.02 to the Annual Report on Form
10-K of W. R. Grace & Co. filed March 31, 1995 and incorporated herein by
reference).
99.3 -- Letter Agreement dated December 14, 1994 among HSC Holding Co., Inc., Grace Hotel
Services Corporation and W. R. Grace & Co. (filed as Exhibit 99.03 to the Annual
Report on Form 10-K of W. R. Grace & Co. filed March 31, 1995 and incorporated
herein by reference).
99.4 -- Services Agreement dated November 10, 1994 between HSC Holding Co., Inc. and
Grace Hotel Services Corporation (filed as Exhibit 99.04 to the Annual Report on
Form 10-K of W. R. Grace & Co. filed March 31, 1995 and incorporated herein by
reference).
99.5 -- Settlement Agreement, dated as of January 26, 1996, among HSC Hospitality, Inc.
(f/k/a HSC Holding Co., Inc.), Grace Hotel Services Corporation and W. R. Grace &
Co. (filed as Exhibit 99.05 to the Annual Report on Form 10-K of W. R. Grace &
Co. filed March 29, 1996 and incorporated herein by reference).
</TABLE>
- ---------------
* Filed herewith.
II-6
<PAGE> 179
ITEM 17. UNDERTAKINGS.
(a)-(g), (j) Not applicable
(h) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(i) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-7
<PAGE> 180
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF BOCA RATON, STATE OF
FLORIDA, ON AUGUST 2, 1996.
GRACE HOLDING, INC.
By: /s/ PETER D. HOUCHIN
-------------------------------
PETER D. HOUCHIN
(SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER)
Date: August 2, 1996
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON AUGUST 2, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------ -------------------------------------------------
<S> <C>
/s/ Albert J. Costello* Chairman, President and Chief Executive Officer;
Director
(Principal Executive Officer)
/s/ Robert H. Beber* Director
/s/ PETER D. HOUCHIN Senior Vice President and Chief Financial
- ------------------------------------------ Officer; Director
PETER D. HOUCHIN (Principal Financial Officer)
/s/ KATHLEEN A. BROWNE Vice President and Controller
- ------------------------------------------ (Principal Accounting Officer)
KATHLEEN A. BROWNE
</TABLE>
- ---------------
* By signing his name hereto, Robert B. Lamm is signing this document on behalf
of each of the persons indicated above pursuant to powers of attorney duly
executed by such persons.
By: /s/ ROBERT B. LAMM
--------------------------------
ROBERT B. LAMM, ATTORNEY-IN-FACT
<PAGE> 181
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ---------------------------------------------------------------------- -------------
<C> <C> <S> <C>
2.1 -- Agreement and Plan of Reorganization, dated as of February 4, 1996,
between W. R. Grace & Co. and Fresenius AG including, as exhibits
thereto, the Distribution Agreement, dated as of February 4, 1996,
between W. R. Grace & Co., Fresenius AG and W. R. Grace & Co.-Conn.,
and the Contribution Agreement, dated as of February 4, 1996, among W.
R. Grace & Co., Fresenius AG, Steril Pharma GmbH and W. R. Grace &
Co.-Conn. (attached as Appendix A to the Joint Proxy
Statement-Prospectus and incorporated herein by reference)............
*3.1 -- Form of Amended and Restated Certificate of Incorporation of W. R.
Grace & Co. (attached as Annex A to the Prospectus and incorporated
herein by reference)..................................................
*3.2 -- Form of Amended and Restated By-laws of W. R. Grace & Co. (attached as
Annex B to the Prospectus and incorporated herein by reference).......
*4.1 -- Form of Rights Agreement by and between W. R. Grace & Co. and The
Chase Manhattan Bank, as Rights Agent.................................
4.2 -- Indenture dated as of September 29, 1992 among W. R. Grace &
Co.-Conn., W. R. Grace & Co. and Bankers Trust Company (filed as
Exhibit 4.2 to the Annual Report on Form 10-K of W. R. Grace & Co.
filed March 26, 1993 and incorporated herein by reference)............
4.3 -- Indenture dated as of January 28, 1993 among W. R. Grace & Co.-Conn.,
W. R. Grace & Co. and Bank of New York (successor to NationsBank of
Georgia, N.A.) (filed as Exhibit 4.4 to the Annual Report on Form 10-K
of W. R. Grace & Co. filed March 26, 1993 and incorporated herein by
reference)............................................................
*4.4 -- 364-Day Credit Agreement, dated as of May 17, 1996, among W. R. Grace
& Co.-Conn., W. R. Grace & Co., Grace Holding, Inc., the several banks
parties thereto, NationsBank, N.A. (South), as documentation agent,
and Chemical Bank, as administrative agent, for such banks............
*4.5 -- Amended and Restated Credit Agreement, dated as of May 17, 1996, among
W. R. Grace & Co.-Conn., W. R. Grace & Co., Grace Holding, Inc., the
several banks parties thereto and Chemical Bank, as agent for such
banks.................................................................
*4.6 -- Form of W. R. Grace & Co. Common Stock Certificate....................
*4.7 -- Commitment Letter for the NMC Credit Agreement........................
*5.1 -- Opinion of Robert H. Beber Esq., Executive Vice President and General
Counsel of W. R. Grace & Co...........................................
*10.1 -- Form of Grace Holding, Inc. 1996 Stock Incentive Plan (attached as
Annex C to the Prospectus and incorporated herein by reference).......
*10.2 -- Form of Grace Holding, Inc. 1996 Stock Retainer Plan for Nonemployee
Directors (attached as Annex D to the Prospectus and incorporated
herein by reference)..................................................
10.3 -- W. R. Grace & Co. Supplemental Executive Retirement Plan, as amended
(filed as Exhibit 10.25 to the Annual Report on Form 10-K of W. R.
Grace & Co. filed March 28, 1994 and incorporated herein by
reference)............................................................
10.4 -- W. R. Grace & Co. Executive Salary Protection Plan, as amended (filed
as Exhibit 19(f) to the Report on Form 8-K of W. R. Grace & Co. filed
June 19, 1990 and incorporated herein by reference)...................
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10.5 -- W. R. Grace & Co. 1981 Stock Incentive Plan, as amended (filed as
Exhibit 10.02 to the Annual Report on Form 10-K of W. R. Grace & Co.
filed March 29, 1996 and incorporated herein by reference)............
10.6 -- W. R. Grace & Co. 1986 Stock Incentive Plan, as amended (filed as
Exhibit 10.03 to the Annual Report on Form 10-K of W. R. Grace & Co.
filed March 29, 1996 and incorporated herein by reference)............
10.7 -- W. R. Grace & Co. 1989 Stock Incentive Plan, as amended (filed as
Exhibit 10.04 to the Annual Report on Form 10-K of W. R. Grace & Co.
filed March 29, 1996 and incorporated herein by reference)............
10.8 -- W. R. Grace & Co. 1994 Stock Incentive Plan, as amended (filed as
Exhibit 10.05 to the Annual Report on Form 10-K of W. R. Grace & Co.
filed March 29, 1996 and incorporated herein by reference)............
10.9 -- W. R. Grace & Co. 1994 Stock Retainer Plan for Nonemployee Directors,
as amended (filed as Exhibit 10.06 to the Annual Report on Form 10-K
of W. R. Grace & Co. filed March 29, 1996 and incorporated herein by
reference)............................................................
10.10 -- Forms of Stock Option Agreements (filed as Exhibit 10(h) to the Annual
Report on Form 10-K of W. R. Grace & Co. filed March 28, 1992 and
incorporated herein by reference).....................................
10.11 -- Forms of Restricted Share Award Agreements (filed as Exhibit 10(i) to
the Annual Report on Form 10-K of W. R. Grace & Co. filed March 28,
1992 and incorporated herein by reference)............................
10.12 -- Information concerning W. R. Grace & Co. Incentive Compensation
Program, Deferred Compensation Program and Long-Term Incentive Program
(pages 7-12 and 28-33 of the Proxy Statement of W. R. Grace & Co.
filed April 10, 1996, incorporated herein by reference)...............
*10.13 -- Form of Long-Term Incentive Program Award.............................
*10.14 -- Form of Stock Option Agreement........................................
10.15 -- W. R. Grace & Co. Retirement Plan for Outside Directors, as amended
(filed as Exhibit 10(o) to the Annual Report on Form 10-K of W. R.
Grace & Co. filed March 28, 1992 and incorporated herein by
reference)............................................................
10.16 -- Employment Agreement dated as of April 1, 1991 between W. R. Grace &
Co.-Conn. and Constantine L. Hampers, as amended (filed as Exhibit
10(x) to the Annual Report on Form 10-K of W. R. Grace & Co. filed
March 28, 1992 and incorporated herein by reference)..................
10.17 -- Letter Agreement dated as of March 29, 1996 between W. R. Grace & Co.
and Constantine L. Hampers (filed as Exhibit 10.1 to the Quarterly
Report on Form 10-Q of W. R. Grace & Co. filed May 15, 1996 and
incorporated herein by reference).....................................
10.18 -- Housing Loan Agreement dated as of August 1, 1987 between W. R. Grace
& Co. and J. P. Bolduc, related Amendment and Assignment dated May 10,
1988 (filed as Exhibit 10(q) to the Annual Report on Form 10-K of W.
R. Grace & Co. filed March 29, 1988 and incorporated herein by
reference)............................................................
10.19 -- Employment Agreement dated August 1, 1993 between J. P. Bolduc and W.
R. Grace & Co. (filed as Exhibit 10.13 to the Annual Report on Form
10-K of W. R. Grace & Co. filed March 28, 1994 and incorporated herein
by reference).........................................................
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10.20 -- Retirement Agreement between W. R. Grace & Co. and J. Peter Grace
dated December 21, 1992 (filed as Exhibit 10.23 to the Annual Report
on Form 10-K of W. R. Grace & Co. filed March 26, 1993 and
incorporated herein by reference).....................................
10.21 -- Executive Severance Agreement dated September 1, 1992 between W. R.
Grace & Co. and Constantine L. Hampers (filed as Exhibit 10.26 to the
Annual Report on Form 10-K of W. R. Grace & Co. filed March 26, 1993
and incorporated herein by reference).................................
*10.22 -- Form of Executive Severance Agreement between W. R. Grace & Co. and
others................................................................
*10.23 -- Form of Executive Severance Agreement between W. R. Grace & Co. and
new officers..........................................................
10.24 -- Consulting Agreement dated June 1, 1992 between W. R. Grace & Co. and
Kamsky Associates, Inc. (filed as Exhibit 10.29 to the Annual Report
on Form 10-K of W. R. Grace & Co. filed March 26, 1993 and
incorporated herein by reference).....................................
10.25 -- Incentive Compensation Agreement dated June 1, 1992 between National
Medical Care, Inc. and Kamsky Associates, Inc. (filed as Exhibit 10.30
to the Annual Report on Form 10-K of W. R. Grace & Co. filed March 26,
1993).................................................................
10.26 -- Consulting Agreement dated as of December 1993 between National
Medical Care, Inc. and Virginia A. Kamsky (filed as Exhibit 10.23 to
the Annual Report on Form 10-K of W. R. Grace & Co. filed March 31,
1995 and incorporated herein by reference)............................
10.27 -- Amendment to Consulting Agreement, dated as of May 1, 1995, among
National Medical Care, Inc., Virginia A. Kamsky and Southeast Asia
Markets, Inc. (filed as Exhibit 10.1 to the Quarterly Report on Form
10-Q of W. R. Grace & Co. filed May 12, 1995 and incorporated herein
by reference).........................................................
10.28 -- Agreement dated March 1, 1995 between W. R. Grace & Co. and Jean-Louis
Greze (filed as Exhibit 10.27 to the Annual Report on Form 10-K of W.
R. Grace & Co. filed March 31, 1995 and incorporated herein by
reference)............................................................
10.29 -- Letter Agreement dated February 12, 1996 between W. R. Grace & Co. and
Jean-Louis Greze (filed as Exhibit 10.23 to the Annual Report on Form
10-K of W. R. Grace & Co. filed March 29, 1996 and incorporated herein
by reference).........................................................
10.30 -- Letter Agreement dated June 15, 1995 between W. R. Grace & Co. and Dr.
F. Peter Boer (filed as Exhibit 10.24 to the Annual Report on Form
10-K of W. R. Grace & Co. filed March 29, 1996 and incorporated herein
by reference).........................................................
10.31 -- Letter Agreement dated July 31, 1995 between W. R. Grace & Co. and
Brian J. Smith and letter dated August 9, 1995 from W. R. Grace & Co.
to Brian J. Smith (filed as Exhibit 10.25 to the Annual Report on Form
10-K of W. R. Grace & Co. filed March 29, 1996 and incorporated herein
by reference).........................................................
10.32 -- Agreements dated March 2 and March 7, 1995 between J. P. Bolduc and W.
R. Grace & Co. (filed as Exhibit 10.28 to the Annual Report on Form
10-K of W. R. Grace & Co. filed March 31, 1995 and incorporated herein
by reference).........................................................
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10.33 -- Agreement dated April 1, 1991 between National Medical Care, Inc. and
Constantine L. Hampers (filed as Exhibit 10.29 to the Annual Report on
Form 10-K of W. R. Grace & Co. filed March 31, 1995 and incorporated
herein by reference)..................................................
10.34 -- Employment Agreement dated as of May 1, 1995 between W. R. Grace & Co.
and Albert J. Costello (filed as Exhibit 10.1 to the Quarterly Report
on Form 10-Q of W. R. Grace & Co. filed August 14, 1995 and
incorporated herein by reference).....................................
*10.35 -- Letter Agreement dated June 14, 1996 between W. R. Grace & Co. and
Constantine L. Hampers................................................
*10.36 -- Option Agreement between W. R. Grace & Co. and Albert J. Costello,
dated May 1, 1995.....................................................
*10.37 -- Option Agreement between W. R. Grace & Co. and Albert J. Costello,
dated March 6, 1996...................................................
10.38 -- Annual Report on Form 10-K of W. R. Grace & Co. filed March 29, 1996
and incorporated herein by reference..................................
*10.39 -- Form of Indemnification Agreement between W. R. Grace & Co. and
certain directors.
*10.41 -- Primary Guarantee dated July 31, 1996.................................
*10.42 -- Secondary Guarantee dated July 31, 1996...............................
*10.43 -- Letter Agreement dated July 31, 1996..................................
*11.1 -- Statement re weighted average number of shares and earnings used in
per share computation (included in Annex F to the Prospectus and
incorporated herein by reference).....................................
*12.1 -- Statement re computation of ratio of earnings to fixed charges and
preferred stock dividends (included in Annex F to the Prospectus and
incorporated herein by reference).....................................
*23.1 -- Consent of Price Waterhouse LLP.......................................
*23.2 -- Consent of Robert H. Beber, Esq., Executive Vice President and General
Counsel of W. R. Grace & Co. (included in Exhibit 5.1 and incorporated
herein by reference)..................................................
*24.1 -- Powers of Attorney....................................................
27 -- Financial Data Schedule (filed in connection with the Annual Report on
Form 10-K of W. R. Grace & Co. filed March 31, 1995 and the quarterly
report on Form 10-Q of W. R. Grace & Co. filed May 15, 1996 and
incorporated herein by reference).....................................
99.1 -- Letter of Intent dated November 5, 1993 between W. R. Grace & Co. and
J. Peter Grace III, as amended (filed as Exhibit 99.01 to the Annual
Report on Form 10-K of W. R. Grace & Co. filed March 31, 1995 and
incorporated herein by reference).....................................
99.2 -- Agency Agreement dated June 13, 1994 between HSC Holding Co., Inc. and
Grace Hotel Services Corporation (filed as Exhibit 99.02 to the Annual
Report on Form 10-K of W. R. Grace & Co. filed March 31, 1995 and
incorporated herein by reference).....................................
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99.3 -- Letter Agreement dated December 14, 1994 among HSC Holding Co., Inc.,
Grace Hotel Services Corporation and W. R. Grace & Co. (filed as
Exhibit 99.03 to the Annual Report on Form 10-K of W. R. Grace & Co.
filed March 31, 1995 and incorporated herein by reference)............
99.4 -- Services Agreement dated November 10, 1994 between HSC Holding Co.,
Inc. and Grace Hotel Services Corporation (filed as Exhibit 99.04 to
the Annual Report on Form 10-K of W. R. Grace & Co. filed March 31,
1995 and incorporated herein by reference)............................
99.5 -- Settlement Agreement, dated as of January 26, 1996, among HSC
Hospitality, Inc. (f/k/a HSC Holding Co., Inc.), Grace Hotel Services
Corporation and W. R. Grace & Co. (filed as Exhibit 99.05 to the
Annual Report on Form 10-K of W. R. Grace & Co. filed March 29, 1996
and incorporated herein by reference).................................
</TABLE>
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* Filed herewith.
<PAGE> 1
EXHIBIT 4.1
W.R. GRACE & CO.
AND
THE CHASE MANHATTAN BANK, AS
RIGHTS AGENT
* * *
FORM OF
RIGHTS AGREEMENT
DATED AS OF , 1996
<PAGE> 2
TABLE OF CONTENTS
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Section 1. Certain Definitions...................................................... 1
Section 2. Appointment of Rights Agent.............................................. 2
Section 3. Issue of Right Certificates.............................................. 3
Section 4. Form of Right Certificates............................................... 4
Section 5. Countersignature and Registration........................................ 4
Section 6. Transfer, Split Up, Combination and Exchange of Right Certificates;
Mutilated, Destroyed, Lost or Stolen Right Certificates................ 4
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights............ 5
Section 8. Cancellation and Destruction of Right Certificates....................... 5
Section 9. Availability of Preferred Shares......................................... 6
Section 10. Preferred Shares Record Date............................................. 6
Section 11. Adjustment of Purchase Price, Number of Shares or Number of Rights....... 6
Section 12. Certificate of Adjusted Purchase Price or Number of Shares............... 10
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power..... 10
Section 14. Fractional Rights and Fractional Shares.................................. 11
Section 15. Rights of Action......................................................... 12
Section 16. Agreement of Right Holders............................................... 12
Section 17. Right Certificate Holder Not Deemed a Stockholder........................ 12
Section 18. Concerning the Rights Agent.............................................. 12
Section 19. Merger or Consolidation or Change of Name of Rights Agent................ 13
Section 20. Duties of Rights Agent................................................... 13
Section 21. Change of Rights Agent................................................... 14
Section 22. Issuance of New Right Certificates....................................... 15
Section 23. Redemption............................................................... 15
Section 24. Exchange................................................................. 15
Section 25. Notice of Certain Events................................................. 16
Section 26. Notices.................................................................. 17
Section 27. Supplements and Amendments............................................... 17
Section 28. Successors............................................................... 17
Section 29. Benefits of this Agreement............................................... 18
Section 30. Severability............................................................. 18
Section 31. Governing Law............................................................ 18
Section 32. Counterparts............................................................. 18
Section 33. Descriptive Headings..................................................... 18
Signatures............................................................................. 18
Exhibit A -- Form of Right Certificate
</TABLE>
i
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Agreement, dated as of , 1996, between W. R. Grace & Co. a
Delaware corporation (the "Company"), and The Chase Manhattan Bank (the "Rights
Agent").
The Board of Directors of the Company has authorized and declared a
dividend of one preferred share purchase right (a "Right") for each Common Share
(as hereinafter defined) of the Company outstanding on , 1996 (the
"Record Date"), each Right representing the right to purchase one hundredth of a
Preferred Share (as hereinafter defined), upon the terms and subject to the
conditions herein set forth, and has further authorized and directed the
issuance of one Right with respect to each Common Share that shall become
outstanding between the Record Date and the earliest of the Distribution Date,
the Redemption Date and the Final Expiration Date (as such terms are hereinafter
defined).
Accordingly, in consideration of the premises and the mutual agreements
herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, the
following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person (as such term is
hereinafter defined) who or which, together with all Affiliates and
Associates (as such terms are hereinafter defined) of such Person, shall
be the Beneficial Owner (as such term is hereinafter defined) of 20% or
more of the Common Shares of the Company then outstanding, but shall not
include the Company, any Subsidiary (as such term is hereinafter
defined) of the Company, any employee benefit plan of the Company or any
Subsidiary of the Company, or any entity holding Common Shares for or
pursuant to the terms of any such plan. Notwithstanding the foregoing,
no Person shall become an "Acquiring Person" as the result of an
acquisition of Common Shares by the Company which, by reducing the
number of shares outstanding, increases the proportionate number of
shares beneficially owned by such Person to 20% or more of the Common
Shares of the Company then outstanding; provided, however, that if a
Person shall become the Beneficial Owner of 20% or more of the Common
Shares of the Company then outstanding by reason of share purchases by
the Company and shall, after such share purchases by the Company, become
the Beneficial Owner of any additional Common Shares of the Company,
then such Person shall be deemed to be an "Acquiring Person".
Notwithstanding the foregoing, if the Board of Directors of the Company
determines in good faith that a Person who would otherwise be an
"Acquiring Person", as defined pursuant to the foregoing provisions of
this paragraph (a), has become such inadvertently, and such Person
divests as promptly as practicable a sufficient number of Common Shares
so that such Person would no longer be an "Acquiring Person", as defined
pursuant to the foregoing provisions of this paragraph (a), then such
Person shall not be deemed to be an "Acquiring Person" for any purposes
of this Agreement.
(b) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as in effect on the date of this Agreement.
(c) A Person shall be deemed the "Beneficial Owner" of and shall be
deemed to "beneficially own" any securities:
(i) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly;
(ii) which such Person or any of such Person's Affiliates or
Associates has (A) the right to acquire (whether such right is
exercisable immediately or only after the passage of time) pursuant
to any agreement, arrangement or understanding (other than customary
agreements with and between underwriters and selling group members
with respect to a bona fide public offering of securities), or upon
the exercise of conversion rights, exchange rights, rights (other
than these Rights), warrants or options, or otherwise; provided,
however, that a Person shall not be deemed the Beneficial Owner of,
or to beneficially own, securities tendered pursuant to a tender or
exchange offer made by or on behalf of such Person or any of such
Person's Affiliates or Associates until such tendered securities are
accepted for purchase or exchange; or (B) the
1
<PAGE> 4
right to vote pursuant to any agreement, arrangement or
understanding; provided, however, that a Person shall not be deemed
the Beneficial Owner of, or to beneficially own, any security if the
agreement, arrangement or understanding to vote such security (1)
arises solely from a revocable proxy or consent given to such Person
in response to a public proxy or consent solicitation made pursuant
to, and in accordance with, the applicable rules and regulations
promulgated under the Exchange Act and (2) is not also then
reportable on Schedule 13D under the Exchange Act (or any comparable
or successor report); or
(iii) which are beneficially owned, directly or indirectly, by
any other Person with which such Person or any of such Person's
Affiliates or Associates has any agreement, arrangement or
understanding (other than customary agreements with and between
underwriters and selling group members with respect to a bona fide
public offering of securities) for the purpose of acquiring, holding,
voting (except to the extent contemplated by the proviso to Section
1(c)(ii)(B)) or disposing of any securities of the Company.
Notwithstanding anything in this definition of Beneficial Ownership
to the contrary, the phrase "then outstanding", when used with reference
to a Person's Beneficial Ownership of securities of the Company, shall
mean the number of such securities then issued and outstanding together
with the number of such securities not then actually issued and
outstanding which such Person would be deemed to own beneficially
hereunder.
(d) "Business Day" shall mean any day other than a Saturday, a
Sunday, or a day on which banking institutions in New York are
authorized or obligated by law or executive order to close.
(e) "Close of business" on any given date shall mean 5:00 P.M., New
York time, on such date; provided, however, that if such date is not a
Business Day it shall mean 5:00 P.M., New York time, on the next
succeeding Business Day.
(f) "Common Shares" when used with reference to the Company shall
mean the shares of common stock, par value $.01 per share, of the
Company. "Common Shares" when used with reference to any Person other
than the Company shall mean the capital stock (or equity interest) with
the greatest voting power of such other Person or, if such other Person
is a Subsidiary of another Person, the Person or Persons which
ultimately control such first-mentioned Person.
(g) "Distribution Date" shall have the meaning set forth in Section
3 hereof.
(h) "Final Expiration Date" shall have the meaning set forth in
Section 7 hereof.
(i) "Person" shall mean any individual, firm, corporation or other
entity, and shall include any successor (by merger or otherwise) of such
entity.
(j) "Preferred Shares" shall mean shares of Series A Junior
Participating Preferred Stock, par value $.01 per share, of the Company
having the rights and preferences set forth in the Amended and Restated
Certificate of Incorporation of W. R. Grace & Co. dated ,
1996.
(k) "Redemption Date" shall have the meaning set forth in Section 7
hereof.
(l) "Shares Acquisition Date" shall mean the first date of public
announcement by the Company or an Acquiring Person that an Acquiring
Person has become such.
(m) "Subsidiary" of any Person shall mean any corporation or other
entity of which a majority of the voting power of the voting equity
securities or equity interest is owned, directly or indirectly, by such
Person.
Section 2. Appointment of Rights Agent. The Company hereby appoints
the Rights Agent to act as agent for the Company and the holders of the
Rights (who, in accordance with Section 3 hereof, shall prior to the
Distribution Date also be the holders of the Common Shares) in accordance
with the terms
2
<PAGE> 5
and conditions hereof, and the Rights Agent hereby accepts such
appointment. The Company may from time to time appoint such co-Rights
Agents as it may deem necessary or desirable.
Section 3. Issue of Right Certificates. (a) Until the earlier of (i)
the tenth day after the Shares Acquisition Date or (ii) the tenth business
day (or such later date as may be determined by action of the Board of
Directors prior to such time as any Person becomes an Acquiring Person)
after the date of the commencement by any Person (other than the Company,
any Subsidiary of the Company, any employee benefit plan of the Company or
of any Subsidiary of the Company or any entity holding Common Shares for or
pursuant to the terms of any such plan) of, or of the first public
announcement of the intention of any Person (other than the Company, any
Subsidiary of the Company, any employee benefit plan of the Company or of
any Subsidiary of the Company or any entity holding Common Shares for or
pursuant to the terms of any such plan) to commence, a tender or exchange
offer the consummation of which would result in any Person becoming the
Beneficial Owner of Common Shares aggregating 20% or more of the then
outstanding Common Shares (including any such date which is after the date
of this Agreement and prior to the issuance of the Rights; the earlier of
such dates being herein referred to as the "Distribution Date"), (x) the
Rights will be evidenced (subject to the provisions of Section 3(b) hereof)
by the certificates for Common Shares registered in the names of the
holders thereof (which certificates shall also be deemed to be Right
Certificates) and not by separate Right Certificates, and (y) the right to
receive Right Certificates will be transferable only in connection with the
transfer of Common Shares. As soon as practicable after the Distribution
Date, the Company will prepare and execute, the Rights Agent will
countersign, and the Company will send or cause to be sent (and the Rights
Agent will, if requested, send) by first-class, insured, postage-prepaid
mail, to each record holder of Common Shares as of the close of business on
the Distribution Date, at the address of such holder shown on the records
of the Company, a Right Certificate, in substantially the form of Exhibit A
hereto (a "Right Certificate"), evidencing one Right for each Common Share
so held. As of the Distribution Date, the Rights will be evidenced solely
by such Right Certificates.
(b) Certificates for Common Shares which become outstanding
(including, without limitation, reacquired Common Shares referred to in the
last sentence of this paragraph (c)) after the Record Date but prior to the
earliest of the Distribution Date, the Redemption Date or the Final
Expiration Date shall have impressed on, printed on, written on or
otherwise affixed to them the following legend:
This certificate also evidences and entitles the holder hereof to
certain rights as set forth in a Rights Agreement(the "Rights
Agreement") between W. R. Grace & Co. (the "Company") and The Chase
Manhattan Bank (the "Rights Agent"), the terms of which are hereby
incorporated herein by reference and a copy of which is on file at
the principal executive offices of the Company. Under certain
circumstances, as set forth in the Rights Agreement, such Rights will
be evidenced by separate certificates and will no longer be evidenced
by this certificate. The Company will mail to the holder of this
certificate a copy of the Rights Agreement, as in effect on the date
of mailing without charge promptly after receipt of a written request
therefor. Under certain circumstances, as set forth in the Rights
Agreement, Rights beneficially owned by an Acquiring Person or any
Affiliates or Associates thereof (as such terms are defined in the
Rights Agreement), or certain transferees therefor, may become null
and void.
3
<PAGE> 6
With respect to such certificates containing the foregoing legend, until
the Distribution Date, the Rights associated with the Common Shares represented
by such certificates shall be evidenced by such certificates alone, and the
surrender for transfer of any such certificate shall also constitute the
transfer of the Rights associated with the Common Shares represented thereby. In
the event that the Company purchases or acquires any Common Shares after the
Record Date but prior to the Distribution Date, any Rights associated with such
Common Shares shall be deemed cancelled and retired so that the Company shall
not be entitled to exercise any Rights associated with the Common Shares which
are no longer outstanding.
Section 4. Form of Right Certificates. The Right Certificates (and the
forms of election to purchase Preferred Shares and of assignment to be printed
on the reverse thereof) shall be substantially the same as Exhibit A hereto and
may have such marks of identification or designation and such legends, summaries
or endorsements printed thereon as the Company may deem appropriate and as are
not inconsistent with the provisions of this Agreement, or as may be required to
comply with any applicable law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange on which the Rights
may from time to time be listed, or to conform to usage. Subject to the
provisions of Section 22 hereof, the Right Certificates shall entitle the
holders thereof to purchase such number of hundredths of a Preferred Share as
shall be set forth therein at the price per hundredth of a Preferred Share set
forth therein (the "Purchase Price"), but the number of such hundredths of a
Preferred Share and the Purchase Price shall be subject to adjustment as
provided herein.
Section 5. Countersignature and Registration. The Right Certificates
shall be executed on behalf of the Company by its Chairman of the Board, its
Chief Executive Officer, its President, any of its Vice Presidents, or its
Treasurer, either manually or by facsimile signature, shall have affixed thereto
the Company's seal or a facsimile thereof, and shall be attested by the
Secretary or an Assistant Secretary of the Company, either manually or by
facsimile signature. The Right Certificates shall be manually countersigned by
the Rights Agent and shall not be valid for any purpose unless countersigned. In
case any officer of the Company who shall have signed any of the Right
Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Right Certificates, nevertheless, may be countersigned by the Rights Agent
and issued and delivered by the Company with the same force and effect as though
the person who signed such Right Certificates had not ceased to be such officer
of the Company; and any Right Certificate may be signed on behalf of the Company
by any person who, at the actual date of the execution of such Right
Certificate, shall be a proper officer of the Company to sign such Right
Certificate, although at the date of the execution of this Rights Agreement any
such person was not such an officer.
Following the Distribution Date, the Rights Agent will keep or cause to be
kept, at its principal office, books for registration and transfer of the Right
Certificates issued hereunder. Such books shall show the names and addresses of
the respective holders of the Right Certificates, the number of Rights evidenced
on its face by each of the Right Certificates and the date of each of the Right
Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates. Subject
to the provisions of Section 14 hereof, at any time after the close of business
on the Distribution Date, and at or prior to the close of business on the
earlier of the Redemption Date or the Final Expiration Date, any Right
Certificate or Right Certificates (other than Right Certificates representing
Rights that have become void pursuant to Section 11(a)(ii) hereof or that have
been exchanged pursuant to Section 24 hereof) may be transferred, split up,
combined or exchanged for another Right Certificate or Right Certificates,
entitling the registered holder to purchase a like number of hundredths of a
Preferred Share as the Right Certificate or Right Certificates surrendered then
entitled such holder to purchase. Any registered holder desiring to transfer,
split up, combine or exchange any Right Certificate or Right Certificates shall
make such request in writing delivered to the Rights Agent, and shall surrender
the Right Certificate or Right Certificates to be transferred, split up,
combined or exchanged at the principal office of the Rights Agent. Thereupon the
Rights Agent shall countersign and deliver to the person entitled thereto a
Right Certificate or Right Certificates, as the case may be, as so requested.
The Company may require payment of a sum sufficient to cover any tax or
governmental charge that may be imposed in connection with any transfer, split
up, combination or exchange of Right Certificates.
4
<PAGE> 7
Upon receipt by the Company and the Rights Agent of evidence reasonably
satisfactory to them of the loss, theft, destruction or mutilation of a Right
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them, and, at the Company's request,
reimbursement to the Company and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation of
the Right Certificate if mutilated, the Company will make and deliver a new
Right Certificate of like tenor to the Rights Agent for delivery to the
registered holder in lieu of the Right Certificate so lost, stolen, destroyed or
mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date of
Rights. (a) The registered holder of any Right Certificate may exercise the
Rights evidenced thereby (except as otherwise provided herein) in whole or in
part at any time after the Distribution Date upon surrender of the Right
Certificate, with the form of election to purchase on the reverse side thereof
duly executed, to the Rights Agent at the principal office of the Rights Agent,
together with payment of the Purchase Price for each hundredth of a Preferred
Share as to which the Rights are exercised, at or prior to the earliest of (i)
the close of business on , 2006 (the "Final Expiration Date"), (ii)
the time at which the Rights are redeemed as provided in Section 23 hereof (the
"Redemption Date"), or (iii) the time at which such Rights are exchanged as
provided in Section 24 hereof.
(b) The Purchase Price for each hundredth of a Preferred Share purchasable
pursuant to the exercise of a Right shall initially be $ , and shall be
subject to adjustment from time to time as provided in Section 11 or 13 hereof
and shall be payable in lawful money of the U.S. of America in accordance with
paragraph (c) below.
(c) Upon receipt of a Right Certificate representing exercisable Rights,
with the form of election to purchase duly executed, accompanied by payment of
the Purchase Price for the shares to be purchased and an amount equal to any
applicable transfer tax required to be paid by the holder of such Right
Certificate in accordance with Section 9 hereof by certified check, cashier's
check or money order payable to the order of the Company, the Rights Agent shall
thereupon promptly (i) (A) requisition from any transfer agent of the Preferred
Shares certificates for the number of Preferred Shares to be purchased and the
Company hereby irrevocably authorizes its transfer agent to comply with all such
requests, or (B) requisition from the depositary agent depositary receipts
representing such number of hundredths of a Preferred Share as are to be
purchased (in which case certificates for the Preferred Shares represented by
such receipts shall be deposited by the transfer agent with the depositary
agent) and the Company hereby directs the depositary agent to comply with such
request, (ii) when appropriate, requisition from the Company the amount of cash
to be paid in lieu of issuance of fractional shares in accordance with Section
14 hereof, (iii) after receipt of such certificates or depositary receipts,
cause the same to be delivered to or upon the order of the registered holder of
such Right Certificate, registered in such name or names as may be designated by
such holder and (iv) when appropriate, after receipt, deliver such cash to or
upon the order of the registered holder of such Right Certificate.
(d) In case the registered holder of any Right Certificate shall exercise
less than all the Rights evidenced thereby, a new Right Certificate evidencing
Rights equivalent to the Rights remaining unexercised shall be issued by the
Rights Agent to the registered holder of such Right Certificate or to his duly
authorized assigns, subject to the provisions of Section 14 hereof.
Section 8. Cancellation and Destruction of Right Certificates. All Right
Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in cancelled form,
or, if surrendered to the Rights Agent, shall be cancelled by it, and no Right
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Rights Agreement. The Company shall deliver to the
Rights Agent for cancellation and retirement, and the Rights Agent shall so
cancel and retire, any other Right Certificate purchased or acquired by the
Company otherwise than upon the exercise thereof. The Rights Agent shall deliver
all cancelled Right Certificates to the Company, or shall, at the written
request of the Company, destroy such cancelled Right Certificates, and in such
case shall deliver a certificate of destruction thereof to the Company.
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<PAGE> 8
Section 9. Availability of Preferred Shares. The Company covenants and
agrees that it will cause to be reserved and kept available out of its
authorized and unissued Preferred Shares or any Preferred Shares held in its
treasury, the number of Preferred Shares that will be sufficient to permit the
exercise in full of all outstanding Rights in accordance with Section 7. The
Company covenants and agrees that it will take all such action as may be
necessary to ensure that all Preferred Shares delivered upon exercise of Rights
shall, at the time of delivery of the certificates for such Preferred Shares
(subject to payment of the Purchase Price), be duly and validly authorized and
issued and fully paid and nonassessable shares.
The Company further covenants and agrees that it will pay when due and
payable any and all federal and state transfer taxes and charges which may be
payable in respect of the issuance or delivery of the Right Certificates or of
any Preferred Shares upon the exercise of Rights. The Company shall not,
however, be required to pay any transfer tax which may be payable in respect of
any transfer or delivery of Right Certificates to a person other than, or the
issuance or delivery of certificates or depositary receipts for the Preferred
Shares in a name other than that of, the registered holder of the Right
Certificate evidencing Rights surrendered for exercise or to issue or to deliver
any certificates or depositary receipts for Preferred Shares upon the exercise
of any Rights until any such tax shall have been paid (any such tax being
payable by the holder of such Right Certificate at the time of surrender) or
until it has been established to the Company's reasonable satisfaction that no
such tax is due.
Section 10. Preferred Shares Record Date. Each person in whose name any
certificate for Preferred Shares is issued upon the exercise of Rights shall for
all purposes be deemed to have become the holder of record of the Preferred
Shares represented thereby on, and such certificate shall be dated, the date
upon which the Right Certificate evidencing such Rights was duly surrendered and
payment of the Purchase Price (and any applicable transfer taxes) was made;
provided, however, that if the date of such surrender and payment is a date upon
which the Preferred Shares transfer books of the Company are closed, such person
shall be deemed to have become the record holder of such shares on, and such
certificate shall be dated, the next succeeding Business Day on which the
Preferred Shares transfer books of the Company are open. Prior to the exercise
of the Rights evidenced thereby, the holder of a Right Certificate shall not be
entitled to any rights of a holder of Preferred Shares for which the Rights
shall be exercisable, including, without limitation, the right to vote, to
receive dividends or other distributions or to exercise any preemptive rights,
and shall not be entitled to receive any notice of any proceedings of the
Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number of Shares or Number of
Rights. The Purchase Price, the number of Preferred Shares covered by each
Right and the number of Rights outstanding are subject to adjustment from time
to time as provided in this Section 11.
(a) (i) In the event the Company shall at any time after the date of this
Agreement (A) declare a dividend on the Preferred Shares payable in Preferred
Shares, (B) subdivide the outstanding Preferred Shares, (C) combine the
outstanding Preferred Shares into a smaller number of Preferred Shares or (D)
issue any shares of its capital stock in a reclassification of the Preferred
Shares (including any such reclassification in connection with a consolidation
or merger in which the Company is the continuing or surviving corporation),
except as otherwise provided in this Section 11(a), the Purchase Price in effect
at the time of the record date for such dividend or of the effective date of
such subdivision, combination or reclassification, and the number and kind of
shares of capital stock issuable on such date, shall be proportionately adjusted
so that the holder of any Right exercised after such time shall be entitled to
receive the aggregate number and kind of shares of capital stock which, if such
Right had been exercised immediately prior to such date and at a time when the
Preferred Shares transfer books of the Company were open, he would have owned
upon such exercise and been entitled to receive by virtue of such dividend,
subdivision, combination or reclassification; provided, however, that in no
event shall the consideration to be paid upon the exercise of one Right be less
than the aggregate par value of the shares of capital stock of the Company
issuable upon exercise of one Right.
(ii) Subject to Section 24 of this Agreement, in the event any Person
becomes an Acquiring Person, each holder of a Right shall thereafter have a
right to receive, upon exercise thereof at a price equal to the then current
Purchase Price multiplied by the number of hundredths of a Preferred Share for
which a Right is then
6
<PAGE> 9
exercisable, in accordance with the terms of this Agreement and in lieu of
Preferred Shares, such number of Common Shares of the Company as shall equal the
result obtained by (x) multiplying the then current Purchase Price by the number
of hundredths of a Preferred Share for which a Right is then exercisable and
dividing that product by (y) 50% of the then current per share market price of
the Company's Common Shares (determined pursuant to Section 11(d) hereof) on the
date of the occurrence of such event. In the event that any Person shall become
an Acquiring Person and the Rights shall then be outstanding, the Company shall
not take any action which would eliminate or diminish the benefits intended to
be afforded by the Rights.
From and after the occurrence of such event, any Rights that are or were
acquired or beneficially owned by any Acquiring Person (or any Associate or
Affiliate of such Acquiring Person) shall be void and any holder of such Rights
shall thereafter have no right to exercise such Rights under any provision of
this Agreement. No Right Certificate shall be issued pursuant to Section 3 that
represents Rights beneficially owned by an Acquiring Person whose Rights would
be void pursuant to the preceding sentence or any Associate or Affiliate
thereof; no Right Certificate shall be issued at any time upon the transfer of
any Rights to an Acquiring Person whose Rights would be void pursuant to the
preceding sentence or any Associate or Affiliate thereof or to any nominee of
such Acquiring Person, Associate or Affiliate; and any Right Certificate
delivered to the Rights Agent for transfer to an Acquiring Person whose Rights
would be void pursuant to the preceding sentence shall be cancelled.
(iii) In the event that there shall not be sufficient Common Shares issued
but not outstanding or authorized but unissued to permit the exercise in full of
the Rights in accordance with the foregoing subparagraph (ii), the Company shall
take all such action as may be necessary to authorize additional Common Shares
for issuance upon exercise of the Rights. In the event the Company shall, after
good faith effort, be unable to take all such action as may be necessary to
authorize such additional Common Shares, the Company shall substitute, for each
Common Share that would otherwise be issuable upon exercise of a Right, a number
of Preferred Shares or fraction thereof such that the current per share market
price of one Preferred Share multiplied by such number or fraction is equal to
the current per share market price of one Common Share as of the date of
issuance of such Preferred Shares or fraction thereof.
(b) In case the Company shall fix a record date for the issuance of rights,
options or warrants to all holders of Preferred Shares entitling them (for a
period expiring within 45 calendar days after such record date) to subscribe for
or purchase Preferred Shares (or shares having the same rights, privileges and
preferences as the Preferred Shares ("equivalent preferred shares")) or
securities convertible into Preferred Shares or equivalent preferred shares at a
price per Preferred Share or equivalent preferred share (or having a conversion
price per share, if a security convertible into Preferred Shares or equivalent
preferred shares) less than the then current per share market price of the
Preferred Shares (as defined in Section 11(d)) on such record date, the Purchase
Price to be in effect after such record date shall be determined by multiplying
the Purchase Price in effect immediately prior to such record date by a
fraction, the numerator of which shall be the number of Preferred Shares
outstanding on such record date plus the number of Preferred Shares which the
aggregate offering price of the total number of Preferred Shares and/or
equivalent preferred shares so to be offered (and/or the aggregate initial
conversion price of the convertible securities so to be offered) would purchase
at such current market price and the denominator of which shall be the number of
Preferred Shares outstanding on such record date plus the number of additional
Preferred Shares and/or equivalent preferred shares to be offered for
subscription or purchase (or into which the convertible securities so to be
offered are initially convertible); provided, however, that in no event shall
the consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Company issuable upon
exercise of one Right. In case such subscription price may be paid in a
consideration part or all of which shall be in a form other than cash, the value
of such consideration shall be as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a statement
filed with the Rights Agent. Preferred Shares owned by or held for the account
of the Company shall not be deemed outstanding for the purpose of any such
computation. Such adjustment shall be made successively whenever such a record
date is fixed; and in the event that such rights, options or warrants are not so
issued, the Purchase Price shall be adjusted to be the Purchase Price which
would then be in effect if such record date had not been fixed.
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<PAGE> 10
(c) In case the Company shall fix a record date for the making of a
distribution to all holders of the Preferred Shares (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of indebtedness
or assets (other than a regular quarterly cash dividend or a dividend payable in
Preferred Shares) or subscription rights or warrants (excluding those referred
to in Section 11(b) hereof), the Purchase Price to be in effect after such
record date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the then current per share market price of the Preferred Shares on such
record date, less the fair market value (as determined in good faith by the
Board of Directors of the Company, whose determination shall be described in a
statement filed with the Rights Agent) of the portion of the assets or evidences
of indebtedness so to be distributed or of such subscription rights or warrants
applicable to one Preferred Share and the denominator of which shall be such
current per share market price of the Preferred Shares; provided, however, that
in no event shall the consideration to be paid upon the exercise of one Right be
less than the aggregate par value of the shares of capital stock of the Company
to be issued upon exercise of one Right. Such adjustments shall be made
successively whenever such a record date is fixed; and in the event that such
distribution is not so made, the Purchase Price shall again be adjusted to be
the Purchase Price which would then be in effect if such record date had not
been fixed.
(d) (i) For the purpose of any computation hereunder, the "current per
share market price" of any security (a "Security" for the purpose of this
Section 11(d)(i)) on any date shall be deemed to be the average of the daily
closing prices per share of such Security for the 30 consecutive Trading Days
(as such term is hereinafter defined) immediately prior to such date; provided,
however, that in the event that the current per share market price of the
Security is determined during a period following the announcement by the issuer
of such Security of (A) a dividend or distribution on such Security payable in
shares of such Security or securities convertible into such shares, or (B) any
subdivision, combination or reclassification of such Security and prior to the
expiration of 30 Trading Days after the ex-dividend date for such dividend or
distribution, or the record date for such subdivision, combination or
reclassification, then, and in each such case, the current per share market
price shall be appropriately adjusted to reflect the current market price per
share equivalent of such Security. The closing price for each day shall be the
last sale price, regular way, or, in case no such sale takes place on such day,
the average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the Security is not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities exchange
on which the Security is listed or admitted to trading or, if the Security is
not listed or admitted to trading on any national securities exchange, the last
quoted price or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by the National Association
of Securities Dealers, Inc. Automated Quotations System ("NASDAQ") or such other
system then in use, or, if on any such date the Security is not quoted by any
such organization, the average of the closing bid and asked prices as furnished
by a professional market maker making a market in the Security selected by the
Board of Directors of the Company. The term "Trading Day" shall mean a day on
which the principal national securities exchange on which the Security is listed
or admitted to trading is open for the transaction of business or, if the
Security is not listed or admitted to trading on any national securities
exchange, a Business Day.
(ii) For the purpose of any computation hereunder, the "current per share
market price" of the Preferred Shares shall be determined in accordance with the
method set forth in Section 11(d)(i). If the Preferred Shares are not publicly
traded, the "current per share market price" of the Preferred Shares shall be
conclusively deemed to be the current per share market price of the Common
Shares as determined pursuant to Section 11(d)(i) (appropriately adjusted to
reflect any stock split, stock dividend or similar transaction occurring after
the date hereof), multiplied by one hundred. If neither the Common Shares nor
the Preferred Shares are publicly held or so listed or traded, "current per
share market price" shall mean the fair value per share as determined in good
faith by the Board of Directors of the Company, whose determination shall be
described in a statement filed with the Rights Agent.
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<PAGE> 11
(e) No adjustment in the Purchase Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in the Purchase
Price; provided, however, that any adjustments which by reason of this Section
11(e) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section 11
shall be made to the nearest cent or to the nearest millionth of a Preferred
Share or ten-thousandth of any other share or security, as the case may be.
Notwithstanding the first sentence of this Section 11(e), any adjustment
required by this Section 11 shall be made no later than the earlier of (i) three
years from the date of the transaction which requires such adjustment or (ii)
the date of the expiration of the right to exercise any Rights.
(f) If as a result of an adjustment made pursuant to Section 11(a) hereof,
the holder of any Right thereafter exercised shall become entitled to receive
any shares of capital stock of the Company other than Preferred Shares,
thereafter the number of such other shares so receivable upon exercise of any
Right shall be subject to adjustment from time to time in a manner and on terms
as nearly equivalent as practicable to the provisions with respect to the
Preferred Shares contained in Section 11(a) through (c), inclusive, and the
provisions of Sections 7, 9, 10 and 13 with respect to the Preferred Shares
shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of hundredths of a
Preferred Share purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as provided in
Section 11(i), upon each adjustment of the Purchase Price as a result of the
calculations made in Sections 11(b) and (c), each Right outstanding immediately
prior to the making of such adjustment shall thereafter evidence the right to
purchase, at the adjusted Purchase Price, that number of hundredths of a
Preferred Share (calculated to the nearest millionth of a Preferred Share)
obtained by (i) multiplying (x) the number of hundredths of a share covered by a
Right immediately prior to this adjustment by (y) the Purchase Price in effect
immediately prior to such adjustment of the Purchase Price and (ii) dividing the
product so obtained by the Purchase Price in effect immediately after such
adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any adjustment of the
Purchase Price to adjust the number of Rights, in substitution for any
adjustment in the number of hundredths of a Preferred Share purchasable upon the
exercise of a Right. Each of the Rights outstanding after such adjustment of the
number of Rights shall be exercisable for the number of hundredths of a
Preferred Share for which a Right was exercisable immediately prior to such
adjustment. Each Right held of record prior to such adjustment of the number of
Rights shall become that number of Rights (calculated to the nearest
ten-thousandth) obtained by dividing the Purchase Price in effect immediately
prior to adjustment of the Purchase Price by the Purchase Price in effect
immediately after adjustment of the Purchase Price. The Company shall make a
public announcement of its election to adjust the number of Rights, indicating
the record date for the adjustment, and, if known at the time, the amount of the
adjustment to be made. This record date may be the date on which the Purchase
Price is adjusted or any day thereafter, but, if the Right Certificates have
been issued, shall be at least 10 days later than the date of the public
announcement. If Right Certificates have been issued, upon each adjustment of
the number of Rights pursuant to this Section 11(i), the Company shall, as
promptly as practicable, cause to be distributed to holders of record of Right
Certificates on such record date Right Certificates evidencing, subject to
Section 14 hereof, the additional Rights to which such holders shall be entitled
as a result of such adjustment, or, at the option of the Company, shall cause to
be distributed to such holders of record in substitution and replacement for the
Right Certificates held by such holders prior to the date of adjustment, and
upon surrender thereof, if required by the Company, new Right Certificates
evidencing all the Rights to which such holders shall be entitled after such
adjustment. Right Certificates so to be distributed shall be issued, executed
and countersigned in the manner provided for herein and shall be registered in
the names of the holders of record of Right Certificates on the record date
specified in the public announcement.
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<PAGE> 12
(j) Irrespective of any adjustment or change in the Purchase Price or the
number of hundredths of a Preferred Share issuable upon the exercise of the
Rights, the Right Certificates theretofore and thereafter issued may continue to
express the Purchase Price and the number of hundredths of a Preferred Share
which were expressed in the initial Right Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment reducing the
Purchase Price below one hundredth of the then par value, if any, of the
Preferred Shares issuable upon exercise of the Rights, the Company shall take
any corporate action which may, in the opinion of its counsel, be necessary in
order that the Company may validly and legally issue fully paid and
nonassessable Preferred Shares at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an adjustment
in the Purchase Price be made effective as of a record date for a specified
event, the Company may elect to defer until the occurrence of such event the
issuing to the holder of any Right exercised after such record date of the
Preferred Shares and other capital stock or securities of the Company, if any,
issuable upon such exercise over and above the Preferred Shares and other
capital stock or securities of the Company, if any, issuable upon such exercise
on the basis of the Purchase Price in effect prior to such adjustment; provided,
however, that the Company shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such additional
shares upon the occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that it in its sole discretion shall determine to be advisable in
order that any consolidation or subdivision of the Preferred Shares, issuance
wholly for cash of any Preferred Shares at less than the current market price,
issuance wholly for cash of Preferred Shares or securities which by their terms
are convertible into or exchangeable for Preferred Shares, dividends on
Preferred Shares payable in Preferred Shares or issuance of rights, options or
warrants referred to hereinabove in Section 11(b), hereafter made by the Company
to holders of its Preferred Shares shall not be taxable to such stockholders.
(n) In the event that at any time after the date of this Agreement and
prior to the Distribution Date, the Company shall (i) declare or pay any
dividend on the Common Shares payable in Common Shares or (ii) effect a
subdivision, combination or consolidation of the Common Shares (by
reclassification or otherwise than by payment of dividends in Common Shares)
into a greater or lesser number of Common Shares, then in any such case (A) the
number of hundredths of a Preferred Share purchasable after such event upon
proper exercise of each Right shall be determined by multiplying the number of
hundredths of a Preferred Share so purchasable immediately prior to such event
by a fraction, the numerator of which is the number of Common Shares outstanding
immediately before such event and the denominator of which is the number of
Common Shares outstanding immediately after such event, and (B) each Common
Share outstanding immediately after such event shall have issued with respect to
it that number of Rights which each Common Share outstanding immediately prior
to such event had issued with respect to it. The adjustments provided for in
this Section 11(n) shall be made successively whenever such a dividend is
declared or paid or such a subdivision, combination or consolidation is
effected.
Section 12. Certificate of Adjusted Purchase Price or Number of
Shares. Whenever an adjustment is made as provided in Section 11 or 13 hereof,
the Company shall promptly (a) prepare a certificate setting forth such
adjustment, and a brief statement of the facts accounting for such adjustment,
(b) file with the Rights Agent and with each transfer agent for the Common
Shares or the Preferred Shares a copy of such certificate and (c) mail a brief
summary thereof to each holder of a Right Certificate in accordance with Section
25 hereof.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning
Power. In the event, directly or indirectly, at any time after a Person has
become an Acquiring Person, (a) the Company shall consolidate with, or merge
with and into, any other Person, (b) any Person shall consolidate with the
Company, or merge with and into the Company and the Company shall be the
continuing or surviving corporation of such merger and, in connection with such
merger, all or part of the Common Shares shall be changed into or exchanged for
stock or other securities of any other Person (or the Company) or cash or any
10
<PAGE> 13
other property, or (c) the Company shall sell or otherwise transfer (or one or
more of its Subsidiaries shall sell or otherwise transfer), in one or more
transactions, assets or earning power aggregating 50% or more of the assets or
earning power of the Company and its Subsidiaries (taken as a whole) to any
other Person other than the Company or one or more of its wholly owned
Subsidiaries, then, and in each such case, proper provision shall be made so
that (i) each holder of a Right (except as otherwise provided herein) shall
thereafter have the right to receive, upon the exercise thereof at a price equal
to the then current Purchase Price multiplied by the number of hundredths of a
Preferred Share for which a Right is then exercisable, in accordance with the
terms of this Agreement and in lieu of Preferred Shares, such number of Common
Shares of such other Person (including the Company as successor thereto or as
the surviving corporation) as shall equal the result obtained by (A) multiplying
the then current Purchase Price by the number of hundredths of a Preferred Share
for which a Right is then exercisable and dividing that product by (B) 50% of
the then current per share market price of the Common Shares of such other
Person (determined pursuant to Section 11(d) hereof) on the date of consummation
of such consolidation, merger, sale or transfer; (ii) the issuer of such Common
Shares shall thereafter be liable for, and shall assume, by virtue of such
consolidation, merger, sale or transfer, all the obligations and duties of the
Company pursuant to this Agreement; (iii) the term "Company" shall thereafter be
deemed to refer to such issuer; and (iv) such issuer shall take such steps
(including, but not limited to, the reservation of a sufficient number of its
Common Shares in accordance with Section 9 hereof) in connection with such
consummation as may be necessary to assure that the provisions hereof shall
thereafter be applicable, as nearly as reasonably may be, in relation to the
Common Shares thereafter deliverable upon the exercise of the Rights. The
Company shall not consummate any such consolidation, merger, sale or transfer
unless prior thereto the Company and such issuer shall have executed and
delivered to the Rights Agent a supplemental agreement so providing. The Company
shall not enter into any transaction of the kind referred to in this Section 13
if at the time of such transaction there are any rights, warrants, instruments
or securities outstanding or any agreements or arrangements which, as a result
of the consummation of such transaction, would eliminate or substantially
diminish the benefits intended to be afforded by the Rights. The provisions of
this Section 13 shall similarly apply to successive mergers or consolidations or
sales or other transfers.
Section 14. Fractional Rights and Fractional Shares. (a) The Company
shall not be required to issue fractions of Rights or to distribute Right
Certificates which evidence fractional Rights. In lieu of such fractional
Rights, there shall be paid to the registered holders of the Right Certificates
with regard to which such fractional Rights would otherwise be issuable, an
amount in cash equal to the same fraction of the current market value of a whole
Right. For the purposes of this Section 14(a), the current market value of a
whole Right shall be the closing price of the Rights for the Trading Day
immediately prior to the date on which such fractional Rights would have been
otherwise issuable. The closing price for any day shall be the last sale price,
regular way, or, in case no such sale takes place on such day, the average of
the closing bid and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if the Rights
are not listed or admitted to trading on the New York Stock Exchange, as
reported in the principal consolidated transaction reporting system with respect
to securities listed on the principal national securities exchange on which the
Rights are listed or admitted to trading or, if the Rights are not listed or
admitted to trading on any national securities exchange, the last quoted price
or, if not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by NASDAQ or such other system then in use
or, if on any such date the Rights are not quoted by any such organization, the
average of the closing bid and asked prices as furnished by a professional
market maker making a market in the Rights selected by the Board of Directors of
the Company. If on any such date no such market maker is making a market in the
Rights, the fair value of the Rights on such date determined in good faith by
the Board of Directors of the Company shall be used.
(b) The Company shall not be required to issue fractions of Preferred
Shares (other than fractions which are integral multiples of one hundredth of a
Preferred Share) upon exercise of the Rights or to distribute certificates which
evidence fractional Preferred Shares (other than fractions which are integral
multiples of one hundredth of a Preferred Share). Fractions of Preferred Shares
in integral multiples of one hundredth of a Preferred Share may, at the election
of the Company, be evidenced by depositary receipts,
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<PAGE> 14
pursuant to an appropriate agreement between the Company and a depositary
selected by it; provided, that such agreement shall provide that the holders of
such depositary receipts shall have all the rights, privileges and preferences
to which they are entitled as beneficial owners of the Preferred Shares
represented by such depositary receipts. In lieu of fractional Preferred Shares
that are not integral multiples of one hundredth of a Preferred Share, the
Company shall pay to the registered holders of Right Certificates at the time
such Rights are exercised as herein provided an amount in cash equal to the same
fraction of the current market value of one Preferred Share. For the purposes of
this Section 14(b), the current market value of a Preferred Share shall be the
closing price of a Preferred Share (as determined pursuant to the second
sentence of Section 11(d)(i) hereof) for the Trading Day immediately prior to
the date of such exercise.
(c) The holder of a Right by the acceptance of the Right expressly waives
his right to receive any fractional Rights or any fractional shares upon
exercise of a Right (except as provided above).
Section 15. Rights of Action. All rights of action in respect of this
Agreement, excepting the rights of action given to the Rights Agent under
Section 18 hereof, are vested in the respective registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Shares); and any registered holder of any Right Certificate (or, prior to
the Distribution Date, of the Common Shares), without the consent of the Rights
Agent or of the holder of any other Right Certificate (or, prior to the
Distribution Date, of the Common Shares), may, in his own behalf and for his own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Company to enforce, or otherwise act in respect of, his right to
exercise the Rights evidenced by such Right Certificate in the manner provided
in such Right Certificate and in this Agreement. Without limiting the foregoing
or any remedies available to the holders of Rights, it is specifically
acknowledged that the holders of Rights would not have an adequate remedy at law
for any breach of this Agreement and will be entitled to specific performance of
the obligations under, and injunctive relief against actual or threatened
violations of the obligations of any Person subject to, this Agreement.
Section 16. Agreement of Right Holders. Every holder of a Right, by
accepting the same, consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable
only in connection with the transfer of the Common Shares;
(b) after the Distribution Date, the Right Certificates are
transferable only on the registry books of the Rights Agent if surrendered
at the principal office of the Rights Agent, duly endorsed or accompanied
by a proper instrument of transfer; and
(c) the Company and the Rights Agent may deem and treat the person in
whose name the Right Certificate (or, prior to the Distribution Date, the
associated Common Shares certificate) is registered as the absolute owner
thereof and of the Rights evidenced thereby (notwithstanding any notations
of ownership or writing on the Right Certificates or the associated Common
Shares certificate made by anyone other than the Company or the Rights
Agent) for all purposes whatsoever, and neither the Company nor the Rights
Agent shall be affected by any notice to the contrary.
Section 17. Right Certificate Holder Not Deemed a Stockholder. No holder,
as such, of any Right Certificate shall be entitled to vote, receive dividends
or be deemed for any purpose the holder of the Preferred Shares or any other
securities of the Company which may at any time be issuable on the exercise of
the Rights represented thereby, nor shall anything contained herein or in any
Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 25 hereof), or to receive dividends
or subscription rights, or otherwise, until the Right or Rights evidenced by
such Right Certificate shall have been exercised in accordance with the
provisions hereof.
Section 18. Concerning the Rights Agent. The Company agrees to pay to the
Rights Agent reasonable compensation for all services rendered by it hereunder
and, from time to time, on demand of the Rights Agent,
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<PAGE> 15
its reasonable expenses and counsel fees and other disbursements incurred in the
administration and execution of this Agreement and the exercise and performance
of its duties hereunder. The Company also agrees to indemnify the Rights Agent
for, and to hold it harmless against, any loss, liability, or expense, incurred
without negligence, bad faith or willful misconduct on the part of the Rights
Agent, for anything done or omitted by the Rights Agent in connection with the
acceptance and administration of this Agreement, including the costs and
expenses of defending against any claim of liability in the premises. In no case
will the Rights Agent be liable for special, indirect, incidental or
consequential loss or damages of any kind whatsoever, even if the Rights Agent
has been advised of the possibility of such damages.
The Rights Agent shall be protected and shall incur no liability for, or in
respect of any action taken, suffered or omitted by it in connection with, its
administration of this Agreement in reliance upon any Right Certificate or
certificate for the Preferred Shares or Common Shares or for other securities of
the Company, instrument of assignment or transfer, power of attorney,
endorsement, affidavit, letter, notice, direction, consent, certificate,
statement, or other paper or document believed by it to be genuine and to be
signed, executed and, where necessary, verified or acknowledged, by the proper
person or persons, or otherwise upon the advice of counsel as set forth in
Section 20 hereof.
Section 19. Merger or Consolidation or Change of Name of Rights Agent. Any
corporation into which the Rights Agent or any successor Rights Agent may be
merged or with which it may be consolidated, or any corporation resulting from
any merger or consolidation to which the Rights Agent or any successor Rights
Agent shall be a party, or any corporation succeeding to the stock transfer or
corporate trust powers of the Rights Agent or any successor Rights Agent, shall
be the successor to the Rights Agent under this Agreement without the execution
or filing of any paper or any further act on the part of any of the parties
hereto; provided, that such corporation would be eligible for appointment as a
successor Rights Agent under the provisions of Section 21 hereof. In case at the
time such successor Rights Agent shall succeed to the agency created by this
Agreement, any of the Right Certificates shall have been countersigned but not
delivered, any such successor Rights Agent may adopt the countersignature of the
predecessor Rights Agent and deliver such Right Certificates so countersigned;
and in case at that time any of the Right Certificates shall not have been
countersigned, any successor Rights Agent may countersign such Right
Certificates either in the name of the predecessor Rights Agent or in the name
of the successor Rights Agent; and in all such cases such Right Certificates
shall have the full force provided in the Right Certificates and in this
Agreement.
In case at any time the name of the Rights Agent shall be changed and at
such time any of the Right Certificates shall have been countersigned but not
delivered, the Rights Agent may adopt the countersignature under its prior name
and deliver Right Certificates so countersigned; and in case at that time any of
the Right Certificates shall not have been countersigned, the Rights Agent may
countersign such Right Certificates either in its prior name or in its changed
name; and in all such cases such Right Certificates shall have the full force
provided in the Right Certificates and in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Right Certificates,
by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company), and the opinion of such counsel shall be full and
complete authorization and protection to the Rights Agent as to any action
taken or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Agreement the
Rights Agent shall deem it necessary or desirable that any fact or matter
be proved or established by the Company prior to taking or suffering any
action hereunder, such fact or matter (unless other evidence in respect
thereof be herein specifically prescribed) may be deemed to be conclusively
proved and established by a certificate signed by any one of the Chairman,
the Chief Executive Officer, the President, any Vice President, the
Treasurer or the Secretary of the Company and delivered to the Rights
Agent; and such certificate shall be full authorization to the Rights Agent
for any action taken or suffered in good faith by it under the provisions
of this Agreement in reliance upon such certificate.
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<PAGE> 16
(c) The Rights Agent shall be liable hereunder to the Company and any
other Person only for its own negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of
the statements of fact or recitals contained in this Agreement or in the
Right Certificates (except its countersignature thereof) or be required to
verify the same, but all such statements and recitals are and shall be
deemed to have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in respect
of the validity of this Agreement or the execution and delivery hereof
(except the due execution hereof by the Rights Agent) or in respect of the
validity or execution of any Right Certificate (except its countersignature
thereof); nor shall it be responsible for any breach by the Company of any
covenant or condition contained in this Agreement or in any Right
Certificate; nor shall it be responsible for any change in the
exercisability of the Rights (including the Rights becoming void pursuant
to Section 11(a)(ii) hereof) or any adjustment in the terms of the Rights
(including the manner, method or amount thereof) provided for in Section 3,
11, 13, 23 or 24, or the ascertaining of the existence of facts that would
require any such change or adjustment (except with respect to the exercise
of Rights evidenced by Right Certificates after actual notice that such
change or adjustment is required); nor shall it by any act hereunder be
deemed to make any representation or warranty as to the authorization or
reservation of any Preferred Shares to be issued pursuant to this Agreement
or any Right Certificate or as to whether any Preferred Shares will, when
issued, be validly authorized and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all
such further and other acts, instruments and assurances as may reasonably
be required by the Rights Agent for the carrying out or performing by the
Rights Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from
any one of the Chairman, the Chief Executive Officer, the President, any
Vice President, the Secretary or the Treasurer of the Company, and to apply
to such officers for advice or instructions in connection with its duties,
and it shall not be liable for any action taken or suffered by it in good
faith in accordance with instructions of any such officer or for any delay
in acting while waiting for those instructions.
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or
other securities of the Company or become pecuniarily interested in any
transaction in which the Company may be interested, or contract with or
lend money to the Company or otherwise act as fully and freely as though it
were not Rights Agent under this Agreement. Nothing herein shall preclude
the Rights Agent from acting in any other capacity for the Company or for
any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or
by or through its attorneys or agents, and the Rights Agent shall not be
answerable or accountable for any act, default, neglect or misconduct of
any such attorneys or agents or for any loss to the Company resulting from
any such act, default, neglect or misconduct, provided reasonable care was
exercised in the selection and continued employment thereof.
Section 21. Change of Rights Agent. The Rights Agent or any
successor Rights Agent may resign and be discharged from its duties under
this Agreement upon 30 days' notice in writing mailed to the Company and to
each transfer agent of the Common Shares or Preferred Shares by registered
or certified mail, and to the holders of the Right Certificates by
first-class mail. The Company may remove the Rights Agent or any successor
Rights Agent upon 30 days' notice in writing, mailed to the Rights Agent or
successor Rights Agent, as the case may be, and to each transfer agent of
the Common Shares or Preferred Shares by registered or certified mail, and
to the holders of the Right Certificates by first-class mail. If the Rights
Agent shall resign or be removed or shall otherwise become incapable of
acting, the Company shall appoint a successor to the Rights Agent. If the
Company shall fail to make such
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<PAGE> 17
appointment within a period of 30 days after giving notice of such removal
or after it has been notified in writing of such resignation or incapacity
by the resigning or incapacitated Rights Agent or by the holder of a Right
Certificate (who shall, with such notice, submit his Right Certificate for
inspection by the Company), then the registered holder of any Right
Certificate may apply to any court of competent jurisdiction for the
appointment of a new Rights Agent. Any successor Rights Agent, whether
appointed by the Company or by such a court, shall be a corporation
organized and doing business under the laws of the U.S. or of the State of
New York (or of any other state of the U.S. so long as such corporation is
authorized to do business as a banking institution in the State of New
York), in good standing, having an office in the State of New York, which
is authorized under such laws to exercise corporate trust or stock transfer
powers and is subject to supervision or examination by federal or state
authority and which has at the time of its appointment as Rights Agent a
combined capital and surplus of at least $50 million. After appointment,
the successor Rights Agent shall be vested with the same powers, rights,
duties and responsibilities as if it had been originally named as Rights
Agent without further act or deed; but the predecessor Rights Agent shall
deliver and transfer to the successor Rights Agent any property at the time
held by it hereunder, and execute and deliver any further assurance,
conveyance, act or deed necessary for the purpose. Not later than the
effective date of any such appointment the Company shall file notice
thereof in writing with the predecessor Rights Agent and each transfer
agent of the Common Shares or Preferred Shares, and mail a notice thereof
in writing to the registered holders of the Right Certificates. Failure to
give any notice provided for in this Section 21, however, or any defect
therein, shall not affect the legality or validity of the resignation or
removal of the Rights Agent or the appointment of the successor Rights
Agent, as the case may be.
Section 22. Issuance of New Right Certificates. Notwithstanding any of
the provisions of this Agreement or of the Rights to the contrary, the Company
may, at its option, issue new Right Certificates evidencing Rights in such form
as may be approved by its Board of Directors to reflect any adjustment or change
in the Purchase Price and the number or kind or class of shares or other
securities or property purchasable under the Right Certificates made in
accordance with the provisions of this Agreement.
Section 23. Redemption. (a) The Board of Directors of the Company may, at
its option, at any time prior to such time as any Person becomes an Acquiring
Person, redeem all but not less than all the then outstanding Rights at a
redemption price of $.01 per Right, appropriately adjusted to reflect any stock
split, stock dividend or similar transaction occurring after the date hereof
(such redemption price being hereinafter referred to as the "Redemption Price").
The redemption of the Rights by the Board of Directors may be made effective at
such time, on such basis and with such conditions as the Board of Directors in
its sole discretion may establish.
(b) Immediately upon the action of the Board of Directors of the Company
ordering the redemption of the Rights pursuant to paragraph (a) of this Section
23, and without any further action and without any notice, the right to exercise
the Rights will terminate and the only right thereafter of the holders of Rights
shall be to receive the Redemption Price. The Company shall promptly give public
notice of any such redemption; provided, however, that the failure to give, or
any defect in, any such notice shall not affect the validity of such redemption.
Within 10 days after such action of the Board of Directors ordering the
redemption of the Rights, the Company shall mail a notice of redemption to all
the holders of the then outstanding Rights at their last addresses as they
appear upon the registry books of the Rights Agent or, prior to the Distribution
Date, on the registry books of the transfer agent for the Common Shares. Any
notice which is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of redemption
will state the method by which the payment of the Redemption Price will be made.
Neither the Company nor any of its Affiliates or Associates may redeem, acquire
or purchase for value any Rights at any time in any manner other than that
specifically set forth in this Section 23 or in Section 24 hereof, and other
than in connection with the purchase of Common Shares prior to the Distribution
Date.
Section 24. Exchange. (a) The Board of Directors of the Company may, at
its option, at any time after any Person becomes an Acquiring Person, exchange
all or part of the then outstanding and exercisable Rights (which shall not
include Rights that have become void pursuant to the provisions of Section
11(a)(ii) hereof) for Common Shares at an exchange ratio of one Common Share per
Right,
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<PAGE> 18
appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof (such exchange ratio being
hereinafter referred to as the "Exchange Ratio"). Notwithstanding the foregoing,
the Board of Directors shall not be empowered to effect such exchange at any
time after any Person (other than the Company, any Subsidiary of the Company,
any employee benefit plan of the Company or any such Subsidiary, or any entity
holding Common Shares for or pursuant to the terms of any such plan), together
with all Affiliates and Associates of such Person, becomes the Beneficial Owner
of 50% or more of the Common Shares then outstanding.
(b) Immediately upon the action of the Board of Directors of the Company
ordering the exchange of any Rights pursuant to paragraph (a) of this Section 24
and without any further action and without any notice, the right to exercise
such Rights shall terminate and the only right thereafter of a holder of such
Rights shall be to receive that number of Common Shares equal to the number of
such Rights held by such holder multiplied by the Exchange Ratio. The Company
shall promptly give public notice of any such exchange; provided, however, that
the failure to give, or any defect in, such notice shall not affect the validity
of such exchange. The Company promptly shall mail a notice of any such exchange
to all of the holders of such Rights at their last addresses as they appear upon
the registry books of the Rights Agent. Any notice which is mailed in the manner
herein provided shall be deemed given, whether or not the holder receives the
notice. Each such notice of exchange will state the method by which the exchange
of the Common Shares for Rights will be effected and, in the event of any
partial exchange, the number of Rights which will be exchanged. Any partial
exchange shall be effected pro rata based on the number of Rights (other than
Rights which have become void pursuant to the provisions of Section 11(a)(ii)
hereof) held by each holder of Rights.
(c) In the event that there shall not be sufficient Common Shares issued
but not outstanding or authorized but unissued to permit any exchange of Rights
as contemplated in accordance with this Section 24, the Company shall take all
such action as may be necessary to authorize additional Common Shares for
issuance upon exchange of the Rights. In the event the Company shall, after good
faith effort, be unable to take all such action as may be necessary to authorize
such additional Common Shares, the Company shall substitute, for each Common
Share that would otherwise be issuable upon exchange of a Right, a number of
Preferred Shares or fraction thereof such that the current per share market
price of one Preferred Share multiplied by such number or fraction is equal to
the current per share market price of one Common Share as of the date of
issuance of such Preferred Shares or fraction thereof.
(d) The Company shall not be required to issue fractions of Common Shares
or to distribute certificates which evidence fractional Common Shares. In lieu
of such fractional Common Shares, the Company shall pay to the registered
holders of the Right Certificates with regard to which such fractional Common
Shares would otherwise be issuable an amount in cash equal to the same fraction
of the current market value of a whole Common Share. For the purposes of this
paragraph (d), the current market value of a whole Common Share shall be the
closing price of a Common Share (as determined pursuant to the second sentence
of Section 11(d)(i) hereof) for the Trading Day immediately prior to the date of
exchange pursuant to this Section 24.
Section 25. Notice of Certain Events. (a) In case the Company shall
propose (i) to pay any dividend payable in stock of any class to the holders of
its Preferred Shares or to make any other distribution to the holders of its
Preferred Shares (other than a regular quarterly cash dividend), (ii) to offer
to the holders of its Preferred Shares rights or warrants to subscribe for or to
purchase any additional Preferred Shares or shares of stock of any class or any
other securities, rights or options, (iii) to effect any reclassification of its
Preferred Shares (other than a reclassification involving only the subdivision
of outstanding Preferred Shares), (iv) to effect any consolidation or merger
into or with, or to effect any sale or other transfer (or to permit one or more
of its Subsidiaries to effect any sale or other transfer), in one or more
transactions, of 50% or more of the assets or earning power of the Company and
its Subsidiaries (taken as a whole) to, any other Person, (v) to effect the
liquidation, dissolution or winding up of the Company, or (vi) to declare or pay
any dividend on the Common Shares payable in Common Shares or to effect a
subdivision, combination or consolidation of the Common Shares (by
reclassification or otherwise than by payment of dividends in Common Shares),
then, in each such case, the Company shall give to each holder of a Right
Certificate, in accordance with Section 26 hereof, a notice of such proposed
action, which shall specify the record date for the purposes of such stock
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<PAGE> 19
dividend, or distribution of rights or warrants, or the date on which such
reclassification, consolidation, merger, sale, transfer, liquidation,
dissolution, or winding up is to take place and the date of participation
therein by the holders of the Common Shares and/or Preferred Shares, if any such
date is to be fixed, and such notice shall be so given in the case of any action
covered by clause (i) or (ii) above at least 10 days prior to the record date
for determining holders of the Preferred Shares for purposes of such action, and
in the case of any such other action, at least 10 days prior to the date of the
taking of such proposed action or the date of participation therein by the
holders of the Common Shares and/or Preferred Shares, whichever shall be the
earlier.
(b) In case the event set forth in Section 11(a)(ii) hereof shall occur,
then the Company shall as soon as practicable thereafter give to each holder of
a Right Certificate, in accordance with Section 26 hereof, a notice of the
occurrence of such event, which notice shall describe such event and the
consequences of such event to holders of Rights under Section 11(a)(ii) hereof.
Section 26. Notices. Notices or demands authorized by this Agreement to be
given or made by the Rights Agent or by the holder of any Right Certificate to
or on the Company shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing with
the Rights Agent) as follows:
W. R. Grace & Co.
One Town Center Road
Boca Raton, FL 33486-1010
Attention: Corporate Secretary
Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made by the Company or by the holder of any
Right Certificate to or on the Rights Agent shall be sufficiently given or made
if sent by first-class mail, postage prepaid, addressed (until another address
is filed in writing with the Company) as follows:
The Chase Manhattan Bank
Stock Transfer Department
450 West 33rd Street
New York, N.Y. 10001
Attention: Vice President -- Administration
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
Section 27. Supplements and Amendments. The Company may from time to time
supplement or amend this Agreement without the approval of any holders of Right
Certificates in order to cure any ambiguity, to correct or supplement any
provision contained herein which may be defective or inconsistent with any other
provisions herein, or to make any other provisions with respect to the Rights
which the Company may deem necessary or desirable, any such supplement or
amendment to be evidenced by a writing signed by the Company and the Rights
Agent; provided, however, that from and after such time as any Person becomes an
Acquiring Person, this Agreement shall not be amended in any manner which would
adversely affect the interests of the holders of Rights. Without limiting the
foregoing, the Company may at any time prior to such time as any Person becomes
an Acquiring Person amend this Agreement to lower the thresholds set forth in
Sections 1(a) and 3(a) to not less than the greater of (i) the sum of .001% and
the largest percentage of the outstanding Common Shares then known by the
Company to be beneficially owned by any Person (other than the Company, any
Subsidiary of the Company, any employee benefit plan of the Company or any
Subsidiary of the Company, or any entity holding Common Shares for or pursuant
to the terms of any such plan) and (ii) 10%.
Section 28. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
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<PAGE> 20
Section 29. Benefits of this Agreement. Nothing in this Agreement shall
be construed to give to any person or corporation other than the Company, the
Rights Agent and the registered holders of the Right Certificates (and, prior to
the Distribution Date, the Common Shares) any legal or equitable right, remedy
or claim under this Agreement; but this Agreement shall be for the sole and
exclusive benefit of the Company, the Rights Agent and the registered holders of
the Right Certificates (and, prior to the Distribution Date, the Common Shares).
Section 30. Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in full
force and effect and shall in no way be affected, impaired or invalidated.
Section 31. Governing Law. This Agreement and each Right Certificate
issued hereunder shall be deemed to be a contract made under the laws of the
State of Delaware and for all purposes shall be governed by and construed in
accordance with the laws of such State applicable to contracts to be made and
performed entirely within such State.
Section 32. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
Section 33. Descriptive Headings. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and attested, all as of the day and year first above written.
<TABLE>
<S> <C>
W. R. GRACE & CO.
Attest:
By By
---------------------------------------- ----------------------------------------
Title: Title:
Attest: THE CHASE MANHATTAN BANK
By By
---------------------------------------- ----------------------------------------
Title: Title:
</TABLE>
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EXHIBIT A
FORM OF RIGHT CERTIFICATE
CERTIFICATE NO. R- ________ RIGHTS
NOT EXERCISABLE AFTER , 2006 OR EARLIER IF
REDEMPTION OR EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO
REDEMPTION AT $.01 PER RIGHT AND TO EXCHANGE ON THE TERMS SET
FORTH IN THE RIGHTS AGREEMENT.
RIGHT CERTIFICATE
W. R. GRACE & CO.
This certifies that , or registered assigns, is the registered
owner of the number of Rights set forth above, each of which entitles the owner
thereof, subject to the terms, provisions and conditions of the Rights
Agreement, dated as of , 1996 (the "Rights Agreement"), between W.
R. Grace & Co., a Delaware corporation (the "Company"), and (the
"Rights Agent"), to purchase from the Company at any time after the Distribution
Date (as such term is defined in the Rights Agreement) and prior to 5:00 P.M.,
New York time, on , 2006 at the principal office of the Rights
Agent, or at the office of its successor as Rights Agent, one hundredth of a
fully paid non-assessable share of Series A Junior Participating Preferred
Stock, par value $.01 per share (the "Preferred Shares"), of the Company, at a
purchase price of $ per one hundredth of a Preferred Share (the
"Purchase Price"), upon presentation and surrender of this Right Certificate
with the Form of Election to Purchase duly executed. The number of Rights
evidenced by this Right Certificate (and the number of hundredths of a Preferred
Share which may be purchased upon exercise hereof) set forth above, and the
Purchase Price set forth above, are the number and Purchase Price as of
, 1996, based on the Preferred Shares as constituted at such date.
As provided in the Rights Agreement, the Purchase Price and the number of
hundredths of a Preferred Share which may be purchased upon the exercise of the
Rights evidenced by this Right Certificate are subject to modification and
adjustment upon the happening of certain events.
This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Right Certificates. Copies of
the Rights Agreement are on file at the principal executive offices of the
Company and the above-mentioned offices of the Rights Agent.
This Right Certificate, with or without other Right Certificates, upon
surrender at the principal office of the Rights Agent, may be exchanged for
another Right Certificate or Right Certificates of like tenor and date
evidencing Rights entitling the holder to purchase a like aggregate number of
Preferred Shares as the Rights evidenced by the Right Certificate or Right
Certificates surrendered shall have entitled such holder to purchase. If this
Right Certificate shall be exercised in part, the holder shall be entitled to
receive upon surrender hereof another Right Certificate or Right Certificates
for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights evidenced by
this Certificate (i) may be redeemed by the Company at a redemption price of
$.01 per Right or (ii) may be exchanged in whole or in part for Preferred Shares
or shares of the Company's Common Stock, par value $.01 per share.
No fractional Preferred Shares will be issued upon the exercise of any
Right or Rights evidenced hereby (other than fractions which are integral
multiples of one hundredth of a Preferred Share, which may, at the election of
the Company, be evidenced by depositary receipts), but in lieu thereof a cash
payment will be made, as provided in the Rights Agreement.
No holder of this Right Certificate shall be entitled to vote or receive
dividends or be deemed for any purpose the holder of the Preferred Shares or of
any other securities of the Company which may at any time
A-1
<PAGE> 22
be issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Right
Certificate shall have been exercised as provided in the Rights Agreement.
This Right Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Company and
its corporate seal. Dated as of , 1996.
<TABLE>
<S> <C>
ATTEST: W. R. GRACE & CO.
By
- -------------------------------------------- --------------------------------------------
Countersigned:
THE CHASE MANHATTAN BANK
By
- --------------------------------------------
Authorized Signature
</TABLE>
A-2
<PAGE> 23
FORM OF REVERSE SIDE OF RIGHT CERTIFICATE
FORM OF ASSIGNMENT
(TO BE EXECUTED BY THE REGISTERED HOLDER IF SUCH
HOLDER DESIRES TO TRANSFER THE RIGHT CERTIFICATE.)
FOR VALUE RECEIVED
hereby sells, assigns and transfers unto
(Please print name and address of transferee)
- --------------------------------------------------------------------------------
this Right Certificate, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint Attorney, to transfer
the within Right Certificate on the books of the within-named Company, with full
power of substitution.
Dated: ____________, 1996
--------------------------------------
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or correspondent in
the United States.
- --------------------------------------------------------------------------------
The undersigned hereby certifies that the Rights evidenced by this Right
Certificate are not beneficially owned by an Acquiring Person or an Affiliate or
Associate thereof (as defined in the Rights Agreement).
--------------------------------------
Signature
A-3
<PAGE> 24
FORM OF ELECTION TO PURCHASE
(TO BE EXECUTED IF HOLDER DESIRES TO EXERCISE
RIGHTS REPRESENTED BY THE RIGHT CERTIFICATE.)
To: W. R. GRACE & CO.
The undersigned hereby irrevocably elects to exercise ____________________
Rights represented by this Right Certificate to purchase the Preferred Shares
issuable upon the exercise of such Rights and requests that certificates for
such Preferred Shares be issued in the name of:
Please insert social security
or other identifying number
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
If such number of Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
Dated: ____________, 1996
--------------------------------------
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or correspondent in
the United States.
The undersigned hereby certifies that the Rights evidenced by this Right
Certificate are not beneficially owned by an Acquiring Person or an Affiliate or
Associate thereof (as defined in the Rights Agreement).
--------------------------------------
Signature
NOTICE
The signature in the Form of Assignment or Form of Election to Purchase, as
the case may be, must conform to the name as written upon the face of this Right
Certificate in every particular, without alteration or enlargement or any change
whatsoever.
In the event the certification set forth above in the Form of Assignment or
the Form of Election to Purchase, as the case may be, is not completed, the
Company and the Rights Agent will deem the beneficial owner of the Rights
evidenced by this Right Certificate to be an Acquiring Person or an Affiliate or
Associate thereof (as defined in the Rights Agreement) and such Assignment or
Election to Purchase will not be honored.
A-4
<PAGE> 1
EXHIBIT 4.4
<PAGE> 2
364-DAY CREDIT AGREEMENT, dated as of May 17, 1996, among W. R. GRACE &
CO.-CONN., a Connecticut corporation (the "Company"), W. R. GRACE & CO., a New
York corporation and sole shareholder of the Company ("Grace New York"), GRACE
HOLDING, INC., a Delaware corporation and a wholly owned subsidiary of Grace New
York ("Grace Holding"), the several banks from time to time parties to this
Agreement (the "Banks"), NATIONSBANK, N.A. (SOUTH), a national association, as
documentation agent (in such capacity, the "Documentation Agent"), and CHEMICAL
BANK, a New York banking corporation, as administrative agent for the Banks
hereunder (in such capacity, the "Administrative Agent").
The parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following terms shall
have the following meanings:
"ABR Loans": Loans the rate of interest applicable to which is based
upon the Alternate Base Rate.
"Additional Bank": as defined in subsection 2.4(b).
"Affiliate": as to any Person, (a) any other Person (other than a
Subsidiary) which, directly or indirectly, is in control of, is controlled
by, or is under common control with, such Person or (b) any Person who is a
director, officer, shareholder or partner (i) of such Person, (ii) of any
Subsidiary of such Person or (iii) of any Person described in the preceding
clause (a). For purposes of this definition, "control" of a Person means
the power, directly or indirectly, either to (i) vote 10% or more of the
securities having ordinary voting power for the election of directors of
such Person or (ii) direct or cause the direction of the management and
policies of such Person whether by contract or otherwise.
"Aggregate Outstanding Bilateral Option Loans": at any time, (i) the
aggregate outstanding principal amount of all Dollar Bilateral Loans and
(ii) the aggregate Dollar Equivalents at such time with respect to all
outstanding Alternative Currency Bilateral Loans.
"Agreement": this 364-Day Credit Agreement, as amended, supplemented or
otherwise modified from time to time.
"Alternate Base Rate": for any day, a rate per annum (rounded upwards,
if necessary, to the next 1/16 of 1%) equal to the greater of (a) the Prime
Rate in effect on such day and (b) the Federal Funds Effective Rate in
effect on such day plus 1/2 of 1%. "Prime Rate" shall mean the rate of
interest per annum publicly announced from time to time
<PAGE> 3
2
by the Administrative Agent as its prime rate in effect at its principal
office in New York City. "Federal Funds Effective Rate" shall mean, for any
day, the weighted average of the rates on overnight federal funds
transactions with members of the Federal Reserve System arranged by federal
funds brokers, as published on the next succeeding Business Day by the
Federal Reserve Bank of New York, or, if such rate is not so published for
any day which is a Business Day, the average of the quotations for the day
of such transactions received by the Administrative Agent from three
federal funds brokers of recognized standing selected by it. If for any
reason the Administrative Agent shall have determined (which determination
shall be conclusive absent manifest error) that it is unable to ascertain
the Federal Funds Effective Rate, for any reason, including, the inability
or failure of the Administrative Agent to obtain sufficient quotations in
accordance with the terms hereof, the Alternate Base Rate shall be
determined without regard to clause (b) of the first sentence of this
definition until the circumstances giving rise to such inability no longer
exist. Any change in the Alternate Base Rate due to a change in the Prime
Rate or the Federal Funds Effective Rate shall be effective on the
effective date of such change in the Prime Rate or the Federal Funds
Effective Rate, respectively.
"Alternative Currency": any currency other than Dollars which is freely
transferable and convertible into Dollars.
"Alternative Currency Bilateral Loan": a Loan made by a Bank to any
Borrower in an Alternative Currency pursuant to Section 3.
"Applicable Margin": for any day on which the long term senior
unenhanced, unsecured debt of the Company is rated by both S&P and Moody's,
the rate per annum under the caption "Margin" (a "Margin Rate") set forth
below opposite the S&P and Moody's ratings applicable to such debt on such
day (or, if such ratings are set opposite two different Margin Rates, then
the Applicable Margin shall be the lower of said two Margin Rates):
<TABLE>
<CAPTION>
Margin S&P Moody's
------ --- -------
<S> <C> <C>
.450% BB+ or lower Ba1 or lower
.325% BBB- Baa3
.300% BBB Baa2
.270% BBB+ Baa1
.240% A- or higher A3 or higher
</TABLE>
<PAGE> 4
3
provided that if on any day the long term senior unenhanced, unsecured debt
of the Company is rated by only one of either S&P or Moody's, the
Applicable Margin will be determined based on the rating by such rating
agency, and provided, further, that if on any day the long term senior
unenhanced, unsecured debt of the Company is rated by neither S&P nor
Moody's, the Applicable Margin will be determined based on the rating of
such debt by Duff & Phelps, Fitch or another nationally recognized
statistical rating organization agreed to by and among the Company, the
Administrative Agent and the Majority Banks (each, a "Substitute Rating
Agency") and will be the Margin Rate set forth above opposite the S&P and
Moody's ratings comparable to such Substitute Rating Agency's rating of
such debt on such date, and provided, further, that if on any day the long
term senior unenhanced, unsecured debt of the Company is rated by none of
S&P, Moody's or any Substitute Rating Agency, the Company, the
Administrative Agent and the Banks will negotiate in good faith to
determine an alternative basis for calculating the Applicable Margin
consistent with the table set forth above and, if agreement on such
alternative basis is not reached within 30 days, the Applicable Margin will
be calculated on an alternative basis determined by the Administrative
Agent and the Banks in their reasonable discretion consistent with the
table above, and until such alternative basis is determined the Applicable
Margin will be the Applicable Margin last determined as provided in the
table above.
"Asset Sale": the sale, assignment, lease or other disposition
(including by merger, consolidation, dividend distribution, sale of stock,
liquidation or dissolution) by the Company or any of its Affiliates or
Subsidiaries of all or a substantial part of the property, assets, business
or stock of (a) the businesses (other than the marine and bioremediation
businesses) of the Dearborn Division of the Company or (b) the plant
biotechnology business of Agracetus, Inc.
"Available Commitment": as to any Bank at any time, an amount equal to
the excess, if any, of (a) the amount of such Bank's Commitment over (b)
the Loan Outstandings of such Bank at such time.
"Bid Loan": each Bid Loan made pursuant to Section 4.
"Bid Loan Banks": Banks which have outstanding Bid Loans or which are
making Bid Loans.
"Bid Loan Confirmation": each confirmation by the Borrower of its
acceptance of Bid Loan Offers, which Bid Loan Confirmation shall be
substantially in the form of Exhibit C.
<PAGE> 5
4
"Bid Loan Note": as defined in subsection 4.5(c); collectively, the
"Bid Loan Notes".
"Bid Loan Offer": each offer by a Bank to make Bid Loans pursuant to a
Bid Loan Request, which Bid Loan Offer shall contain the information
specified in Exhibit D.
"Bid Loan Request": each request by a Borrower for Banks to submit bids
to make Bid Loans at a fixed rate, which shall contain the information in
respect of such requested Bid Loans specified in Exhibit E and shall be
delivered to the Administrative Agent.
"Bilateral Option Loan": a Loan made by a Bank to a Borrower pursuant
to Section 3. Bilateral Option Loans may be either Dollar Bilateral Loans
or Alternative Currency Bilateral Loans.
"Bilateral Option Loan Report": as defined in subsection 3.2.
"Board": The Board of Governors of the Federal Reserve System of the
United States of America or any successor thereto.
"Borrower": the Company and any Subsidiary of the Company with respect
to which a Notice of Additional Borrower has been given and all conditions
precedent to the effectiveness thereof have been satisfied.
"Borrowing Date": any Business Day specified in a notice pursuant to
subsection 2.3 and 4.2, as a date on which a Borrower requests the Banks to
make Loans hereunder, or any date that a Bilateral Option Loan is made in
accordance with subsection 3.1.
"Business Day": a day other than a Saturday, Sunday or other day on
which commercial banks in New York City are authorized or required by law
to close.
"Capitalized Lease": any lease of property, real or personal, the
obligations of the lessee in respect of which are required to be
capitalized in accordance with GAAP.
"Change of Control Date": (i) the first day on which the Company
determines that any Person or group of related Persons has direct or
indirect beneficial ownership of 30% or more of the outstanding capital
stock of the Parent having ordinary voting power (other than stock having
such power only by reason of the happening of a contingency) for the
election of a majority of the board of directors of the Parent or (ii) the
first day on which any Person or group of related Persons shall acquire all
or substantially all of the assets of the Parent.
<PAGE> 6
5
"Chemical": Chemical Bank.
"Closing Date": the first date on which the conditions set forth in
subsection 7.1 have been satisfied or waived.
"Code": the Internal Revenue Code of 1986, as amended from time to
time.
"Commitment": as to any Bank, the obligation of such Bank to make
Revolving Credit Loans hereunder to the Borrowers in an aggregate principal
amount at any one time outstanding not to exceed the amount set forth
opposite such Bank's name on Schedule I under the heading "Commitment".
"Commitment Percentage": as to any Bank at any time, the percentage of
the aggregate Commitments then constituted by such Bank's Commitment.
"Commitment Period": the period from and including the date hereof to
but not including the Termination Date or such earlier date on which the
Commitments shall terminate as provided herein.
"Commonly Controlled Entity": an entity, whether or not incorporated,
which is under common control with the Company within the meaning of
Section 4001(a)(14) of ERISA or is part of a group which includes the
Company and which is treated as a single employer under subsection (b) or
(c) of Section 414 of the Code.
"Consolidated Adjusted Net Worth": at a particular date, with respect
to the Parent and its Subsidiaries, and without duplication, the sum of all
amounts which would, in accordance with GAAP, be set forth opposite the
captions "Total Shareholders' Equity", "Minority interests, current" and
"Minority interests, noncurrent" (or the equivalent captions) on a
consolidated balance sheet of the Parent and its Subsidiaries prepared as
of such date, plus (a) non-cash after-tax charges arising from: (1) asset
disposals (excluding the retirement of property, plant and equipment in the
ordinary course of business) by the Parent and its Subsidiaries, (2) the
implementation or modified application of financial accounting standards
applicable to the Parent and its Subsidiaries, and (3) other special
non-recurring transactions (including charges relating to Restructuring
Activities, discontinued operations and asbestos related litigation and
claims), in each case referred to in this clause (a) occurring after June
30, 1994, plus (b) any payments received in respect of non-cash after-tax
gains referred to in clause (c) of this definition, minus (c) non-cash
after-tax gains arising from: (1) asset disposals (excluding the retirement
of property, plant and equipment in the ordinary course of business) by the
Parent and its Subsidiaries, (2) the implementation or modified application
<PAGE> 7
6
of financial accounting standards applicable to the Parent and its
Subsidiaries, and (3) other special non-recurring transactions (including
gains relating to Restructuring Activities, discontinued operations and
asbestos related litigation and claims), in each case referred to in this
clause (c) occurring after June 30, 1994, minus (d) any payments made in
respect of non-cash after-tax charges referred to in clause (a) of this
definition.
"Consolidated Debt": at a particular date, with respect to the Parent
and its Subsidiaries, and without duplication, the sum of the amounts set
forth on a consolidated balance sheet of the Parent and its Subsidiaries
prepared as of such date in accordance with GAAP opposite the captions (1)
"Long-term debt" (or the equivalent caption) and (2) "Short-term debt" (or
the equivalent caption) but always to include all indebtedness for borrowed
money of the Parent and its Subsidiaries in accordance with GAAP.
"Consolidated Interest Expense": for any period, with respect to the
Parent and its Subsidiaries, the amount which, in conformity with GAAP,
would be set forth opposite the caption "Interest expense and related
financing costs" (or the equivalent caption) on a consolidated statement of
operations of the Parent and its Subsidiaries for such period.
"Continuing Banks": as defined in subsection 2.4(b).
"Contractual Obligation": as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Default": any of the events specified in Section 10, whether or not
any requirement for the giving of notice, the lapse of time, or both, has
been satisfied.
"Dollar Bilateral Loan": a Bilateral Option Loan denominated in
Dollars.
"Dollar Equivalent": on any date of determination by the Administrative
Agent pursuant to subsection 3.2(b) or 3.2(c), as applicable, in respect of
any Alternative Currency Bilateral Loan the amount of Dollars obtained by
converting the outstanding amount of currency of such Alterative Currency
Bilateral Loan, as specified in the then most recent Bilateral Option Loan
Report, into Dollars at the spot rate for the purchase of Dollars with such
currency as quoted by the Administrative Agent at its principal foreign
exchange trading operations office in New York City on such date.
<PAGE> 8
7
"Dollars" and "$": dollars in lawful currency of the United States of
America.
"Domestic Indebtedness": any Indebtedness of the Parent and any
Domestic Subsidiary.
"Domestic Subsidiary": any Subsidiary of the Parent other than a
Foreign Subsidiary.
"Duff & Phelps": Duff & Phelps, Inc.
"EBIT": for any period, with respect to the Parent and its
Subsidiaries, (a) all amounts which would be set forth opposite the caption
"Income from continuing operations before income taxes" (or the equivalent
caption) on a consolidated statement of income of the Parent and its
Subsidiaries prepared in accordance with GAAP for such period plus (b)
non-cash pre-tax charges arising from: (1) asset disposals (excluding the
retirement of property, plant and equipment in the ordinary course of
business) by the Parent and its Subsidiaries, (2) the implementation or
modified application of financial accounting standards applicable to the
Parent and its Subsidiaries, and (3) other special non-recurring
transactions (including charges relating to Restructuring Activities,
discontinued operations and asbestos related litigation and claims) (to the
extent that such amounts have been deducted in determining the amount set
forth opposite the caption "Income from continuing operations" (or the
equivalent caption) for such period), plus (c) Consolidated Interest
Expense for such period, plus (d) any payments received in such period in
respect of non-cash pre-tax gains referred to in clause (e) of this
definition, minus (e) non-cash pre-tax gains arising from: (1) asset
disposals (excluding the retirement of property, plant and equipment in the
ordinary course of business) by the Parent and its Subsidiaries, (2) the
implementation or modified application of financial accounting standards
applicable to the Parent and its Subsidiaries, and (3) other special
non-recurring transactions (including charges relating to Restructuring
Activities, discontinued operations and asbestos related litigation and
claims) (to the extent that such amounts have been added in determining the
amount set forth opposite the caption "Income from continuing operations"
(or the equivalent caption) for such period), minus (f) any payments made
in such period in respect of non-cash pre-tax charges referred to in clause
(b) of this definition.
"Environmental Laws": any and all federal, state, local or municipal
laws, rules, orders, regulations, statutes, ordinances, codes, decrees or
requirements of any Governmental Authority regulating, relating to or
imposing liability or standards of conduct concerning environmental
<PAGE> 9
8
protection matters, including without limitation, Hazardous Materials, as
now or may at any time hereafter be in effect.
"ERISA": the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Eurocurrency Reserve Requirements": for any day as applied to a
Eurodollar Loan, the aggregate (without duplication) of the rates
(expressed as a decimal fraction) of any reserve requirements in effect on
such day (including, without limitation, basic, supplemental, marginal and
emergency reserves under any regulations of the Board of Governors of the
Federal Reserve System or other Governmental Authority having jurisdiction
with respect thereto) dealing with reserve requirements prescribed for
eurocurrency funding (currently referred to as "Eurocurrency Liabilities"
in Regulation D of such Board) maintained by a member bank of such System.
"Eurodollar Loans": Loans the rate of interest applicable to which is
based upon the Eurodollar Rate.
"Eurodollar Rate": with respect to each day during each Interest Period
pertaining to a Eurodollar Loan, the rate per annum equal to the rate at
which Chemical is offered Dollar deposits at or about 10:00 A.M., New York
City time, two Business Days prior to the beginning of such Interest Period
in the interbank eurodollar market where the eurodollar and foreign
currency and exchange operations in respect of its Eurodollar Loans are
then being conducted for delivery on the first day of such Interest Period
for the number of days comprised therein and in an amount comparable to the
amount of its Eurodollar Loan to be outstanding during such Interest
Period.
"Eurodollar Tranche": the collective reference to Eurodollar Loans, the
Interest Periods with respect to all of which begin on the same date and
end on the same later date (whether or not such Loans shall originally have
been made on the same day).
"Event of Default": any of the events specified in Section 10, provided
that any requirement for the giving of notice, the lapse of time, or both,
has been satisfied.
"Excluded Subsidiaries": CCHP, Inc., a Delaware corporation, Assignment
America, Inc., a Delaware corporation, and GN Holdings, Inc., a Delaware
corporation.
"Existing Credit Agreements": the collective reference to: (i) the
364-Day Credit Agreement, dated as of September 1, 1994, among the Company,
Grace New York, the banks parties thereto and Chemical, as agent, (ii) the
Credit Agreement, dated as of December 29, 1995, among the Company,
<PAGE> 10
9
Grace New York, the banks parties thereto and Chemical, as agent, and
(iii) the Credit Agreement, dated as of March 27, 1996, among the Company,
Grace New York, the banks parties thereto and NationsBank, N.A. (South), as
agent, as each such agreement may have been amended, supplemented or
otherwise modified from time to time.
"Existing Termination Date": as defined in subsection 2.4(a).
"FASB 5": Statement of Financial Accounting Standards No. 5, Accounting
for Contingencies, of the Financial Accounting Standards Board, as the same
may be from time to time supplemented, amended or interpreted by such
Board.
"Fitch": Fitch Investors Service Inc.
"Foreign Subsidiary": any Subsidiary of the Parent (i) that is
organized under the laws of any jurisdiction other than any state
(including the District of Columbia), territory or possession of the United
States of America (a "foreign jurisdiction"), or (ii) more than 50 percent
of the book value of the assets of which (as of the end of the most recent
fiscal period for which financial statements are required to have been
provided pursuant to subsection 8.1(a) or (b)) are located in one or more
foreign jurisdictions, or (iii) more than 50 percent of the Net Sales and
Revenues of which (for the most recent fiscal year for which financial
statements are required to have been provided pursuant to subsection
8.1(a)) were from sales made and/or services provided in one or more
foreign jurisdictions, or (iv) more than 50 percent of the book value of
the assets of which (as of the end of the most recent fiscal period for
which financial statements are required to have been provided pursuant to
subsection 8.1(a) or (b)) consists of equity interests in and/or
Indebtedness of one or more Subsidiaries that are "Foreign Subsidiaries"
within clauses (i), (ii), (iii) or (iv) of this definition.
"Foreign Subsidiary Indebtedness": any Indebtedness of any Foreign
Subsidiary.
"GAAP": generally accepted accounting principles in the United States
of America in effect from time to time.
"Governmental Authority": any nation or government, any state or other
political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Hazardous Materials": any hazardous materials, hazardous wastes,
hazardous constituents, hazardous or toxic substances, petroleum products
(including crude oil or any
<PAGE> 11
10
fraction thereof), defined or regulated as such in or under any
Environmental Law.
"Indebtedness": of any Person at any date, (a) all indebtedness of such
Person for borrowed money or for the deferred purchase price of property or
services (other than current trade liabilities incurred in the ordinary
course of business and payable in accordance with customary practices) or
which is evidenced by a note, bond, debenture or similar instrument, (b)
all obligations of such Person under Capitalized Leases, and (c) without
duplication, all "loss contingencies" of such Person of the types described
in paragraph 12 of FASB 5, whether or not disclosed or required to be
disclosed on the financial statements or footnotes thereto of such Person
pursuant to GAAP.
"Insolvency": with respect to any Multiemployer Plan, the condition
that such Plan is insolvent within the meaning of Section 4245 of ERISA.
"Insolvent": pertaining to a condition of Insolvency.
"Interest Payment Date": (a) as to any ABR Loan, the fifteenth day of
each March, June, September and December to occur while such Loan is
outstanding and, if different, the Termination Date, and (b) as to any
Eurodollar Loan having an Interest Period of three months or less, the last
day of such Interest Period, and (c) as to any Eurodollar Loan having an
Interest Period longer than three months, if any, as agreed by the Borrower
of such Loan and the Banks.
"Interest Period": with respect to any Eurodollar Loan:
(i) initially, the period commencing on the borrowing or
conversion date, as the case may be, with respect to such Eurodollar
Loan and ending one, two, three or six months thereafter, or such other
period as may be requested by the Borrower and agreed to by the Banks
making such Loan, as selected by the Borrower of such Loan in its
notice of borrowing or notice of conversion, as the case may be, given
with respect thereto; and
(ii) thereafter, each period commencing on the last day of the
next preceding Interest Period applicable to such Eurodollar Loan and
ending one, two, three or six months thereafter, or such other period
as may be requested by the Borrower and agreed to by the Banks making
such Loan, as selected by such Borrower by irrevocable notice to the
Administrative Agent and the Banks which made such Eurodollar Loan not
less than two Business Days prior to the last day of the then current
Interest Period with respect thereto;
<PAGE> 12
11
provided that, all of the foregoing provisions relating to Interest Periods
are subject to the following:
(1) if any Interest Period pertaining to a Eurodollar Loan would
otherwise end on a day that is not a Business Day, such Interest Period
shall be extended to the next succeeding Business Day unless the result
of such extension would be to carry such Interest Period into another
calendar month in which event such Interest Period shall end on the
immediately preceding Business Day;
(2) any Interest Period that would otherwise extend beyond the
Termination Date shall end on the Termination Date; and
(3) any Interest Period pertaining to a Eurodollar Loan that
begins on the last Business Day of a calendar month (or on a day for
which there is no numerically corresponding day in the calendar month
at the end of such Interest Period) shall end on the last Business Day
of a calendar month.
"Lien": any mortgage, pledge, hypothecation, assignment as security,
security deposit arrangement, encumbrance, lien (statutory or other),
conditional sale or other title retention agreement or other similar
arrangement.
"Loan": any loan made by any Bank pursuant to this Agreement.
"Loan Documents": this Agreement, the Notes and the Notices of
Additional Borrower.
"Loan Outstandings": as to any Bank at any time, the sum of (a) the
aggregate principal amount of all Revolving Credit Loans made by such Bank
then outstanding, and (b) such Bank's Commitment Percentage multiplied by
the aggregate principal amount of all Bid Loans then outstanding.
"Loan Parties": the collective reference to the Company, the other
Borrowers, Grace Holding and, until the Release Date, Grace New York.
"Majority Banks": at any time, Banks the Commitment Percentages of
which aggregate (or, if at such time all of the Commitments shall have been
terminated, Banks the Commitment Percentages of which immediately prior to
such termination aggregated) at least 51%.
"Material Adverse Effect": a material adverse effect on (a) the
business, operations, properties, or condition
<PAGE> 13
12
(financial or otherwise) of the Parent and its Subsidiaries taken as a
whole, (b) the ability of the Company, or any Borrower or any other Loan
Party to perform their respective obligations hereunder and under the other
Loan Documents to which such Person is a party, or (c) the validity or
enforceability of the Loan Documents or the rights or remedies of the
Administrative Agent or the Banks hereunder or thereunder.
"Moody's": Moody's Investors Services, Inc.
"Multiemployer Plan": a Plan which is a multiemployer plan as defined
in Section 4001(a)(3) of ERISA.
"Net Cash Proceeds": the aggregate cash proceeds received by the
Company or any of its Domestic Subsidiaries in respect of any Asset Sale
net of (without duplication) (a) all post closing adjustments and other
contractually required amounts attributable to such sale and reasonably
estimated by the Company to be actually payable, (b) the amount required to
repay any Indebtedness (other than the Loans) to the extent that such
Indebtedness is secured by a Lien on any of the assets that are disposed of
in connection with such sale, (c) the reasonable expenses (including,
without limitation, legal, accounting and arbitration fees, brokers'
commissions, lenders fees or credit enhancement fees, in any case, paid to
third parties) incurred in effecting such sale and (d) any taxes reasonably
attributable to such sale and reasonably estimated by the Company to be
actually payable.
"Net Sales and Revenues": with respect to any Person for any period,
all sales and operating revenues of such Person during such period computed
in accordance with GAAP after deducting therefrom sales returns, discounts
and allowances.
"NMC": National Medical Care, Inc.
"NMC Disposition": the transaction in which all of the following occur:
(a) NMC, a wholly-owned indirect Subsidiary of the Company, will become a
direct Subsidiary of the Company, (b) NMC will enter into new bank
borrowings and use a portion of the proceeds therefrom to make an
intercompany debt repayment and a cash distribution to the Company in an
aggregate amount of approximately $2,300,000,000, (c) the Company will
distribute the stock of NMC to Grace New York, (d) Grace New York will
contribute the stock of the Company to Grace Holding, and (e) Grace New
York will distribute to its public shareholders the stock of Grace Holding.
"Notes": the collective reference to the Revolving Credit Notes and the
Bid Loan Notes, if any.
<PAGE> 14
13
"Notice of Additional Borrower": as defined in subsection 13.15(a).
"Obligations": the unpaid principal of and interest on (including,
without limitation, interest accruing after the maturity of the Loans and
interest accruing after the filing of any petition in bankruptcy, or the
commencement of any insolvency, reorganization or like proceeding, relating
to any of the Loan Parties or any of the Borrowers, whether or not a claim
for post-filing or post-petition interest is allowed in such proceeding)
the Loans and the Notes, if any, and all other obligations and liabilities
of any of the Loan Parties or the Borrowers to the Administrative Agent or
to the Banks, whether direct or indirect, absolute or contingent, due or to
become due, or now existing or hereafter incurred, which may arise under,
out of, or in connection with, this Agreement, the Notes, any other Loan
Document and any other document made, delivered or given in connection
herewith or therewith, whether on account of principal, interest,
reimbursement obligations, fees, indemnities, costs, expenses (including,
without limitation, all fees and disbursements of counsel to the
Administrative Agent or to the Banks that are required to be paid by the
Loan Parties and/or the Borrowers pursuant to the terms of this Agreement)
or any other obligation hereunder or thereunder.
"Parent": Grace New York, until such time as Grace New York in
connection with the NMC Disposition no longer directly or indirectly owns
all of the stock of the Company, and thereafter, Grace Holding.
"Parent Guarantee": as defined in subsection 12.1.
"Parent Guarantors": prior to the Release Date, the collective
reference to Grace New York and Grace Holding, and thereafter, Grace
Holding.
"Participant": as defined in subsection 13.6(b).
"Payment Sharing Notice": a written notice from the Company or any Bank
informing the Administrative Agent that an Event of Default has occurred
and is continuing and directing the Administrative Agent to allocate
payments thereafter received from the Borrower in accordance with
subsection 5.9(c).
"PBGC": the Pension Benefit Guaranty Corporation established pursuant
to Subtitle A of Title IV of ERISA.
"Person": an individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture,
Governmental Authority or other entity of whatever nature.
<PAGE> 15
14
"Plan": at a particular time, any employee benefit plan which is
covered by ERISA and in respect of which the Company or a Commonly
Controlled Entity is (or, if such plan were terminated at such time, would
under Section 4069 of ERISA be deemed to be) an "employer" as defined in
Section 3(5) of ERISA.
"Prepayment Date": as defined in subsection 5.3(b).
"Principal Subsidiary": (a) any Borrower and (b) any other Subsidiary
if it shall have Total Assets at the end of the most recent fiscal year for
which financial statements are required to have been furnished pursuant to
subsection 8.1(a) in excess of $75,000,000 or have had during such year Net
Sales and Revenues in excess of $75,000,000.
"Purchasing Banks": as defined in subsection 13.6(c).
"Register": as defined in subsection 13.6(d).
"Regulation U": Regulation U of the Board.
"Regulation X": Regulation X of the Board.
"Release Date": the date on which the Administrative Agent executes the
release contemplated by subsection 13.16.
"Reorganization": with respect to any Multiemployer Plan, the condition
that such plan is in reorganization within the meaning of Section 4241 of
ERISA.
"Reportable Event": any of the events set forth in Section 4043(b) of
ERISA, other than those events as to which the thirty day notice period is
waived under subsection .13, .14, .16, .18, .19 or .20 of PBGC Reg. Section
2615.
"Requested Bank": as defined in subsection 3.1(a).
"Requested Termination Date": as defined in subsection 2.4(a).
"Requirement of Law": as to any Person, the Certificate of
Incorporation and By-Laws or other organizational or governing documents of
such Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case
applicable to or binding upon such Person or any of its property or to
which such Person or any of its property is subject.
"Responsible Officer": the chief executive officer, the president, the
chief financial officer or the treasurer,
<PAGE> 16
15
assistant treasurer or controller of, respectively, the Parent, Grace
Holding and the Company.
"Restructuring Activities": all reductions in carrying value of assets
or investments and provisions for the termination and/or relocation of
operations and employees.
"Revolving Credit Loans": as defined in subsection 2.1(a).
"Revolving Credit Notes": as defined in subsection 2.2.
"SEC": the Securities and Exchange Commission, and any successor or
analogous federal Governmental Authority.
"Single Employer Plan": any Plan which is covered by Title IV of ERISA,
but which is not a Multiemployer Plan.
"S&P": Standard & Poor's Ratings Group.
"Subsidiary": as to any Person, a corporation, partnership or other
entity which is required to be consolidated with such Person in accordance
with GAAP; provided, that any such corporation, partnership or other entity
which is controlled by a receiver or trustee under any bankruptcy,
insolvency or similar law shall continue to be a "Subsidiary" of such
Person for purposes of this Agreement. Unless otherwise qualified, all
references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall
refer to a Subsidiary or Subsidiaries of the Parent.
"Substitute Rating Agency": as defined in the definition of "Applicable
Margin".
"Terminating Banks": as defined in subsection 2.4(b).
"Termination Date": May 16, 1997 or such later date to which the
Termination Date may be extended pursuant to subsection 2.4.
"Total Assets": with respect to any Person at any time, the total of
all assets appearing on the asset side of the balance sheet of such Person
prepared in accordance with GAAP as of such time.
"Total Capitalization": at a particular date, the sum of Consolidated
Debt and Consolidated Adjusted Net Worth.
"Transferee": as defined in subsection 13.6(f).
"Type": as to any Loan, its nature as an ABR Loan or a Eurodollar Loan.
<PAGE> 17
16
1.2 Other Definitional Provisions. (a) Unless otherwise specified
therein, all terms defined in this Agreement shall have the defined meanings
when used in the Notes, if any, or any certificate or other document made or
delivered pursuant hereto.
(b) As used herein and in the Notes, if any, and any certificate or
other document made or delivered pursuant hereto, accounting terms relating to
the Parent and its Subsidiaries not defined in subsection 1.1, to the extent not
defined, shall have the respective meanings given to them under GAAP.
(c) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Section, subsection,
Schedule and Exhibit references are to this Agreement, unless otherwise
specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS
2.1 Commitments. (a) Subject to the terms and conditions hereof, each
Bank severally agrees to make revolving credit loans ("Revolving Credit Loans")
to any Borrower from time to time during the Commitment Period in an aggregate
principal amount at any one time outstanding not to exceed the amount of such
Bank's Commitment, provided that no Bank shall make any Revolving Credit Loan
if, after giving effect to such Loan, the aggregate Loan Outstandings of all of
the Banks plus the Aggregate Outstanding Bilateral Option Loans would exceed the
aggregate Commitments.
(b) The Revolving Credit Loans may from time to time be (i) Eurodollar
Loans, (ii) ABR Loans or (iii) a combination thereof, as determined by the
Borrower thereof and notified to the Administrative Agent in accordance with
subsections 2.3 and 5.5, provided that no Revolving Credit Loan shall be made as
a Eurodollar Loan maturing after the Termination Date.
2.2 Obligations of Borrowers; Revolving Credit Notes. (a) Each Borrower
agrees that each Revolving Credit Loan made by each Bank to such Borrower
pursuant hereto shall constitute the promise and obligation of such Borrower to
pay to the Administrative Agent, on behalf of such Bank, at the office of the
Administrative Agent specified in subsection 13.2, in lawful money of the United
States of America and in immediately available funds the aggregate unpaid
principal amount of all Revolving Credit Loans made by such Bank to such
Borrower pursuant to subsection 2.1, which amounts shall be due and
<PAGE> 18
17
payable (whether at maturity or by acceleration) as set forth in this Agreement
and, in any event, on the Termination Date.
(b) Each Borrower agrees that each Bank and the Administrative Agent
are authorized to record (i) the date, amount and Type of each Revolving Credit
Loan made by such Bank to such Borrower pursuant to subsection 2.1, (ii) the
date of each continuation thereof pursuant to subsection 5.5(b), (iii) the date
of each conversion of all or a portion thereof to another Type pursuant to
subsection 5.5(a), (iv) the date and amount of each payment or prepayment of
principal of each such Revolving Credit Loan and (v) in the case of each such
Revolving Credit Loan which is a Eurodollar Loan, the length of each Interest
Period and the Eurodollar Rate with respect thereto, in the books and records of
such Bank or the Administrative Agent, as the case may be, and in such manner as
is reasonable and customary for such Bank or the Administrative Agent, as the
case may be, and a certificate of an officer of such Bank or the Administrative
Agent, as the case may be, setting forth in reasonable detail the information so
recorded, shall constitute prima facie evidence of the accuracy of the
information so recorded; provided that the failure to make any such recording
shall not in any way affect the obligations of such Borrower hereunder.
(c) Each Borrower agrees that, upon the request to the Administrative
Agent by any Bank at any time, the Revolving Credit Loans made by such Bank to
such Borrower shall be evidenced by a promissory note of such Borrower,
substantially in the form of Exhibit A with appropriate insertions as to
Borrower, payee, date and principal amount (a "Revolving Credit Note"), payable
to the order of such Bank and in a principal amount equal to the lesser of (a)
the amount of the initial Commitment of such Bank and (b) the aggregate unpaid
principal amount of all Revolving Credit Loans made by such Bank to such
Borrower. Upon the request to the Administrative Agent by any such Bank at any
time, such Borrower shall execute and deliver to such Bank a Revolving Credit
Note conforming to the requirements hereof and executed by a duly authorized
officer of such Borrower. Each Bank is hereby authorized to record the date,
Type and amount of each Revolving Credit Loan made by such Bank to such
Borrower, each continuation thereof, each conversion of all or a portion thereof
to another Type, the date and amount of each payment or prepayment of principal
thereof and, in the case of Eurodollar Loans, the length of each Interest Period
and the Eurodollar Rate with respect thereto, on the schedule annexed to and
constituting a part of its Revolving Credit Note and any such recordation shall
constitute prima facie evidence of the accuracy of the information so recorded;
provided that the failure to make any such recording shall not in any way affect
the obligations of such Borrower hereunder or thereunder. Each Revolving Credit
Note shall (x) be dated the Closing Date, (y) be stated to mature on the
Termination Date and (z) provide for the payment of interest in accordance with
subsection 5.1.
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2.3 Procedure for Revolving Credit Borrowing. Any Borrower may borrow
under the Commitments from all Banks during the Commitment Period on any
Business Day, provided that such Borrower shall give the Administrative Agent
irrevocable notice (which notice must be received by the Administrative Agent
(a) prior to 4:00 P.M., New York City time, three Business Days prior to the
requested Borrowing Date, if all or any part of the requested Revolving Credit
Loans are to be initially Eurodollar Loans, or (b) prior to 10:00 A.M., New York
City time, on the requested Borrowing Date, otherwise), specifying (i) the
amount to be borrowed, (ii) the requested Borrowing Date, (iii) whether the
borrowing is to be of Eurodollar Loans, ABR Loans or a combination thereof and
(iv) if the borrowing is to be entirely or partly of Eurodollar Loans, the
respective amounts of each such Type of Loan and the respective lengths of the
initial Interest Periods therefor. Each borrowing under the Commitments shall be
in an amount equal to $5,000,000 or a whole multiple of $1,000,000 in excess
thereof (or, in the case of ABR Loans, if the amount of the Available
Commitments minus the Aggregate Outstanding Bilateral Option Loans is less than
$5,000,000, such lesser amount). Upon receipt of such notice from such Borrower,
the Administrative Agent shall promptly notify each Bank thereof. Each Bank will
make the amount of its pro rata share of each such borrowing available to the
Borrower at the office of the Administrative Agent specified in subsection 13.2
prior to 12:00 noon, New York City time, on the Borrowing Date requested by such
Borrower in funds immediately available to the Administrative Agent. Such
borrowing will then be made available to such Borrower on the books of such
office with the aggregate of the amounts made available to the Administrative
Agent by the Banks and in like funds as received by the Administrative Agent.
2.4 Extension of Termination Date. (a) The Company may request, in a
notice given as herein provided to the Administrative Agent and each of the
Banks not less than 60 days and not more than 90 days prior to the Termination
Date then in effect ("Existing Termination Date"), that the Termination Date be
extended, which notice shall specify a date (which shall be the Existing
Termination Date) as of which the requested extension is to be effective (the
"Effective Date"), and the new Termination Date to be in effect following such
extension (the "Requested Termination Date"), which date shall be no more than
364 days after the effectiveness of such extension (with the Effective Date
being counted as the first day). Each Bank shall, not later than a date 30 days
prior to the Effective Date, notify the Company and the Administrative Agent of
its election to extend or not to extend the Termination Date with respect to its
Commitment. Notwithstanding any provision of this Agreement to the contrary, any
notice by any Bank of its willingness to extend the Termination Date with
respect to its Commitment shall be revocable by such Bank in its sole and
absolute discretion at any time more than 30 days prior to the Effective Date.
Any Bank which shall not timely notify the Company and the Administrative Agent
of its election to extend the Termination Date shall be
<PAGE> 20
19
deemed to have elected not to extend the Termination Date with respect to its
Commitment.
(b) If any one or more Banks shall timely notify the Company and the
Administrative Agent pursuant to paragraph (a) of this subsection 2.4 of their
election not to extend their Commitments or shall be deemed to have elected not
to extend their Commitments, (such Banks being called "Terminating Banks"), then
the Company may (i) designate from the Banks other than Terminating Banks (the
"Continuing Banks") one or more such Continuing Banks to increase their
Commitments, which Continuing Banks shall have given notice to the Company and
the Administrative Agent of their willingness to so increase their Commitments,
(ii) with notice to the Administrative Agent, designate one or more other
banking institutions willing to extend Commitments until the Requested
Termination Date (any such banking institution, an "Additional Bank"), or (iii)
any combination thereof, the aggregate amount of the increases of such
Continuing Banks' Commitments and the amount of such Additional Banks'
Commitments not to exceed the aggregate of the Commitments of the Terminating
Banks. Any such increase in the Commitment of a Continuing Bank shall be
evidenced by a written instrument executed by such Continuing Bank, the Company
and the Administrative Agent, and shall take effect on the Existing Termination
Date. Any Additional Bank shall, on the Existing Termination Date, execute and
deliver to the Company and the Administrative Agent a "Commitment Transfer
Supplement", satisfactory to the Company and the Administrative Agent, setting
forth the amount of such Additional Bank's Commitment and containing its
agreement to become, and to perform all the obligations of, a Bank hereunder,
and the Commitment of such Additional Bank shall become effective on the
Existing Termination Date.
(c) The Company and each other Borrower, if any, shall deliver to each
Continuing Bank and each Additional Bank which shall have requested Revolving
Credit Notes pursuant to subsection 2.2(c), on the Existing Termination Date in
exchange for each Revolving Credit Note, if any, of each of the Borrowers held
by such Bank, new Revolving Credit Notes, maturing on the Requested Termination
Date, in the principal amount of such Bank's Commitment after giving effect to
the adjustments made pursuant to this subsection 2.4.
(d) If some of or all the Banks shall have elected to extend their
Commitments as provided in this subsection 2.4, then (i) the Commitments of the
Continuing Banks and any Additional Banks shall continue until the Requested
Termination Date specified in the notice from the Company, and as to such Banks
the term "Termination Date", as used herein shall on and after the Effective
Date mean such Requested Termination Date; (ii) the Commitments of the
Terminating Banks shall continue until the Termination Date in effect prior to
such extension, and shall then terminate, and as to the Terminating Banks, the
term
<PAGE> 21
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"Termination Date", as used herein, shall continue to mean such Existing
Termination Date; and (iii) from and after the Termination Date in effect prior
to such extension, the term "Banks" shall be deemed to include the Additional
Banks.
SECTION 3. BILATERAL OPTION LOANS
3.1 Requests for Offers. (a) From time to time during the period from
the Closing Date until the Termination Date, any Borrower may request any or all
of the Banks (each such Bank to which such a request is made, a "Requested
Bank") to make offers to make Bilateral Option Loans, provided that immediately
after making any such Bilateral Option Loan, the aggregate Loan Outstandings of
all the Banks plus the Aggregate Outstanding Bilateral Option Loans will not
exceed the aggregate Commitments. Any such request shall specify the principal
amount and maturity date of the Bilateral Option Loans for which such Borrower
is requesting offers, whether such Bilateral Option Loans are requested to be
Dollar Bilateral Loans or Alternative Currency Bilateral Loans, the time by
which offers to make such Bilateral Option Loans must be made by such Requested
Bank and by which such offers shall be accepted or rejected by such Borrower,
and if all or any part of the requested Bilateral Option Loans are requested to
be made as Alternative Currency Bilateral Loans, the Alternative Currency to be
applicable thereto. Each Requested Bank may, but shall have no obligation to,
make such offers on such terms and conditions as are satisfactory to such
Requested Bank, and such Borrower may, but shall have no obligation to, accept
any such offers. No Bilateral Option Loan may mature after the Termination Date.
(b) Each Borrower and Requested Bank shall separately agree as to the
procedures, documentation, lending office and other matters relating to any
Bilateral Option Loan.
3.2 Reports to Administrative Agent; Determination of Dollar
Equivalents. (a) The Borrower shall deliver to the Administrative Agent a report
in respect of each Bilateral Option Loan (a "Bilateral Option Loan Report") by
2:00 P.M. (New York City time) on the date on which the applicable Borrower
accepts any Bilateral Option Loan, on the date on which any principal amount
thereof is repaid prior to the scheduled maturity date, or on the scheduled
maturity date if payment thereof is not made on such scheduled maturity date,
specifying for such Bilateral Option Loan the date on which such Bilateral
Option Loan was or will be made, such amount of principal is or will be repaid
or such payment was not made as the case may be; in the case of Alternative
Currency Bilateral Loans, the Alternative Currency thereof; and the principal
amount of such Bilateral Option Loan or principal prepayment or repayment or the
amount paid (in the case of any Alternative Currency Bilateral Loan, expressed
in the Alternative Currency therefor).
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(b) Upon receipt of a Bilateral Option Loan Report with respect to the
acceptance of a Bilateral Option Loan, the Administrative Agent shall determine
the Dollar Equivalent thereof.
(c) If on any Borrowing Date on which after giving effect to the Loans
made on such date, the sum of the aggregate Loan Outstandings of all the Banks
plus the Aggregate Outstanding Bilateral Option Loans exceeds 85% of the
aggregate Commitments, then the Administrative Agent shall redetermine as of
such Borrowing Date, on the basis of the most recently delivered Bilateral
Option Loan Report for each Bilateral Option Loan, the Dollar Equivalent of each
Alternative Currency Bilateral Loan then outstanding. In addition, for so long
as the condition specified in the preceding sentence remains in effect, the
Administrative Agent shall determine, at the end of each fiscal quarter of the
Company, on the basis of the most recently delivered Bilateral Option Loan
Report for each Bilateral Option Loan, the Dollar Equivalent of each Alternative
Currency Bilateral Loan then outstanding.
(d) The Administrative Agent shall promptly notify the Company of each
Dollar Equivalent under this subsection 3.2.
3.3 Judgment Currency. If for the purpose of obtaining judgment in any
court, it is necessary to convert a sum due from any Borrower hereunder or under
any of the Notes in the currency expressed to be payable herein or under the
Notes (the "specified currency") into another currency, the parties hereto
agree, to the fullest extent that they may effectively do so, that the rate of
exchange used shall be that at which in accordance with normal banking
procedures the Administrative Agent could purchase the specified currency with
such other currency at the Administrative Agent's New York office on the
Business Day preceding that on which final judgment is given. The obligations of
each Borrower in respect of any sum due to any Bank or the Administrative Agent
hereunder or under any Note shall, notwithstanding any judgment in a currency
other than the specified currency, be discharged only to the extent that on the
Business Day following receipt by such Bank or the Administrative Agent (as the
case may be) of any sum adjudged to be so due in such other currency such Bank
or the Administrative Agent (as the case may be) may in accordance with normal
banking procedures purchase the specified currency with such other currency; if
the amount of the specified currency so purchased is less than the sum
originally due to such Bank or the Administrative Agent, as the case may be, in
the specified currency, each Borrower agrees, to the fullest extent that it may
effectively do so, as a separate obligation and notwithstanding any such
judgment, to indemnify such Bank or the Administrative Agent, as the case may
be, against such difference, and if the amount of the specified currency so
purchased exceeds:
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(a) the sum originally due to any Bank or the Administrative Agent, as
the case may be, and
(b) any amounts shared with other Banks as a result of allocations of
such excess as a disproportionate payment to such Bank under subsection
13.7,
such Bank or the Administrative Agent, as the case may be, agrees to remit such
excess to the applicable Borrower.
3.4 Repayments. Each Borrower shall repay to each Bank which has made a
Bilateral Option Loan on the maturity date of each Bilateral Option Loan (such
maturity date being that specified in the documentation referred to in
subsection 3.1(a)) the then unpaid principal amount of such Bilateral Option
Loan.
SECTION 4. BID LOANS
4.1 The Bid Loans. Any Borrower may borrow Bid Loans from time to time
on any Business Day during the period from the Closing Date until the
Termination Date, in the manner set forth in this Section 4 and in amounts such
that the aggregate Loan Outstandings of all the Banks at any time plus the
Aggregate Outstanding Bilateral Option Loans at such time will not exceed the
aggregate Commitments at such time, and provided, further, that no such Bid Loan
shall be made if, after giving effect thereto, any Bid Loans would mature after
the Termination Date.
4.2 Procedure for Bid Loans. (a) A Borrower shall request Bid Loans by
delivering a Bid Loan Request to the Administrative Agent, in writing, by
facsimile transmission, or by telephone, confirmed by facsimile transmission,
not later than 1:00 P.M. (New York City time) one Business Day prior to the
proposed Borrowing Date. Each Bid Loan Request may solicit bids for Bid Loans in
an aggregate principal amount of $5,000,000 or a whole multiple of $1,000,000 in
excess thereof and for not more than three alternative maturity dates for such
Bid Loans. The Administrative Agent shall promptly notify each Bank by facsimile
transmission of the contents of each Bid Loan Request received by it.
(b) Upon receipt of notice from the Administrative Agent of the
contents of a Bid Loan Request, any Bank that elects, in its sole discretion, to
do so, shall irrevocably offer to make one or more Bid Loans at a rate of
interest determined by such Bank in its sole discretion for each such Bid Loan.
Any such irrevocable offer shall be made by delivering a Bid Loan Offer to the
Administrative Agent, by telephone, immediately confirmed by facsimile
transmission, before 9:30 A.M. (New York City time) on the proposed Borrowing
Date, setting forth the maximum amount of Bid Loans for each maturity date, and
the aggregate maximum amount for all maturity dates, which such Bank would be
willing to make (which amounts may, subject to
<PAGE> 24
23
subsection 4.1, exceed such Bank's Commitments) and the rate of interest at
which such Bank is willing to make each such Bid Loan; the Administrative Agent
shall advise the Borrower before 10:00 A.M. (New York City time) on the proposed
Borrowing Date of the contents of each such Bid Loan Offer received by it. If
the Administrative Agent in its capacity as a Bank shall, in its sole
discretion, elect to make any such offer, it shall advise the Borrower of the
contents of its Bid Loan Offer before 9:15 A.M. (New York City time) on the
proposed Borrowing Date.
(c) The Borrower shall before 10:30 A.M. (New York City time) on the
proposed Borrowing Date, in its absolute discretion, either:
(i) cancel such Bid Loan Request by giving the Administrative Agent
telephone notice to that effect, and the Administrative Agent shall
give prompt telephone notice thereof to the Banks and the Bid Loans
requested thereby shall not be made; or
(ii) accept one or more of the offers made by any Bank or Banks by
giving telephone notice to the Administrative Agent (confirmed as soon
as practicable thereafter by delivery to the Administrative Agent of a
Bid Loan Confirmation in writing or by facsimile transmission) of the
amount of Bid Loans for each relevant maturity date to be made by each
Bank (which amount for each such maturity date shall be equal to or
less than the maximum amount for such maturity date specified in the
Bid Loan Offer of such Bid Loan Bank, and for all maturity dates
included in such Bid Loan Offer shall be equal to or less than the
aggregate maximum amount specified in such Bid Loan Offer for all such
maturity dates) and reject any remaining offers made by Banks;
provided, however, that (x) the Borrower may not accept offers for Bid
Loans for any maturity date in an aggregate principal amount in excess
of the maximum principal amount requested in the related Bid Loan
Request, (y) if the Borrower accepts any of such offers, it must accept
offers strictly based upon pricing for such relevant maturity date and
no other criteria whatsoever and (z) if two or more Banks submit offers
for any maturity date at identical pricing and the Borrower accepts any
of such offers but does not wish to (or by reason of the limitations
set forth in subsection 4.1 or in clause (x) of this proviso, cannot)
borrow the total amount offered by such Banks with such identical
pricing, the Borrower shall accept offers from all of such Banks in
amounts allocated
<PAGE> 25
24
among them pro rata according to the amounts offered by such Banks.
(d) If the Borrower accepts pursuant to clause (c) (ii) above one or
more of the offers made by any Bid Loan Bank or Bid Loan Banks, the
Administrative Agent shall notify before 11:00 A.M. (New York City time) each
Bid Loan Bank which has made such an offer, of the aggregate amount of such Bid
Loans to be made on such Borrowing Date for each maturity date and of the
acceptance or rejection of any offers to make such Bid Loans made by such Bid
Loan Bank. Each Bid Loan Bank which is to make a Bid Loan shall, before 12:00
Noon (New York City time) on the Borrowing Date specified in the Bid Loan
Request applicable thereto, make available to the Administrative Agent at its
office set forth in subsection 13.2 the amount of Bid Loans to be made by such
Bid Loan Bank, in immediately available funds. The Administrative Agent will
make such funds available to the Borrower at or before 2:00 P.M. (New York City
time) on such date at the Administrative Agent's aforesaid address. As soon as
practicable after each Borrowing Date, the Administrative Agent shall notify
each Bank of the aggregate amount of Bid Loans advanced on such Borrowing Date
and the respective maturity dates thereof.
4.3 Repayments. Each Borrower shall repay to the Administrative Agent
for the account of each Bid Loan Bank which has made a Bid Loan on the maturity
date of each Bid Loan (such maturity date being that specified by the Borrower
for repayment of such Bid Loan in the related Bid Loan Request) the then unpaid
principal amount of such Bid Loan. The Borrowers shall not have the right to
prepay any principal amount of any Bid Loan without the prior written consent of
the Bid Loan Bank which made such Bid Loan.
4.4 Interest on Bid Loans. Each Borrower which shall have borrowed a
Bid Loan shall pay interest on the unpaid principal amount of such Bid Loan from
the Borrowing Date to the stated maturity date thereof, at the rate of interest
determined pursuant to subsection 4.2 above (calculated on the basis of a 360
day year for actual days elapsed), payable on the interest payment date or dates
specified by such Borrower for such Bid Loan in the related Bid Loan Request. If
all or a portion of the principal amount of any Bid Loan shall not be paid when
due (whether at the stated maturity, by acceleration or otherwise), such overdue
principal amount shall, without limiting any rights of any Bank under this
Agreement, bear interest from the date on which such payment was due at a rate
per annum which is 2% above the rate which would otherwise be applicable to such
Bid Loan until the scheduled maturity date with respect thereto, and for each
day thereafter at a rate per annum which is 2% above the Alternate Base Rate
until paid in full (as well after as before judgment).
<PAGE> 26
25
4.5 Obligations of Borrowers; Bid Loan Notes. (a) Each Borrower agrees
that each Bid Loan made by each Bid Loan Bank to such Borrower pursuant hereto
shall constitute the promise and obligation of such Borrower to pay to the
Administrative Agent, on behalf of such Bid Loan Bank, at the office of the
Administrative Agent specified in subsection 13.2, in lawful money of the United
States of America and in immediately available funds the aggregate unpaid
principal amount of each Bid Loan made by such Bid Loan Bank to such Borrower
pursuant to subsection 4.2, which amounts shall be due and payable (whether at
maturity or by acceleration) as set forth in the Bid Loan Request related to
such Bid Loan and in this Agreement.
(b) Each Borrower agrees that each Bid Loan Bank and the Administrative
Agent are authorized to record (i) the date and amount of each Bid Loan made by
such Bid Loan Bank to such Borrower pursuant to subsection 4.2, and (ii) the
date and amount of each payment or prepayment of principal of each such Bid
Loan, in the books and records of such Bid Loan Bank or the Administrative
Agent, as the case may be, and in such manner as is reasonable and customary for
such Bank or the Administrative Agent, as the case may be, and a certificate of
an officer of such Bid Loan Bank or the Administrative Agent, as the case may
be, setting forth in reasonable detail the information so recorded, shall
constitute prima facie evidence of the accuracy of the information so recorded;
provided that the failure to make any such recording shall not in any way affect
the obligations of such Borrower hereunder.
(c) Each Borrower agrees that, upon the request to the Administrative
Agent by any Bid Loan Bank at any time, the Bid Loans made by such Bid Loan Bank
to any Borrower shall be evidenced by a promissory note of such Borrower,
substantially in the form of Exhibit B with appropriate insertions (a "Bid Loan
Note"), payable to the order of such Bid Loan Bank and representing the
obligation of such Borrower to pay the unpaid principal amount of all Bid Loans
made by such Bid Loan Bank, with interest on the unpaid principal amount from
time to time outstanding of each Bid Loan evidenced thereby as prescribed in
subsection 4.4. Upon the request to the Administrative Agent by any such Bid
Loan Bank at any time, such Borrower shall execute and deliver to such Bid Loan
Bank a Bid Loan Note conforming to the requirements hereof and executed by a
duly authorized officer of such Borrower. Each Bid Loan Bank is hereby
authorized to record the date and amount of each Bid Loan made by such Bank, the
maturity date thereof, the date and amount of each payment of principal thereof
and the interest rate with respect thereto on the schedule annexed to and
constituting part of its Bid Loan Note, and any such recordation shall
constitute prima facie evidence of the accuracy of the information so recorded;
provided, however, that the failure to make any such recordation shall not
affect the obligations of such Borrower hereunder or under any Bid Loan Note.
Each Bid Loan Note shall be dated the
<PAGE> 27
26
Closing Date and each Bid Loan evidenced thereby shall bear interest for the
period from and including the Borrowing Date thereof on the unpaid principal
amount thereof from time to time outstanding at the applicable rate per annum
determined as provided in, and such interest shall be payable as specified in,
subsection 4.4.
SECTION 5. LOAN FACILITY COMMON PROVISIONS
5.1 Interest Rates and Payment Dates. (a) Each Eurodollar Loan shall
bear interest for each day during each Interest Period with respect thereto at a
rate per annum equal to the Eurodollar Rate determined for such Interest Period
plus the Applicable Margin.
(b) Each ABR Loan shall bear interest at a fluctuating rate per annum
equal to the Alternate Base Rate.
(c) Except as otherwise provided in subsection 4.4, if all or a portion
of (i) the principal amount of any Loan or (ii) any interest payable thereon
shall not be paid when due (whether at the stated maturity, by acceleration or
otherwise), such overdue amount shall bear interest at a rate per annum which is
(x) in the case of overdue principal, the rate that would otherwise be
applicable thereto pursuant to the foregoing provisions of this subsection plus
2% or (y) in the case of overdue interest, the rate described in paragraph (b)
of this subsection plus 2%, in each case from the date of such non-payment until
such amount is paid in full (as well after as before judgment).
(d) Interest shall be payable in arrears on each Interest Payment Date,
provided that interest accruing pursuant to paragraph (c) of this subsection
shall be payable on demand.
(e) Subject to the limitations set forth herein, each Borrower may use
the Loans by borrowing, prepaying and reborrowing the Loans, all in accordance
with the terms and conditions hereof.
5.2 Facility Fee. (a) The Company agrees to pay to the Administrative
Agent for the account of each Bank a facility fee for the period from and
including the date hereof to the Termination Date, computed at the rate per
annum determined as set forth in paragraph (b) of this subsection on the average
daily amount of the Commitment of such Bank during the period for which payment
is made, payable quarterly in arrears on the fifteenth day of each March, June,
September and December and on the Termination Date or such earlier date as the
Commitments shall terminate as provided herein, commencing on the first of such
dates to occur after the date hereof.
<PAGE> 28
27
(b) The rate per annum at which such facility fee under paragraph (a)
above shall be computed (the "Applicable Facility Fee Rate"), for any day on
which the long term senior unenhanced, unsecured debt of the Company is rated by
both S&P and Moody's, shall be the rate per annum under the caption "Facility
Fee Rate" (a "Facility Fee Rate") set forth below opposite the S&P and Moody's
ratings applicable to such debt on such day (or, if such ratings are set
opposite two different rates under said caption, then the Applicable Facility
Fee Rate shall be the lower of said two Facility Fee Rates):
<TABLE>
<CAPTION>
FACILITY FEE
RATE S&P MOODY'S
------------ --- -------
<S> <C> <C>
.1500% BB+ or lower Ba1 or lower
.1250% BBB- Baa3
.1000% BBB Baa2
.0800% BBB+ Baa1
.0600% A- or higher A3 or higher
</TABLE>
provided that if on any day the long term senior unenhanced, unsecured debt of
the Company is rated by only one of S&P or Moody's, such rate will be determined
based on the rating by such rating agency, and provided, further, that if on any
day the long term senior unenhanced, unsecured debt of the Company is rated by
neither S&P nor Moody's, the Applicable Facility Fee Rate will be determined
based on the rating of such debt by a Substitute Rating Agency and will be the
Facility Fee Rate set forth above opposite the S&P and Moody's ratings
comparable to the Substitute Rating Agency's rating of such debt on such date,
and provided, further, that if on any day the long term senior unenhanced,
unsecured debt of the Company is rated by none of S&P, Moody's or any Substitute
Rating Agency, the Company, the Administrative Agent and the Banks will
negotiate in good faith to determine an alternative basis for calculating such
rate consistent with the table set forth above and, if agreement on such
alternative basis is not reached with 30 days, such rate will be calculated on
an alternative basis determined by the Administrative Agent and the Banks in
their reasonable discretion consistent with the table above, and until such
alternative basis is determined such rate will be the rate last determined as
provided in the table above.
5.3 Termination or Reduction of Commitments; Change of Control Date.
(a) The Company shall have the right, upon not less than five Business Days'
notice to the Administrative Agent, to terminate the Commitments or, from time
to time, to reduce the amount of the Commitments, provided that no such
termination or reduction shall be permitted to the extent that, after giving
effect thereto and to any prepayments of Loans made on the
<PAGE> 29
28
effective date thereof, the sum of the aggregate Loan Outstandings of all the
Banks, plus the Aggregate Outstanding Bilateral Option Loans would exceed the
Commitments then in effect. Any such partial reduction shall be in an amount
equal to $5,000,000 or a whole multiple of $1,000,000 in excess thereof and
shall reduce permanently the Commitments then in effect.
(b) (i) In the event that a Change of Control Date shall occur, (A)
the Company shall, within 10 days after such Change of Control Date, give each
Bank notice thereof in writing describing in reasonable detail the facts and
circumstances giving rise thereto, and (B) such Bank, by written notice given to
the Company not later than 30 days after the Change of Control Date, may declare
the Commitments of such Bank to be terminated in full or reduced as of the date
of (or as of a later date specified in) such notice to the Company, and may
require that the Borrowers prepay as provided in this subsection 5.3 any Loans
payable to such Bank and outstanding on such date to the extent the principal
amount thereof exceeds such Bank's Commitment, if any, remaining after such
termination or reduction. To the extent such Bank so requires, the Borrowers
shall prepay such Loans on the 75th day after the date of the Company's notice
or, in the event such 75th day is not a Business Day, the Business Day next
succeeding such 75th day ("Prepayment Date").
(ii) On the Prepayment Date, the Borrowers shall prepay the unpaid
principal amount of the Loans payable to such Bank, without premium or penalty,
together with accrued interest on the amount prepaid to the Prepayment Date.
(iii) Subsections 5.9(a), (b) and (c) shall not apply to prepayments
under this subsection 5.3(b).
(iv) Paragraph (a) of this subsection 5.3 hereof shall not apply to
any Commitment reductions pursuant to this paragraph (b).
(v) In the event that a Change of Control Date shall occur, the
Company shall not thereafter, without the prior written consent of the Majority
Banks, borrow any additional Loan (other than a Bilateral Option Loan) in order
to make, directly or indirectly, any payment or prepayment on any Indebtedness
subordinated as to the payment of principal and interest or on liquidation to
the prior payment of any of the Obligations.
(c) On the date sixty days after the occurrence of the earlier of (i)
the NMC Disposition and (ii) any other sale, assignment, lease or other
disposition (including by merger, consolidation, dividend, distribution, sale of
stock, liquidation or dissolution) by the Company or Grace New York of its
interest in the property, assets, business or stock of NMC (provided any such
disposition to Grace New York shall not be considered a disposition by the
Company of its interest in NMC until such time as Grace New York ceases to own
directly or indirectly all of the
<PAGE> 30
29
stock of the Company), the Commitments shall be reduced to $650,000,000 and the
Company and/or any other Borrower, as the case may be, shall immediately prepay
the Loans on such date to the extent the aggregate principal amount of the Loans
exceeds the Commitments as so reduced.
5.4 Prepayments. (a) Any Borrower may at any time and from time to time
upon at least four Business Days' irrevocable notice to the Administrative
Agent, in the case of Eurodollar Loans, or upon at least one Business Day's
irrevocable notice to the Administrative Agent, in the case of ABR Loans, prepay
the Loans (other than Bid Loans), in whole or in part, without premium or
penalty (subject to subsection 5.13), specifying the date and amount of
prepayment and whether the prepayment is of Eurodollar Loans, ABR Loans or a
combination thereof, and, if of a combination thereof, the amount allocable to
each. Upon receipt of any such notice the Administrative Agent shall promptly
notify each Bank thereof. If any such notice is given, the amount specified in
such notice shall be due and payable on the date specified therein. Partial
prepayments shall be in an aggregate principal amount of $5,000,000 or a whole
multiple of $1,000,000 in excess thereof.
(b) If at any time, the Administrative Agent shall determine (which
determination shall be conclusive in the absence of manifest error) that the sum
of the aggregate Loan Outstandings of all the Banks plus the Aggregate
Outstanding Bilateral Option Loans exceeds the aggregate Commitments, the
Borrowers shall immediately prepay the Loans in an aggregate principal amount
equal to such excess.
(c) Promptly upon the receipt by the Company or any of its Domestic
Subsidiaries of Net Cash Proceeds from any Asset Sale, the Revolving Credit
Loans shall be prepaid in an amount equal to such Net Cash Proceeds.
5.5 Conversion and Continuation Options. (a) Any Borrower may elect at
any time and from time to time (subject to subsection 5.13) to convert its
Eurodollar Loans to ABR Loans by giving the Administrative Agent at least two
Business Days' prior irrevocable notice of such election. Any Borrower may elect
at any time and from time to time to convert its ABR Loans to Eurodollar Loans
by giving the Administrative Agent irrevocable notice of such election (which
notice must be received by the Administrative Agent prior to 4:00 P.M., New York
City time, three Business Days prior to the requested conversion date). Any such
notice of conversion to Eurodollar Loans shall specify the length of the initial
Interest Period or Interest Periods therefor. Upon receipt of any such notice
the Administrative Agent shall promptly notify each Bank thereof. All or any
part of outstanding Eurodollar Loans and ABR Loans may be converted as provided
herein, provided that (i) no Loan may be converted into a Eurodollar Loan when
any Event of Default has occurred and is continuing and the Administrative Agent
or the Majority Banks
<PAGE> 31
30
have determined that such a conversion is not appropriate, and (ii) any such
conversion may only be made if, after giving effect thereto, subsection 5.6
shall not have been contravened.
(b) Any Eurodollar Loans may be continued as such upon the expiration
of the then current Interest Period with respect thereto by the Borrower thereof
giving notice to the Administrative Agent, in accordance with the applicable
provisions of the term "Interest Period" set forth in subsection 1.1, of the
length of the next Interest Period to be applicable to such Loans, provided that
no Eurodollar Loan may be continued as such (i) when any Event of Default has
occurred and is continuing and the Administrative Agent or the Majority Banks
have determined that such a continuation is not appropriate, or (ii) if, after
giving effect thereto, subsection 5.6 would be contravened and provided,
further, that if any Borrower shall fail to give any required notice as
described above in this paragraph or if such continuation is not permitted
pursuant to the preceding proviso such Loans shall be automatically converted to
ABR Loans on the last day of such then expiring Interest Period.
5.6 Minimum Amounts of Eurodollar Tranches. All borrowings, conversions
and continuations of Loans hereunder and all selections of Interest Periods
hereunder shall be in such amounts and be made pursuant to such elections so
that, after giving effect thereto, the aggregate principal amount of the Loans
comprising each Eurodollar Tranche shall be equal to $5,000,000 or a whole
multiple of $1,000,000 in excess thereof.
5.7 Computation of Interest and Fees. (a) Interest on ABR Loans, and
facility fees shall be calculated on the basis of a 365- (or 366-, as the case
may be) day year for the actual days elapsed. Interest on Eurodollar Loans shall
be calculated on the basis of a 360-day year for the actual days elapsed. The
Administrative Agent shall as soon as practicable notify the Borrowers and the
Banks of each determination of a Eurodollar Rate. Any change in the interest
rate on a Loan resulting from a change in the Prime Rate shall become effective
as of the opening of business on the day on which such change in the Prime Rate
is announced. The Administrative Agent shall as soon as practicable notify the
Borrowers and the Banks of the effective date and the amount of each such change
in interest rate.
(b) Each determination of an interest rate by the Administrative Agent
pursuant to any provision of this Agreement shall be conclusive and binding on
the Borrowers and the Banks in the absence of manifest error. The Administrative
Agent shall, at the request of the Company, deliver to the Company a statement
showing in reasonable detail the quotations and calculations used by the
Administrative Agent in determining any interest rate pursuant to subsections
5.1 and 5.7(a).
<PAGE> 32
31
5.8 Inability to Determine Interest Rate. In the event that prior to
the first day of any Interest Period:
(a) the Administrative Agent shall have determined (which determination
shall be conclusive and binding upon the Borrowers) that, by reason of
circumstances affecting the relevant market, adequate and reasonable means
do not exist for ascertaining the Eurodollar Rate for such Interest Period,
or
(b) the Administrative Agent shall have received notice from the
Majority Banks that the Eurodollar Rate determined or to be determined for
such Interest Period will not adequately and fairly reflect the cost to
such Banks (as conclusively certified by such Banks) of making or
maintaining their affected Loans during such Interest Period,
the Administrative Agent shall give telecopy or telephonic notice thereof to the
Borrowers and the Banks as soon as practicable thereafter. If such notice is
given (x) any Eurodollar Loans requested to be made on the first day of such
Interest Period shall be made as ABR Loans, (y) any Loans that were to have been
converted on the first day of such Interest Period to Eurodollar Loans shall be
continued as ABR Loans and (z) any outstanding Eurodollar Loans shall be
converted, on the first day of such Interest Period, to ABR Loans. Until such
notice has been withdrawn by the Administrative Agent, no further Eurodollar
Loans shall be made or continued as such, nor shall any Borrower have the right
to convert Loans to Eurodollar Loans.
5.9 Pro Rata Treatment and Payments. (a) Each borrowing by any Borrower
of Revolving Credit Loans from the Banks hereunder, each payment by the Company
on account of any facility fee or utilization fee hereunder, and any reduction
of the Commitments of the Banks shall be made pro rata according to the
respective Commitment Percentages of the Banks.
(b) Whenever any payment received by the Administrative Agent or any
Bank under this Agreement or any Note is insufficient to pay in full all amounts
then due and payable to the Administrative Agent and the Banks under this
Agreement and the Notes, and the Administrative Agent has not received a Payment
Sharing Notice (or if the Administrative Agent has received a Payment Sharing
Notice but the Event of Default specified in such Payment Sharing Notice has
been cured or waived), such payment shall be distributed and applied by the
Administrative Agent and the Banks in the following order: first, to the payment
of fees and expenses due and payable to the Administrative Agent in its capacity
as Administrative Agent under and in connection with this Agreement; second, to
the payment of all expenses due and payable under subsection 13.5, ratably among
the Banks in accordance with the aggregate amount of such payments owed to each
such Bank; third, to the payment of
<PAGE> 33
32
fees due and payable under subsections 5.2(a) and (b), ratably among the Banks
in accordance with their Commitment Percentages; fourth, to the payment of
interest then due and payable on the Loans, ratably among the Banks in
accordance with the aggregate amount of interest owed to each such Bank; and
fifth, to the payment of the principal amount of the Loans which is then due and
payable, ratably among the Banks in accordance with the aggregate principal
amount owed to each such Bank.
(c) After the Administrative Agent has received a Payment Sharing
Notice which remains in effect, all payments received by the Administrative
Agent under this Agreement or any Note shall be distributed and applied by the
Administrative Agent and the Banks in the following order: first, to the payment
of all amounts described in clauses first through third of the foregoing
paragraph (b), in the order set forth therein; and second, to the payment of the
interest accrued on and the principal amount of all of the Loans, regardless of
whether any such amount is then due and payable, ratably among the Banks in
accordance with the aggregate accrued interest plus the aggregate principal
amount owed to such Bank.
(d) All payments (including prepayments) to be made by any Borrower
hereunder and under the Notes, whether on account of principal, interest, fees
or otherwise, shall be made without set-off or counterclaim and shall be made
prior to 3:00 P.M., New York City time, on the due date thereof (i) in the case
of fees and Loans other than Bilateral Option Loans, to the Administrative
Agent, for the account of the Banks, at the Administrative Agent's office
specified in subsection 13.2, and (ii) in the case of Bilateral Option Loans
made by any Bank, to such Bank, at the Bank's office specified in Schedule I
(or, with respect to Alternative Currency Bilateral Loans, if different, at such
other office of the Bank that it shall designate), in each case in Dollars (or,
with respect to Alternative Currency Bilateral Loans, in the relevant
Alternative Currency) and in immediately available funds. If any payment
hereunder becomes due and payable on a day other than a Business Day, such
payment shall be extended to the next succeeding Business Day (unless, with
respect to any payment on a Eurodollar Loan, the result of such extension would
be to extend such payment into another calendar month, in which event such
payment shall be made on the immediately preceding Business Day), and, with
respect to payments of principal, interest thereon shall be payable at the then
applicable rate during such extension.
(e) Unless the Administrative Agent shall have been notified in writing
by the Bank prior to a Borrowing Date that such Bank will not make the amount of
any Loan it has committed to make on such date available to the Administrative
Agent, the Administrative Agent may assume that such Bank has made such amount
available to the Administrative Agent on such Borrowing Date, and the
Administrative Agent may, in reliance upon such assumption, make available to
the applicable Borrower a
<PAGE> 34
33
corresponding amount. If such amount is made available to the Administrative
Agent on a date after such Borrowing Date, such Bank shall pay to the
Administrative Agent on demand an amount equal to the product of (i) the daily
average Federal Funds Effective Rate during such period, times (ii) the amount
of the Loan such Bank was committed to make, times (iii) a fraction the
numerator of which is the number of days that elapse from and including such
Borrowing Date to the date on which such Bank's Loan shall have become
immediately available to the Administrative Agent and the denominator of which
is 360. A certificate of the Administrative Agent submitted to any Bank with
respect to any amounts owing under this subsection shall be conclusive in the
absence of manifest error. If such Bank's Commitment Percentage of such
borrowing is not in fact made available to the Administrative Agent by such Bank
within three Business Days of such Borrowing Date, the Administrative Agent
shall be entitled to recover such amount with interest thereon at the rate per
annum applicable to ABR Loans hereunder, on demand, from such Borrower.
5.10 Illegality. Notwithstanding any other provision herein, if any
change after the date hereof in any Requirement of Law or in the interpretation
or application thereof shall make it unlawful for any Bank to make or maintain
Eurodollar Loans as contemplated by this Agreement, (a) the commitment of such
Bank hereunder to make Eurodollar Loans, continue Eurodollar Loans as such and
convert ABR Loans to Eurodollar Loans shall forthwith be cancelled and (b) such
Bank's Loans then outstanding as Eurodollar Loans, if any, shall be converted
automatically to ABR Loans on the respective last days of the then current
Interest Periods with respect to such Loans or within such earlier period as
required by law. If any such conversion of a Eurodollar Loan occurs on a day
which is not the last day of the then current Interest Period with respect
thereto, the Borrower of such Loan shall pay to such Bank such amounts, if any,
as may be required pursuant to subsection 5.13.
5.11 Requirements of Law. (a) In the event that any change after the
date hereof in any Requirement of Law or in the interpretation or application
thereof or compliance by any Bank with any request or directive (whether or not
having the force of law) from any central bank or other Governmental Authority
made subsequent to the date hereof:
(i) shall subject any Bank to any tax of any kind whatsoever with
respect to this Agreement, any Note or any Eurodollar Loan made by it, or
change the basis of taxation of payments to such Bank in respect thereof
(except for taxes covered by subsection 5.12 and changes in taxes based
upon or measured by income of such Bank);
(ii) shall impose, modify or hold applicable any reserve, special
deposit, compulsory loan or similar requirement against assets held by,
deposits or other
<PAGE> 35
34
liabilities in or for the account of, advances, loans or other extensions
of credit by, or any other acquisition of funds by, any office of such Bank
which is not otherwise included in the determination of the Eurodollar Rate
hereunder; or
(iii) shall impose on such Bank any other condition; and the result of
any of the foregoing is to increase the cost to such Bank, by an amount
which such Bank deems in its reasonable judgment to be material, of making,
converting into, continuing or maintaining Eurodollar Loans or to reduce
any amount receivable hereunder in respect thereof then, in any such case,
the Company shall promptly pay such Bank, upon its demand, any additional
amounts necessary to compensate such Bank for such increased cost or
reduced amount receivable. If any Bank becomes entitled to claim any
additional amounts pursuant to this subsection, it shall promptly notify
the Company, through the Administrative Agent, of the event by reason of
which it has become so entitled. A certificate as to any additional amounts
payable pursuant to this subsection setting forth the calculation thereof
in reasonable detail (as determined by such Bank in its reasonable
discretion) submitted by such Bank, through the Administrative Agent, to
the Company shall be conclusive in the absence of manifest error. This
covenant shall survive the termination of this Agreement and the payment of
the Notes and all other amounts payable hereunder.
(b) In the event that any Bank shall have determined that any change in
any Requirement of Law regarding capital adequacy or in the interpretation or
application thereof or compliance by such Bank or any corporation controlling
such Bank with any request or directive regarding capital adequacy (whether or
not having the force of law) from any Governmental Authority made subsequent to
the date hereof does or shall have the effect of reducing the rate of return on
such Bank's or such corporation's capital as a consequence of its obligations
hereunder to a level below that which such Bank or such corporation could have
achieved but for such change or compliance (taking into consideration such
Bank's or such corporation's policies with respect to capital adequacy) by an
amount deemed by such Bank to be material, then from time to time, after
submission by such Bank to the Company (with a copy to the Administrative Agent)
of a written request therefor, the Company shall pay to such Bank such
additional amount or amounts as will compensate such Bank for such reduction. A
certificate as to any additional amount payable pursuant to this subsection
setting forth the calculation thereof in reasonable detail (as determined by
such Bank in its reasonable discretion) through the Administrative Agent, to the
Company shall be conclusive in the absence of manifest error.
(c) Upon request by any Bank, through the Administrative Agent, from
time to time, the Borrowers shall pay
<PAGE> 36
35
the cost of all Eurocurrency Reserve Requirements applicable to the Eurodollar
Loans made by such Bank. If a Bank is or becomes entitled to receive payments in
respect of Eurocurrency Reserve Requirements, pursuant to this subsection
5.11(c), it shall promptly notify the Borrowers thereof through the
Administrative Agent. A certificate as to the amount of such Eurocurrency
Reserve Requirements setting forth the calculation thereof in reasonable detail
(as determined by such Bank in its reasonable discretion) submitted by such
Bank, through the Administrative Agent, to the Borrowers shall be conclusive in
the absence of manifest error. This covenant shall survive the termination of
this Agreement and the payment of the Loans and all other amounts payable
hereunder.
5.12 Taxes. (a) All payments made by any Borrower under this Agreement
and any Notes shall be made free and clear of, and without deduction or
withholding for or on account of, any present or future income, stamp or other
taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now
or hereafter imposed, levied, collected, withheld or assessed by any
Governmental Authority, excluding, in the case of the Administrative Agent and
each Bank, net income taxes and franchise taxes (imposed in lieu of net income
taxes) that would not have been imposed on the Administrative Agent or such
Bank, as the case may be, in the absence of a present or former connection
between the jurisdiction of the government or taxing authority imposing such tax
and the Administrative Agent or such Bank (other than a connection arising
solely from the Administrative Agent or such Bank having executed, delivered or
performed its obligations or received a payment under, or enforced, this
Agreement or any Notes) or any political subdivision or taxing authority thereof
or therein (all such non-excluded taxes, levies, imposts, duties, charges, fees,
deductions and withholdings being hereinafter called "Taxes"). If any Taxes are
required to be withheld from any amounts payable to the Administrative Agent or
any Bank hereunder or under any Notes, the amounts so payable to the
Administrative Agent or such Bank shall be increased to the extent necessary to
yield to the Administrative Agent or such Bank (after payment of all Taxes)
interest or any such other amounts payable hereunder at the rates or in the
amounts specified in this Agreement and the Notes. Whenever any Taxes are
payable by any Borrower in respect of any payment made hereunder, as promptly as
possible thereafter any Borrower shall send to the Administrative Agent for its
own account or for the account of such Bank, as the case may be, a certified
copy of an original official receipt received by such Borrower showing payment
thereof. If such Borrower fails to pay any Taxes when due to the appropriate
taxing authority or fails to remit to the Administrative Agent the required
receipts or other required documentary evidence, such Borrower shall indemnify
the Administrative Agent and the Banks for any incremental taxes, interest or
penalties that may become payable by the Administrative Agent or any Bank as a
result of any such failure. The agreements in this subsection shall survive the
<PAGE> 37
36
termination of this Agreement and the payment of the Notes and all other amounts
payable hereunder.
(b) Each Bank that is not incorporated under the laws of the United
States of America or a state thereof agrees that it will deliver to the Company
and the Administrative Agent (i) two duly completed copies of United States
Internal Revenue Service Form 1001 or 4224 or successor applicable form, as the
case may be, and (ii) an Internal Revenue Service Form W-8 or W-9 or successor
applicable form. Each such Bank also agrees to deliver to the Company and the
Administrative Agent two further copies of the said Form 1001 or 4224 and Form
W-8 or W-9, or successor applicable forms or other manner of certification, as
the case may be, on or before the date that any such form expires or becomes
obsolete or after the occurrence of any event requiring a change in the most
recent form previously delivered by it to the Company, and such extensions or
renewals thereof as may reasonably be requested by the Company or the
Administrative Agent, unless in any such case an event (including, without
limitation, any change in treaty, law or regulation) has occurred prior to the
date on which any such delivery would otherwise be required which renders all
such forms inapplicable or which would prevent such Bank from duly completing
and delivering any such form with respect to it and such Bank so advises the
Company and the Administrative Agent. Such Bank shall certify (i) in the case of
a Form 1001 or 4224, that it is entitled to receive payments under this
Agreement without deduction or withholding of any United States federal income
taxes and (ii) in the case of a Form W-8 or W-9, that it is entitled to an
exemption from United States backup withholding tax.
5.13 Indemnity. Each Borrower agrees to indemnify each Bank and to hold
each Bank harmless from any loss or expense which such Bank may sustain or incur
as a consequence of (a) default by any Borrower in payment when due of the
principal amount of or interest on any Eurodollar Loan, (b) default by any
Borrower in making a borrowing of, conversion into or continuation of Eurodollar
Loans after such Borrower has given a notice requesting the same in accordance
with the provisions of this Agreement, (c) default by any Borrower in making any
prepayment after such Borrower has given a notice thereof in accordance with the
provisions of this Agreement or (d) the making of a payment or prepayment of
Eurodollar Loans on a day which is not the last day of an Interest Period with
respect thereto, including, without limitation, in each case, any such loss or
expense arising from the reemployment of funds obtained by it or from fees
payable to terminate the deposits from which such funds were obtained. This
covenant shall survive the termination of this Agreement and the payment of the
Loans or Notes, if any, and all other amounts payable hereunder.
<PAGE> 38
37
SECTION 6. REPRESENTATIONS AND WARRANTIES
To induce the Banks to enter into this Agreement, each of the
Company, the Parent and Grace Holding represents and warrants to the
Administrative Agent and each Bank that:
6.1 Corporate Existence; Compliance with Law. Each Loan Party
(a) is a corporation duly organized, validly existing and in good standing under
the laws of its jurisdiction of incorporation, (b) is duly qualified and in good
standing in each jurisdiction wherein, in the opinion of the Company and the
Parent, the conduct of its business or the ownership of its properties requires
such qualification and (c) is in compliance with all Requirements of Law, except
to the extent that the failure to comply with paragraph (a), (b) or (c) of this
subsection would not, in the aggregate, reasonably be expected to have a
Material Adverse Effect.
6.2 Corporate Power, Authorization; Enforceable Obligations.
Each Loan Party has the corporate power and authority to make, deliver and
perform its obligations under the Loan Documents to which it is or will be a
party, and has taken all necessary corporate action to authorize (i) in the case
of the Borrowers, the borrowings under this Agreement and any Notes to which it
is or will be a party on the terms and conditions hereof and thereof and (ii)
the execution, delivery and performance of this Agreement and the Loan Documents
to which it is or will be a party. This Agreement has been, and any Note and the
other Loan Documents to which it is or will be a party will be, duly executed
and delivered on behalf of each relevant Loan Party. This Agreement constitutes,
and each of the Notes, if any, and the other Loan Documents when executed and
delivered will constitute, a legal, valid and binding obligation of the Loan
Party thereto, enforceable against such Loan Party in accordance with its terms,
such enforceability subject to limitations under any applicable bankruptcy,
insolvency, moratorium or other laws affecting creditors' rights and by general
equitable principles (whether applied in a proceeding in equity or at law). No
consent of any other party (including stockholders of the Parent) and no
consent, license, approval or authorization of, or registration or declaration
with, any Governmental Authority is required to be obtained by any Loan Party in
connection with the execution, delivery, performance, validity or enforceability
of this Agreement and any Notes.
6.3 No Legal Bar. The execution, delivery and performance of
this Agreement, the Notes and the other Loan Documents, the borrowings hereunder
and the use of the proceeds thereof, will not violate or contravene any material
provision of any Requirement of Law or material Contractual Obligation of the
Parent, Grace Holding, the Company or any of its Subsidiaries and will not
result in, or require, the creation or imposition of any material Lien (other
than Liens permitted under subsection 9.2)
<PAGE> 39
38
on any of its or their respective properties or revenues pursuant to any such
Requirement of Law or Contractual Obligation.
6.4 No Material Litigation. There is no legal action,
administrative proceeding or arbitration (whether or not purportedly on behalf
of Grace New York, Grace Holding or the Company or any of its Subsidiaries)
presently pending, or to the knowledge of Grace New York, Grace Holding or the
Company threatened, against or affecting Grace New York, Grace Holding or the
Company or any of its Subsidiaries which would reasonably be expected to have a
Material Adverse Effect, except that the foregoing is subject to the fact that,
as discussed in Item 3 of Grace New York's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995 referred to in subsection 6.6 and also as
discussed in other information provided to the Banks, the Company, Grace New
York and Grace Holding cannot predict at this time the results and impact, if
any, of the governmental investigation of Grace New York's Subsidiary, NMC,
referred to in Item 3 and in other information provided to the Banks, and
related claims and litigation.
6.5 Ownership of Properties. Each of the Parent, Grace
Holding, the Company and its Subsidiaries is the tenant under valid leases or
has good title to substantially all its properties and assets, real and personal
(except defects in title and other matters that would not reasonably be expected
to have a Material Adverse Effect), subject to no Lien except as permitted to
exist under subsection 9.2.
6.6 Financial Condition. The consolidated balance sheets of
Grace New York and its Subsidiaries as at December 31, 1995 and December 31,
1994 and the related consolidated statements of operations, shareholders' equity
and of cash flows (together with the related notes), included or incorporated in
Grace New York's Annual Report on Form 10-K filed with the SEC for the fiscal
year ended December 31, 1995, present fairly in all material respects the
financial position of Grace New York and its Subsidiaries as at such dates and
the results of their operations and their cash flows for the fiscal years then
ended. The unaudited consolidated balance sheet of Grace New York and its
Subsidiaries as at March 31, 1996 and the related unaudited consolidated
statement of operations for the three-month interim period, and the related
unaudited consolidated statement of cash flows for the three-month interim
period, ended on such date, included in Grace New York's Quarterly Report on
Form 10-Q filed with the SEC for such period, present fairly in all material
respects the financial position of Grace New York and its Subsidiaries as at
such date and the results of their operations and their cash flows for the
three-month period then ended. All of such financial statements, including the
notes to such financial statements, have been prepared in conformity with GAAP
(subject, in the case of interim statements, to normal year-end adjustments and
to the fact that such financial statements may be abbreviated and may omit
footnotes or contain incomplete
<PAGE> 40
39
footnotes) consistently applied throughout the periods involved except as stated
therein.
6.7 Disclosure of Contingent Liabilities. To the best of the
knowledge and belief of Grace New York, neither Grace New York nor any of its
Subsidiaries has any contingent obligation, liability for taxes, long-term
leases, unusual forward or other liabilities, which are material in amount in
relation to the consolidated financial condition of Grace New York and its
Subsidiaries taken as a whole and which are not disclosed in the financial
statements (including the related notes) described in subsection 6.6 above.
6.8 ERISA. Each Plan that is intended to qualify under Section
401(a) of the Code satisfies in all material respects the applicable
requirements for qualification under that Code Section. No Reportable Event has
occurred and is continuing with respect to any such Plan, and neither Grace New
York nor any of its Subsidiaries has incurred any liability to the PBGC under
Section 4062 of ERISA with respect to any such Plan that would reasonably be
expected to have a Material Adverse Effect.
6.9 Certain Federal Regulations. Neither the Company nor any
of its Subsidiaries is engaged in or will engage in the business of extending
credit for the purposes of "purchasing" or "carrying" any "margin stock" within
the respective meanings of each of the quoted terms under Regulation U of the
Board, and no part of the proceeds of any Loan will be used for any purpose
which violates, or which would be inconsistent with, the provisions of
Regulation U or X of the Board.
6.10 No Default. Neither the Parent nor any of its
Subsidiaries is in default under or with respect to any of its Contractual
Obligations in any respect which would reasonably be expected to have a Material
Adverse Effect. No Default or Event of Default has occurred and is continuing.
6.11 Taxes. (a) Each of the Parent and its Subsidiaries has
filed or caused to be filed all tax returns which, to the knowledge of the
Parent, are required to be filed and has paid all taxes shown to be due and
payable on said returns or on any assessments made against it or any of its
property and all other taxes, fees or other charges imposed on it or any of its
property by any Governmental Authority (other than any the amount or validity of
which are currently being contested in good faith by appropriate proceedings and
with respect to which adequate reserves to the extent required in conformity
with GAAP, have been provided on the books of the Parent or its Subsidiaries, as
the case may be) except insofar as the failure to make such filings or payments
would not reasonably be expected to have a Material Adverse Effect; and (b) no
tax Lien (other than a Lien permitted under subsection 9.2(a)) has been filed,
and, to the knowledge of the Parent, no claim is being asserted,
<PAGE> 41
40
with respect to any such tax, fee or other charge which would reasonably be
expected to have a Material Adverse Effect.
6.12 Investment Company Act; Other Regulations. None of the
Parent, Grace Holding, the Company or any of its Subsidiaries is an "investment
company", or a company "controlled" by an "investment company", within the
meaning of the Investment Company Act of 1940, as amended. None of the Parent,
Grace Holding, the Company or any other Borrower is subject to regulation under
any Federal or State statute or regulation which limits its ability to incur
Indebtedness.
6.13 Purpose of Loans. The proceeds of the Loans shall be used
by the Borrowers for general corporate purposes (which may include purchases by
the Parent of its capital stock).
6.14 Environmental Matters. To the best of the knowledge of
Grace New York, the operations of Grace New York and its Subsidiaries and all
parcels of real estate owned or operated by Grace New York or its Subsidiaries
are in compliance with all Environmental Laws, except where the failure to so
comply would not reasonably be expected to have a Material Adverse Effect.
6.15 Principal Subsidiaries. Set forth on Schedule II
are all of the Principal Subsidiaries as of the date hereof.
SECTION 7. CONDITIONS PRECEDENT
7.1 Conditions to Effectiveness. The parties hereto
acknowledge that the effectiveness of this Agreement is subject to the
satisfaction of the following conditions precedent:
(a) Loan Documents. The Administrative Agent shall have
received (i) this Agreement, executed and delivered by a duly
authorized officer of each of the Loan Parties, with a counterpart for
each Bank, (ii) for the account of each Bank so requesting, a Revolving
Credit Note and a Bid Loan Note conforming to the requirements hereof
and executed by a duly authorized officer of the Borrowers and (iii) an
incumbency certificate of each of the Loan Parties which covers such
officers.
(b) Corporate Proceedings. The Administrative Agent shall have
received, with a counterpart for each Bank, a copy of the resolutions,
in form and substance satisfactory to the Administrative Agent, of the
Board of Directors of each of the Loan Parties authorizing (i) the
execution, delivery and performance of the Loan Documents to which it
is or will be a party and (ii) the borrowings contemplated hereunder
(in the case of each Borrower), certified by the Secretary or an
Assistant Secretary of such Loan Party as of the Closing Date, which
certificate shall state that the resolutions thereby certified have not
been amended,
<PAGE> 42
41
modified, revoked or rescinded and shall be in form and substance
satisfactory to the Administrative Agent.
(c) Fees. The Administrative Agent shall have received the
fees to be received on the Closing Date referred to in subsection 5.2.
(d) Legal Opinions. The Administrative Agent shall have
received, with a counterpart for each Bank, the following executed
legal opinions:
(i) the executed legal opinion of counsel to the
Company, Grace New York and Grace Holding who may be the
General Counsel of the Company, substantially in the form of
Exhibit F-1;
(ii) to the extent required pursuant to subsection
13.15(a)(ii), the executed legal opinion of counsel to any
other Borrower, in form and substance reasonably satisfactory
to the Administrative Agent; and
(iii) the executed legal opinion of Simpson Thacher &
Bartlett, counsel to the Administrative Agent, substantially
in the form of Exhibit F-2.
Each such legal opinion shall cover such other matters incident to the
transactions contemplated by this Agreement as the Administrative Agent
may reasonably require.
(e) Existing Credit Agreements. All commitments of the lenders
under the Existing Credit Agreements shall have been terminated, all
outstanding loans thereunder shall have been repaid in full, all unpaid
fees thereunder shall have been paid in full and such agreements shall
have been terminated.
(f) Officer's Certificate. The Administrative Agent shall have
received, with a counterpart for each Bank, a certificate respecting
accuracy of representations and warranties, the absence of events
having a Material Adverse Effect and the absence of Defaults and Events
of Default, substantially in the form of Exhibit G hereto, signed by a
Responsible Officer on behalf of each of the Company, Grace New York
and Grace Holding.
(g) Additional Matters. All corporate and other proceedings,
and all documents, instruments and other legal matters in connection
with the transactions contemplated by this Agreement shall be
satisfactory in form and substance to the Administrative Agent, and the
Administrative Agent shall have received such other documents and legal
opinions in respect of any aspect or consequence of the transactions
<PAGE> 43
42
contemplated hereby or thereby as it shall reasonably request.
7.2 Conditions to Each Loan. The agreement of each Bank to
make any Loan requested to be made by it on any date is subject to the
satisfaction of the following conditions precedent:
(a) Representations and Warranties. Each of the
representations and warranties made by each of the Loan Parties in or
pursuant to subsections 6.1, 6.2, 6.3, 6.5, 6.9, 6.10, 6.11, 6.12 and
6.13 of this Agreement and in or pursuant to any other Loan Document to
which it is or will be a party, shall be true and correct in all
material respects on and as of such date as if made on and as of such
date, and the representation and warranty made pursuant to subsection
6.6 shall be true and correct in all material respects with respect to
the financial statements most recently delivered pursuant to subsection
8.1, mutatis mutandis, as if such financial statements delivered
pursuant to subsection 8.1 were the financial statements referred to in
subsection 6.6.
(b) No Default. No Default or Event of Default shall
have occurred and be continuing on such date or after giving
effect to the Loans requested to be made on such date.
Each borrowing by the Borrowers hereunder shall constitute a representation and
warranty by the Loan Parties as of the date of such Loan that the conditions
contained in this subsection 7.2 have been satisfied.
SECTION 8. AFFIRMATIVE COVENANTS
Each of the Company and the Parent hereby agrees that, so long
as the Commitments remain in effect, any Note remains outstanding and unpaid or
any other amount is owing to any Bank or the Administrative Agent hereunder,
each of the Company and the Parent shall and the Company (except in the case of
delivery of financial information, reports and notices) shall cause each of its
Principal Subsidiaries to:
8.1 Financial Statements. Furnish to each Bank:
(a) as soon as available, but in any event within 120 days
after the end of each fiscal year of the Parent, a copy of the
consolidated balance sheet of the Parent and its Subsidiaries as at the
end of such year and the related consolidated statements of operations,
shareholders' equity and cash flows for such year (as included or
incorporated by reference in the Parent's Annual Report on Form 10-K or
successor form filed with the SEC for each such fiscal year), setting
forth in each case in comparative form the
<PAGE> 44
43
figures for the previous year, reported on without a "going concern" or
like qualification or exception, or qualification arising out of the
scope of the audit, by Price Waterhouse or other independent certified
public accountants of nationally recognized standing not unacceptable
to the Majority Banks; and
(b) as soon as available, but in any event not later than 75
days after the end of each of the first three quarterly periods of each
fiscal year of the Parent, the unaudited consolidated balance sheet of
the Parent and its Subsidiaries as at the end of such quarter and the
related unaudited consolidated statements of operations for such
quarter and the related unaudited consolidated statements of operations
and cash flows for the portion of the fiscal year through the end of
such quarter (as included in the Parent's Quarterly Report on Form 10-Q
or successor form filed with the SEC for each such period), setting
forth in each case in comparative form the figures for the previous
year, certified by a Responsible Officer as being fairly stated in all
material respects when considered in relation to the consolidated
financial statements of the Parent and its Subsidiaries.
All such financial statements shall be prepared in conformity with GAAP
(subject, in the case of interim statements, to normal year-end adjustments and
to the fact that such financial statements may be abbreviated and may omit
footnotes or contain incomplete footnotes) applied consistently throughout the
periods reflected therein and with prior periods (except as disclosed therein).
8.2 Certificates; Other Information. Furnish to each Bank:
(a) concurrently with the delivery of the financial statements
referred to in subsection 8.1(a), a certificate of the independent
certified public accountants reporting on such financial statements
stating that in making the examination necessary therefor no knowledge
was obtained of any Default or Event of Default, except as specified in
such certificate.
(b) concurrently with the delivery of the financial statements
referred to in subsections 8.1(a) and 8.1(b), a certificate of a
Responsible Officer of the Parent in his capacity as such officer
stating that, to the best of such Officer's knowledge, each of the
Borrowers and the Parent during such period has observed or performed
all of its covenants and other agreements, and satisfied every
condition, contained in this Agreement and in the Notes and the other
Loan Documents to which it is a party to be observed, performed or
satisfied by it, and that such Officer has obtained no knowledge of any
Default or Event of
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44
Default except as specified in such certificate and showing in detail
the calculation of compliance with subsections 9.1 and 9.2;
(c) concurrently with the delivery of the financial statements
referred to in subsection 8.1(a), a list of the Principal Subsidiaries
as of the corresponding fiscal year end, certified by a Responsible
Officer in his capacity as such officer;
(d) within ten Business Days after the same are sent, copies
of all financial statements and reports which the Parent sends to its
shareholders generally relating to the business of the Parent and its
Subsidiaries, and within ten Business Days after the same are filed,
copies of all reports on Forms 10-K, 10-Q, 8-K, 8 and 10, and Schedules
13D, 13E-3, 13E-4, 13-G, 14D-1 and 14D-9, or successor forms or
schedules, and the final prospectus in each effective registration
statement (other than registration statements on Form S-8) and each
post-effective amendment to such registration statement which the
Parent may make to, or file with, the SEC; and
(e) promptly, subject to reasonable confidentiality
requirements agreed to by the Company and such Bank, such additional
financial and other information as any Bank may from time to time
reasonably request.
8.3 Payment of Obligations. Pay, discharge or otherwise
satisfy at or before maturity or before they become delinquent, as the case may
be, all its obligations of whatever nature, except where the amount or validity
thereof is currently being contested in good faith by appropriate proceedings
and reserves, to the extent required in conformity with GAAP with respect
thereto, have been provided on the books of the Parent or its Subsidiaries, as
the case may be, and except to the extent that the failure to so pay, discharge
or otherwise satisfy such obligations would not result in a Default or Event of
Default under Section 10(e)(i).
8.4 Conduct of Business and Maintenance of Existence.
Preserve, renew and keep in full force and effect its corporate existence and
take all reasonable action to maintain all corporate rights, privileges and
franchises necessary or desirable in the normal conduct of its business, except
as otherwise permitted pursuant to subsection 9.3; comply with all Contractual
Obligations and Requirements of Law except to the extent that failure to comply
therewith would not, in the aggregate, reasonably be expected to have a Material
Adverse Effect.
8.5 Insurance. Maintain with financially sound and reputable
insurance companies (which may include, without limitation, captive insurers),
such insurance coverage as is
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45
reasonable for the business activities of the Parent and its Subsidiaries; and
furnish to the Administrative Agent, upon written request, such information as
the Administrative Agent may reasonably request as to its insurance program.
8.6 Inspection of Property, Books and Records; Discussions.
Permit representatives of any Bank (subject to reasonable safety and
confidentiality requirements) to visit and inspect any of its properties and
examine and make abstracts from any of its books and records at any reasonable
time and as often as may reasonably be desired and to discuss the business,
operations, properties and financial and other condition of the Parent and its
Subsidiaries with officers and employees of the Parent and its Subsidiaries and,
provided representatives of the Parent are given an opportunity to participate,
with its independent certified public accountants.
8.7 Notices. Promptly give notice to the Administrative
Agent and each Bank of:
(a) the occurrence of any Default or Event of Default;
(b) any (i) default or event of default under any Contractual
Obligation of the Parent or any of its Subsidiaries or (ii) litigation,
investigation or proceeding which may exist at any time between the
Parent or any of its Subsidiaries and any Governmental Authority, which
in either case, would reasonably be expected to have a Material Adverse
Effect;
(c) any litigation or proceeding affecting the Parent or any
of its Subsidiaries in which the then reasonably anticipated exposure
of the Parent and its Subsidiaries is $10,000,000 or more and not
covered by insurance, or in which injunctive or similar relief is
sought which is then reasonably anticipated to have an adverse economic
effect on the Parent and its Subsidiaries of $10,000,000 or more;
(d) the following events, as soon as possible and in any event
within 30 days after the Company or the Parent knows or has reason to
know thereof: (i) the occurrence or expected occurrence of any
Reportable Event with respect to any Plan, or any withdrawal from, or
the termination, Reorganization or Insolvency of any Multiemployer Plan
or (ii) the institution of proceedings or the taking of any other
action by the PBGC or the Company or the Parent or any Commonly
Controlled Entity or any Multiemployer Plan with respect to the
withdrawal from, or the terminating, Reorganization or Insolvency of,
any Plan, where in connection with any of the events described in (i)
or (ii) above the liability to the Company or a Commonly Controlled
Entity would reasonably be expected to be $10,000,000 or more;
<PAGE> 47
46
(e) any upgrading, downgrading or cessation in the rating of
the long term senior unenhanced, unsecured debt of the Company by the
rating agency or agencies whose rating on such debt is then being used
to determine the Applicable Margin and the Facility Fee Rate;
(f) (i) the occurrence of any Asset Sale, the NMC Disposition
and any other disposition of NMC as described in subsection 5.3(c)(ii)
or (ii) the abandonment of any planned transactions relating to any
Asset Sale or the NMC Disposition; and
(g) a development or event which would reasonably be expected
to have a Material Adverse Effect.
Each notice pursuant to this subsection shall be accompanied by a statement of a
Responsible Officer setting forth details of the occurrence referred to therein
and stating what action each of the Company and the Parent proposes to take with
respect thereto.
8.8 Environmental Laws.
(a) Comply with all Environmental Laws and obtain and comply
with and maintain any and all licenses, approvals, registrations or permits
required by Environmental Laws, except to the extent that failure to do so would
not be reasonably expected to have a Material Adverse Effect; and
(b) Defend, indemnify and hold harmless the Administrative
Agent and the Banks, and their respective employees, agents, officers and
directors, from and against any claims, demands, penalties, fines, liabilities,
settlements, damages, costs and expenses of whatever kind or nature known or
unknown, contingent or otherwise, arising out of, or in any way relating to the
violation of or noncompliance with any Environmental Laws applicable to the real
property owned or operated by the Company, the Parent or any of the Company's
Subsidiaries, or any orders, requirements or demands of Governmental Authorities
related thereto, including, without limitation, attorney's and consultant's
fees, investigation and laboratory fees, court costs and litigation expenses,
except to the extent that any of the foregoing arise out of the gross negligence
or willful misconduct of the party seeking indemnification therefor.
SECTION 9. NEGATIVE COVENANTS
The Parent hereby agrees that, so long as the Commitments
remain in effect, any Note remains outstanding and unpaid or any other amount is
owing to any Bank or the Administrative Agent hereunder, it shall not, and
(except with respect to subsections 9.1 and 9.5(b)) shall not permit any of its
Subsidiaries to, directly or indirectly:
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9.1 Financial Condition Covenants.
(a) Consolidated Debt to Total Capitalization. Permit the
ratio of Consolidated Debt to Total Capitalization to be greater than 70% at the
end of any fiscal quarter after the Closing Date until the earlier of (x) the
end of the fiscal quarter in which the Commitments are reduced as a result of
the NMC Disposition pursuant to subsection 5.3(c) and (y) the fiscal quarter
ended December 31, 1996, at which time and at the end of each fiscal quarter
thereafter such ratio to be greater than 60%.
(b) Interest Coverage. Permit for any period of four
consecutive fiscal quarters ending on the last day of any fiscal quarter of the
Company commencing with June 30, 1996 the ratio of EBIT to Consolidated Interest
Expense to be less than 2.0 to 1.0.
9.2 Limitation on Liens. Create, incur, assume or suffer to
exist any Lien upon any of its property, assets or revenues (which property,
assets or revenues are or would be reflected from time to time on the
consolidated financial statements of the Parent and its Subsidiaries in
accordance with GAAP), whether now owned or hereafter acquired, except for:
(a) Liens for taxes or other governmental charges not yet due
or which are being contested in good faith by appropriate proceedings,
provided that adequate reserves with respect thereto are maintained on
the books of the Parent or its Subsidiaries, as the case may be, to the
extent required in conformity with GAAP;
(b) carriers', warehousemen's, mechanics', materialmen's,
repairmen's, vendors', landlords', brokers', bankers' and other like
Liens arising in the ordinary course of business relating to
obligations which are not overdue for a period of more than 60 days or
which are being contested in good faith and Liens arising out of
judgments or awards that are either discharged within 60 days after
entry or execution of which has been stayed pending the outcome of
appeal or review proceedings;
(c) pledges or deposits in connection with workers'
compensation, unemployment insurance and other social security
legislation and deposits securing liability to insurance carriers under
insurance or self-insurance arrangements;
(d) pledges, deposits and similar arrangements in connection
with or to secure performance of bids, tenders, leases and other
deposits to secure the performance of bids, trade contracts (other than
for borrowed money), leases, statutory obligations, surety and appeal
bonds, performance bonds and other obligations of a like nature
incurred in the ordinary course of business and contractual rights of
other Persons to make set-offs and to require security in
<PAGE> 49
48
connection with letters of credit, currency, commodity and interest
rate contracts, surety bonds, leases, banking and brokerage agreements
and other transactions in the ordinary course of business;
(e) leases, easements, rights-of-way, restrictions and other
similar encumbrances incurred in the ordinary course of business which
would not reasonably be expected to have a Material Adverse Effect;
(f) Liens on the property, assets or revenues of a Person
which becomes a Subsidiary after the date hereof, to the extent that
(i) such Liens existed at the time such Person became a Subsidiary and
were not created in anticipation thereof, (ii) any such Lien is not
extended to cover any property, assets or revenues of such Person after
the time such Person becomes a Subsidiary, and (iii) the amount of
Indebtedness secured thereby is not thereafter increased;
(g) Liens arising in connection with (i) industrial
development, pollution control or other tax exempt financing
transactions, provided that such Liens do not at any time encumber any
property other than the property financed by such transaction and other
property, assets or revenues related to the property so financed on
which Liens are customarily granted in connection with such
transactions, or (ii) conveyances of any production payment or other
obligation to make a production payment (A) which is to be made solely
from production from oil, gas or other underground mineral properties
dedicated thereto or (B) as to which production payment amount the
obligee's sole recourse is to such properties;
(h) Liens (including, without limitation, Liens incurred in
connection with Capitalized Leases, operating leases and sale-leaseback
transactions) securing Indebtedness of the Parent and its Subsidiaries
incurred to finance the acquisition of fixed or capital assets, and
refinancings thereof, provided that (i) such Liens do not at any time
encumber any property other than the property financed by such
Indebtedness and other property, assets or revenues related to the
property so financed on which Liens are customarily granted in
connection with such financings or refinancings, and (ii) the principal
amount of Indebtedness secured by any such Lien shall at no time exceed
100% of the greater of the original purchase price of such property at
the time it was acquired and the fair market value of such property as
reasonably determined by a Responsible Officer of the Company in good
faith thereafter, plus fees and other costs related to the financing or
refinancing thereof which have been agreed upon in an arm's length
manner;
<PAGE> 50
49
(i) Liens incurred in connection with accounts receivable sale
transactions entered into by the Parent or its Subsidiaries;
(j) Liens securing Contractual Obligations of any Subsidiary
to the Parent, the Company or any Domestic Subsidiary;
(k) Liens on the property, assets or revenues of any Foreign
Subsidiary or any Excluded Subsidiary;
(l) Liens on the property, assets or revenues of NMC created
solely for the purpose of securing Indebtedness incurred by NMC in
connection with the NMC Disposition as described in the definition of
NMC Disposition; and
(m) Liens (not otherwise permitted hereunder) which secure
obligations in an aggregate amount at any time outstanding not
exceeding an amount equal to 5% of the amount recorded opposite the
caption "Properties and equipment, net" (or the equivalent caption) on
the consolidated balance sheet of the Parent and its Subsidiaries most
recently delivered to the Administrative Agent pursuant to subsection
8.1.
9.3 Limitation on Fundamental Changes. Convey, sell, lease,
assign, transfer or otherwise dispose of (including by merger, consolidation,
sale of stock, liquidation or dissolution) all or substantially all of the
property, assets or business of the Parent and its Subsidiaries taken as a
whole, except for the transfer or distribution of the stock of the Company
and/or Grace Holding in connection with the NMC Disposition, provided that after
giving effect thereto there is no Default or Event of Default hereunder.
9.4 Limitation on Asset Transfers to Foreign Subsidiaries.
With respect to the Parent or any Domestic Subsidiary, convey, sell, lease,
assign, transfer or otherwise dispose of (collectively, a "transfer") any of its
property, business or assets (including, without limitation leasehold
interests), whether now owned or hereafter acquired, to any Foreign Subsidiary,
except such transfers which, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect.
9.5 Limitation on Subordinated Debt. Permit any Subsidiary of
the Parent (other than the Company) to create, incur, assume or suffer to exist
any subordinated indebtedness other than (a) subordinated indebtedness of a
Person which becomes a Subsidiary after the date hereof to the extent such
indebtedness existed at the time such Person became a Subsidiary and was not
incurred in anticipation thereof and any refinancings of such indebtedness
after such time so long as the principal amount thereof is not increased or (b)
subordinated indebtedness
<PAGE> 51
50
of such Subsidiary held by the Parent or any other Subsidiary of the Parent.
SECTION 10. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) Any Borrower shall fail to pay any principal of any Loan
or Note when due in accordance with the terms thereof or hereof; or any
Borrower shall fail to pay any interest on any Loan or Note, or any
other amount payable hereunder, within five Business Days after any
such interest or other amount becomes due in accordance with the terms
thereof or hereof; or
(b) Any representation or warranty made, or pursuant to
subsection 7.2, deemed made, by any Loan Party herein or in any other
Loan Document or which is contained in any certificate, document or
financial or other statement furnished at any time under or in
connection with this Agreement shall prove to have been incorrect in
any material adverse respect on or as of the date made or deemed made;
or
(c) The Parent or any Subsidiary shall default in the
observance or performance of any agreement contained in subsection 9.1,
9.3, 9.4 or 9.5; or
(d) Any Loan Party shall default in the observance or
performance of any other agreement contained in this Agreement (other
than as provided in paragraphs (a) through (c) of this Section), and
such default shall continue unremedied for a period of 30 days; or
(e) The Parent or any of its Subsidiaries (other than the
Excluded Subsidiaries) shall (i) default in any payment of principal of
or interest on, or any other amount payable with respect to, any (A)
Domestic Indebtedness (other than the Notes and Loans) in an aggregate
principal amount for all such Domestic Indebtedness of $10,000,000 or
more, or (B) Foreign Subsidiary Indebtedness (other than the Notes and
Loans) in an aggregate principal amount for all such Foreign Subsidiary
Indebtedness of $20,000,000 or more, beyond the period of grace (not to
exceed 30 days), if any, provided in the instrument or agreement under
which such Indebtedness was created; or (ii) default in the observance
or performance of any other agreement relating to any such Indebtedness
in the amounts specified in clause (i) above or contained in any
instrument or agreement evidencing, securing or relating thereto, or
any other event shall occur or condition exist in any case which
continues uncured or unwaived (and, if waived, without any change in
the material terms of such Indebtedness) after the expiration of all
<PAGE> 52
51
applicable grace periods, the effect of which default or other event or
condition is to cause, or to permit the holder or holders of such
Indebtedness (or a trustee or agent on behalf of such holder or
holders) to cause, with the giving of notice if required, such
Indebtedness to become due prior to its stated maturity; or
(f) (i) The Parent or any Principal Subsidiary (other than the
Excluded Subsidiaries) shall commence any case, proceeding or other
action (A) under any existing or future law of any jurisdiction,
domestic or foreign, relating to bankruptcy, insolvency, reorganization
or relief of debtors, seeking to have an order for relief entered with
respect to it, or seeking to adjudicate it a bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with respect to
it or its debts, or (B) seeking appointment of a receiver, trustee,
custodian or other similar official for it or for all or any
substantial part of its assets, or the Parent or any such Principal
Subsidiary shall make a general assignment for the benefit of its
creditors; or (ii) there shall be commenced against the Parent or any
such Principal Subsidiary any case, proceeding or other action of a
nature referred to in clause (i) above which (A) results in the entry
of an order for relief or any such adjudication or appointment or (B)
remains undismissed, undischarged or unbonded for a period of 60 days;
or (iii) there shall be commenced against the Parent or any such
Principal Subsidiary any case, proceeding or other action seeking
issuance of a warrant of attachment, execution, distraint or similar
process against all or any substantial part of its assets which results
in the entry of an order for any such relief which shall not have been
vacated, discharged, or stayed or bonded pending appeal within 60 days
from the entry thereof; or (iv) the Parent or any such Principal
Subsidiary shall take any action in furtherance of, or indicating its
consent to, approval of, or acquiescence in, any of the acts set forth
in clause (i), (ii) or (iii) above; or (v) the Parent or any such
Principal Subsidiary shall generally not, or shall be unable to, or
shall admit in writing its inability to, pay its debts as they become
due; or
(g) (i) Any Person shall engage in any non-exempt "prohibited
transaction" (as defined in Section 406 of ERISA or Section 4975 of the
Code) involving any Plan, (ii) any "accumulated funding deficiency" (as
defined in Section 302 of ERISA), whether or not waived, shall exist
with respect to any Plan, (iii) a Reportable Event shall occur with
respect to, or judicial proceedings shall commence to have a trustee
appointed, or a trustee shall be appointed, to administer or to
terminate, any Single Employer Plan, which Reportable Event or
commencement of judicial proceedings or appointment of a trustee is, in
the reasonable opinion of
<PAGE> 53
52
the Majority Banks, likely to result in the termination of such Plan
for purposes of Title IV of ERISA, (iv) any Single Employer Plan shall
terminate for purposes of Title IV of ERISA, (v) the Company or any
Commonly Controlled Entity shall, or in the reasonable opinion of the
Majority Banks is likely to, incur any liability in connection with a
withdrawal from, or the Insolvency or Reorganization of, a
Multiemployer Plan or (vi) any other event or condition shall occur or
exist, with respect to a Plan; and in each case in clauses (i) through
(vi) above, such event or condition, together with all other such
events or conditions, if any, could reasonably be expected to subject
the Company or any of its Subsidiaries to any tax, penalty or other
liabilities which in the aggregate would have a Material Adverse
Effect; or
(h) One or more judgments or decrees shall be entered against
the Parent or any of its Subsidiaries in aggregate amounts (not paid or
fully covered by insurance) of $10,000,000 or more and all such
judgments or decrees shall not have been vacated, discharged, stayed or
bonded pending appeal within 60 days from the entry thereof; or
(i) The Parent shall cease to own directly or indirectly of
record and beneficially free and clear of Liens at least 75% of the
shares of the issued and outstanding capital stock of the Company,
except as a result of the transfer or distribution of the stock of the
Company and/or Grace Holding in connection with the NMC Disposition,
provided that after giving effect thereto there is no Default or Event
of Default;
then, and in any such event, (A) if such event is an Event of Default specified
in clause (i), (ii) or (iii) of paragraph (f) above with respect to any of the
Borrowers, automatically the Commitments to such Borrower shall immediately
terminate and the Loans made to such Borrower hereunder (with accrued interest
thereon) and all other amounts owing under this Agreement and the Notes of such
Borrower shall immediately become due and payable, and (B) if such event is any
other Event of Default, either or both of the following actions may be taken:
(i) with the consent of the Majority Banks, the Administrative Agent may, or
upon the request of the Majority Banks, the Administrative Agent shall, by
notice to the Company declare the Commitments of any or all of the Borrowers to
be terminated forthwith, whereupon such Commitments shall immediately terminate;
and (ii) with the consent of the Majority Banks, the Administrative Agent may,
or upon the request of the Majority Banks, the Administrative Agent shall, by
notice of default to the Company and the Parent, declare the Loans hereunder
made to any or all of the Borrowers (with accrued interest thereon) and all
other amounts owing by such Borrower under this Agreement and the Notes of such
Borrower to be due and payable forthwith, whereupon the same shall immediately
become due and payable. Except as expressly provided
<PAGE> 54
53
above in this Section, presentment, demand, protest and all other notices of any
kind are hereby expressly waived.
SECTION 11. THE ADMINISTRATIVE AGENT
11.1 Appointment. Each Bank hereby irrevocably designates and
appoints Chemical as the Administrative Agent of such Bank under this Agreement
and the other Loan Documents, and each such Bank irrevocably authorizes
Chemical, as the Administrative Agent for such Bank, to take such action on its
behalf under the provisions of this Agreement and the other Loan Documents and
to exercise such powers and perform such duties as are expressly delegated to
the Administrative Agent by the terms of this Agreement and the other Loan
Documents, together with such other powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary elsewhere in this Agreement, the
Administrative Agent shall not have any duties or responsibilities, except those
expressly set forth herein, or any fiduciary relationship with any Bank, and no
implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or any other Loan Document or
otherwise exist against the Administrative Agent.
11.2 Delegation of Duties. The Administrative Agent may
execute any of its duties under this Agreement and the other Loan Documents by
or through agents or attorneys-in-fact and shall be entitled to advice of
counsel concerning all matters pertaining to such duties. The Administrative
Agent shall not be responsible for the negligence or misconduct of any agents or
attorneys-in-fact selected by it with reasonable care.
11.3 Exculpatory Provisions. Neither the Administrative Agent
nor any of its officers, directors, employees, agents, attorneys-in-fact or
Affiliates shall be (i) liable for any action lawfully taken or omitted to be
taken by it or such Person under or in connection with this Agreement or any
other Loan Document (except for its or such Person's own gross negligence or
willful misconduct) or (ii) responsible in any manner to any of the Banks for
any recitals, statements, representations or warranties made by any Loan Party
or any officer thereof contained in this Agreement or any other Loan Document or
in any certificate, report, statement or other document referred to or provided
for in, or received by the Administrative Agent under or in connection with,
this Agreement or any other Loan Document or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement or
the Notes or any other Loan Document or for any failure of any Loan Party to
perform its obligations hereunder or thereunder. The Administrative Agent shall
not be under any obligation to any Bank to ascertain or to inquire as to the
observance or performance of any of the agreements contained in, or conditions
of, this Agreement or any other Loan Document, or to inspect the properties,
books or records of any Loan Party.
<PAGE> 55
54
11.4 Reliance by Administrative Agent. The Administrative
Agent shall be entitled to rely, and shall be fully protected in relying, upon
any note, writing, resolution, notice, consent, certificate, affidavit, letter,
cablegram, telegram, telecopy, statement, order or other document or
conversation believed by it to be genuine and correct and to have been signed,
sent or made by the proper Person or Persons and upon advice and statements of
legal counsel (including, without limitation, counsel to the Company, the Parent
or any other Borrower), independent accountants and other experts selected by
the Administrative Agent. The Administrative Agent may deem and treat the payee
of any Note as the owner thereof for all purposes unless a written notice of
assignment, negotiation or transfer thereof shall have been filed with the
Administrative Agent. The Administrative Agent shall be fully justified in
failing or refusing to take any action under this Agreement or any other Loan
Document unless it shall first receive such advice or concurrence of the
Majority Banks as it deems appropriate or it shall first be indemnified to its
satisfaction by the Banks against any and all liability and expense which may be
incurred by it by reason of taking or continuing to take any such action. The
Administrative Agent shall in all cases be fully protected in acting, or in
refraining from acting, under this Agreement and the Notes and the other Loan
Documents in accordance with a request of the Majority Banks, and such request
and any action taken or failure to act pursuant thereto shall be binding upon
all the Banks and all future holders of the Notes.
11.5 Notice of Default. The Administrative Agent shall not be
deemed to have knowledge or notice of the occurrence of any Default or Event of
Default hereunder unless the Administrative Agent has received notice from a
Bank or any Loan Party referring to this Agreement, describing such Default or
Event of Default and stating that such notice is a "notice of default". In the
event that the Administrative Agent receives such a notice, the Administrative
Agent shall give notice thereof to the Banks. The Administrative Agent shall
take such action with respect to such Default or Event of Default as shall be
reasonably directed by the Majority Banks; provided that unless and until the
Administrative Agent shall have received such directions, the Administrative
Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Default or Event of Default as it shall
deem advisable in the best interests of the Banks.
11.6 Non-Reliance on Administrative Agent and Other Banks.
Each Bank expressly acknowledges that neither the Administrative Agent nor any
of its officers, directors, employees, agents, attorneys-in-fact or Affiliates
has made any representations or warranties to it and that no act by the
Administrative Agent hereinafter taken, including any review of the affairs of
the Loan Parties, shall be deemed to constitute any representation or warranty
by the Administrative Agent to any
<PAGE> 56
55
Bank. Each Bank represents to the Administrative Agent that it has,
independently and without reliance upon the Administrative Agent or any other
Bank, and based on such documents and information as it has deemed appropriate,
made its own appraisal of and investigation into the business, operations,
property, financial and other condition and creditworthiness of the Loan Parties
and made its own decision to make its Loans hereunder and enter into this
Agreement. Each Bank also represents that it will, independently and without
reliance upon the Administrative Agent or any other Bank, and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit analysis, appraisals and decisions in taking or not taking
action under this Agreement and the other Loan Documents, and to make such
investigation as it deems necessary to inform itself as to the business,
operations, property, financial and other condition and creditworthiness of the
Loan Parties. Except for notices, reports and other documents expressly required
to be furnished to the Banks by the Administrative Agent hereunder, the
Administrative Agent shall not have any duty or responsibility to provide any
Bank with any credit or other information concerning the business, operations,
property, condition (financial or otherwise), prospects or creditworthiness of
the Loan Parties which may come into the possession of the Administrative Agent
or any of its officers, directors, employees, agents, attorneys-in-fact or
Affiliates.
11.7 Indemnification. The Banks agree to indemnify the
Administrative Agent in its capacity as such (to the extent not reimbursed by
the Loan Parties and without limiting the obligation of the Parent, the Company
and any other Borrower to do so), ratably according to the respective amounts of
their Commitments as in effect on the date on which the claim for indemnity by
the Administrative Agent is sought, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind whatsoever which may at any time
(including, without limitation, at any time following the payment of the Notes)
be imposed on, incurred by or asserted against the Administrative Agent in any
way relating to or arising out of this Agreement, any of the other Loan
Documents or any documents contemplated by or referred to herein or therein or
the transactions contemplated hereby or thereby or any action taken or omitted
by the Administrative Agent under or in connection with any of the foregoing;
provided that no Bank shall be liable for the payment of any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting solely from the Administrative
Agent's gross negligence or willful misconduct. The agreements in this
subsection shall survive the payment of the Notes and all other amounts payable
hereunder.
11.8 Administrative Agent in Its Individual Capacity. The
Administrative Agent and its Affiliates may make loans to, accept deposits from
and generally engage in any kind of business
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56
with the Parent, Grace Holding, the Company or any other Borrower as though the
Administrative Agent were not the Administrative Agent hereunder and under the
other Loan Documents. With respect to its Loans made or renewed by it and any
Note issued to it, the Administrative Agent shall have the same rights and
powers under this Agreement and the other Loan Documents as any Bank and may
exercise the same as though it were not the Administrative Agent, and the terms
"Bank" and "Banks" shall include the Administrative Agent in its individual
capacity.
11.9 Successor Administrative Agent. The Administrative Agent
may resign as Administrative Agent upon 10 days' notice to the Banks. If the
Administrative Agent shall resign as Administrative Agent under this Agreement
and the other Loan Documents, then the Majority Banks shall appoint from among
the Banks a successor agent for the Banks, which successor agent shall be
approved by the Company, whereupon such successor agent shall succeed to the
rights, powers and duties of the Administrative Agent, and the term
"Administrative Agent" shall mean such successor agent effective upon its
appointment, and the former Administrative Agent's rights, powers and duties as
Administrative Agent shall be terminated, without any other or further act or
deed on the part of such former Administrative Agent or any of the parties to
this Agreement or any holders of the Notes. After any retiring Administrative
Agent's resignation as Administrative Agent, the provisions of this subsection
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was Administrative Agent under this Agreement and the other Loan
Documents.
SECTION 12. GUARANTEES
12.1 Parent Guarantee. Each of the Parent Guarantors hereby
jointly and severally and unconditionally and irrevocably guarantees to the
Administrative Agent and the Banks the prompt and complete payment and
performance by each of the Borrowers when due (whether at the stated maturity,
by acceleration or otherwise) of the Obligations owing to the Administrative
Agent and the Banks by such Borrowers. This guarantee (the "Parent Guarantee")
shall remain in full force and effect until the Obligations of each of the
Borrowers are indefeasibly paid in full, notwithstanding that from time to
time prior thereto any Borrower may be free from any Obligations. Each of the
Parent Guarantors jointly and severally agrees that whenever, at any time, or
from time to time, it shall make any payment to the Administrative Agent or any
Bank on account of its liability under this Parent Guarantee, it will notify the
Administrative Agent and such Bank in writing that such payment is made under
this Parent Guarantee for such purpose. No payment or payments made by any
Borrower or any other Person or received or collected by the Administrative
Agent or any Bank from any Borrower or any other Person by virtue of any action
or proceeding or any offset or appropriation or application, at any time or from
time to
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58
time, in reduction of or in payment of the Obligations of such Borrower shall be
deemed to modify, reduce, release or otherwise affect the liability of the
Parent Guarantors under this Parent Guarantee, which shall remain obligated
under this Parent Guarantee, notwithstanding any such payment or payments until
the Obligations are paid in full.
12.2 Company Guarantee. The Company hereby unconditionally and
irrevocably guarantees to the Administrative Agent and the Banks, the prompt and
complete payment and performance by each of the other Borrowers when due
(whether at the stated maturity, by acceleration or otherwise) of the
Obligations owing to the Administrative Agent and the Banks by such Borrowers.
This guarantee (the "Company Guarantee") shall remain in full force and effect
until the Obligations of each such Borrower are indefeasibly paid in full,
notwithstanding that from time to time prior thereto any such Borrower may be
free from any Obligations. The Company agrees that whenever, at any time, or
from time to time, it shall make any payment to the Administrative Agent or any
Bank on account of its liability under this Company Guarantee, it will notify
the Administrative Agent and such Bank in writing that such payment is made
under this Company Guarantee for such purpose. No payment or payments made by
any such Borrower or any other Person or received or collected by the
Administrative Agent or any Bank from any such Borrower or any other Person by
virtue of any action or proceeding or any offset or appropriation or
application, at any time or from time to time, in reduction of or in payment of
the Obligations of such Borrowers shall be deemed to modify, reduce, release or
otherwise affect the liability of the Company under this Company Guarantee,
which shall remain obligated under this Company Guarantee, notwithstanding any
such payment or payments until the Obligations of such Borrowers are paid in
full.
12.3 No Subrogation, Contribution, Reimbursement or Indemnity.
Notwithstanding anything to the contrary in the Parent Guarantee and the Company
Guarantee (together, the "Guarantees", each a "Guarantee"), each of the Parent
Guarantors and the Company (together, the "Guaranteeing Parties," each a
"Guaranteeing Party") hereby irrevocably waives all rights which may have arisen
in connection with its Guarantee to be subrogated to any of the rights (whether
contractual, under the Bankruptcy Code, including Section 509 thereof, under
common law or otherwise) of the Administrative Agent or any Bank against the
Company or any other Borrowers (together, the "Guaranteed Parties", each a
"Guaranteed Party") for the payment of the Obligations. Each Guaranteeing Party
hereby further irrevocably waives all contractual, common law, statutory or
other rights of reimbursement, contribution, exoneration or indemnity (or any
similar right) from or against any Guaranteed Party or Parties or any other
Person which may have arisen in connection with its Guarantee. So long as the
Obligations remain outstanding, if any amount shall be paid by or on behalf of
any Guaranteed Party to the Guaranteeing Party on account of any of the rights
waived in
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58
this subsection, such amount shall be held by such Guaranteeing Party in trust,
segregated from other funds of such Guaranteeing Party, and shall, forthwith
upon receipt by such Guaranteeing Party, be turned over to the Administrative
Agent in the exact form received by such Guaranteeing Party (duly endorsed by
such Guaranteeing Party to the Administrative Agent, if required), to be applied
against the Obligations of such Guaranteed Party or Parties, whether matured or
unmatured, in such order as the Administrative Agent may determine. The
provisions of this subsection as they apply to each of the Guaranteeing Parties
shall survive the payment in full of the Obligations of its Guaranteed Party or
Parties.
12.4 Amendments, etc., with respect to the Obligations. Each
Guaranteeing Party shall remain obligated under its Guarantee notwithstanding
that, without any reservation of rights against such Guaranteeing Party, and
without notice to or further assent by such Guaranteeing Party, any demand for
payment of any of the Obligations made by the Administrative Agent or any Bank
may be rescinded by the Administrative Agent or such Bank, and any of the
Obligations continued, and the Obligations, or the liability of any other party
upon or for any part thereof, or any collateral security or guarantee therefor
or right of offset with respect thereto, may, from time to time, in whole or in
part, be renewed, extended, amended, modified, accelerated, compromised, waived,
surrendered or released by the Administrative Agent or any Bank, and this
Agreement, the Notes and the other Loan Documents may be amended, modified,
supplemented or terminated, in whole or in part, as the Administrative Agent or
the Banks (or the Majority Banks, as the case may be) may deem advisable from
time to time in accordance with the provisions of subsection 13.1(a), and any
collateral security, guarantee or right of set-off at any time held by the
Administrative Agent or any Bank for the payment of the Obligations may be sold,
exchanged, waived, surrendered or released. Neither the Administrative Agent nor
any Bank shall have any obligation to protect, secure, perfect or insure any
Lien at any time held by it as security for the Obligations or for the
obligations of any Guaranteeing Party under its Guarantee or any property
subject thereto.
12.5 Guarantee Absolute and Unconditional. Each Guaranteeing
Party waives any and all notice of the creation, renewal, extension or accrual
of any of the Obligations and notice of or proof of reliance by the
Administrative Agent or any Bank upon its Guarantee or acceptance of its
Guarantee; the Obligations, and any of them, shall conclusively be deemed to
have been created, contracted or incurred in reliance upon the Guarantees; and
all dealings between the Borrowers and the Parent Guarantors, on the one hand,
and the Administrative Agent and the Banks, on the other, shall likewise be
conclusively presumed to have been had or consummated in reliance upon the
Guarantees. Each Guaranteeing Party waives diligence, presentment, protest,
notice of intent to accelerate, notice of acceleration, demand
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for payment and notice of default or nonpayment to or upon any Guaranteed Party
or such Guaranteeing Party with respect to the Obligations. The Guarantees shall
be construed as a continuing, absolute and unconditional guarantee of payment
without regard to (a) the validity or enforceability of this Agreement, any
Note, any other Loan Document, any of the Obligations or any collateral security
therefor or guarantee or right of set-off with respect thereto at any time or
from time to time held by the Administrative Agent or any Bank, (b) any defense,
offset or counterclaim (other than a defense of payment or performance) which
may at any time be available to or be asserted by any of the Guaranteed Parties
against the Administrative Agent or any Bank or (c) any other circumstance
whatsoever (with or without notice to or knowledge of any of the Guaranteed
Parties or such Guaranteeing Party) which constitutes, or might be construed to
constitute, an equitable or legal discharge of any of the Guaranteed Parties for
the Obligations of such Guaranteed Party, or of such Guaranteeing Party under
its Guarantee, in bankruptcy or in any other instance. When the Administrative
Agent is pursuing its rights and remedies hereunder against any Guaranteeing
Party, the Administrative Agent or any Bank may, but shall be under no
obligation to, pursue such rights and remedies as it may have against its
Guaranteed Party or any other Person or against any collateral security or
guarantee for the Obligations or any right of offset with respect thereto, and
any failure by the Administrative Agent or any Bank to pursue such other rights
or remedies or to collect any payments from such Guaranteed Party or such other
Person or to realize upon any such collateral security or guarantee or to
exercise such right of offset or any release of such Guaranteed Party or such
other Person or of any such collateral security, guarantee or right of offset,
shall not relieve such Guaranteeing Party of any liability under its Guarantee,
and shall not impair or affect the rights and remedies, whether express, implied
or available as a matter of law, of the Administrative Agent and the Banks
against such Guaranteeing Party.
12.6 Reinstatement. Each Guarantee shall continue to be
effective, or be reinstated, as the case may be, if at any time payment, or any
part thereof, of any of the Obligations of any Guaranteed Party thereunder is
rescinded or must otherwise be restored or returned by the Administrative Agent
or any Bank upon the insolvency, bankruptcy, dissolution, liquidation or
reorganization of such Guaranteed Party or upon or as a result of the
appointment of a receiver, intervenor or conservator of, or trustee or similar
officer for, such Guaranteed Party or any substantial part of any of its
property, or otherwise, all as though such payments had not been made.
12.7 Payments. Each Guaranteeing Party hereby agrees that the
Obligations will be paid to the Administrative Agent for the benefit of the
Administrative Agent and the Banks, as the case may be, without set-off or
counterclaim in Dollars or Alternative Currency, as appropriate, in immediately
available
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funds at the office of the Administrative Agent, c/o Agent Bank Services Group
(Clearing Account No. 144810547) located at 140 East 45th Street, New York, New
York 10017.
SECTION 13. MISCELLANEOUS
13.1 Amendments and Waivers; Replacement of Banks. (a) Neither
this Agreement, any Note, any other Loan Document, nor any terms hereof or
thereof may be amended, supplemented or modified except in accordance with the
provisions of this subsection. With the written consent of the Majority Banks,
the Administrative Agent, the Parent Guarantors and the Company may, from time
to time, enter into written amendments, supplements or modifications hereto and
to the Notes, if any, and the other Loan Documents for the purpose of adding any
provisions to this Agreement or the Notes, if any, or the other Loan Documents
or changing in any manner the rights of the Banks, the Parent Guarantors or of
the Borrowers hereunder or thereunder or waiving, on such terms and conditions
as the Administrative Agent may specify in such instrument, any of the
requirements of this Agreement or the Notes, if any, or the other Loan Documents
or any Default or Event of Default and its consequences; provided, however, that
no such waiver and no such amendment, supplement or modification shall (i)
reduce the amount or extend the maturity of any Loan or Note or any installment
thereof, or reduce the rate or extend the time of payment of interest thereon,
or reduce any fee payable to any Bank hereunder, or change the amount of any
Bank's Commitment, in each case without the consent of the Bank affected
thereby, or (ii) amend, modify or waive any provision of subsection 5.3(c)
without the written consent of all the Banks, or (iii) amend, modify or waive
any provision of this subsection or reduce the percentage specified in the
definition of Majority Banks, or consent to the assignment or transfer by each
Parent Guarantor or any Borrower of any of its rights and obligations under this
Agreement and the other Loan Documents, or amend, modify or waive any provision
of Section 12, in each case without the written consent of all the Banks, or
(iv) amend, modify or waive any provision of Section 11 without the written
consent of the then Administrative Agent. Any such waiver and any such
amendment, supplement or modification shall apply equally to each of the Banks
and shall be binding upon the Parent Guarantors, the Borrowers, the Banks, the
Administrative Agent, all future holders of the Notes, if any, and all future
obligees under the Loans. In the case of any waiver, the Parent Guarantors, the
Borrowers, the Banks and the Administrative Agent shall be restored to their
former position and rights hereunder and under the outstanding Loans or Notes,
if any, and any other Loan Documents, and any Default or Event of Default waived
shall be deemed to be cured and not continuing; but no such waiver shall extend
to any subsequent or other Default or Event of Default, or impair any right
consequent thereon.
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(b) Notwithstanding anything to the contrary contained in
subsection 13.1(a), so long as no Default or Event of Default has occurred and
is continuing the Borrowers and the Parent Guarantors shall be permitted in
their discretion (but, if any Revolving Credit Loans are then outstanding, with
the consent of the Majority Banks (which consent shall not be unreasonably
withheld)) to amend this Agreement to replace one or more Banks without the
consent of any Bank to be so replaced pursuant to this subsection 13.1(b) (a
"Replaced Bank") and to provide for (w) the termination of the Commitments of
such Replaced Bank, (x) the addition to this Agreement of one or more other
banking institutions, or an increase in the Commitments of one or more of the
other Banks (with the consent of such other Banks), so that the total
Commitments after giving effect to such amendment shall be in the same amount as
the total Commitments immediately before giving effect to such amendment, (y) if
any Loans are outstanding at the time of such amendment, the making of such
additional Loans by such new financial institutions or other Bank or Banks, as
the case may be, as may be necessary to repay in full the outstanding Loans of
such Replaced Bank together with interest thereon and all accrued fees and
indemnities with respect thereto immediately before giving effect to such
amendment and (z) such other modifications to this Agreement as may be necessary
to effect the replacement of such Replaced Bank.
(c) Notwithstanding anything to the contrary contained in
paragraph (a) or (b) of this subsection 13.1, if as a result of a change in any
Requirement of Law after the date hereof any Borrower or any Parent Guarantor
has become obligated to, or reasonably believes that it will become obligated to
pay to any Bank any increased amount pursuant to subsection 5.11, 5.12 or 5.13,
and such Bank shall not have waived payment of such increased amounts, then the
Borrowers and the Parent Guarantors may, if no Default or Event of Default has
occurred and is continuing and payment of any such increased amounts as have
become due has been made or appropriately provided for, upon five Business Days'
notice to the Administrative Agent and such Bank, amend this Agreement, without
the consent of any Bank or the Administrative Agent, to replace any one or more
of the Banks to which such increased amounts have become payable or would become
payable and to provide for the matters referred to in clauses (w), (x), (y) and
(z) of subsection 13.1(b), and such replaced Bank or Banks shall be deemed to be
Replaced Banks for purposes of such clauses.
13.2 Notices. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
telecopy), and, unless otherwise expressly provided herein, shall be deemed to
have been duly given or made on receipt, addressed as follows in the case of the
Company, the Parent Guarantors and the Administrative Agent, as set forth in
paragraph 5 of the Notice of Additional Borrower relating to any Borrower other
than the Company, in the case of such other Borrower, and as set forth in
Schedule I in the case of the other
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parties hereto, or to such other address as may be hereafter notified by the
respective parties hereto and any future holders of the Notes, if any, or any
future obligees under the Loans:
The Company: W. R. Grace & Co.-Conn
One Town Center Road
Boca Raton, Florida 33486-1010
Attention: Treasurer
Telecopy: (407) 362-1944
Telephone: (407) 362-1949
The Parent
Guarantors: W. R. Grace & Co.
One Town Center Road
Boca Raton, Florida 33486-1010
Attention: Treasurer
Telecopy: (407) 362-1944
Telephone: (407) 362-1949
Grace Holding, Inc.
One Town Center Road
Boca Raton, Florida 33486-1010
Attention: Treasurer
Telecopy: (407) 362-1944
Telephone: (407) 362-1949
The Administrative
Agent: Chemical Bank
270 Park Avenue
New York, New York 10017
Attention: Scott S. Ward
Telecopy: (212) 270-2625
Telephone: (212) 270-3125
With a copy to: Agent Bank Services Group
140 East 45th Street
New York, New York 10017
Attention: Margaret Swales
Telecopy: (212) 622-0122
Telephone: (212) 622-8433
13.3 No Waiver; Cumulative Remedies. No failure to exercise
and no delay in exercising, on the part of the Administrative Agent or any Bank,
any right, remedy, power or privilege hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, remedy, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege. The rights, remedies,
powers and privileges herein provided are cumulative and not exclusive of any
rights, remedies, powers and privileges provided by law.
13.4 Survival of Representations and Warranties. All
representations and warranties made hereunder and in any
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63
document, certificate or statement delivered pursuant hereto or in connection
herewith shall survive the execution and delivery of this Agreement and the
Notes, if any.
13.5 Payment of Expenses and Taxes. The Company agrees (a) to
pay or reimburse the Administrative Agent for all its out-of-pocket costs and
expenses incurred in connection with the development, preparation and execution
of, and any amendment, supplement or modification to, this Agreement and any
Notes and the other Loan Documents and any other documents prepared in
connection herewith or therewith, and the consummation and administration of the
transactions contemplated hereby and thereby, including, without limitation, the
fees and disbursements of counsel to the Administrative Agent, (b) to pay or
reimburse each Bank and the Administrative Agent for all its costs and expenses
incurred in connection with the enforcement or preservation of any rights under
this Agreement, any Notes, the other Loan Documents and any such other
documents, including, without limitation, fees and disbursements of counsel to
the Administrative Agent and to the several Banks, and (c) to pay, indemnify,
and hold each Bank and the Administrative Agent harmless from, any and all
recording and filing fees and any and all liabilities with respect to, or
resulting from any delay in paying, stamp, excise and other transactional taxes,
if any, which may be payable or determined to be payable in connection with the
execution and delivery of, or consummation or administration of any of the
transactions contemplated by, or any amendment, supplement or modification of,
or any waiver or consent under or in respect of, this Agreement, any Notes, the
other Loan Documents and any such other documents, and (d) to pay, indemnify,
and hold each Bank and the Administrative Agent harmless from and against any
and all other liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever with respect to the execution, delivery and performance by the Loan
Parties, and administration and enforcement by the Administrative Agent and the
Banks of this Agreement, any Notes and the other Loan Documents and any such
other documents (all the foregoing, collectively, the "indemnified
liabilities"), provided, that the Company shall have no obligation hereunder to
the Administrative Agent or any Bank with respect to indemnified liabilities
arising from (i) the gross negligence or willful misconduct of the
Administrative Agent or any such Bank, (ii) legal proceedings commenced against
the Administrative Agent or any such Bank by any security holder or creditor
thereof arising out of and based upon rights afforded any such security holder
or creditor solely in its capacity as such, or (iii) legal proceedings commenced
against the Administrative Agent or any such Bank by any other Bank or by any
Transferee (as defined in subsection 13.6). The agreements in this subsection
shall survive repayment of the Loans or Notes, if any, and all other amounts
payable hereunder.
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64
13.6 Successors and Assigns; Participations; Purchasing Banks.
(a) This Agreement shall be binding upon and inure to the
benefit of the Parent Guarantors, the Borrowers, the Banks, the Administrative
Agent, all future holders of the Notes, if any, all future obligees under the
Loans and their respective successors and assigns, except that neither the
Parent Guarantors nor any Borrower may assign or transfer any of its rights or
obligations under this Agreement without the prior written consent of each Bank.
(b) Any Bank may, in the ordinary course of its commercial
banking business and in accordance with applicable law, at any time sell to one
or more banks or other entities ("Participants") participating interests in any
Loan owing to such Bank, any Note held by such Bank, any Commitments of such
Bank or any other interest of such Bank hereunder and under the other Loan
Documents. In the event of any such sale by a Bank of participating interests to
a Participant, such Bank's obligations under this Agreement to the other parties
to this Agreement shall remain unchanged, such Bank shall remain solely
responsible for the performance thereof, such Bank shall remain the holder of
any such Note, if any, and the obligee under any such Loan for all purposes
under this Agreement and the other Loan Documents, and the Parent Guarantors,
the Borrowers and the Administrative Agent shall continue to deal solely and
directly with such Bank in connection with such Bank's rights and obligations
under this Agreement and the other Loan Documents. Each of the Parent Guarantors
and each of the Borrowers agrees that if amounts outstanding under this
Agreement and the Loans or the Notes, if any, are due or unpaid, or shall have
been declared or shall have become due and payable upon the occurrence of an
Event of Default, each Participant shall be deemed to have the right of set-off
in respect of its participating interest in amounts owing under this Agreement
and any Loan or Note to the same extent as if the amount of its participating
interest were owing directly to it as a Bank under this Agreement or any Loan or
Note, provided that such Participant shall only be entitled to such right of
set-off if it shall have agreed in the agreement pursuant to which it shall have
acquired its participating interest to share with the Banks the proceeds thereof
as provided in subsection 13.7. Each of the Parent Guarantors and each of the
Borrowers also agrees that each Participant shall be entitled to the benefits of
subsections 5.11, 5.12, 5.13 and 13.5 with respect to its participation in the
Commitments and the Loans outstanding from time to time; provided, that no
Participant shall be entitled to receive any greater amount pursuant to such
subsections than the transferor Bank would have been entitled to receive in
respect of the amount of the participation transferred by such transferor Bank
to such Participant had no such transfer occurred.
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65
(c) Any Bank may, in the ordinary course of its commercial
banking business and in accordance with applicable law, at any time sell to any
Bank or any affiliate thereof and, with the consent of the Company and upon
notice to the Administrative Agent, to one or more additional banks or financial
institutions ("Purchasing Banks") all or any part of its rights and obligations
under this Agreement and the Loans or the Notes, if any, pursuant to a
Commitment Transfer Supplement, substantially in the form of Exhibit H, executed
by such Purchasing Bank, such transferor Bank (and, in the case of a Purchasing
Bank that is not then a Bank or an affiliate thereof, by the Company and the
Administrative Agent) and delivered to the Administrative Agent for its
acceptance and recording in the Register. Upon such execution, delivery,
acceptance and recording, from and after the Transfer Effective Date determined
pursuant to such Commitment Transfer Supplement, (x) the Purchasing Bank
thereunder shall be a party hereto and, to the extent provided in such
Commitment Transfer Supplement, have the rights and obligations of a Bank
hereunder with a Commitment as set forth therein, and (y) the transferor Bank
thereunder shall, to the extent provided in such Commitment Transfer Supplement,
be released from its obligations under this Agreement (and, in the case of a
Commitment Transfer Supplement covering all or the remaining portion of a
transferor Bank's rights and obligations under this Agreement, such transferor
Bank shall cease to be a party hereto). Such Commitment Transfer Supplement
shall be deemed to amend this Agreement to the extent, and only to the extent,
necessary to reflect the addition of such Purchasing Bank and the resulting
adjustment of Commitment Percentages arising from the purchase by such
Purchasing Bank of all or a portion of the rights and obligations of such
transferor Bank under this Agreement and the Loan or the Notes, if any. On or
prior to the Transfer Effective Date determined pursuant to such Commitment
Transfer Supplement, the relevant Borrower, at its own expense, if the
Purchasing Bank so requests, shall execute and deliver to the Administrative
Agent in exchange for any surrendered Revolving Credit Note and Bid Loan Note a
new Revolving Credit Note and Bid Loan Note to the order of such Purchasing Bank
in an amount equal to the Commitment assumed by it pursuant to such Commitment
Transfer Supplement and, if the transferor Bank has retained a Commitment
hereunder, new Notes to the order of the transferor Bank in an amount equal to
the Commitment retained by it hereunder. Such new Notes shall be dated the
Closing Date and shall otherwise be in the form of the Notes replaced thereby.
Any Notes surrendered by the transferor Bank shall be returned by the
Administrative Agent to the Company marked "cancelled".
(d) The Administrative Agent shall maintain at its address
referred to in subsection 13.2 a copy of each Commitment Transfer Supplement
delivered to it and a register (the "Register") for the recordation of the names
and addresses of the Banks and the Commitment of, and principal amount of the
Loans owing to, each Bank from time to time. The entries in the Register shall
be conclusive, in the absence of manifest error,
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66
and the Parent Guarantors, the Borrowers, the Administrative Agent and the Banks
may treat each Person whose name is recorded in the Register as the owner of the
Loan recorded therein for all purposes of this Agreement. The Register shall be
available for inspection by the Parent Guarantors, the Borrowers or any Bank at
any reasonable time and from time to time upon reasonable prior notice.
(e) Upon its receipt of a Commitment Transfer Supplement
executed by a transferor Bank and Purchasing Bank (and, in the case of a
Purchasing Bank that is not then a Bank or an affiliate thereof, by the Company
and the Administrative Agent) together with payment to the Administrative Agent
of a registration and processing fee of $3,500, the Administrative Agent shall
(i) promptly accept such Commitment Transfer Supplement (ii) on the Transfer
Effective Date determined pursuant thereto record the information contained
therein in the Register and give notice of such acceptance and recordation to
the Banks and the Company.
(f) Each of the Parent Guarantors and the Borrowers authorizes
each Bank to disclose to any Participant or Purchasing Bank (each, a
"Transferee") and any prospective Transferee any and all financial information
in such Bank's possession concerning such Borrower and its affiliates which has
been delivered to such Bank by or on behalf of the Parent Guarantors, the
Company or such Borrower pursuant to this Agreement or which has been delivered
to such Bank by or on behalf of the Parent Guarantors, the Company or such
Borrower in connection with such Bank's credit evaluation of such Borrower and
its affiliates prior to becoming a party to this Agreement.
(g) If, pursuant to this subsection, any interest in this
Agreement or any Note is transferred to any Transferee which is organized under
the laws of any jurisdiction other than the United States or any state thereof,
the transferor Bank shall cause such Transferee, concurrently with the
effectiveness of such transfer, (i) to represent to the transferor Bank (for the
benefit of the transferor Bank, the Administrative Agent, the Parent Guarantors
and the Borrowers) that under applicable law and treaties no taxes will be
required to be withheld by the Administrative Agent, the Parent Guarantors, the
Borrowers or the transferor Bank with respect to any payments to be made to such
Transferee in respect of the Loans, (ii) to furnish to the transferor Bank (and,
in the case of any Purchasing Bank registered in the Register, the
Administrative Agent, the Parent Guarantors and the Company) either U.S.
Internal Revenue Service Form 4224 or U.S. Internal Revenue Service Form 1001
(wherein such Transferee claims entitlement to complete exemption from U.S.
federal withholding tax on all interest payments hereunder) and (iii) to agree
(for the benefit of the transferor Bank, the Administrative Agent, the Parent
Guarantors and the Company) to provide the transferor Bank (and, in the case of
any Purchasing Bank registered in the Register, the Administrative Agent, the
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67
Parent Guarantors and the Company) a new Form 4224 or Form 1001 upon the
expiration or obsolescence of any previously delivered form and comparable
statements in accordance with applicable U.S. laws and regulations and
amendments duly executed and completed by such Transferee, and to comply from
time to time with all applicable U.S. laws and regulations with regard to such
withholding tax exemption.
(h) Nothing herein shall prohibit any Bank from pledging or
assigning any Note to any Federal Reserve Bank in accordance with applicable
law.
13.7 Adjustments; Set-off.
(a) If any Bank (a "benefitted Bank") shall at any time
receive any payment of all or part of its Revolving Credit Loans, or interest
thereon, or receive any collateral in respect thereof (whether voluntarily or
involuntarily, by set-off, pursuant to events or proceedings of the nature
referred to in Section 10(f), or otherwise), in a greater proportion than any
such payment to or collateral received by any other Bank, if any, in respect of
such other Bank's Revolving Credit Loans, or interest thereon, such benefitted
Bank shall purchase for cash from the other Banks such portion of each such
other Bank's Loan, or shall provide such other Banks with the benefits of any
such collateral, or the proceeds thereof, as shall be necessary to cause such
benefitted Bank to share the excess payment or benefits of such collateral or
proceeds ratably with each of the Banks; provided, however, that if all or any
portion of such excess payment or benefits is thereafter recovered from such
benefitted Bank, such purchase shall be rescinded, and the purchase price and
benefits returned, to the extent of such recovery, but without interest. Each
Borrower agrees that each Bank so purchasing a portion of another Bank's Loan
may exercise all rights of payment (including, without limitation, rights of
set-off) with respect to such portion as fully as if such Bank were the direct
holder of such portion.
(b) In addition to any rights and remedies of the Banks
provided by law, each Bank shall have the right, without prior notice to the
Parent Guarantors and the Borrowers, any such notice being expressly waived by
the Parent Guarantors and the Borrowers, to the extent permitted by applicable
law, upon any amount not being paid when due and payable by any Borrower
hereunder or under the Notes (whether at the stated maturity, by acceleration or
otherwise) to set-off and appropriate and apply against such amount any and all
deposits (general or special, time or demand, provisional or final), in any
currency, and any other credits, indebtedness or claims, in any currency, in
each case whether direct or indirect, absolute or contingent, matured or
unmatured, at any time held or owing by such Bank or any branch or agency
thereof to or for the credit or the account of the Parent Guarantors or such
Borrower. Each Bank agrees promptly to notify the Parent Guarantors, the
Borrowers and the
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Administrative Agent after any such set-off and application made by such Bank,
provided that the failure to give such notice shall not affect the validity of
such set-off and application.
13.8 Counterparts. This Agreement may be executed by one or
more of the parties to this Agreement on any number of separate counterparts,
and all of said counterparts taken together shall be deemed to constitute one
and the same instrument. A set of the copies of this Agreement signed by all the
parties shall be lodged with the Parent Guarantors, the Company and the
Administrative Agent.
13.9 Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
13.10 Integration. This Agreement represents the agreement of
the Parent Guarantors, each Borrower, the Administrative Agent and the Banks
with respect to the subject matter hereof, and there are no promises,
undertakings, representations or warranties by the Administrative Agent or any
Bank relative to subject matter hereof not expressly set forth or referred to
herein, in the other Loan Documents or in any documentation entered into
pursuant to subsection 3.1(b).
13.11 GOVERNING LAW. THIS AGREEMENT (INCLUDING SECTION 12) AND
THE NOTES AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT AND
THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE LAW OF THE STATE OF NEW YORK.
13.12 Submission to Jurisdiction; Waivers. (a) Each
of the Parent Guarantors, each Borrower, the Administrative Agent
and the Banks hereby irrevocably and unconditionally:
(i) submits for itself and its property in any legal action or
proceeding relating to this Agreement and the other Loan Documents to
which it is a party, or for recognition and enforcement of any judgment
in respect thereof, to the non-exclusive general jurisdiction of the
Courts of the State of New York sitting in New York County, the courts
of the United States of America for the Southern District of New York,
and the appellate courts from any thereof;
(ii) consents that any such action or proceeding may be
brought in such courts and waives any objection that it may now or
hereafter have to the venue of any such action or
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proceeding in any such court or that such action or proceeding was
brought in an inconvenient court and agrees not to plead or claim the
same;
(iii) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or
certified mail (or any substantially similar form of mail), postage
prepaid, to the Parent Guarantors or such Borrower at its address set
forth in subsection 13.2 or, with respect to Borrowers other than the
Company, the Notice of Additional Borrower relating to such Borrower or
at such other address of which the Administrative Agent shall have been
notified pursuant thereto;
(iv) agrees that nothing herein shall affect the right to
effect service of process in any other manner permitted by law or shall
limit the right to sue in any other jurisdiction; and
(v) waives, to the maximum extent not prohibited by law, any
right it may have to claim or recover in any legal action or proceeding
referred to in this subsection any special, exemplary, punitive or
consequential damages.
(b) Each Borrower other than the Company hereby appoints and
empowers each of the Parent Guarantors and the Company, 1114 Avenue of the
Americas, New York, New York 10036- 7794, Attention: Treasurer, as its
authorized agent (the "Process Administrative Agent") to receive on behalf of
such Borrower service of any and all process and documents in any such legal
action or proceeding brought in a New York state or federal court sitting in New
York City. It is understood that a copy of such process served on the Process
Administrative Agent will be promptly hand delivered or mailed (by registered or
certified airmail if available), postage prepaid, to such Borrower at its
address set forth in paragraph 5 of such Borrower's Notice of Additional
Borrower, but the failure of such Borrower to receive such copy shall not affect
in any way the service of such process on the Process Administrative Agent. If
the Process Administrative Agent shall refuse or be prevented from acting as
agent, notice thereof shall immediately be given by such Borrowers to the
Administrative Agent by registered or certified airmail (if available), postage
prepaid, and such Borrowers agree promptly to designate another agent in New
York City, satisfactory to the Administrative Agent, to serve in place of the
Process Administrative Agent and deliver to the Administrative Agent written
evidence of such substitute agent's acceptance of such designation.
13.13 Acknowledgments. Each of the Parent Guarantors,
each Borrower, the Administrative Agent and the Banks hereby
acknowledges that:
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(a) it has been advised by counsel in the negotiation,
execution and delivery of this Agreement and the Notes and the other
Loan Documents;
(b) neither the Administrative Agent nor any Bank has any
fiduciary relationship with or duty to the Parent Guarantors or such
Borrower, as the case may be, arising out of or in connection with this
Agreement or any of the other Loan Documents, and the relationship
between Administrative Agent and Banks, on one hand, and the Parent
Guarantors and the Borrowers, on the other hand, in connection herewith
or therewith is solely that of debtor and creditor; and
(c) as to any matter relating to any Loan Documents, no joint
venture exists among the Banks or among the Parent Guarantors, the
Borrowers and the Banks.
13.14 WAIVERS OF JURY TRIAL. THE PARENT GUARANTORS, THE
BORROWERS, THE ADMINISTRATIVE AGENT AND THE BANKS HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING
TO THIS AGREEMENT OR THE NOTES OR ANY OTHER LOAN DOCUMENT AND FOR ANY
COUNTERCLAIM THEREIN.
13.15 Additional Borrowers. (a) Any Subsidiary of the Company
shall have the right to become a "Borrower" hereunder, and to borrow hereunder
subject to the terms and conditions hereof applicable to a Borrower and to the
following additional conditions:
(i) the Company shall deliver a notice in substantially the
form of Exhibit I hereto (a "Notice of Additional Borrower") signed by
such Subsidiary and countersigned by the Parent Guarantors and the
Company to the Administrative Agent and the Banks stating that such
Subsidiary desires to become a "Borrower" under this Agreement and
agrees to be bound by the terms hereof. From the time of receipt of
such Notice of Additional Borrower by the Administrative Agent and the
Banks and subject to the satisfaction of each condition precedent
contained in such Notice of Additional Borrower, such Subsidiary shall
be a "Borrower" hereunder with all of the rights and obligations of a
Borrower hereunder; provided, however, that the Company may revoke a
Notice of Additional Borrower with respect to any Subsidiary (other
than the Company) upon five Business Days' written notice to the
Administrative Agent, so long as such Borrower has no Obligations
outstanding. No Notice of Additional Borrower relating to a Subsidiary
may be revoked as to amounts owed by such Subsidiary to the Banks under
this Agreement or any Notes or when an irrevocable notice pursuant to
subsection 2.3, or a notice of acceptance pursuant to subsection 3.1 or
4.2, has been given by such Subsidiary as a Borrower and is effective;
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(ii) if such Subsidiary is a Foreign Subsidiary, if reasonably
requested by the Majority Banks, such Notice of Additional Borrower
shall be accompanied by an opinion of counsel for such Subsidiary as
specified in paragraph 4(a)(ii) of such Notice of Additional Borrower;
(iii) and the other conditions set forth in such Notice of
Additional Borrower shall have been satisfied (including the
representations and warranties contained therein being true and correct
as of the date thereof).
(b) Promptly, upon receipt of any Notice of Additional
Borrower by the Administrative Agent, the Administrative Agent shall notify each
Bank thereof, and shall deliver to each Bank copies of each document delivered
to the Administrative Agent pursuant to such Notice of Additional Borrower.
13.16 Release of Grace New York. Promptly after the completion
of the NMC Disposition the Administrative Agent, on behalf of the Administrative
Agent and the Banks, shall, upon receipt of the written request of the Parent or
Grace New York, execute an acknowledgment that Grace New York is released from
all its obligations under this Agreement (including, without limitation, its
obligations under the Parent Guarantee) provided that the Administrative Agent
shall have received a certificate dated the date of such request executed by a
Responsible Officer of each of Grace Holding and the Company to the effect that
(a) each of the representations and warranties made by each of the Loan Parties
(other than Grace New York) in or pursuant to subsection 6.1, 6.2, 6.3, 6.5,
6.9, 6.10, 6.11, 6.12 and 6.13 of this Agreement is true and correct in all
material respects as of the date of such certificate as if made on and as of
such date and (b) no Default or Event of Default has occurred and is continuing
on the date of such certificate after giving effect to the NMC Disposition.
<PAGE> 73
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered in New York, New York by their
proper and duly authorized officers as of the day and year first above written.
W. R. GRACE & CO.-CONN.
By: ___________________________
Name:
Title:
W. R. GRACE & CO.
By: ___________________________
Name:
Title:
GRACE HOLDING, INC.
By: ___________________________
Name:
Title:
CHEMICAL BANK, as
Administrative Agent and as
a Bank
By: ___________________________
Name:
Title:
NATIONSBANK, N.A. (SOUTH), as
Documentation Agent and as a
Bank
By: ___________________________
Name:
Title:
<PAGE> 74
ABN AMRO BANK N.V.
By: ___________________________
Name:
Title:
By: ___________________________
Name:
Title:
BANK OF AMERICA NT&SA
By: ___________________________
Name:
Title:
THE BANK OF NEW YORK
By: ___________________________
Name:
Title:
THE BANK OF NOVA SCOTIA
By: ___________________________
Name:
Title:
BARCLAYS BANK PLC
By: ___________________________
Name:
Title:
<PAGE> 75
CITIBANK, N.A.
By: ___________________________
Name:
Title:
COMMERZBANK AG, ATLANTA AGENCY
By: ___________________________
Name:
Title:
By: ___________________________
Name:
Title:
CREDIT LYONNAIS ATLANTA AGENCY
By: ___________________________
Name:
Title:
DRESDNER BANK AG, NEW YORK AND
GRAND CAYMAN BRANCHES
By: ___________________________
Name:
Title:
By: ___________________________
Name:
Title:
FIRST UNION NATIONAL BANK OF
FLORIDA
By: ___________________________
Name:
Title:
<PAGE> 76
MARINE MIDLAND BANK
By: ___________________________
Name:
Title:
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By: ___________________________
Name:
Title:
SWISS BANK CORPORATION-NEW
YORK BRANCH
By: ___________________________
Name:
Title:
By: ___________________________
Name:
Title:
UNION BANK OF SWITZERLAND
By: ___________________________
Name:
Title:
By: ___________________________
Name:
Title:
<PAGE> 77
<TABLE>
SCHEDULE I
Commitments
<CAPTION>
BANK COMMITMENT
- ---- ----------
<S> <C>
Chemical Bank $ 249,500,000
NationsBank, N.A. (South) 249,500,000
ABN AMRO Bank N.V. 125,000,000
Bank of America NT&SA 125,000,000
The Bank of Nova Scotia 125,000,000
Barclays Bank PLC 125,000,000
Commerzbank AG, Atlanta Agency 125,000,000
Dresdner Bank AG, New York and
Grand Cayman Branches 125,000,000
Morgan Guaranty Trust Company
of New York 125,000,000
The Bank of New York 68,000,000
Citibank, N.A. 68,000,000
Credit Lyonnais Atlanta Agency 68,000,000
First Union National Bank of Florida 68,000,000
Marine Midland Bank 68,000,000
Swiss Bank Corporation-New
York Branch 68,000,000
Union Bank of Switzerland 68,000,000
--------------
TOTAL $1,850,000,000
==============
</TABLE>
<PAGE> 1
EXHIBIT 4.5
<PAGE> 2
AMENDED AND RESTATED CREDIT AGREEMENT, dated as of May 17, 1996, among
W. R. GRACE & CO.-CONN., a Connecticut corporation (the "Company"), W. R. GRACE
& CO., a New York corporation and sole shareholder of the Company ("Grace New
York"), GRACE HOLDING, INC., a Delaware corporation and a wholly owned
subsidiary of Grace New York ("Grace Holding"), the several banks from time to
time parties to this Agreement (the "Banks"), and CHEMICAL BANK, a New York
banking corporation, as administrative agent for the Banks hereunder (in such
capacity, the "Administrative Agent").
R E C I T A L
WHEREAS, effective upon the Closing Date (as defined herein), this
Agreement shall amend and restate the Credit Agreement, dated as of September 1,
1994, among the Company, Grace New York, the banks parties thereto, and Chemical
Bank, as agent, as amended, modified, waived or supplemented through the Closing
Date (the "Existing Credit Agreement").
NOW, THEREFORE, the parties hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following terms shall
have the following meanings:
"ABR Loans": Loans the rate of interest applicable to which is based
upon the Alternate Base Rate.
"Affiliate": as to any Person, (a) any other Person (other than a
Subsidiary) which, directly or indirectly, is in control of, is controlled
by, or is under common control with, such Person or (b) any Person who is a
director, officer, shareholder or partner (i) of such Person, (ii) of any
Subsidiary of such Person or (iii) of any Person described in the preceding
clause (a). For purposes of this definition, "control" of a Person means
the power, directly or indirectly, either to (i) vote 10% or more of the
securities having ordinary voting power for the election of directors of
such Person or (ii) direct or cause the direction of the management and
policies of such Person whether by contract or otherwise.
"Aggregate Outstanding Bilateral Option Loans": at any time, (i) the
aggregate outstanding principal amount of all Dollar Bilateral Loans and
(ii) the aggregate Dollar Equivalents at such time with respect to all
outstanding Alternative Currency Bilateral Loans.
"Agreement": this Amended and Restated Credit Agreement, as amended,
supplemented or otherwise modified from time to time.
<PAGE> 3
2
"Alternate Base Rate": for any day, a rate per annum (rounded upwards,
if necessary, to the next 1/16 of 1%) equal to the greater of (a) the Prime
Rate in effect on such day and (b) the Federal Funds Effective Rate in
effect on such day plus 1/2 of 1%. "Prime Rate" shall mean the rate of
interest per annum publicly announced from time to time by the
Administrative Agent as its prime rate in effect at its principal office in
New York City. "Federal Funds Effective Rate" shall mean, for any day, the
weighted average of the rates on overnight federal funds transactions with
members of the Federal Reserve System arranged by federal funds brokers, as
published on the next succeeding Business Day by the Federal Reserve Bank
of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations for the day of such
transactions received by the Administrative Agent from three federal funds
brokers of recognized standing selected by it. If for any reason the
Administrative Agent shall have determined (which determination shall be
conclusive absent manifest error) that it is unable to ascertain the
Federal Funds Effective Rate, for any reason, including, the inability or
failure of the Administrative Agent to obtain sufficient quotations in
accordance with the terms hereof, the Alternate Base Rate shall be
determined without regard to clause (b) of the first sentence of this
definition until the circumstances giving rise to such inability no longer
exist. Any change in the Alternate Base Rate due to a change in the Prime
Rate or the Federal Funds Effective Rate shall be effective on the
effective date of such change in the Prime Rate or the Federal Funds
Effective Rate, respectively.
"Alternative Currency": any currency other than Dollars which is freely
transferable and convertible into Dollars.
"Alternative Currency Bilateral Loan": a Loan made by a Bank to any
Borrower in an Alternative Currency pursuant to Section 3.
"Applicable Margin": for any day on which the long term senior
unenhanced, unsecured debt of the Company is rated by both S&P and Moody's,
the rate per annum under the caption "Margin" (a "Margin Rate") set forth
below opposite the S&P and Moody's ratings applicable to such debt on such
day (or, if such ratings are set opposite two different Margin Rates, then
the Applicable Margin shall be the lower of said two Margin Rates):
<PAGE> 4
3
<TABLE>
<CAPTION>
Margin S&P Moody's
------ --- -------
<S> <C> <C>
.450% BB+ or lower Ba1 or lower
.325% BBB- Baa3
.300% BBB Baa2
.270% BBB+ Baa1
.240% A- or higher A3 or higher
</TABLE>
provided that if on any day the long term senior unenhanced, unsecured debt
of the Company is rated by only one of either S&P or Moody's, the
Applicable Margin will be determined based on the rating by such rating
agency, and provided, further, that if on any day the long term senior
unenhanced, unsecured debt of the Company is rated by neither S&P nor
Moody's, the Applicable Margin will be determined based on the rating of
such debt by Duff & Phelps, Fitch or another nationally recognized
statistical rating organization agreed to by and among the Company, the
Administrative Agent and the Majority Banks (each, a "Substitute Rating
Agency") and will be the Margin Rate set forth above opposite the S&P and
Moody's ratings comparable to such Substitute Rating Agency's rating of
such debt on such date, and provided, further, that if on any day the long
term senior unenhanced, unsecured debt of the Company is rated by none of
S&P, Moody's or any Substitute Rating Agency, the Company, the
Administrative Agent and the Banks will negotiate in good faith to
determine an alternative basis for calculating the Applicable Margin
consistent with the table set forth above and, if agreement on such
alternative basis is not reached within 30 days, the Applicable Margin will
be calculated on an alternative basis determined by the Administrative
Agent and the Banks in their reasonable discretion consistent with the
table above, and until such alternative basis is determined the Applicable
Margin will be the Applicable Margin last determined as provided in the
table above.
"Available Commitment": as to any Bank at any time, an amount equal to
the excess, if any, of (a) the amount of such Bank's Commitment over (b)
the Loan Outstandings of such Bank at such time.
"Bid Loan": each Bid Loan made pursuant to Section 4.
"Bid Loan Banks": Banks which have outstanding Bid Loans or which are
making Bid Loans.
"Bid Loan Confirmation": each confirmation by the Borrower of its
acceptance of Bid Loan Offers, which Bid Loan Confirmation shall be
substantially in the form of Exhibit C.
<PAGE> 5
4
"Bid Loan Note": as defined in subsection 4.5(c); collectively, the
"Bid Loan Notes".
"Bid Loan Offer": each offer by a Bank to make Bid Loans pursuant to a
Bid Loan Request, which Bid Loan Offer shall contain the information
specified in Exhibit D.
"Bid Loan Request": each request by a Borrower for Banks to submit bids
to make Bid Loans at a fixed rate, which shall contain the information in
respect of such requested Bid Loans specified in Exhibit E and shall be
delivered to the Administrative Agent.
"Bilateral Option Loan": a Loan made by a Bank to a Borrower pursuant
to Section 3. Bilateral Option Loans may be either Dollar Bilateral Loans
or Alternative Currency Bilateral Loans.
"Bilateral Option Loan Report": as defined in subsection 3.2.
"Board": The Board of Governors of the Federal Reserve System of the
United States of America or any successor thereto.
"Borrower": the Company and any Subsidiary of the Company with respect
to which a Notice of Additional Borrower has been given and all conditions
precedent to the effectiveness thereof have been satisfied.
"Borrowing Date": any Business Day specified in a notice pursuant to
subsection 2.3 and 4.2, as a date on which a Borrower requests the Banks to
make Loans hereunder, or any date that a Bilateral Option Loan is made in
accordance with subsection 3.1.
"Business Day": a day other than a Saturday, Sunday or other day on
which commercial banks in New York City are authorized or required by law
to close.
"Capitalized Lease": any lease of property, real or personal, the
obligations of the lessee in respect of which are required to be
capitalized in accordance with GAAP.
"Change of Control Date": (i) the first day on which the Company
determines that any Person or group of related Persons has direct or
indirect beneficial ownership of 30% or more of the outstanding capital
stock of the Parent having ordinary voting power (other than stock having
such power only by reason of the happening of a contingency) for the
election of a majority of the board of directors of the Parent or (ii) the
first day on which any Person or group of related Persons shall acquire all
or substantially all of the assets of the Parent.
<PAGE> 6
5
"Chemical": Chemical Bank.
"Closing Date": the first date on which the conditions set forth in
subsection 7.1 have been satisfied or waived.
"Code": the Internal Revenue Code of 1986, as amended from time to
time.
"Commitment": as to any Bank, the obligation of such Bank to make
Revolving Credit Loans hereunder to the Borrowers in an aggregate principal
amount at any one time outstanding not to exceed the amount set forth
opposite such Bank's name on Schedule I under the heading "Commitment".
"Commitment Percentage": as to any Bank at any time, the percentage of
the aggregate Commitments then constituted by such Bank's Commitment.
"Commitment Period": the period from and including the date hereof to
but not including the Termination Date or such earlier date on which the
Commitments shall terminate as provided herein.
"Commonly Controlled Entity": an entity, whether or not incorporated,
which is under common control with the Company within the meaning of
Section 4001(a)(14) of ERISA or is part of a group which includes the
Company and which is treated as a single employer under subsection (b) or
(c) of Section 414 of the Code.
"Consolidated Adjusted Net Worth": at a particular date, with respect
to the Parent and its Subsidiaries, and without duplication, the sum of all
amounts which would, in accordance with GAAP, be set forth opposite the
captions "Total Shareholders' Equity", "Minority interests, current" and
"Minority interests, noncurrent" (or the equivalent captions) on a
consolidated balance sheet of the Parent and its Subsidiaries prepared as
of such date, plus (a) non-cash after-tax charges arising from: (1) asset
disposals (excluding the retirement of property, plant and equipment in the
ordinary course of business) by the Parent and its Subsidiaries, (2) the
implementation or modified application of financial accounting standards
applicable to the Parent and its Subsidiaries, and (3) other special
non-recurring transactions (including charges relating to Restructuring
Activities, discontinued operations and asbestos related litigation and
claims), in each case referred to in this clause (a) occurring after June
30, 1994, plus (b) any payments received in respect of non-cash after-tax
gains referred to in clause (c) of this definition, minus (c) non-cash
after-tax gains arising from: (1) asset disposals (excluding the retirement
of property, plant and equipment in the ordinary course of business) by the
Parent and its Subsidiaries, (2) the implementation or modified application
<PAGE> 7
6
of financial accounting standards applicable to the Parent and its
Subsidiaries, and (3) other special non-recurring transactions (including
gains relating to Restructuring Activities, discontinued operations and
asbestos related litigation and claims), in each case referred to in this
clause (c) occurring after June 30, 1994, minus (d) any payments made in
respect of non-cash after-tax charges referred to in clause (a) of this
definition.
"Consolidated Debt": at a particular date, with respect to the Parent
and its Subsidiaries, and without duplication, the sum of the amounts set
forth on a consolidated balance sheet of the Parent and its Subsidiaries
prepared as of such date in accordance with GAAP opposite the captions (1)
"Long-term debt" (or the equivalent caption) and (2) "Short-term debt" (or
the equivalent caption) but always to include all indebtedness for borrowed
money of the Parent and its Subsidiaries in accordance with GAAP.
"Consolidated Interest Expense": for any period, with respect to the
Parent and its Subsidiaries, the amount which, in conformity with GAAP,
would be set forth opposite the caption "Interest expense and related
financing costs" (or the equivalent caption) on a consolidated statement of
operations of the Parent and its Subsidiaries for such period.
"Contractual Obligation": as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Default": any of the events specified in Section 10, whether or not
any requirement for the giving of notice, the lapse of time, or both, has
been satisfied.
"Dollar Bilateral Loan": a Bilateral Option Loan denominated in
Dollars.
"Dollar Equivalent": on any date of determination by the Administrative
Agent pursuant to subsection 3.2(b) or 3.2(c), as applicable, in respect of
any Alternative Currency Bilateral Loan the amount of Dollars obtained by
converting the outstanding amount of currency of such Alterative Currency
Bilateral Loan, as specified in the then most recent Bilateral Option Loan
Report, into Dollars at the spot rate for the purchase of Dollars with such
currency as quoted by the Administrative Agent at its principal foreign
exchange trading operations office in New York City on such date.
<PAGE> 8
7
"Dollars" and "$": dollars in lawful currency of the United States of
America.
"Domestic Indebtedness": any Indebtedness of the Parent and any
Domestic Subsidiary.
"Domestic Subsidiary": any Subsidiary of the Parent other than a
Foreign Subsidiary.
"Duff & Phelps": Duff & Phelps, Inc.
"EBIT": for any period, with respect to the Parent and its
Subsidiaries, (a) all amounts which would be set forth opposite the caption
"Income from continuing operations before income taxes" (or the equivalent
caption) on a consolidated statement of income of the Parent and its
Subsidiaries prepared in accordance with GAAP for such period plus (b)
non-cash pre-tax charges arising from: (1) asset disposals (excluding the
retirement of property, plant and equipment in the ordinary course of
business) by the Parent and its Subsidiaries, (2) the implementation or
modified application of financial accounting standards applicable to the
Parent and its Subsidiaries, and (3) other special non-recurring
transactions (including charges relating to Restructuring Activities,
discontinued operations and asbestos related litigation and claims) (to the
extent that such amounts have been deducted in determining the amount set
forth opposite the caption "Income from continuing operations" (or the
equivalent caption) for such period), plus (c) Consolidated Interest
Expense for such period, plus (d) any payments received in such period in
respect of non-cash pre-tax gains referred to in clause (e) of this
definition, minus (e) non-cash pre-tax gains arising from: (1) asset
disposals (excluding the retirement of property, plant and equipment in the
ordinary course of business) by the Parent and its Subsidiaries, (2) the
implementation or modified application of financial accounting standards
applicable to the Parent and its Subsidiaries, and (3) other special
non-recurring transactions (including charges relating to Restructuring
Activities, discontinued operations and asbestos related litigation and
claims) (to the extent that such amounts have been added in determining the
amount set forth opposite the caption "Income from continuing operations"
(or the equivalent caption) for such period), minus (f) any payments made
in such period in respect of non-cash pre-tax charges referred to in clause
(b) of this definition.
"Environmental Laws": any and all federal, state, local or municipal
laws, rules, orders, regulations, statutes, ordinances, codes, decrees or
requirements of any Governmental Authority regulating, relating to or
imposing liability or standards of conduct concerning environmental
<PAGE> 9
8
protection matters, including without limitation, Hazardous Materials, as
now or may at any time hereafter be in effect.
"ERISA": the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Eurocurrency Reserve Requirements": for any day as applied to a
Eurodollar Loan, the aggregate (without duplication) of the rates
(expressed as a decimal fraction) of any reserve requirements in effect on
such day (including, without limitation, basic, supplemental, marginal and
emergency reserves under any regulations of the Board of Governors of the
Federal Reserve System or other Governmental Authority having jurisdiction
with respect thereto) dealing with reserve requirements prescribed for
eurocurrency funding (currently referred to as "Eurocurrency Liabilities"
in Regulation D of such Board) maintained by a member bank of such System.
"Eurodollar Loans": Loans the rate of interest applicable to which is
based upon the Eurodollar Rate.
"Eurodollar Rate": with respect to each day during each Interest Period
pertaining to a Eurodollar Loan, the rate per annum equal to the rate at
which Chemical is offered Dollar deposits at or about 10:00 A.M., New York
City time, two Business Days prior to the beginning of such Interest Period
in the interbank eurodollar market where the eurodollar and foreign
currency and exchange operations in respect of its Eurodollar Loans are
then being conducted for delivery on the first day of such Interest Period
for the number of days comprised therein and in an amount comparable to the
amount of its Eurodollar Loan to be outstanding during such Interest
Period.
"Eurodollar Tranche": the collective reference to Eurodollar Loans, the
Interest Periods with respect to all of which begin on the same date and
end on the same later date (whether or not such Loans shall originally have
been made on the same day).
"Event of Default": any of the events specified in Section 10, provided
that any requirement for the giving of notice, the lapse of time, or both,
has been satisfied.
"Excluded Subsidiaries": CCHP, Inc., a Delaware corporation, Assignment
America, Inc., a Delaware corporation, and GN Holdings, Inc., a Delaware
corporation.
"Existing Credit Agreement": as defined in the recital.
"FASB 5": Statement of Financial Accounting Standards No. 5, Accounting
for Contingencies, of the Financial
<PAGE> 10
9
Accounting Standards Board, as the same may be from time to time supplemented,
amended or interpreted by such Board.
"Fitch": Fitch Investors Service Inc.
"Foreign Subsidiary": any Subsidiary of the Parent (i) that is
organized under the laws of any jurisdiction other than any state
(including the District of Columbia), territory or possession of the United
States of America (a "foreign jurisdiction"), or (ii) more than 50 percent
of the book value of the assets of which (as of the end of the most recent
fiscal period for which financial statements are required to have been
provided pursuant to subsection 8.1(a) or (b)) are located in one or more
foreign jurisdictions, or (iii) more than 50 percent of the Net Sales and
Revenues of which (for the most recent fiscal year for which financial
statements are required to have been provided pursuant to subsection
8.1(a)) were from sales made and/or services provided in one or more
foreign jurisdictions, or (iv) more than 50 percent of the book value of
the assets of which (as of the end of the most recent fiscal period for
which financial statements are required to have been provided pursuant to
subsection 8.1(a) or (b)) consists of equity interests in and/or
Indebtedness of one or more Subsidiaries that are "Foreign Subsidiaries"
within clauses (i), (ii), (iii) or (iv) of this definition.
"Foreign Subsidiary Indebtedness": any Indebtedness of any Foreign
Subsidiary.
"GAAP": generally accepted accounting principles in the United States
of America in effect from time to time.
"Governmental Authority": any nation or government, any state or other
political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Hazardous Materials": any hazardous materials, hazardous wastes,
hazardous constituents, hazardous or toxic substances, petroleum products
(including crude oil or any fraction thereof), defined or regulated as such
in or under any Environmental Law.
"Indebtedness": of any Person at any date, (a) all indebtedness of such
Person for borrowed money or for the deferred purchase price of property or
services (other than current trade liabilities incurred in the ordinary
course of business and payable in accordance with customary practices) or
which is evidenced by a note, bond, debenture or similar instrument, (b)
all obligations of such Person under Capitalized Leases, and (c) without
duplication, all "loss contingencies" of such Person of the types described
in
<PAGE> 11
10
paragraph 12 of FASB 5, whether or not disclosed or required to be
disclosed on the financial statements or footnotes thereto of such Person
pursuant to GAAP.
"Insolvency": with respect to any Multiemployer Plan, the condition
that such Plan is insolvent within the meaning of Section 4245 of ERISA.
"Insolvent": pertaining to a condition of Insolvency.
"Interest Payment Date": (a) as to any ABR Loan, the fifteenth day of
each March, June, September and December to occur while such Loan is
outstanding and, if different, the Termination Date, and (b) as to any
Eurodollar Loan having an Interest Period of three months or less, the last
day of such Interest Period, and (c) as to any Eurodollar Loan having an
Interest Period longer than three months, if any, as agreed by the Borrower
of such Loan and the Banks.
"Interest Period": with respect to any Eurodollar Loan:
(i) initially, the period commencing on the borrowing or
conversion date, as the case may be, with respect to such Eurodollar
Loan and ending one, two, three or six months thereafter, or such other
period as may be requested by the Borrower and agreed to by the Banks
making such Loan, as selected by the Borrower of such Loan in its
notice of borrowing or notice of conversion, as the case may be, given
with respect thereto; and
(ii) thereafter, each period commencing on the last day of the
next preceding Interest Period applicable to such Eurodollar Loan and
ending one, two, three or six months thereafter, or such other period
as may be requested by the Borrower and agreed to by the Banks making
such Loan, as selected by such Borrower by irrevocable notice to the
Administrative Agent and the Banks which made such Eurodollar Loan not
less than two Business Days prior to the last day of the then current
Interest Period with respect thereto;
provided that, all of the foregoing provisions relating to Interest Periods
are subject to the following:
(1) if any Interest Period pertaining to a Eurodollar Loan would
otherwise end on a day that is not a Business Day, such Interest Period
shall be extended to the next succeeding Business Day unless the result
of such extension would be to carry such Interest Period into another
calendar month in which event such Interest Period shall end on the
immediately preceding Business Day;
<PAGE> 12
11
(2) any Interest Period that would otherwise extend beyond the
Termination Date shall end on the Termination Date; and
(3) any Interest Period pertaining to a Eurodollar Loan that
begins on the last Business Day of a calendar month (or on a day for
which there is no numerically corresponding day in the calendar month
at the end of such Interest Period) shall end on the last Business Day
of a calendar month.
"Lien": any mortgage, pledge, hypothecation, assignment as security,
security deposit arrangement, encumbrance, lien (statutory or other),
conditional sale or other title retention agreement or other similar
arrangement.
"Loan": any loan made by any Bank pursuant to this Agreement.
"Loan Documents": this Agreement, the Notes and the Notices of
Additional Borrower.
"Loan Outstandings": as to any Bank at any time, the sum of (a) the
aggregate principal amount of all Revolving Credit Loans made by such Bank
then outstanding, and (b) such Bank's Commitment Percentage multiplied by
the aggregate principal amount of all Bid Loans then outstanding.
"Loan Parties": the collective reference to the Company, the other
Borrowers, Grace Holding and, until the Release Date, Grace New York.
"Majority Banks": at any time, Banks the Commitment Percentages of
which aggregate (or, if at such time all of the Commitments shall have been
terminated, Banks the Commitment Percentages of which immediately prior to
such termination aggregated) at least 51%.
"Material Adverse Effect": a material adverse effect on (a) the
business, operations, properties, or condition (financial or otherwise) of
the Parent and its Subsidiaries taken as a whole, (b) the ability of the
Company, or any Borrower or any other Loan Party to perform their
respective obligations hereunder and under the other Loan Documents to
which such Person is a party, or (c) the validity or enforceability of the
Loan Documents or the rights or remedies of the Administrative Agent or the
Banks hereunder or thereunder.
"Moody's": Moody's Investors Services, Inc.
<PAGE> 13
12
"Multiemployer Plan": a Plan which is a multiemployer plan as defined
in Section 4001(a)(3) of ERISA.
"Net Sales and Revenues": with respect to any Person for any period,
all sales and operating revenues of such Person during such period computed
in accordance with GAAP after deducting therefrom sales returns, discounts
and allowances.
"NMC": National Medical Care, Inc.
"NMC Disposition": the transaction in which all of the following occur:
(a) NMC, a wholly-owned indirect Subsidiary of the Company, will become a
direct Subsidiary of the Company, (b) NMC will enter into new bank
borrowings and use a portion of the proceeds therefrom to make an
intercompany debt repayment and a cash distribution to the Company in an
aggregate amount of approximately $2,300,000,000, (c) the Company will
distribute the stock of NMC to Grace New York, (d) Grace New York will
contribute the stock of the Company to Grace Holding, and (e) Grace New
York will distribute to its public shareholders the stock of Grace Holding.
"Notes": the collective reference to the Revolving Credit Notes and the
Bid Loan Notes, if any.
"Notice of Additional Borrower": as defined in subsection 13.15(a).
"Obligations": the unpaid principal of and interest on (including,
without limitation, interest accruing after the maturity of the Loans and
interest accruing after the filing of any petition in bankruptcy, or the
commencement of any insolvency, reorganization or like proceeding, relating
to any of the Loan Parties or any of the Borrowers, whether or not a claim
for post-filing or post-petition interest is allowed in such proceeding)
the Loans and the Notes, if any, and all other obligations and liabilities
of any of the Loan Parties or the Borrowers to the Administrative Agent or
to the Banks, whether direct or indirect, absolute or contingent, due or to
become due, or now existing or hereafter incurred, which may arise under,
out of, or in connection with, this Agreement, the Notes, any other Loan
Document and any other document made, delivered or given in connection
herewith or therewith, whether on account of principal, interest,
reimbursement obligations, fees, indemnities, costs, expenses (including,
without limitation, all fees and disbursements of counsel to the
Administrative Agent or to the Banks that are required to be paid by the
Loan Parties and/or the Borrowers pursuant to the terms of this Agreement)
or any other obligation hereunder or thereunder.
<PAGE> 14
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"Parent": Grace New York, until such time as Grace New York in
connection with the NMC Disposition no longer directly or indirectly owns
all of the stock of the Company, and thereafter, Grace Holding.
"Parent Guarantee": as defined in subsection 12.1.
"Parent Guarantors": prior to the Release Date, the collective
reference to Grace New York and Grace Holding, and thereafter, Grace
Holding.
"Participant": as defined in subsection 13.6(b).
"Payment Sharing Notice": a written notice from the Company or any Bank
informing the Administrative Agent that an Event of Default has occurred
and is continuing and directing the Administrative Agent to allocate
payments thereafter received from the Borrower in accordance with
subsection 5.9(c).
"PBGC": the Pension Benefit Guaranty Corporation established pursuant
to Subtitle A of Title IV of ERISA.
"Person": an individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture,
Governmental Authority or other entity of whatever nature.
"Plan": at a particular time, any employee benefit plan which is
covered by ERISA and in respect of which the Company or a Commonly
Controlled Entity is (or, if such plan were terminated at such time, would
under Section 4069 of ERISA be deemed to be) an "employer" as defined in
Section 3(5) of ERISA.
"Prepayment Date": as defined in subsection 5.3(b).
"Principal Subsidiary": (a) any Borrower and (b) any other Subsidiary
if it shall have Total Assets at the end of the most recent fiscal year for
which financial statements are required to have been furnished pursuant to
subsection 8.1(a) in excess of $75,000,000 or have had during such year Net
Sales and Revenues in excess of $75,000,000.
"Purchasing Banks": as defined in subsection 13.6(c).
"Register": as defined in subsection 13.6(d).
"Regulation U": Regulation U of the Board.
"Regulation X": Regulation X of the Board.
"Release Date": the date on which the Administrative Agent executes the
release contemplated by subsection 13.16.
<PAGE> 15
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"Reorganization": with respect to any Multiemployer Plan, the condition
that such plan is in reorganization within the meaning of Section 4241 of
ERISA.
"Reportable Event": any of the events set forth in Section 4043(b) of
ERISA, other than those events as to which the thirty day notice period is
waived under subsection .13, .14, .16, .18, .19 or .20 of PBGC Reg. Section
2615.
"Requested Bank": as defined in subsection 3.1(a).
"Requirement of Law": as to any Person, the Certificate of
Incorporation and By-Laws or other organizational or governing documents of
such Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case
applicable to or binding upon such Person or any of its property or to
which such Person or any of its property is subject.
"Responsible Officer": the chief executive officer, the president, the
chief financial officer or the treasurer, assistant treasurer or controller
of, respectively, the Parent, Grace Holding and the Company.
"Restructuring Activities": all reductions in carrying value of assets
or investments and provisions for the termination and/or relocation of
operations and employees.
"Revolving Credit Loans": as defined in subsection 2.1(a).
"Revolving Credit Notes": as defined in subsection 2.2.
"SEC": the Securities and Exchange Commission, and any successor or
analogous federal Governmental Authority.
"Single Employer Plan": any Plan which is covered by Title IV of ERISA,
but which is not a Multiemployer Plan.
"S&P": Standard & Poor's Ratings Group.
"Subsidiary": as to any Person, a corporation, partnership or other
entity which is required to be consolidated with such Person in accordance
with GAAP; provided, that any such corporation, partnership or other entity
which is controlled by a receiver or trustee under any bankruptcy,
insolvency or similar law shall continue to be a "Subsidiary" of such
Person for purposes of this Agreement. Unless otherwise qualified, all
references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall
refer to a Subsidiary or Subsidiaries of the Parent.
<PAGE> 16
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"Substitute Rating Agency": as defined in the definition of "Applicable
Margin".
"Termination Date": September 1, 1999.
"364-Day Credit Agreement": the 364-Day Credit Agreement, dated as of
May 17, 1996, among the Company, Grace New York, Grace Holding, the several
banks parties thereto, NationsBank, N.A. (South), as documentation agent,
and Chemical, as administrative agent, as it may have been amended,
supplemented or otherwise modified from time to time.
"Total Assets": with respect to any Person at any time, the total of
all assets appearing on the asset side of the balance sheet of such Person
prepared in accordance with GAAP as of such time.
"Total Capitalization": at a particular date, the sum of Consolidated
Debt and Consolidated Adjusted Net Worth.
"Transferee": as defined in subsection 13.6(f).
"Type": as to any Loan, its nature as an ABR Loan or a Eurodollar Loan.
1.2 Other Definitional Provisions. (a) Unless otherwise specified
therein, all terms defined in this Agreement shall have the defined meanings
when used in the Notes, if any, or any certificate or other document made or
delivered pursuant hereto.
(b) As used herein and in the Notes, if any, and any certificate or
other document made or delivered pursuant hereto, accounting terms relating to
the Parent and its Subsidiaries not defined in subsection 1.1, to the extent not
defined, shall have the respective meanings given to them under GAAP.
(c) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Section, subsection,
Schedule and Exhibit references are to this Agreement, unless otherwise
specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS
2.1 Commitments. (a) Subject to the terms and conditions hereof, each
Bank severally agrees to make revolving credit loans ("Revolving Credit Loans")
to any Borrower from time
<PAGE> 17
16
to time during the Commitment Period in an aggregate principal amount at any one
time outstanding not to exceed the amount of such Bank's Commitment, provided
that no Bank shall make any Revolving Credit Loan if, after giving effect to
such Loan, the aggregate Loan Outstandings of all of the Banks plus the
Aggregate Outstanding Bilateral Option Loans would exceed the aggregate
Commitments.
(b) The Revolving Credit Loans may from time to time be (i) Eurodollar
Loans, (ii) ABR Loans or (iii) a combination thereof, as determined by the
Borrower thereof and notified to the Administrative Agent in accordance with
subsections 2.3 and 5.5, provided that no Revolving Credit Loan shall be made as
a Eurodollar Loan maturing after the Termination Date.
2.2 Obligations of Borrowers; Revolving Credit Notes. (a) Each Borrower
agrees that each Revolving Credit Loan made by each Bank to such Borrower
pursuant hereto shall constitute the promise and obligation of such Borrower to
pay to the Administrative Agent, on behalf of such Bank, at the office of the
Administrative Agent specified in subsection 13.2, in lawful money of the United
States of America and in immediately available funds the aggregate unpaid
principal amount of all Revolving Credit Loans made by such Bank to such
Borrower pursuant to subsection 2.1, which amounts shall be due and payable
(whether at maturity or by acceleration) as set forth in this Agreement and, in
any event, on the Termination Date.
(b) Each Borrower agrees that each Bank and the Administrative Agent
are authorized to record (i) the date, amount and Type of each Revolving Credit
Loan made by such Bank to such Borrower pursuant to subsection 2.1, (ii) the
date of each continuation thereof pursuant to subsection 5.5(b), (iii) the date
of each conversion of all or a portion thereof to another Type pursuant to
subsection 5.5(a), (iv) the date and amount of each payment or prepayment of
principal of each such Revolving Credit Loan and (v) in the case of each such
Revolving Credit Loan which is a Eurodollar Loan, the length of each Interest
Period and the Eurodollar Rate with respect thereto, in the books and records of
such Bank or the Administrative Agent, as the case may be, and in such manner as
is reasonable and customary for such Bank or the Administrative Agent, as the
case may be, and a certificate of an officer of such Bank or the Administrative
Agent, as the case may be, setting forth in reasonable detail the information so
recorded, shall constitute prima facie evidence of the accuracy of the
information so recorded; provided that the failure to make any such recording
shall not in any way affect the obligations of such Borrower hereunder.
(c) Each Borrower agrees that, upon the request to the Administrative
Agent by any Bank at any time, the Revolving Credit Loans made by such Bank to
such Borrower shall be evidenced by a promissory note of such Borrower,
substantially in
<PAGE> 18
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the form of Exhibit A with appropriate insertions as to Borrower, payee, date
and principal amount (a "Revolving Credit Note"), payable to the order of such
Bank and in a principal amount equal to the lesser of (a) the amount of the
initial Commitment of such Bank and (b) the aggregate unpaid principal amount of
all Revolving Credit Loans made by such Bank to such Borrower. Upon the request
to the Administrative Agent by any such Bank at any time, such Borrower shall
execute and deliver to such Bank a Revolving Credit Note conforming to the
requirements hereof and executed by a duly authorized officer of such Borrower.
Each Bank is hereby authorized to record the date, Type and amount of each
Revolving Credit Loan made by such Bank to such Borrower, each continuation
thereof, each conversion of all or a portion thereof to another Type, the date
and amount of each payment or prepayment of principal thereof and, in the case
of Eurodollar Loans, the length of each Interest Period and the Eurodollar Rate
with respect thereto, on the schedule annexed to and constituting a part of its
Revolving Credit Note and any such recordation shall constitute prima facie
evidence of the accuracy of the information so recorded; provided that the
failure to make any such recording shall not in any way affect the obligations
of such Borrower hereunder or thereunder. Each Revolving Credit Note shall (x)
be dated the Closing Date, (y) be stated to mature on the Termination Date and
(z) provide for the payment of interest in accordance with subsection 5.1.
2.3 Procedure for Revolving Credit Borrowing. Any Borrower may borrow
under the Commitments from all Banks during the Commitment Period on any
Business Day, provided that such Borrower shall give the Administrative Agent
irrevocable notice (which notice must be received by the Administrative Agent
(a) prior to 4:00 P.M., New York City time, three Business Days prior to the
requested Borrowing Date, if all or any part of the requested Revolving Credit
Loans are to be initially Eurodollar Loans, or (b) prior to 10:00 A.M., New York
City time, on the requested Borrowing Date, otherwise), specifying (i) the
amount to be borrowed, (ii) the requested Borrowing Date, (iii) whether the
borrowing is to be of Eurodollar Loans, ABR Loans or a combination thereof and
(iv) if the borrowing is to be entirely or partly of Eurodollar Loans, the
respective amounts of each such Type of Loan and the respective lengths of the
initial Interest Periods therefor. Each borrowing under the Commitments shall be
in an amount equal to $5,000,000 or a whole multiple of $1,000,000 in excess
thereof (or, in the case of ABR Loans, if the amount of the Available
Commitments minus the Aggregate Outstanding Bilateral Option Loans is less than
$5,000,000, such lesser amount). Upon receipt of such notice from such Borrower,
the Administrative Agent shall promptly notify each Bank thereof. Each Bank will
make the amount of its pro rata share of each such borrowing available to the
Borrower at the office of the Administrative Agent specified in subsection 13.2
prior to 12:00 noon, New York City time, on the Borrowing Date requested by such
Borrower in funds immediately available to the Administrative Agent. Such
borrowing will then be made available to such
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Borrower on the books of such office with the aggregate of the amounts made
available to the Administrative Agent by the Banks and in like funds as received
by the Administrative Agent.
SECTION 3. BILATERAL OPTION LOANS
3.1 Requests for Offers. (a) From time to time during the period from
the Closing Date until the Termination Date, any Borrower may request any or all
of the Banks (each such Bank to which such a request is made, a "Requested
Bank") to make offers to make Bilateral Option Loans, provided that immediately
after making any such Bilateral Option Loan, the aggregate Loan Outstandings of
all the Banks plus the Aggregate Outstanding Bilateral Option Loans will not
exceed the aggregate Commitments. Any such request shall specify the principal
amount and maturity date of the Bilateral Option Loans for which such Borrower
is requesting offers, whether such Bilateral Option Loans are requested to be
Dollar Bilateral Loans or Alternative Currency Bilateral Loans, the time by
which offers to make such Bilateral Option Loans must be made by such Requested
Bank and by which such offers shall be accepted or rejected by such Borrower,
and if all or any part of the requested Bilateral Option Loans are requested to
be made as Alternative Currency Bilateral Loans, the Alternative Currency to be
applicable thereto. Each Requested Bank may, but shall have no obligation to,
make such offers on such terms and conditions as are satisfactory to such
Requested Bank, and such Borrower may, but shall have no obligation to, accept
any such offers. No Bilateral Option Loan may mature after the Termination Date.
(b) Each Borrower and Requested Bank shall separately agree as to the
procedures, documentation, lending office and other matters relating to any
Bilateral Option Loan.
3.2 Reports to Administrative Agent; Determination of Dollar
Equivalents. (a) The Borrower shall deliver to the Administrative Agent a report
in respect of each Bilateral Option Loan (a "Bilateral Option Loan Report") by
2:00 P.M. (New York City time) on the date on which the applicable Borrower
accepts any Bilateral Option Loan, on the date on which any principal amount
thereof is repaid prior to the scheduled maturity date, or on the scheduled
maturity date if payment thereof is not made on such scheduled maturity date,
specifying for such Bilateral Option Loan the date on which such Bilateral
Option Loan was or will be made, such amount of principal is or will be repaid
or such payment was not made as the case may be; in the case of Alternative
Currency Bilateral Loans, the Alternative Currency thereof; and the principal
amount of such Bilateral Option Loan or principal prepayment or repayment or the
amount paid (in the case of any Alternative Currency Bilateral Loan, expressed
in the Alternative Currency therefor).
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(b) Upon receipt of a Bilateral Option Loan Report with respect to the
acceptance of a Bilateral Option Loan, the Administrative Agent shall determine
the Dollar Equivalent thereof.
(c) If on any Borrowing Date on which after giving effect to the Loans
made on such date, the sum of the aggregate Loan Outstandings of all the Banks
plus the Aggregate Outstanding Bilateral Option Loans exceeds 85% of the
aggregate Commitments, then the Administrative Agent shall redetermine as of
such Borrowing Date, on the basis of the most recently delivered Bilateral
Option Loan Report for each Bilateral Option Loan, the Dollar Equivalent of each
Alternative Currency Bilateral Loan then outstanding. In addition, for so long
as the condition specified in the preceding sentence remains in effect, the
Administrative Agent shall determine, at the end of each fiscal quarter of the
Company, on the basis of the most recently delivered Bilateral Option Loan
Report for each Bilateral Option Loan, the Dollar Equivalent of each Alternative
Currency Bilateral Loan then outstanding.
(d) The Administrative Agent shall promptly notify the Company of each
Dollar Equivalent under this subsection 3.2.
3.3 Judgment Currency. If for the purpose of obtaining judgment in any
court, it is necessary to convert a sum due from any Borrower hereunder or under
any of the Notes in the currency expressed to be payable herein or under the
Notes (the "specified currency") into another currency, the parties hereto
agree, to the fullest extent that they may effectively do so, that the rate of
exchange used shall be that at which in accordance with normal banking
procedures the Administrative Agent could purchase the specified currency with
such other currency at the Administrative Agent's New York office on the
Business Day preceding that on which final judgment is given. The obligations of
each Borrower in respect of any sum due to any Bank or the Administrative Agent
hereunder or under any Note shall, notwithstanding any judgment in a currency
other than the specified currency, be discharged only to the extent that on the
Business Day following receipt by such Bank or the Administrative Agent (as the
case may be) of any sum adjudged to be so due in such other currency such Bank
or the Administrative Agent (as the case may be) may in accordance with normal
banking procedures purchase the specified currency with such other currency; if
the amount of the specified currency so purchased is less than the sum
originally due to such Bank or the Administrative Agent, as the case may be, in
the specified currency, each Borrower agrees, to the fullest extent that it may
effectively do so, as a separate obligation and notwithstanding any such
judgment, to indemnify such Bank or the Administrative Agent, as the case may
be, against such difference, and if the amount of the specified currency so
purchased exceeds:
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(a) the sum originally due to any Bank or the Administrative Agent, as
the case may be, and
(b) any amounts shared with other Banks as a result of allocations of
such excess as a disproportionate payment to such Bank under subsection
13.7,
such Bank or the Administrative Agent, as the case may be, agrees to remit such
excess to the applicable Borrower.
3.4 Repayments. Each Borrower shall repay to each Bank which has made a
Bilateral Option Loan on the maturity date of each Bilateral Option Loan (such
maturity date being that specified in the documentation referred to in
subsection 3.1(a)) the then unpaid principal amount of such Bilateral Option
Loan.
SECTION 4. BID LOANS
4.1 The Bid Loans. Any Borrower may borrow Bid Loans from time to time
on any Business Day during the period from the Closing Date until the
Termination Date, in the manner set forth in this Section 4 and in amounts such
that the aggregate Loan Outstandings of all the Banks at any time plus the
Aggregate Outstanding Bilateral Option Loans at such time will not exceed the
aggregate Commitments at such time, and provided, further, that no such Bid Loan
shall be made if, after giving effect thereto, any Bid Loans would mature after
the Termination Date.
4.2 Procedure for Bid Loans. (a) A Borrower shall request Bid Loans by
delivering a Bid Loan Request to the Administrative Agent, in writing, by
facsimile transmission, or by telephone, confirmed by facsimile transmission,
not later than 1:00 P.M. (New York City time) one Business Day prior to the
proposed Borrowing Date. Each Bid Loan Request may solicit bids for Bid Loans in
an aggregate principal amount of $5,000,000 or a whole multiple of $1,000,000 in
excess thereof and for not more than three alternative maturity dates for such
Bid Loans. The Administrative Agent shall promptly notify each Bank by facsimile
transmission of the contents of each Bid Loan Request received by it.
(b) Upon receipt of notice from the Administrative Agent of the
contents of a Bid Loan Request, any Bank that elects, in its sole discretion, to
do so, shall irrevocably offer to make one or more Bid Loans at a rate of
interest determined by such Bank in its sole discretion for each such Bid Loan.
Any such irrevocable offer shall be made by delivering a Bid Loan Offer to the
Administrative Agent, by telephone, immediately confirmed by facsimile
transmission, before 9:30 A.M. (New York City time) on the proposed Borrowing
Date, setting forth the maximum amount of Bid Loans for each maturity date, and
the aggregate maximum amount for all maturity dates, which such Bank would be
willing to make (which amounts may, subject to
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subsection 4.1, exceed such Bank's Commitments) and the rate of interest at
which such Bank is willing to make each such Bid Loan; the Administrative Agent
shall advise the Borrower before 10:00 A.M. (New York City time) on the proposed
Borrowing Date of the contents of each such Bid Loan Offer received by it. If
the Administrative Agent in its capacity as a Bank shall, in its sole
discretion, elect to make any such offer, it shall advise the Borrower of the
contents of its Bid Loan Offer before 9:15 A.M. (New York City time) on the
proposed Borrowing Date.
(c) The Borrower shall before 10:30 A.M. (New York City time) on the
proposed Borrowing Date, in its absolute discretion, either:
(i) cancel such Bid Loan Request by giving the Administrative Agent
telephone notice to that effect, and the Administrative Agent shall
give prompt telephone notice thereof to the Banks and the Bid Loans
requested thereby shall not be made; or
(ii) accept one or more of the offers made by any Bank or Banks by
giving telephone notice to the Administrative Agent (confirmed as soon
as practicable thereafter by delivery to the Administrative Agent of a
Bid Loan Confirmation in writing or by facsimile transmission) of the
amount of Bid Loans for each relevant maturity date to be made by each
Bank (which amount for each such maturity date shall be equal to or
less than the maximum amount for such maturity date specified in the
Bid Loan Offer of such Bid Loan Bank, and for all maturity dates
included in such Bid Loan Offer shall be equal to or less than the
aggregate maximum amount specified in such Bid Loan Offer for all such
maturity dates) and reject any remaining offers made by Banks;
provided, however, that (x) the Borrower may not accept offers for Bid
Loans for any maturity date in an aggregate principal amount in excess
of the maximum principal amount requested in the related Bid Loan
Request, (y) if the Borrower accepts any of such offers, it must accept
offers strictly based upon pricing for such relevant maturity date and
no other criteria whatsoever and (z) if two or more Banks submit offers
for any maturity date at identical pricing and the Borrower accepts any
of such offers but does not wish to (or by reason of the limitations
set forth in subsection 4.1 or in clause (x) of this proviso, cannot)
borrow the total amount offered by such Banks with such identical
pricing, the Borrower shall accept offers from all of such Banks in
amounts allocated
<PAGE> 23
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among them pro rata according to the amounts offered by such Banks.
(d) If the Borrower accepts pursuant to clause (c) (ii) above one or
more of the offers made by any Bid Loan Bank or Bid Loan Banks, the
Administrative Agent shall notify before 11:00 A.M. (New York City time) each
Bid Loan Bank which has made such an offer, of the aggregate amount of such Bid
Loans to be made on such Borrowing Date for each maturity date and of the
acceptance or rejection of any offers to make such Bid Loans made by such Bid
Loan Bank. Each Bid Loan Bank which is to make a Bid Loan shall, before 12:00
Noon (New York City time) on the Borrowing Date specified in the Bid Loan
Request applicable thereto, make available to the Administrative Agent at its
office set forth in subsection 13.2 the amount of Bid Loans to be made by such
Bid Loan Bank, in immediately available funds. The Administrative Agent will
make such funds available to the Borrower at or before 2:00 P.M. (New York City
time) on such date at the Administrative Agent's aforesaid address. As soon as
practicable after each Borrowing Date, the Administrative Agent shall notify
each Bank of the aggregate amount of Bid Loans advanced on such Borrowing Date
and the respective maturity dates thereof.
4.3 Repayments. Each Borrower shall repay to the Administrative Agent
for the account of each Bid Loan Bank which has made a Bid Loan on the maturity
date of each Bid Loan (such maturity date being that specified by the Borrower
for repayment of such Bid Loan in the related Bid Loan Request) the then unpaid
principal amount of such Bid Loan. The Borrowers shall not have the right to
prepay any principal amount of any Bid Loan without the prior written consent of
the Bid Loan Bank which made such Bid Loan.
4.4 Interest on Bid Loans. Each Borrower which shall have borrowed a
Bid Loan shall pay interest on the unpaid principal amount of such Bid Loan from
the Borrowing Date to the stated maturity date thereof, at the rate of interest
determined pursuant to subsection 4.2 above (calculated on the basis of a 360
day year for actual days elapsed), payable on the interest payment date or dates
specified by such Borrower for such Bid Loan in the related Bid Loan Request. If
all or a portion of the principal amount of any Bid Loan shall not be paid when
due (whether at the stated maturity, by acceleration or otherwise), such overdue
principal amount shall, without limiting any rights of any Bank under this
Agreement, bear interest from the date on which such payment was due at a rate
per annum which is 2% above the rate which would otherwise be applicable to such
Bid Loan until the scheduled maturity date with respect thereto, and for each
day thereafter at a rate per annum which is 2% above the Alternate Base Rate
until paid in full (as well after as before judgment).
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4.5 Obligations of Borrowers; Bid Loan Notes. (a) Each Borrower agrees
that each Bid Loan made by each Bid Loan Bank to such Borrower pursuant hereto
shall constitute the promise and obligation of such Borrower to pay to the
Administrative Agent, on behalf of such Bid Loan Bank, at the office of the
Administrative Agent specified in subsection 13.2, in lawful money of the United
States of America and in immediately available funds the aggregate unpaid
principal amount of each Bid Loan made by such Bid Loan Bank to such Borrower
pursuant to subsection 4.2, which amounts shall be due and payable (whether at
maturity or by acceleration) as set forth in the Bid Loan Request related to
such Bid Loan and in this Agreement.
(b) Each Borrower agrees that each Bid Loan Bank and the Administrative
Agent are authorized to record (i) the date and amount of each Bid Loan made by
such Bid Loan Bank to such Borrower pursuant to subsection 4.2, and (ii) the
date and amount of each payment or prepayment of principal of each such Bid
Loan, in the books and records of such Bid Loan Bank or the Administrative
Agent, as the case may be, and in such manner as is reasonable and customary for
such Bank or the Administrative Agent, as the case may be, and a certificate of
an officer of such Bid Loan Bank or the Administrative Agent, as the case may
be, setting forth in reasonable detail the information so recorded, shall
constitute prima facie evidence of the accuracy of the information so recorded;
provided that the failure to make any such recording shall not in any way affect
the obligations of such Borrower hereunder.
(c) Each Borrower agrees that, upon the request to the Administrative
Agent by any Bid Loan Bank at any time, the Bid Loans made by such Bid Loan Bank
to any Borrower shall be evidenced by a promissory note of such Borrower,
substantially in the form of Exhibit B with appropriate insertions (a "Bid Loan
Note"), payable to the order of such Bid Loan Bank and representing the
obligation of such Borrower to pay the unpaid principal amount of all Bid Loans
made by such Bid Loan Bank, with interest on the unpaid principal amount from
time to time outstanding of each Bid Loan evidenced thereby as prescribed in
subsection 4.4. Upon the request to the Administrative Agent by any such Bid
Loan Bank at any time, such Borrower shall execute and deliver to such Bid Loan
Bank a Bid Loan Note conforming to the requirements hereof and executed by a
duly authorized officer of such Borrower. Each Bid Loan Bank is hereby
authorized to record the date and amount of each Bid Loan made by such Bank, the
maturity date thereof, the date and amount of each payment of principal thereof
and the interest rate with respect thereto on the schedule annexed to and
constituting part of its Bid Loan Note, and any such recordation shall
constitute prima facie evidence of the accuracy of the information so recorded;
provided, however, that the failure to make any such recordation shall not
affect the obligations of such Borrower hereunder or under any Bid Loan Note.
Each Bid Loan Note shall be dated the
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Closing Date and each Bid Loan evidenced thereby shall bear interest for the
period from and including the Borrowing Date thereof on the unpaid principal
amount thereof from time to time outstanding at the applicable rate per annum
determined as provided in, and such interest shall be payable as specified in,
subsection 4.4.
SECTION 5. LOAN FACILITY COMMON PROVISIONS
5.1 Interest Rates and Payment Dates. (a) Each Eurodollar Loan shall
bear interest for each day during each Interest Period with respect thereto at a
rate per annum equal to the Eurodollar Rate determined for such Interest Period
plus the Applicable Margin.
(b) Each ABR Loan shall bear interest at a fluctuating rate per annum
equal to the Alternate Base Rate.
(c) Except as otherwise provided in subsection 4.4, if all or a portion
of (i) the principal amount of any Loan or (ii) any interest payable thereon
shall not be paid when due (whether at the stated maturity, by acceleration or
otherwise), such overdue amount shall bear interest at a rate per annum which is
(x) in the case of overdue principal, the rate that would otherwise be
applicable thereto pursuant to the foregoing provisions of this subsection plus
2% or (y) in the case of overdue interest, the rate described in paragraph (b)
of this subsection plus 2%, in each case from the date of such non-payment until
such amount is paid in full (as well after as before judgment).
(d) Interest shall be payable in arrears on each Interest Payment Date,
provided that interest accruing pursuant to paragraph (c) of this subsection
shall be payable on demand.
(e) Subject to the limitations set forth herein, each Borrower may use
the Loans by borrowing, prepaying and reborrowing the Loans, all in accordance
with the terms and conditions hereof.
5.2 Commitment Fee, Other Fees. (a) The Company agrees to pay to the
Administrative Agent for the account of each Bank a commitment fee for the
period from and including the date hereof to the Termination Date, computed at
the rate per annum determined as set forth in paragraph (c) of this subsection
on the average daily amount of the Available Commitment of such Bank during the
period for which payment is made, payable quarterly in arrears on the fifteenth
day of each March, June, September and December and on the Termination Date or
such earlier date as the Commitments shall terminate as provided herein,
commencing on the first of such dates to occur after the date hereof.
<PAGE> 26
25
(b) The Company agrees to pay to the Administrative Agent for the
account of each Bank a facility fee for the period from and including the date
hereof to the Termination Date, computed at the rate per annum determined as set
forth in paragraph (c) of this subsection on the average daily amount of the
Commitment of such Bank during the period for which payment is made, payable
quarterly in arrears on the fifteenth day of each March, June, September and
December and on the Termination Date or such earlier date as the Commitments
shall terminate as provided herein, commencing on the first of such dates to
occur after the date hereof.
(c) The rate per annum at which such commitment fee under paragraph (a)
above shall be computed (the "Applicable Commitment Fee Rate") and such facility
fee under paragraph (b) above shall be computed (the "Applicable Facility Fee
Rate"), for any day on which the long term senior unenhanced, unsecured debt of
the Company is rated by both S&P and Moody's, shall be the rate per annum under
the caption "Commitment Fee Rate" (a "Commitment Fee Rate") for the commitment
fee and "Facility Fee Rate" (a "Facility Fee Rate") for the facility fee, as the
case may be, set forth below opposite the S&P and Moody's ratings applicable to
such debt on such day (or, if such ratings are set opposite two different rates
under said caption, then the Applicable Commitment Fee Rate and Applicable
Facility Fee Rate shall be the lower of said two Commitment Fee Rates and
Facility Fee Rates):
<TABLE>
<CAPTION>
COMMITMENT FACILITY FEE
FEE RATE RATE S&P MOODY'S
- -------- ---- --- -------
<S> <C> <C> <C>
.0625% .1500% BB+ or lower Ba1 or lower
.0500% .1250% BBB- Baa3
.0500% .1000% BBB Baa2
.0400% .0800% BBB+ Baa1
.0400% .0600% A- or higher A3 or higher
</TABLE>
provided that if on any day the long term senior unenhanced, unsecured debt of
the Company is rated by only one of S&P or Moody's, such rate will be determined
based on the rating by such rating agency, and provided, further, that if on any
day the long term senior unenhanced, unsecured debt of the Company is rated by
neither S&P nor Moody's, the Applicable Commitment Fee Rate and the Applicable
Facility Fee Rate will be determined based on the rating of such debt by a
Substitute Rating Agency and will be the Commitment Fee Rate and Facility Fee
Rate set forth above opposite the S&P and Moody's ratings comparable to the
Substitute Rating Agency's rating of such debt on such date, and provided,
further, that if on any day the long term senior unenhanced,
<PAGE> 27
26
unsecured debt of the Company is rated by none of S&P, Moody's or any Substitute
Rating Agency, the Company, the Administrative Agent and the Banks will
negotiate in good faith to determine an alternative basis for calculating such
rate consistent with the table set forth above and, if agreement on such
alternative basis is not reached with 30 days, such rate will be calculated on
an alternative basis determined by the Administrative Agent and the Banks in
their reasonable discretion consistent with the table above, and until such
alternative basis is determined such rate will be the rate last determined as
provided in the table above.
5.3 Termination or Reduction of Commitments; Change of Control Date.
(a) The Company shall have the right, upon not less than five Business Days'
notice to the Administrative Agent, to terminate the Commitments or, from time
to time, to reduce the amount of the Commitments, provided that no such
termination or reduction shall be permitted to the extent that, after giving
effect thereto and to any prepayments of Loans made on the effective date
thereof, the sum of the aggregate Loan Outstandings of all the Banks, plus the
Aggregate Outstanding Bilateral Option Loans would exceed the Commitments then
in effect. Any such partial reduction shall be in an amount equal to $5,000,000
or a whole multiple of $1,000,000 in excess thereof and shall reduce permanently
the Commitments then in effect.
(b) (i) In the event that a Change of Control Date shall occur, (A)
the Company shall, within 10 days after such Change of Control Date, give each
Bank notice thereof in writing describing in reasonable detail the facts and
circumstances giving rise thereto, and (B) such Bank, by written notice given to
the Company not later than 30 days after the Change of Control Date, may declare
the Commitments of such Bank to be terminated in full or reduced as of the date
of (or as of a later date specified in) such notice to the Company, and may
require that the Borrowers prepay as provided in this subsection 5.3 any Loans
payable to such Bank and outstanding on such date to the extent the principal
amount thereof exceeds such Bank's Commitment, if any, remaining after such
termination or reduction. To the extent such Bank so requires, the Borrowers
shall prepay such Loans on the 75th day after the date of the Company's notice
or, in the event such 75th day is not a Business Day, the Business Day next
succeeding such 75th day ("Prepayment Date").
(ii) On the Prepayment Date, the Borrowers shall prepay the unpaid
principal amount of the Loans payable to such Bank, without premium or penalty,
together with accrued interest on the amount prepaid to the Prepayment Date.
(iii) Subsections 5.9(a), (b) and (c) shall not apply to prepayments
under this subsection 5.3(b).
(iv) Paragraph (a) of this subsection 5.3 hereof shall not apply to
any Commitment reductions pursuant to this paragraph (b).
<PAGE> 28
27
(v) In the event that a Change of Control Date shall occur, the Company
shall not thereafter, without the prior written consent of the Majority Banks,
borrow any additional Loan (other than a Bilateral Option Loan) in order to
make, directly or indirectly, any payment or prepayment on any Indebtedness
subordinated as to the payment of principal and interest or on liquidation to
the prior payment of any of the Obligations.
5.4 Prepayments. (a) Any Borrower may at any time and from time to time
upon at least four Business Days' irrevocable notice to the Administrative
Agent, in the case of Eurodollar Loans, or upon at least one Business Day's
irrevocable notice to the Administrative Agent, in the case of ABR Loans, prepay
the Loans (other than Bid Loans), in whole or in part, without premium or
penalty (subject to subsection 5.13), specifying the date and amount of
prepayment and whether the prepayment is of Eurodollar Loans, ABR Loans or a
combination thereof, and, if of a combination thereof, the amount allocable to
each. Upon receipt of any such notice the Administrative Agent shall promptly
notify each Bank thereof. If any such notice is given, the amount specified in
such notice shall be due and payable on the date specified therein. Partial
prepayments shall be in an aggregate principal amount of $5,000,000 or a whole
multiple of $1,000,000 in excess thereof.
(b) If at any time, the Administrative Agent shall determine (which
determination shall be conclusive in the absence of manifest error) that the sum
of the aggregate Loan Outstandings of all the Banks plus the Aggregate
Outstanding Bilateral Option Loans exceeds the aggregate Commitments, the
Borrowers shall immediately prepay the Loans in an aggregate principal amount
equal to such excess.
5.5 Conversion and Continuation Options. (a) Any Borrower may elect at
any time and from time to time (subject to subsection 5.13) to convert its
Eurodollar Loans to ABR Loans by giving the Administrative Agent at least two
Business Days' prior irrevocable notice of such election. Any Borrower may elect
at any time and from time to time to convert its ABR Loans to Eurodollar Loans
by giving the Administrative Agent irrevocable notice of such election (which
notice must be received by the Administrative Agent prior to 4:00 P.M., New York
City time, three Business Days prior to the requested conversion date). Any such
notice of conversion to Eurodollar Loans shall specify the length of the initial
Interest Period or Interest Periods therefor. Upon receipt of any such notice
the Administrative Agent shall promptly notify each Bank thereof. All or any
part of outstanding Eurodollar Loans and ABR Loans may be converted as provided
herein, provided that (i) no Loan may be converted into a Eurodollar Loan when
any Event of Default has occurred and is continuing and the Administrative Agent
or the Majority Banks have determined that such a conversion is not appropriate,
and (ii) any such conversion may only be made if, after giving effect thereto,
subsection 5.6 shall not have been contravened.
<PAGE> 29
28
(b) Any Eurodollar Loans may be continued as such upon the expiration
of the then current Interest Period with respect thereto by the Borrower thereof
giving notice to the Administrative Agent, in accordance with the applicable
provisions of the term "Interest Period" set forth in subsection 1.1, of the
length of the next Interest Period to be applicable to such Loans, provided that
no Eurodollar Loan may be continued as such (i) when any Event of Default has
occurred and is continuing and the Administrative Agent or the Majority Banks
have determined that such a continuation is not appropriate, or (ii) if, after
giving effect thereto, subsection 5.6 would be contravened and provided,
further, that if any Borrower shall fail to give any required notice as
described above in this paragraph or if such continuation is not permitted
pursuant to the preceding proviso such Loans shall be automatically converted to
ABR Loans on the last day of such then expiring Interest Period.
5.6 Minimum Amounts of Eurodollar Tranches. All borrowings, conversions
and continuations of Loans hereunder and all selections of Interest Periods
hereunder shall be in such amounts and be made pursuant to such elections so
that, after giving effect thereto, the aggregate principal amount of the Loans
comprising each Eurodollar Tranche shall be equal to $5,000,000 or a whole
multiple of $1,000,000 in excess thereof.
5.7 Computation of Interest and Fees. (a) Interest on ABR Loans, and
commitment fees and facility fees shall be calculated on the basis of a 365- (or
366-, as the case may be) day year for the actual days elapsed. Interest on
Eurodollar Loans shall be calculated on the basis of a 360-day year for the
actual days elapsed. The Administrative Agent shall as soon as practicable
notify the Borrowers and the Banks of each determination of a Eurodollar Rate.
Any change in the interest rate on a Loan resulting from a change in the Prime
Rate shall become effective as of the opening of business on the day on which
such change in the Prime Rate is announced. The Administrative Agent shall as
soon as practicable notify the Borrowers and the Banks of the effective date and
the amount of each such change in interest rate.
(b) Each determination of an interest rate by the Administrative Agent
pursuant to any provision of this Agreement shall be conclusive and binding on
the Borrowers and the Banks in the absence of manifest error. The Administrative
Agent shall, at the request of the Company, deliver to the Company a statement
showing in reasonable detail the quotations and calculations used by the
Administrative Agent in determining any interest rate pursuant to subsections
5.1 and 5.7(a).
5.8 Inability to Determine Interest Rate. In the event that prior to
the first day of any Interest Period:
<PAGE> 30
29
(a) the Administrative Agent shall have determined (which determination
shall be conclusive and binding upon the Borrowers) that, by reason of
circumstances affecting the relevant market, adequate and reasonable means
do not exist for ascertaining the Eurodollar Rate for such Interest Period,
or
(b) the Administrative Agent shall have received notice from the
Majority Banks that the Eurodollar Rate determined or to be determined for
such Interest Period will not adequately and fairly reflect the cost to
such Banks (as conclusively certified by such Banks) of making or
maintaining their affected Loans during such Interest Period,
the Administrative Agent shall give telecopy or telephonic notice thereof to the
Borrowers and the Banks as soon as practicable thereafter. If such notice is
given (x) any Eurodollar Loans requested to be made on the first day of such
Interest Period shall be made as ABR Loans, (y) any Loans that were to have been
converted on the first day of such Interest Period to Eurodollar Loans shall be
continued as ABR Loans and (z) any outstanding Eurodollar Loans shall be
converted, on the first day of such Interest Period, to ABR Loans. Until such
notice has been withdrawn by the Administrative Agent, no further Eurodollar
Loans shall be made or continued as such, nor shall any Borrower have the right
to convert Loans to Eurodollar Loans.
5.9 Pro Rata Treatment and Payments. (a) Each borrowing by any Borrower
of Revolving Credit Loans from the Banks hereunder, each payment by the Company
on account of any commitment fee, facility fee or utilization fee hereunder, and
any reduction of the Commitments of the Banks shall be made pro rata according
to the respective Commitment Percentages of the Banks.
(b) Whenever any payment received by the Administrative Agent or any
Bank under this Agreement or any Note is insufficient to pay in full all amounts
then due and payable to the Administrative Agent and the Banks under this
Agreement and the Notes, and the Administrative Agent has not received a Payment
Sharing Notice (or if the Administrative Agent has received a Payment Sharing
Notice but the Event of Default specified in such Payment Sharing Notice has
been cured or waived), such payment shall be distributed and applied by the
Administrative Agent and the Banks in the following order: first, to the payment
of fees and expenses due and payable to the Administrative Agent in its capacity
as Administrative Agent under and in connection with this Agreement; second, to
the payment of all expenses due and payable under subsection 13.5, ratably among
the Banks in accordance with the aggregate amount of such payments owed to each
such Bank; third, to the payment of fees due and payable under subsections
5.2(a), (b) and (c), ratably among the Banks in accordance with their Commitment
<PAGE> 31
30
Percentages; fourth, to the payment of interest then due and payable on the
Loans, ratably among the Banks in accordance with the aggregate amount of
interest owed to each such Bank; and fifth, to the payment of the principal
amount of the Loans which is then due and payable, ratably among the Banks in
accordance with the aggregate principal amount owed to each such Bank.
(c) After the Administrative Agent has received a Payment Sharing
Notice which remains in effect, all payments received by the Administrative
Agent under this Agreement or any Note shall be distributed and applied by the
Administrative Agent and the Banks in the following order: first, to the payment
of all amounts described in clauses first through third of the foregoing
paragraph (b), in the order set forth therein; and second, to the payment of the
interest accrued on and the principal amount of all of the Loans, regardless of
whether any such amount is then due and payable, ratably among the Banks in
accordance with the aggregate accrued interest plus the aggregate principal
amount owed to such Bank.
(d) All payments (including prepayments) to be made by any Borrower
hereunder and under the Notes, whether on account of principal, interest, fees
or otherwise, shall be made without set-off or counterclaim and shall be made
prior to 3:00 P.M., New York City time, on the due date thereof (i) in the case
of fees and Loans other than Bilateral Option Loans, to the Administrative
Agent, for the account of the Banks, at the Administrative Agent's office
specified in subsection 13.2, and (ii) in the case of Bilateral Option Loans
made by any Bank, to such Bank, at the Bank's office specified in Schedule I
(or, with respect to Alternative Currency Bilateral Loans, if different, at such
other office of the Bank that it shall designate), in each case in Dollars (or,
with respect to Alternative Currency Bilateral Loans, in the relevant
Alternative Currency) and in immediately available funds. If any payment
hereunder becomes due and payable on a day other than a Business Day, such
payment shall be extended to the next succeeding Business Day (unless, with
respect to any payment on a Eurodollar Loan, the result of such extension would
be to extend such payment into another calendar month, in which event such
payment shall be made on the immediately preceding Business Day), and, with
respect to payments of principal, interest thereon shall be payable at the then
applicable rate during such extension.
(e) Unless the Administrative Agent shall have been notified in writing
by the Bank prior to a Borrowing Date that such Bank will not make the amount of
any Loan it has committed to make on such date available to the Administrative
Agent, the Administrative Agent may assume that such Bank has made such amount
available to the Administrative Agent on such Borrowing Date, and the
Administrative Agent may, in reliance upon such assumption, make available to
the applicable Borrower a corresponding amount. If such amount is made available
to the Administrative Agent on a date after such Borrowing Date, such
<PAGE> 32
31
Bank shall pay to the Administrative Agent on demand an amount equal to the
product of (i) the daily average Federal Funds Effective Rate during such
period, times (ii) the amount of the Loan such Bank was committed to make, times
(iii) a fraction the numerator of which is the number of days that elapse from
and including such Borrowing Date to the date on which such Bank's Loan shall
have become immediately available to the Administrative Agent and the
denominator of which is 360. A certificate of the Administrative Agent submitted
to any Bank with respect to any amounts owing under this subsection shall be
conclusive in the absence of manifest error. If such Bank's Commitment
Percentage of such borrowing is not in fact made available to the Administrative
Agent by such Bank within three Business Days of such Borrowing Date, the
Administrative Agent shall be entitled to recover such amount with interest
thereon at the rate per annum applicable to ABR Loans hereunder, on demand, from
such Borrower.
5.10 Illegality. Notwithstanding any other provision herein, if any
change after the date hereof in any Requirement of Law or in the interpretation
or application thereof shall make it unlawful for any Bank to make or maintain
Eurodollar Loans as contemplated by this Agreement, (a) the commitment of such
Bank hereunder to make Eurodollar Loans, continue Eurodollar Loans as such and
convert ABR Loans to Eurodollar Loans shall forthwith be cancelled and (b) such
Bank's Loans then outstanding as Eurodollar Loans, if any, shall be converted
automatically to ABR Loans on the respective last days of the then current
Interest Periods with respect to such Loans or within such earlier period as
required by law. If any such conversion of a Eurodollar Loan occurs on a day
which is not the last day of the then current Interest Period with respect
thereto, the Borrower of such Loan shall pay to such Bank such amounts, if any,
as may be required pursuant to subsection 5.13.
5.11 Requirements of Law. (a) In the event that any change after the
date hereof in any Requirement of Law or in the interpretation or application
thereof or compliance by any Bank with any request or directive (whether or not
having the force of law) from any central bank or other Governmental Authority
made subsequent to the date hereof:
(i) shall subject any Bank to any tax of any kind whatsoever with
respect to this Agreement, any Note or any Eurodollar Loan made by it, or
change the basis of taxation of payments to such Bank in respect thereof
(except for taxes covered by subsection 5.12 and changes in taxes based
upon or measured by income of such Bank);
(ii) shall impose, modify or hold applicable any reserve, special
deposit, compulsory loan or similar requirement against assets held by,
deposits or other liabilities in or for the account of, advances, loans or
other extensions of credit by, or any other acquisition of
<PAGE> 33
32
funds by, any office of such Bank which is not otherwise included in the
determination of the Eurodollar Rate hereunder; or
(iii) shall impose on such Bank any other condition;
and the result of any of the foregoing is to increase the cost to such Bank, by
an amount which such Bank deems in its reasonable judgment to be material, of
making, converting into, continuing or maintaining Eurodollar Loans or to reduce
any amount receivable hereunder in respect thereof then, in any such case, the
Company shall promptly pay such Bank, upon its demand, any additional amounts
necessary to compensate such Bank for such increased cost or reduced amount
receivable. If any Bank becomes entitled to claim any additional amounts
pursuant to this subsection, it shall promptly notify the Company, through the
Administrative Agent, of the event by reason of which it has become so entitled.
A certificate as to any additional amounts payable pursuant to this subsection
setting forth the calculation thereof in reasonable detail (as determined by
such Bank in its reasonable discretion) submitted by such Bank, through the
Administrative Agent, to the Company shall be conclusive in the absence of
manifest error. This covenant shall survive the termination of this Agreement
and the payment of the Notes and all other amounts payable hereunder.
(b) In the event that any Bank shall have determined that any change in
any Requirement of Law regarding capital adequacy or in the interpretation or
application thereof or compliance by such Bank or any corporation controlling
such Bank with any request or directive regarding capital adequacy (whether or
not having the force of law) from any Governmental Authority made subsequent to
the date hereof does or shall have the effect of reducing the rate of return on
such Bank's or such corporation's capital as a consequence of its obligations
hereunder to a level below that which such Bank or such corporation could have
achieved but for such change or compliance (taking into consideration such
Bank's or such corporation's policies with respect to capital adequacy) by an
amount deemed by such Bank to be material, then from time to time, after
submission by such Bank to the Company (with a copy to the Administrative Agent)
of a written request therefor, the Company shall pay to such Bank such
additional amount or amounts as will compensate such Bank for such reduction. A
certificate as to any additional amount payable pursuant to this subsection
setting forth the calculation thereof in reasonable detail (as determined by
such Bank in its reasonable discretion) through the Administrative Agent, to the
Company shall be conclusive in the absence of manifest error.
(c) Upon request by any Bank, through the Administrative Agent, from
time to time, the Borrowers shall pay the cost of all Eurocurrency Reserve
Requirements applicable to the Eurodollar Loans made by such Bank. If a Bank is
or becomes
<PAGE> 34
33
entitled to receive payments in respect of Eurocurrency Reserve Requirements,
pursuant to this subsection 5.11(c), it shall promptly notify the Borrowers
thereof through the Administrative Agent. A certificate as to the amount of such
Eurocurrency Reserve Requirements setting forth the calculation thereof in
reasonable detail (as determined by such Bank in its reasonable discretion)
submitted by such Bank, through the Administrative Agent, to the Borrowers shall
be conclusive in the absence of manifest error. This covenant shall survive the
termination of this Agreement and the payment of the Loans and all other amounts
payable hereunder.
5.12 Taxes. (a) All payments made by any Borrower under this Agreement
and any Notes shall be made free and clear of, and without deduction or
withholding for or on account of, any present or future income, stamp or other
taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now
or hereafter imposed, levied, collected, withheld or assessed by any
Governmental Authority, excluding, in the case of the Administrative Agent and
each Bank, net income taxes and franchise taxes (imposed in lieu of net income
taxes) that would not have been imposed on the Administrative Agent or such
Bank, as the case may be, in the absence of a present or former connection
between the jurisdiction of the government or taxing authority imposing such tax
and the Administrative Agent or such Bank (other than a connection arising
solely from the Administrative Agent or such Bank having executed, delivered or
performed its obligations or received a payment under, or enforced, this
Agreement or any Notes) or any political subdivision or taxing authority thereof
or therein (all such non-excluded taxes, levies, imposts, duties, charges, fees,
deductions and withholdings being hereinafter called "Taxes"). If any Taxes are
required to be withheld from any amounts payable to the Administrative Agent or
any Bank hereunder or under any Notes, the amounts so payable to the
Administrative Agent or such Bank shall be increased to the extent necessary to
yield to the Administrative Agent or such Bank (after payment of all Taxes)
interest or any such other amounts payable hereunder at the rates or in the
amounts specified in this Agreement and the Notes. Whenever any Taxes are
payable by any Borrower in respect of any payment made hereunder, as promptly as
possible thereafter any Borrower shall send to the Administrative Agent for its
own account or for the account of such Bank, as the case may be, a certified
copy of an original official receipt received by such Borrower showing payment
thereof. If such Borrower fails to pay any Taxes when due to the appropriate
taxing authority or fails to remit to the Administrative Agent the required
receipts or other required documentary evidence, such Borrower shall indemnify
the Administrative Agent and the Banks for any incremental taxes, interest or
penalties that may become payable by the Administrative Agent or any Bank as a
result of any such failure. The agreements in this subsection shall survive the
termination of this Agreement and the payment of the Notes and all other amounts
payable hereunder.
<PAGE> 35
34
(b) Each Bank that is not incorporated under the laws of the United
States of America or a state thereof agrees that it will deliver to the Company
and the Administrative Agent (i) two duly completed copies of United States
Internal Revenue Service Form 1001 or 4224 or successor applicable form, as the
case may be, and (ii) an Internal Revenue Service Form W-8 or W-9 or successor
applicable form. Each such Bank also agrees to deliver to the Company and the
Administrative Agent two further copies of the said Form 1001 or 4224 and Form
W-8 or W-9, or successor applicable forms or other manner of certification, as
the case may be, on or before the date that any such form expires or becomes
obsolete or after the occurrence of any event requiring a change in the most
recent form previously delivered by it to the Company, and such extensions or
renewals thereof as may reasonably be requested by the Company or the
Administrative Agent, unless in any such case an event (including, without
limitation, any change in treaty, law or regulation) has occurred prior to the
date on which any such delivery would otherwise be required which renders all
such forms inapplicable or which would prevent such Bank from duly completing
and delivering any such form with respect to it and such Bank so advises the
Company and the Administrative Agent. Such Bank shall certify (i) in the case of
a Form 1001 or 4224, that it is entitled to receive payments under this
Agreement without deduction or withholding of any United States federal income
taxes and (ii) in the case of a Form W-8 or W-9, that it is entitled to an
exemption from United States backup withholding tax.
5.13 Indemnity. Each Borrower agrees to indemnify each Bank and to hold
each Bank harmless from any loss or expense which such Bank may sustain or incur
as a consequence of (a) default by any Borrower in payment when due of the
principal amount of or interest on any Eurodollar Loan, (b) default by any
Borrower in making a borrowing of, conversion into or continuation of Eurodollar
Loans after such Borrower has given a notice requesting the same in accordance
with the provisions of this Agreement, (c) default by any Borrower in making any
prepayment after such Borrower has given a notice thereof in accordance with the
provisions of this Agreement or (d) the making of a payment or prepayment of
Eurodollar Loans on a day which is not the last day of an Interest Period with
respect thereto, including, without limitation, in each case, any such loss or
expense arising from the reemployment of funds obtained by it or from fees
payable to terminate the deposits from which such funds were obtained. This
covenant shall survive the termination of this Agreement and the payment of the
Loans or Notes, if any, and all other amounts payable hereunder.
SECTION 6. REPRESENTATIONS AND WARRANTIES
To induce the Banks to enter into this Agreement, each of the Company,
the Parent and Grace Holding represents and warrants to the Administrative Agent
and each Bank that:
<PAGE> 36
35
6.1 Corporate Existence; Compliance with Law. Each Loan Party (a) is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation, (b) is duly qualified and in good standing
in each jurisdiction wherein, in the opinion of the Company and the Parent, the
conduct of its business or the ownership of its properties requires such
qualification and (c) is in compliance with all Requirements of Law, except to
the extent that the failure to comply with paragraph (a), (b) or (c) of this
subsection would not, in the aggregate, reasonably be expected to have a
Material Adverse Effect.
6.2 Corporate Power, Authorization; Enforceable Obligations. Each Loan
Party has the corporate power and authority to make, deliver and perform its
obligations under the Loan Documents to which it is or will be a party, and has
taken all necessary corporate action to authorize (i) in the case of the
Borrowers, the borrowings under this Agreement and any Notes to which it is or
will be a party on the terms and conditions hereof and thereof and (ii) the
execution, delivery and performance of this Agreement and the Loan Documents to
which it is or will be a party. This Agreement has been, and any Note and the
other Loan Documents to which it is or will be a party will be, duly executed
and delivered on behalf of each relevant Loan Party. This Agreement constitutes,
and each of the Notes, if any, and the other Loan Documents when executed and
delivered will constitute, a legal, valid and binding obligation of the Loan
Party thereto, enforceable against such Loan Party in accordance with its terms,
such enforceability subject to limitations under any applicable bankruptcy,
insolvency, moratorium or other laws affecting creditors' rights and by general
equitable principles (whether applied in a proceeding in equity or at law). No
consent of any other party (including stockholders of the Parent) and no
consent, license, approval or authorization of, or registration or declaration
with, any Governmental Authority is required to be obtained by any Loan Party in
connection with the execution, delivery, performance, validity or enforceability
of this Agreement and any Notes.
6.3 No Legal Bar. The execution, delivery and performance of this
Agreement, the Notes and the other Loan Documents, the borrowings hereunder and
the use of the proceeds thereof, will not violate or contravene any material
provision of any Requirement of Law or material Contractual Obligation of the
Parent, Grace Holding, the Company or any of its Subsidiaries and will not
result in, or require, the creation or imposition of any material Lien (other
than Liens permitted under subsection 9.2) on any of its or their respective
properties or revenues pursuant to any such Requirement of Law or Contractual
Obligation.
6.4 No Material Litigation. There is no legal action, administrative
proceeding or arbitration (whether or not purportedly on behalf of Grace New
York, Grace Holding or the Company or any of its Subsidiaries) presently
pending, or to the
<PAGE> 37
36
knowledge of Grace New York, Grace Holding or the Company threatened, against or
affecting Grace New York, Grace Holding or the Company or any of its
Subsidiaries which would reasonably be expected to have a Material Adverse
Effect, except that the foregoing is subject to the fact that, as discussed in
Item 3 of Grace New York's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995 referred to in subsection 6.6 and also as discussed in other
information provided to the Banks, the Company, Grace New York and Grace Holding
cannot predict at this time the results and impact, if any, of the governmental
investigation of Grace New York's Subsidiary, NMC, referred to in Item 3 and in
other information provided to the Banks, and related claims and litigation.
6.5 Ownership of Properties. Each of the Parent, Grace Holding, the
Company and its Subsidiaries is the tenant under valid leases or has good title
to substantially all its properties and assets, real and personal (except
defects in title and other matters that would not reasonably be expected to have
a Material Adverse Effect), subject to no Lien except as permitted to exist
under subsection 9.2.
6.6 Financial Condition. The consolidated balance sheets of Grace New
York and its Subsidiaries as at December 31, 1995 and December 31, 1994 and the
related consolidated statements of operations, shareholders' equity and of cash
flows (together with the related notes), included or incorporated in Grace New
York's Annual Report on Form 10-K filed with the SEC for the fiscal year ended
December 31, 1995, present fairly in all material respects the financial
position of Grace New York and its Subsidiaries as at such dates and the results
of their operations and their cash flows for the fiscal years then ended. The
unaudited consolidated balance sheet of Grace New York and its Subsidiaries as
at March 31, 1996 and the related unaudited consolidated statement of operations
for the three-month interim period, and the related unaudited consolidated
statement of cash flows for the three-month interim period, ended on such date,
included in Grace New York's Quarterly Report on Form 10-Q filed with the SEC
for such period, present fairly in all material respects the financial position
of Grace New York and its Subsidiaries as at such date and the results of their
operations and their cash flows for the three-month period then ended. All of
such financial statements, including the notes to such financial statements,
have been prepared in conformity with GAAP (subject, in the case of interim
statements, to normal year-end adjustments and to the fact that such financial
statements may be abbreviated and may omit footnotes or contain incomplete
footnotes) consistently applied throughout the periods involved except as stated
therein.
6.7 Disclosure of Contingent Liabilities. To the best of the knowledge
and belief of Grace New York, neither Grace New York nor any of its Subsidiaries
has any contingent obligation, liability for taxes, long-term leases, unusual
forward or other
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37
liabilities, which are material in amount in relation to the consolidated
financial condition of Grace New York and its Subsidiaries taken as a whole and
which are not disclosed in the financial statements (including the related
notes) described in subsection 6.6 above.
6.8 ERISA. Each Plan that is intended to qualify under Section 401(a)
of the Code satisfies in all material respects the applicable requirements for
qualification under that Code Section. No Reportable Event has occurred and is
continuing with respect to any such Plan, and neither Grace New York nor any of
its Subsidiaries has incurred any liability to the PBGC under Section 4062 of
ERISA with respect to any such Plan that would reasonably be expected to have a
Material Adverse Effect.
6.9 Certain Federal Regulations. Neither the Company nor any of its
Subsidiaries is engaged in or will engage in the business of extending credit
for the purposes of "purchasing" or "carrying" any "margin stock" within the
respective meanings of each of the quoted terms under Regulation U of the Board,
and no part of the proceeds of any Loan will be used for any purpose which
violates, or which would be inconsistent with, the provisions of Regulation U or
X of the Board.
6.10 No Default. Neither the Parent nor any of its Subsidiaries is in
default under or with respect to any of its Contractual Obligations in any
respect which would reasonably be expected to have a Material Adverse Effect. No
Default or Event of Default has occurred and is continuing.
6.11 Taxes. (a) Each of the Parent and its Subsidiaries has filed or
caused to be filed all tax returns which, to the knowledge of the Parent, are
required to be filed and has paid all taxes shown to be due and payable on said
returns or on any assessments made against it or any of its property and all
other taxes, fees or other charges imposed on it or any of its property by any
Governmental Authority (other than any the amount or validity of which are
currently being contested in good faith by appropriate proceedings and with
respect to which adequate reserves to the extent required in conformity with
GAAP, have been provided on the books of the Parent or its Subsidiaries, as the
case may be) except insofar as the failure to make such filings or payments
would not reasonably be expected to have a Material Adverse Effect; and (b) no
tax Lien (other than a Lien permitted under subsection 9.2(a)) has been filed,
and, to the knowledge of the Parent, no claim is being asserted, with respect to
any such tax, fee or other charge which would reasonably be expected to have a
Material Adverse Effect.
6.12 Investment Company Act; Other Regulations. None of the Parent,
Grace Holding, the Company or any of its Subsidiaries is an "investment
company", or a company "controlled" by an "investment company", within the
meaning of the Investment Company Act of 1940, as amended. None of the
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Parent, Grace Holding, the Company or any other Borrower is subject to
regulation under any Federal or State statute or regulation which limits its
ability to incur Indebtedness.
6.13 Purpose of Loans. The proceeds of the Loans shall be used by the
Borrowers for general corporate purposes (which may include purchases by the
Parent of its capital stock).
6.14 Environmental Matters. To the best of the knowledge of Grace New
York, the operations of Grace New York and its Subsidiaries and all parcels of
real estate owned or operated by Grace New York or its Subsidiaries are in
compliance with all Environmental Laws, except where the failure to so comply
would not reasonably be expected to have a Material Adverse Effect.
6.15 Principal Subsidiaries. Set forth on Schedule II are all of the
Principal Subsidiaries as of the date hereof.
SECTION 7. CONDITIONS PRECEDENT
7.1 Conditions to Effectiveness. The parties hereto acknowledge that
the effectiveness of this Agreement is subject to the satisfaction of the
following conditions precedent:
(a) Loan Documents. The Administrative Agent shall have received (i)
this Agreement, executed and delivered by a duly authorized officer of each
of the Loan Parties, with a counterpart for each Bank, (ii) for the account
of each Bank so requesting, a Revolving Credit Note and a Bid Loan Note
conforming to the requirements hereof and executed by a duly authorized
officer of the Borrowers and (iii) an incumbency certificate of each of the
Loan Parties which covers such officers.
(b) Corporate Proceedings. The Administrative Agent shall have
received, with a counterpart for each Bank, a copy of the resolutions, in
form and substance satisfactory to the Administrative Agent, of the Board
of Directors of each of the Loan Parties authorizing (i) the execution,
delivery and performance of the Loan Documents to which it is or will be a
party and (ii) the borrowings contemplated hereunder (in the case of each
Borrower), certified by the Secretary or an Assistant Secretary of such
Loan Party as of the Closing Date, which certificate shall state that the
resolutions thereby certified have not been amended, modified, revoked or
rescinded and shall be in form and substance satisfactory to the
Administrative Agent.
(c) Fees. The Administrative Agent shall have received all fees to be
received prior to the Closing Date pursuant to subsection 5.2 of the
Existing Credit Agreement.
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39
(d) Legal Opinions. The Administrative Agent shall have received, with
a counterpart for each Bank, the following executed legal opinions:
(i) the executed legal opinion of counsel to the Company, Grace
New York and Grace Holding who may be the General Counsel of the
Company, substantially in the form of Exhibit F-1;
(ii) to the extent required pursuant to subsection 13.15(a)(ii),
the executed legal opinion of counsel to any other Borrower, in form
and substance reasonably satisfactory to the Administrative Agent; and
(iii) the executed legal opinion of Simpson Thacher & Bartlett,
counsel to the Administrative Agent, substantially in the form of
Exhibit F-2.
Each such legal opinion shall cover such other matters incident to the
transactions contemplated by this Agreement as the Administrative Agent may
reasonably require.
(e) Officer's Certificate. The Administrative Agent shall have
received, with a counterpart for each Bank, a certificate respecting
accuracy of representations and warranties, the absence of events having a
Material Adverse Effect and the absence of Defaults and Events of Default,
substantially in the form of Exhibit G hereto, signed by a Responsible
Officer on behalf of each of the Company, Grace New York and Grace Holding.
(f) Additional Matters. All corporate and other proceedings, and all
documents, instruments and other legal matters in connection with the
transactions contemplated by this Agreement shall be satisfactory in form
and substance to the Administrative Agent, and the Administrative Agent
shall have received such other documents and legal opinions in respect of
any aspect or consequence of the transactions contemplated hereby or
thereby as it shall reasonably request.
7.2 Conditions to Each Loan. The agreement of each Bank to make any
Loan requested to be made by it on any date is subject to the satisfaction of
the following conditions precedent:
(a) Representations and Warranties. Each of the representations and
warranties made by each of the Loan Parties in or pursuant to subsections
6.1, 6.2, 6.3, 6.5, 6.9, 6.10, 6.11, 6.12 and 6.13 of this Agreement and in
or pursuant to any other Loan Document to which it is or will be a party,
shall be true and correct in all material
<PAGE> 41
40
respects on and as of such date as if made on and as of such date, and the
representation and warranty made pursuant to subsection 6.6 shall be true
and correct in all material respects with respect to the financial
statements most recently delivered pursuant to subsection 8.1, mutatis
mutandis, as if such financial statements delivered pursuant to subsection
8.1 were the financial statements referred to in subsection 6.6.
(b) No Default. No Default or Event of Default shall have occurred and
be continuing on such date or after giving effect to the Loans requested to
be made on such date.
Each borrowing by the Borrowers hereunder shall constitute a representation and
warranty by the Loan Parties as of the date of such Loan that the conditions
contained in this subsection 7.2 have been satisfied.
SECTION 8. AFFIRMATIVE COVENANTS
Each of the Company and the Parent hereby agrees that, so long as the
Commitments remain in effect, any Note remains outstanding and unpaid or any
other amount is owing to any Bank or the Administrative Agent hereunder, each of
the Company and the Parent shall and the Company (except in the case of delivery
of financial information, reports and notices) shall cause each of its Principal
Subsidiaries to:
8.1 Financial Statements. Furnish to each Bank:
(a) as soon as available, but in any event within 120 days after the
end of each fiscal year of the Parent, a copy of the consolidated balance
sheet of the Parent and its Subsidiaries as at the end of such year and the
related consolidated statements of operations, shareholders' equity and
cash flows for such year (as included or incorporated by reference in the
Parent's Annual Report on Form 10-K or successor form filed with the SEC
for each such fiscal year), setting forth in each case in comparative form
the figures for the previous year, reported on without a "going concern" or
like qualification or exception, or qualification arising out of the scope
of the audit, by Price Waterhouse or other independent certified public
accountants of nationally recognized standing not unacceptable to the
Majority Banks; and
(b) as soon as available, but in any event not later than 75 days after
the end of each of the first three quarterly periods of each fiscal year of
the Parent, the unaudited consolidated balance sheet of the Parent and its
Subsidiaries as at the end of such quarter and the related unaudited
consolidated statements of operations for such quarter and the related
unaudited consolidated statements of
<PAGE> 42
41
operations and cash flows for the portion of the fiscal year through the
end of such quarter (as included in the Parent's Quarterly Report on Form
10-Q or successor form filed with the SEC for each such period), setting
forth in each case in comparative form the figures for the previous year,
certified by a Responsible Officer as being fairly stated in all material
respects when considered in relation to the consolidated financial
statements of the Parent and its Subsidiaries.
All such financial statements shall be prepared in conformity with GAAP
(subject, in the case of interim statements, to normal year-end adjustments and
to the fact that such financial statements may be abbreviated and may omit
footnotes or contain incomplete footnotes) applied consistently throughout the
periods reflected therein and with prior periods (except as disclosed therein).
8.2 Certificates; Other Information. Furnish to each Bank:
(a) concurrently with the delivery of the financial statements referred
to in subsection 8.1(a), a certificate of the independent certified public
accountants reporting on such financial statements stating that in making
the examination necessary therefor no knowledge was obtained of any Default
or Event of Default, except as specified in such certificate;
(b) concurrently with the delivery of the financial statements referred
to in subsections 8.1(a) and 8.1(b), a certificate of a Responsible Officer
of the Parent in his capacity as such officer stating that, to the best of
such Officer's knowledge, each of the Borrowers and the Parent during such
period has observed or performed all of its covenants and other agreements,
and satisfied every condition, contained in this Agreement and in the Notes
and the other Loan Documents to which it is a party to be observed,
performed or satisfied by it, and that such Officer has obtained no
knowledge of any Default or Event of Default except as specified in such
certificate and showing in detail the calculation of compliance with
subsections 9.1 and 9.2;
(c) concurrently with the delivery of the financial statements referred
to in subsection 8.1(a), a list of the Principal Subsidiaries as of the
corresponding fiscal year end, certified by a Responsible Officer in his
capacity as such officer;
(d) within ten Business Days after the same are sent, copies of all
financial statements and reports which the Parent sends to its shareholders
generally relating to the business of the Parent and its Subsidiaries, and
within ten
<PAGE> 43
42
Business Days after the same are filed, copies of all reports on Forms
10-K, 10-Q, 8-K, 8 and 10, and Schedules 13D, 13E-3, 13E-4, 13-G, 14D-1 and
14D-9, or successor forms or schedules, and the final prospectus in each
effective registration statement (other than registration statements on
Form S-8) and each post-effective amendment to such registration statement
which the Parent may make to, or file with, the SEC; and
(e) promptly, subject to reasonable confidentiality requirements agreed
to by the Company and such Bank, such additional financial and other
information as any Bank may from time to time reasonably request.
8.3 Payment of Obligations. Pay, discharge or otherwise satisfy at or
before maturity or before they become delinquent, as the case may be, all its
obligations of whatever nature, except where the amount or validity thereof is
currently being contested in good faith by appropriate proceedings and reserves,
to the extent required in conformity with GAAP with respect thereto, have been
provided on the books of the Parent or its Subsidiaries, as the case may be, and
except to the extent that the failure to so pay, discharge or otherwise satisfy
such obligations would not result in a Default or Event of Default under Section
10(e)(i).
8.4 Conduct of Business and Maintenance of Existence. Preserve, renew
and keep in full force and effect its corporate existence and take all
reasonable action to maintain all corporate rights, privileges and franchises
necessary or desirable in the normal conduct of its business, except as
otherwise permitted pursuant to subsection 9.3; comply with all Contractual
Obligations and Requirements of Law except to the extent that failure to comply
therewith would not, in the aggregate, reasonably be expected to have a Material
Adverse Effect.
8.5 Insurance. Maintain with financially sound and reputable insurance
companies (which may include, without limitation, captive insurers), such
insurance coverage as is reasonable for the business activities of the Parent
and its Subsidiaries; and furnish to the Administrative Agent, upon written
request, such information as the Administrative Agent may reasonably request as
to its insurance program.
8.6 Inspection of Property, Books and Records; Discussions. Permit
representatives of any Bank (subject to reasonable safety and confidentiality
requirements) to visit and inspect any of its properties and examine and make
abstracts from any of its books and records at any reasonable time and as often
as may reasonably be desired and to discuss the business, operations, properties
and financial and other condition of the Parent and its Subsidiaries with
officers and employees of the Parent and its Subsidiaries and, provided
representatives of the
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43
Parent are given an opportunity to participate, with its independent certified
public accountants.
8.7 Notices. Promptly give notice to the Administrative Agent and each
Bank of:
(a) the occurrence of any Default or Event of Default;
(b) any (i) default or event of default under any Contractual
Obligation of the Parent or any of its Subsidiaries or (ii) litigation,
investigation or proceeding which may exist at any time between the Parent
or any of its Subsidiaries and any Governmental Authority, which in either
case, would reasonably be expected to have a Material Adverse Effect;
(c) any litigation or proceeding affecting the Parent or any of its
Subsidiaries in which the then reasonably anticipated exposure of the
Parent and its Subsidiaries is $10,000,000 or more and not covered by
insurance, or in which injunctive or similar relief is sought which is then
reasonably anticipated to have an adverse economic effect on the Parent and
its Subsidiaries of $10,000,000 or more;
(d) the following events, as soon as possible and in any event within
30 days after the Company or the Parent knows or has reason to know
thereof: (i) the occurrence or expected occurrence of any Reportable Event
with respect to any Plan, or any withdrawal from, or the termination,
Reorganization or Insolvency of any Multiemployer Plan or (ii) the
institution of proceedings or the taking of any other action by the PBGC or
the Company or the Parent or any Commonly Controlled Entity or any
Multiemployer Plan with respect to the withdrawal from, or the terminating,
Reorganization or Insolvency of, any Plan, where in connection with any of
the events described in (i) or (ii) above the liability to the Company or a
Commonly Controlled Entity would reasonably be expected to be $10,000,000
or more;
(e) any upgrading, downgrading or cessation in the rating of the long
term senior unenhanced, unsecured debt of the Company by the rating agency
or agencies whose rating on such debt is then being used to determine the
Applicable Margin, the Commitment Fee Rate and the Facility Fee Rate;
(f) the occurrence of the NMC Disposition; and
(g) a development or event which would reasonably be expected to have a
Material Adverse Effect.
Each notice pursuant to this subsection shall be accompanied by a statement of a
Responsible Officer setting forth details of the
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44
occurrence referred to therein and stating what action each of the Company and
the Parent proposes to take with respect thereto.
8.8 Environmental Laws.
(a) Comply with all Environmental Laws and obtain and comply with and
maintain any and all licenses, approvals, registrations or permits required by
Environmental Laws, except to the extent that failure to do so would not be
reasonably expected to have a Material Adverse Effect; and
(b) Defend, indemnify and hold harmless the Administrative Agent and
the Banks, and their respective employees, agents, officers and directors, from
and against any claims, demands, penalties, fines, liabilities, settlements,
damages, costs and expenses of whatever kind or nature known or unknown,
contingent or otherwise, arising out of, or in any way relating to the violation
of or noncompliance with any Environmental Laws applicable to the real property
owned or operated by the Company, the Parent or any of the Company's
Subsidiaries, or any orders, requirements or demands of Governmental Authorities
related thereto, including, without limitation, attorney's and consultant's
fees, investigation and laboratory fees, court costs and litigation expenses,
except to the extent that any of the foregoing arise out of the gross negligence
or willful misconduct of the party seeking indemnification therefor.
SECTION 9. NEGATIVE COVENANTS
The Parent hereby agrees that, so long as the Commitments remain in
effect, any Note remains outstanding and unpaid or any other amount is owing to
any Bank or the Administrative Agent hereunder, it shall not, and (except with
respect to subsections 9.1 and 9.5(b)) shall not permit any of its Subsidiaries
to, directly or indirectly:
9.1 Financial Condition Covenants.
(a) Consolidated Debt to Total Capitalization. Permit the ratio of
Consolidated Debt to Total Capitalization to be greater than 70% at the end of
any fiscal quarter after the Closing Date until the earlier of (x) the end of
the fiscal quarter in which the commitments under the 364-Day Credit Agreement
are reduced pursuant to subsection 5.3(c) thereof and (y) the fiscal quarter
ended December 31, 1996, at which time and at the end of each fiscal quarter
thereafter such ratio to be greater than 60%.
(b) Interest Coverage. Permit for any period of four consecutive fiscal
quarters ending on the last day of any fiscal quarter of the Company commencing
with June 30, 1996 the ratio of EBIT to Consolidated Interest Expense to be less
than 2.0 to 1.0.
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45
9.2 Limitation on Liens. Create, incur, assume or suffer to exist any
Lien upon any of its property, assets or revenues (which property, assets or
revenues are or would be reflected from time to time on the consolidated
financial statements of the Parent and its Subsidiaries in accordance with
GAAP), whether now owned or hereafter acquired, except for:
(a) Liens for taxes or other governmental charges not yet due or which
are being contested in good faith by appropriate proceedings, provided that
adequate reserves with respect thereto are maintained on the books of the
Parent or its Subsidiaries, as the case may be, to the extent required in
conformity with GAAP;
(b) carriers', warehousemen's, mechanics', materialmen's, repairmen's,
vendors', landlords', brokers', bankers' and other like Liens arising in
the ordinary course of business relating to obligations which are not
overdue for a period of more than 60 days or which are being contested in
good faith and Liens arising out of judgments or awards that are either
discharged within 60 days after entry or execution of which has been stayed
pending the outcome of appeal or review proceedings;
(c) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation and deposits
securing liability to insurance carriers under insurance or self-insurance
arrangements;
(d) pledges, deposits and similar arrangements in connection with or to
secure performance of bids, tenders, leases and other deposits to secure
the performance of bids, trade contracts (other than for borrowed money),
leases, statutory obligations, surety and appeal bonds, performance bonds
and other obligations of a like nature incurred in the ordinary course of
business and contractual rights of other Persons to make set-offs and to
require security in connection with letters of credit, currency, commodity
and interest rate contracts, surety bonds, leases, banking and brokerage
agreements and other transactions in the ordinary course of business;
(e) leases, easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which would not
reasonably be expected to have a Material Adverse Effect;
(f) Liens on the property, assets or revenues of a Person which becomes
a Subsidiary after the date hereof, to the extent that (i) such Liens
existed at the time such Person became a Subsidiary and were not created in
anticipation thereof, (ii) any such Lien is not extended to cover any
property, assets or revenues of such Person after
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46
the time such Person becomes a Subsidiary, and (iii) the amount of
Indebtedness secured thereby is not thereafter increased;
(g) Liens arising in connection with (i) industrial development,
pollution control or other tax exempt financing transactions, provided that
such Liens do not at any time encumber any property other than the property
financed by such transaction and other property, assets or revenues related
to the property so financed on which Liens are customarily granted in
connection with such transactions, or (ii) conveyances of any production
payment or other obligation to make a production payment (A) which is to be
made solely from production from oil, gas or other underground mineral
properties dedicated thereto or (B) as to which production payment amount
the obligee's sole recourse is to such properties;
(h) Liens (including, without limitation, Liens incurred in connection
with Capitalized Leases, operating leases and sale-leaseback transactions)
securing Indebtedness of the Parent and its Subsidiaries incurred to
finance the acquisition of fixed or capital assets, and refinancings
thereof, provided that (i) such Liens do not at any time encumber any
property other than the property financed by such Indebtedness and other
property, assets or revenues related to the property so financed on which
Liens are customarily granted in connection with such financings or
refinancings, and (ii) the principal amount of Indebtedness secured by any
such Lien shall at no time exceed 100% of the greater of the original
purchase price of such property at the time it was acquired and the fair
market value of such property as reasonably determined by a Responsible
Officer of the Company in good faith thereafter, plus fees and other costs
related to the financing or refinancing thereof which have been agreed upon
in an arm's length manner;
(i) Liens incurred in connection with accounts receivable sale
transactions entered into by the Parent or its Subsidiaries;
(j) Liens securing Contractual Obligations of any Subsidiary to the
Parent, the Company or any Domestic Subsidiary;
(k) Liens on the property, assets or revenues of any Foreign Subsidiary
or any Excluded Subsidiary;
(l) Liens on the property, assets or revenues of NMC created solely for
the purpose of securing Indebtedness incurred by NMC in connection with the
NMC Disposition as described in the definition of NMC Disposition; and
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47
(m) Liens (not otherwise permitted hereunder) which secure obligations
in an aggregate amount at any time outstanding not exceeding an amount
equal to 5% of the amount recorded opposite the caption "Properties and
equipment, net" (or the equivalent caption) on the consolidated balance
sheet of the Parent and its Subsidiaries most recently delivered to the
Administrative Agent pursuant to subsection 8.1.
9.3 Limitation on Fundamental Changes. Convey, sell, lease, assign,
transfer or otherwise dispose of (including by merger, consolidation, sale of
stock, liquidation or dissolution) all or substantially all of the property,
assets or business of the Parent and its Subsidiaries taken as a whole, except
for the transfer or distribution of the stock of the Company and/or Grace
Holding in connection with the NMC Disposition, provided that after giving
effect thereto there is no Default or Event of Default hereunder.
9.4 Limitation on Asset Transfers to Foreign Subsidiaries. With respect
to the Parent or any Domestic Subsidiary, convey, sell, lease, assign, transfer
or otherwise dispose of (collectively, a "transfer") any of its property,
business or assets (including, without limitation leasehold interests), whether
now owned or hereafter acquired, to any Foreign Subsidiary, except such
transfers which, individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect.
9.5 Limitation on Subordinated Debt. Permit any Subsidiary of the
Parent (other than the Company) to create, incur, assume or suffer to exist any
subordinated indebtedness other than (a) subordinated indebtedness of a Person
which becomes a Subsidiary after the date hereof to the extent such indebtedness
existed at the time such Person became a Subsidiary and was not incurred in
anticipation thereof and any refinancings of such indebtedness after such time
so long as the principal amount thereof is not increased or (b) subordinated
indebtedness of such Subsidiary held by the Parent or any other Subsidiary of
the Parent.
SECTION 10. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) Any Borrower shall fail to pay any principal of any Loan or Note
when due in accordance with the terms thereof or hereof; or any Borrower
shall fail to pay any interest on any Loan or Note, or any other amount
payable hereunder, within five Business Days after any such interest or
other amount becomes due in accordance with the terms thereof or hereof; or
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48
(b) Any representation or warranty made, or pursuant to subsection 7.2,
deemed made, by any Loan Party herein or in any other Loan Document or
which is contained in any certificate, document or financial or other
statement furnished at any time under or in connection with this Agreement
shall prove to have been incorrect in any material adverse respect on or as
of the date made or deemed made; or
(c) The Parent or any Subsidiary shall default in the observance or
performance of any agreement contained in subsection 9.1, 9.3, 9.4 or 9.5;
or
(d) Any Loan Party shall default in the observance or performance of
any other agreement contained in this Agreement (other than as provided in
paragraphs (a) through (c) of this Section), and such default shall
continue unremedied for a period of 30 days; or
(e) The Parent or any of its Subsidiaries (other than the Excluded
Subsidiaries) shall (i) default in any payment of principal of or interest
on, or any other amount payable with respect to, any (A) Domestic
Indebtedness (other than the Notes and Loans) in an aggregate principal
amount for all such Domestic Indebtedness of $10,000,000 or more, or (B)
Foreign Subsidiary Indebtedness (other than the Notes and Loans) in an
aggregate principal amount for all such Foreign Subsidiary Indebtedness of
$20,000,000 or more, beyond the period of grace (not to exceed 30 days), if
any, provided in the instrument or agreement under which such Indebtedness
was created; or (ii) default in the observance or performance of any other
agreement relating to any such Indebtedness in the amounts specified in
clause (i) above or contained in any instrument or agreement evidencing,
securing or relating thereto, or any other event shall occur or condition
exist in any case which continues uncured or unwaived (and, if waived,
without any change in the material terms of such Indebtedness) after the
expiration of all applicable grace periods, the effect of which default or
other event or condition is to cause, or to permit the holder or holders of
such Indebtedness (or a trustee or agent on behalf of such holder or
holders) to cause, with the giving of notice if required, such Indebtedness
to become due prior to its stated maturity; or
(f) (i) The Parent or any Principal Subsidiary (other than the Excluded
Subsidiaries) shall commence any case, proceeding or other action (A) under
any existing or future law of any jurisdiction, domestic or foreign,
relating to bankruptcy, insolvency, reorganization or relief of debtors,
seeking to have an order for relief entered with respect to it, or seeking
to adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution, composition
or other relief with respect to it or its debts, or (B) seeking appointment
of a
<PAGE> 50
49
receiver, trustee, custodian or other similar official for it or for all or
any substantial part of its assets, or the Parent or any such Principal
Subsidiary shall make a general assignment for the benefit of its
creditors; or (ii) there shall be commenced against the Parent or any such
Principal Subsidiary any case, proceeding or other action of a nature
referred to in clause (i) above which (A) results in the entry of an order
for relief or any such adjudication or appointment or (B) remains
undismissed, undischarged or unbonded for a period of 60 days; or (iii)
there shall be commenced against the Parent or any such Principal
Subsidiary any case, proceeding or other action seeking issuance of a
warrant of attachment, execution, distraint or similar process against all
or any substantial part of its assets which results in the entry of an
order for any such relief which shall not have been vacated, discharged, or
stayed or bonded pending appeal within 60 days from the entry thereof; or
(iv) the Parent or any such Principal Subsidiary shall take any action in
furtherance of, or indicating its consent to, approval of, or acquiescence
in, any of the acts set forth in clause (i), (ii) or (iii) above; or (v)
the Parent or any such Principal Subsidiary shall generally not, or shall
be unable to, or shall admit in writing its inability to, pay its debts as
they become due; or
(g) (i) Any Person shall engage in any non-exempt "prohibited
transaction" (as defined in Section 406 of ERISA or Section 4975 of the
Code) involving any Plan, (ii) any "accumulated funding deficiency" (as
defined in Section 302 of ERISA), whether or not waived, shall exist with
respect to any Plan, (iii) a Reportable Event shall occur with respect to,
or judicial proceedings shall commence to have a trustee appointed, or a
trustee shall be appointed, to administer or to terminate, any Single
Employer Plan, which Reportable Event or commencement of judicial
proceedings or appointment of a trustee is, in the reasonable opinion of
the Majority Banks, likely to result in the termination of such Plan for
purposes of Title IV of ERISA, (iv) any Single Employer Plan shall
terminate for purposes of Title IV of ERISA, (v) the Company or any
Commonly Controlled Entity shall, or in the reasonable opinion of the
Majority Banks is likely to, incur any liability in connection with a
withdrawal from, or the Insolvency or Reorganization of, a Multiemployer
Plan or (vi) any other event or condition shall occur or exist, with
respect to a Plan; and in each case in clauses (i) through (vi) above, such
event or condition, together with all other such events or conditions, if
any, could reasonably be expected to subject the Company or any of its
Subsidiaries to any tax, penalty or other liabilities which in the
aggregate would have a Material Adverse Effect; or
<PAGE> 51
50
(h) One or more judgments or decrees shall be entered against the
Parent or any of its Subsidiaries in aggregate amounts (not paid or fully
covered by insurance) of $10,000,000 or more and all such judgments or
decrees shall not have been vacated, discharged, stayed or bonded pending
appeal within 60 days from the entry thereof; or
(i) The Parent shall cease to own directly or indirectly of record and
beneficially free and clear of Liens at least 75% of the shares of the
issued and outstanding capital stock of the Company, except as a result of
the transfer or distribution of the stock of the Company and/or Grace
Holding in connection with the NMC Disposition, provided that after giving
effect thereto there is no Default or Event of Default;
then, and in any such event, (A) if such event is an Event of Default
specified in clause (i), (ii) or (iii) of paragraph (f) above with respect to
any of the Borrowers, automatically the Commitments to such Borrower shall
immediately terminate and the Loans made to such Borrower hereunder (with
accrued interest thereon) and all other amounts owing under this Agreement and
the Notes of such Borrower shall immediately become due and payable, and (B) if
such event is any other Event of Default, either or both of the following
actions may be taken: (i) with the consent of the Majority Banks, the
Administrative Agent may, or upon the request of the Majority Banks, the
Administrative Agent shall, by notice to the Company declare the Commitments of
any or all of the Borrowers to be terminated forthwith, whereupon such
Commitments shall immediately terminate; and (ii) with the consent of the
Majority Banks, the Administrative Agent may, or upon the request of the
Majority Banks, the Administrative Agent shall, by notice of default to the
Company and the Parent, declare the Loans hereunder made to any or all of the
Borrowers (with accrued interest thereon) and all other amounts owing by such
Borrower under this Agreement and the Notes of such Borrower to be due and
payable forthwith, whereupon the same shall immediately become due and payable.
Except as expressly provided above in this Section, presentment, demand, protest
and all other notices of any kind are hereby expressly waived.
<PAGE> 52
51
SECTION 11. THE ADMINISTRATIVE AGENT
11.1 Appointment. Each Bank hereby irrevocably designates and appoints
Chemical as the Administrative Agent of such Bank under this Agreement and the
other Loan Documents, and each such Bank irrevocably authorizes Chemical, as the
Administrative Agent for such Bank, to take such action on its behalf under the
provisions of this Agreement and the other Loan Documents and to exercise such
powers and perform such duties as are expressly delegated to the Administrative
Agent by the terms of this Agreement and the other Loan Documents, together with
such other powers as are reasonably incidental thereto. Notwithstanding any
provision to the contrary elsewhere in this Agreement, the Administrative Agent
shall not have any duties or responsibilities, except those expressly set forth
herein, or any fiduciary relationship with any Bank, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities shall be read
into this Agreement or any other Loan Document or otherwise exist against the
Administrative Agent.
11.2 Delegation of Duties. The Administrative Agent may execute any of
its duties under this Agreement and the other Loan Documents by or through
agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Administrative Agent shall
not be responsible for the negligence or misconduct of any agents or
attorneys-in-fact selected by it with reasonable care.
11.3 Exculpatory Provisions. Neither the Administrative Agent nor any
of its officers, directors, employees, agents, attorneys-in-fact or Affiliates
shall be (i) liable for any action lawfully taken or omitted to be taken by it
or such Person under or in connection with this Agreement or any other Loan
Document (except for its or such Person's own gross negligence or willful
misconduct) or (ii) responsible in any manner to any of the Banks for any
recitals, statements, representations or warranties made by any Loan Party or
any officer thereof contained in this Agreement or any other Loan Document or in
any certificate, report, statement or other document referred to or provided for
in, or received by the Administrative Agent under or in connection with, this
Agreement or any other Loan Document or for the value, validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement or the Notes or any
other Loan Document or for any failure of any Loan Party to perform its
obligations hereunder or thereunder. The Administrative Agent shall not be under
any obligation to any Bank to ascertain or to inquire as to the observance or
performance of any of the agreements contained in, or conditions of, this
Agreement or any other Loan Document, or to inspect the properties, books or
records of any Loan Party.
<PAGE> 53
52
11.4 Reliance by Administrative Agent. The Administrative Agent shall
be entitled to rely, and shall be fully protected in relying, upon any note,
writing, resolution, notice, consent, certificate, affidavit, letter, cablegram,
telegram, telecopy, statement, order or other document or conversation believed
by it to be genuine and correct and to have been signed, sent or made by the
proper Person or Persons and upon advice and statements of legal counsel
(including, without limitation, counsel to the Company, the Parent or any other
Borrower), independent accountants and other experts selected by the
Administrative Agent. The Administrative Agent may deem and treat the payee of
any Note as the owner thereof for all purposes unless a written notice of
assignment, negotiation or transfer thereof shall have been filed with the
Administrative Agent. The Administrative Agent shall be fully justified in
failing or refusing to take any action under this Agreement or any other Loan
Document unless it shall first receive such advice or concurrence of the
Majority Banks as it deems appropriate or it shall first be indemnified to its
satisfaction by the Banks against any and all liability and expense which may be
incurred by it by reason of taking or continuing to take any such action. The
Administrative Agent shall in all cases be fully protected in acting, or in
refraining from acting, under this Agreement and the Notes and the other Loan
Documents in accordance with a request of the Majority Banks, and such request
and any action taken or failure to act pursuant thereto shall be binding upon
all the Banks and all future holders of the Notes.
11.5 Notice of Default. The Administrative Agent shall not be deemed to
have knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Administrative Agent has received notice from a Bank or any
Loan Party referring to this Agreement, describing such Default or Event of
Default and stating that such notice is a "notice of default". In the event that
the Administrative Agent receives such a notice, the Administrative Agent shall
give notice thereof to the Banks. The Administrative Agent shall take such
action with respect to such Default or Event of Default as shall be reasonably
directed by the Majority Banks; provided that unless and until the
Administrative Agent shall have received such directions, the Administrative
Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Default or Event of Default as it shall
deem advisable in the best interests of the Banks.
11.6 Non-Reliance on Administrative Agent and Other Banks. Each Bank
expressly acknowledges that neither the Administrative Agent nor any of its
officers, directors, employees, agents, attorneys-in-fact or Affiliates has made
any representations or warranties to it and that no act by the Administrative
Agent hereinafter taken, including any review of the affairs of the Loan
Parties, shall be deemed to constitute any representation or warranty by the
Administrative Agent to any Bank. Each Bank represents to the Administrative
Agent that it
<PAGE> 54
53
has, independently and without reliance upon the Administrative Agent or any
other Bank, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
operations, property, financial and other condition and creditworthiness of the
Loan Parties and made its own decision to make its Loans hereunder and enter
into this Agreement. Each Bank also represents that it will, independently and
without reliance upon the Administrative Agent or any other Bank, and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit analysis, appraisals and decisions in taking or
not taking action under this Agreement and the other Loan Documents, and to make
such investigation as it deems necessary to inform itself as to the business,
operations, property, financial and other condition and creditworthiness of the
Loan Parties. Except for notices, reports and other documents expressly required
to be furnished to the Banks by the Administrative Agent hereunder, the
Administrative Agent shall not have any duty or responsibility to provide any
Bank with any credit or other information concerning the business, operations,
property, condition (financial or otherwise), prospects or creditworthiness of
the Loan Parties which may come into the possession of the Administrative Agent
or any of its officers, directors, employees, agents, attorneys-in-fact or
Affiliates.
11.7 Indemnification. The Banks agree to indemnify the Administrative
Agent in its capacity as such (to the extent not reimbursed by the Loan Parties
and without limiting the obligation of the Parent, the Company and any other
Borrower to do so), ratably according to the respective amounts of their
Commitments as in effect on the date on which the claim for indemnity by the
Administrative Agent is sought, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind whatsoever which may at any time
(including, without limitation, at any time following the payment of the Notes)
be imposed on, incurred by or asserted against the Administrative Agent in any
way relating to or arising out of this Agreement, any of the other Loan
Documents or any documents contemplated by or referred to herein or therein or
the transactions contemplated hereby or thereby or any action taken or omitted
by the Administrative Agent under or in connection with any of the foregoing;
provided that no Bank shall be liable for the payment of any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting solely from the Administrative
Agent's gross negligence or willful misconduct. The agreements in this
subsection shall survive the payment of the Notes and all other amounts payable
hereunder.
11.8 Administrative Agent in Its Individual Capacity. The
Administrative Agent and its Affiliates may make loans to, accept deposits from
and generally engage in any kind of business with the Parent, Grace Holding, the
Company or any other Borrower
<PAGE> 55
54
as though the Administrative Agent were not the Administrative Agent hereunder
and under the other Loan Documents. With respect to its Loans made or renewed by
it and any Note issued to it, the Administrative Agent shall have the same
rights and powers under this Agreement and the other Loan Documents as any Bank
and may exercise the same as though it were not the Administrative Agent, and
the terms "Bank" and "Banks" shall include the Administrative Agent in its
individual capacity.
11.9 Successor Administrative Agent. The Administrative Agent may
resign as Administrative Agent upon 10 days' notice to the Banks. If the
Administrative Agent shall resign as Administrative Agent under this Agreement
and the other Loan Documents, then the Majority Banks shall appoint from among
the Banks a successor agent for the Banks, which successor agent shall be
approved by the Company, whereupon such successor agent shall succeed to the
rights, powers and duties of the Administrative Agent, and the term
"Administrative Agent" shall mean such successor agent effective upon its
appointment, and the former Administrative Agent's rights, powers and duties as
Administrative Agent shall be terminated, without any other or further act or
deed on the part of such former Administrative Agent or any of the parties to
this Agreement or any holders of the Notes. After any retiring Administrative
Agent's resignation as Administrative Agent, the provisions of this subsection
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was Administrative Agent under this Agreement and the other Loan
Documents.
SECTION 12. GUARANTEES
12.1 Parent Guarantee. Each of the Parent Guarantors hereby jointly and
severally and unconditionally and irrevocably guarantees to the Administrative
Agent and the Banks the prompt and complete payment and performance by each of
the Borrowers when due (whether at the stated maturity, by acceleration or
otherwise) of the Obligations owing to the Administrative Agent and the Banks by
such Borrowers. This guarantee (the "Parent Guarantee") shall remain in full
force and effect until the Obligations of each of the Borrowers are indefeasibly
paid in full, notwithstanding that from time to time prior thereto any Borrower
may be free from any Obligations. Each of the Parent Guarantors jointly and
severally agrees that whenever, at any time, or from time to time, it shall make
any payment to the Administrative Agent or any Bank on account of its liability
under this Parent Guarantee, it will notify the Administrative Agent and such
Bank in writing that such payment is made under this Parent Guarantee for such
purpose. No payment or payments made by any Borrower or any other Person or
received or collected by the Administrative Agent or any Bank from any Borrower
or any other Person by virtue of any action or proceeding or any offset or
appropriation or application, at any time or from time to time, in reduction of
or in payment of the Obligations of such
<PAGE> 56
55
Borrower shall be deemed to modify, reduce, release or otherwise affect the
liability of the Parent Guarantors under this Parent Guarantee, which shall
remain obligated under this Parent Guarantee, notwithstanding any such payment
or payments until the Obligations are paid in full.
12.2 Company Guarantee. The Company hereby unconditionally and
irrevocably guarantees to the Administrative Agent and the Banks, the prompt and
complete payment and performance by each of the other Borrowers when due
(whether at the stated maturity, by acceleration or otherwise) of the
Obligations owing to the Administrative Agent and the Banks by such Borrowers.
This guarantee (the "Company Guarantee") shall remain in full force and effect
until the Obligations of each such Borrower are indefeasibly paid in full,
notwithstanding that from time to time prior thereto any such Borrower may be
free from any Obligations. The Company agrees that whenever, at any time, or
from time to time, it shall make any payment to the Administrative Agent or any
Bank on account of its liability under this Company Guarantee, it will notify
the Administrative Agent and such Bank in writing that such payment is made
under this Company Guarantee for such purpose. No payment or payments made by
any such Borrower or any other Person or received or collected by the
Administrative Agent or any Bank from any such Borrower or any other Person by
virtue of any action or proceeding or any offset or appropriation or
application, at any time or from time to time, in reduction of or in payment of
the Obligations of such Borrowers shall be deemed to modify, reduce, release or
otherwise affect the liability of the Company under this Company Guarantee,
which shall remain obligated under this Company Guarantee, notwithstanding any
such payment or payments until the Obligations of such Borrowers are paid in
full.
12.3 No Subrogation, Contribution, Reimbursement or Indemnity.
Notwithstanding anything to the contrary in the Parent Guarantee and the Company
Guarantee (together, the "Guarantees", each a "Guarantee"), each of the Parent
Guarantors and the Company (together, the "Guaranteeing Parties," each a
"Guaranteeing Party") hereby irrevocably waives all rights which may have arisen
in connection with its Guarantee to be subrogated to any of the rights (whether
contractual, under the Bankruptcy Code, including Section 509 thereof, under
common law or otherwise) of the Administrative Agent or any Bank against the
Company or any other Borrowers (together, the "Guaranteed Parties", each a
"Guaranteed Party") for the payment of the Obligations. Each Guaranteeing Party
hereby further irrevocably waives all contractual, common law, statutory or
other rights of reimbursement, contribution, exoneration or indemnity (or any
similar right) from or against any Guaranteed Party or Parties or any other
Person which may have arisen in connection with its Guarantee. So long as the
Obligations remain outstanding, if any amount shall be paid by or on behalf of
any Guaranteed Party to the Guaranteeing Party on account of any of the rights
waived in this subsection, such amount shall be held by such Guaranteeing
<PAGE> 57
56
Party in trust, segregated from other funds of such Guaranteeing Party, and
shall, forthwith upon receipt by such Guaranteeing Party, be turned over to the
Administrative Agent in the exact form received by such Guaranteeing Party (duly
endorsed by such Guaranteeing Party to the Administrative Agent, if required),
to be applied against the Obligations of such Guaranteed Party or Parties,
whether matured or unmatured, in such order as the Administrative Agent may
determine. The provisions of this subsection as they apply to each of the
Guaranteeing Parties shall survive the payment in full of the Obligations of its
Guaranteed Party or Parties.
12.4 Amendments, etc., with respect to the Obligations. Each
Guaranteeing Party shall remain obligated under its Guarantee notwithstanding
that, without any reservation of rights against such Guaranteeing Party, and
without notice to or further assent by such Guaranteeing Party, any demand for
payment of any of the Obligations made by the Administrative Agent or any Bank
may be rescinded by the Administrative Agent or such Bank, and any of the
Obligations continued, and the Obligations, or the liability of any other party
upon or for any part thereof, or any collateral security or guarantee therefor
or right of offset with respect thereto, may, from time to time, in whole or in
part, be renewed, extended, amended, modified, accelerated, compromised, waived,
surrendered or released by the Administrative Agent or any Bank, and this
Agreement, the Notes and the other Loan Documents may be amended, modified,
supplemented or terminated, in whole or in part, as the Administrative Agent or
the Banks (or the Majority Banks, as the case may be) may deem advisable from
time to time in accordance with the provisions of subsection 13.1(a), and any
collateral security, guarantee or right of set-off at any time held by the
Administrative Agent or any Bank for the payment of the Obligations may be sold,
exchanged, waived, surrendered or released. Neither the Administrative Agent nor
any Bank shall have any obligation to protect, secure, perfect or insure any
Lien at any time held by it as security for the Obligations or for the
obligations of any Guaranteeing Party under its Guarantee or any property
subject thereto.
12.5 Guarantee Absolute and Unconditional. Each Guaranteeing Party
waives any and all notice of the creation, renewal, extension or accrual of any
of the Obligations and notice of or proof of reliance by the Administrative
Agent or any Bank upon its Guarantee or acceptance of its Guarantee; the
Obligations, and any of them, shall conclusively be deemed to have been created,
contracted or incurred in reliance upon the Guarantees; and all dealings between
the Borrowers and the Parent Guarantors, on the one hand, and the Administrative
Agent and the Banks, on the other, shall likewise be conclusively presumed to
have been had or consummated in reliance upon the Guarantees. Each Guaranteeing
Party waives diligence, presentment, protest, notice of intent to accelerate,
notice of acceleration, demand for payment and notice of default or nonpayment
to or upon any
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Guaranteed Party or such Guaranteeing Party with respect to the Obligations. The
Guarantees shall be construed as a continuing, absolute and unconditional
guarantee of payment without regard to (a) the validity or enforceability of
this Agreement, any Note, any other Loan Document, any of the Obligations or any
collateral security therefor or guarantee or right of set-off with respect
thereto at any time or from time to time held by the Administrative Agent or any
Bank, (b) any defense, offset or counterclaim (other than a defense of payment
or performance) which may at any time be available to or be asserted by any of
the Guaranteed Parties against the Administrative Agent or any Bank or (c) any
other circumstance whatsoever (with or without notice to or knowledge of any of
the Guaranteed Parties or such Guaranteeing Party) which constitutes, or might
be construed to constitute, an equitable or legal discharge of any of the
Guaranteed Parties for the Obligations of such Guaranteed Party, or of such
Guaranteeing Party under its Guarantee, in bankruptcy or in any other instance.
When the Administrative Agent is pursuing its rights and remedies hereunder
against any Guaranteeing Party, the Administrative Agent or any Bank may, but
shall be under no obligation to, pursue such rights and remedies as it may have
against its Guaranteed Party or any other Person or against any collateral
security or guarantee for the Obligations or any right of offset with respect
thereto, and any failure by the Administrative Agent or any Bank to pursue such
other rights or remedies or to collect any payments from such Guaranteed Party
or such other Person or to realize upon any such collateral security or
guarantee or to exercise such right of offset or any release of such Guaranteed
Party or such other Person or of any such collateral security, guarantee or
right of offset, shall not relieve such Guaranteeing Party of any liability
under its Guarantee, and shall not impair or affect the rights and remedies,
whether express, implied or available as a matter of law, of the Administrative
Agent and the Banks against such Guaranteeing Party.
12.6 Reinstatement. Each Guarantee shall continue to be effective, or
be reinstated, as the case may be, if at any time payment, or any part thereof,
of any of the Obligations of any Guaranteed Party thereunder is rescinded or
must otherwise be restored or returned by the Administrative Agent or any Bank
upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of
such Guaranteed Party or upon or as a result of the appointment of a receiver,
intervenor or conservator of, or trustee or similar officer for, such Guaranteed
Party or any substantial part of any of its property, or otherwise, all as
though such payments had not been made.
12.7 Payments. Each Guaranteeing Party hereby agrees that the
Obligations will be paid to the Administrative Agent for the benefit of the
Administrative Agent and the Banks, as the case may be, without set-off or
counterclaim in Dollars or Alternative Currency, as appropriate, in immediately
available funds at the office of the Administrative Agent c/o Agent Bank
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Services Group (Clearing Account No. 144810547) located at 140 East 45th Street,
New York, New York 10017.
SECTION 13. MISCELLANEOUS
13.1 Amendments and Waivers; Replacement of Banks. (a) Neither this
Agreement, any Note, any other Loan Document, nor any terms hereof or thereof
may be amended, supplemented or modified except in accordance with the
provisions of this subsection. With the written consent of the Majority Banks,
the Administrative Agent, the Parent Guarantors and the Company may, from time
to time, enter into written amendments, supplements or modifications hereto and
to the Notes, if any, and the other Loan Documents for the purpose of adding any
provisions to this Agreement or the Notes, if any, or the other Loan Documents
or changing in any manner the rights of the Banks, the Parent Guarantors or of
the Borrowers hereunder or thereunder or waiving, on such terms and conditions
as the Administrative Agent may specify in such instrument, any of the
requirements of this Agreement or the Notes, if any, or the other Loan Documents
or any Default or Event of Default and its consequences; provided, however, that
no such waiver and no such amendment, supplement or modification shall (i)
reduce the amount or extend the maturity of any Loan or Note or any installment
thereof, or reduce the rate or extend the time of payment of interest thereon,
or reduce any fee payable to any Bank hereunder, or change the amount of any
Bank's Commitment, in each case without the consent of the Bank affected
thereby, (ii) amend, modify or waive any provision of this subsection or reduce
the percentage specified in the definition of Majority Banks, or consent to the
assignment or transfer by each Parent Guarantor or any Borrower of any of its
rights and obligations under this Agreement and the other Loan Documents, or
amend, modify or waive any provision of Section 12, in each case without the
written consent of all the Banks, or (iii) amend, modify or waive any provision
of Section 11 without the written consent of the then Administrative Agent. Any
such waiver and any such amendment, supplement or modification shall apply
equally to each of the Banks and shall be binding upon the Parent Guarantors,
the Borrowers, the Banks, the Administrative Agent, all future holders of the
Notes, if any, and all future obligees under the Loans. In the case of any
waiver, the Parent Guarantors, the Borrowers, the Banks and the Administrative
Agent shall be restored to their former position and rights hereunder and under
the outstanding Loans or Notes, if any, and any other Loan Documents, and any
Default or Event of Default waived shall be deemed to be cured and not
continuing; but no such waiver shall extend to any subsequent or other Default
or Event of Default, or impair any right consequent thereon.
(b) Notwithstanding anything to the contrary contained in subsection
13.1(a), so long as no Default or Event of Default has occurred and is
continuing the Borrowers and the Parent Guarantors shall be permitted in their
discretion (but, if any
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Revolving Credit Loans are then outstanding, with the consent of the Majority
Banks (which consent shall not be unreasonably withheld)) to amend this
Agreement to replace one or more Banks without the consent of any Bank to be so
replaced pursuant to this subsection 13.1(b) (a "Replaced Bank") and to provide
for (w) the termination of the Commitments of such Replaced Bank, (x) the
addition to this Agreement of one or more other banking institutions, or an
increase in the Commitments of one or more of the other Banks (with the consent
of such other Banks), so that the total Commitments after giving effect to such
amendment shall be in the same amount as the total Commitments immediately
before giving effect to such amendment, (y) if any Loans are outstanding at the
time of such amendment, the making of such additional Loans by such new
financial institutions or other Bank or Banks, as the case may be, as may be
necessary to repay in full the outstanding Loans of such Replaced Bank together
with interest thereon and all accrued fees and indemnities with respect thereto
immediately before giving effect to such amendment and (z) such other
modifications to this Agreement as may be necessary to effect the replacement of
such Replaced Bank.
(c) Notwithstanding anything to the contrary contained in paragraph (a)
or (b) of this subsection 13.1, if as a result of a change in any Requirement of
Law after the date hereof any Borrower or any Parent Guarantor has become
obligated to, or reasonably believes that it will become obligated to pay to any
Bank any increased amount pursuant to subsection 5.11, 5.12 or 5.13, and such
Bank shall not have waived payment of such increased amounts, then the Borrowers
and the Parent Guarantors may, if no Default or Event of Default has occurred
and is continuing and payment of any such increased amounts as have become due
has been made or appropriately provided for, upon five Business Days' notice to
the Administrative Agent and such Bank, amend this Agreement, without the
consent of any Bank or the Administrative Agent, to replace any one or more of
the Banks to which such increased amounts have become payable or would become
payable and to provide for the matters referred to in clauses (w), (x), (y) and
(z) of subsection 13.1(b), and such replaced Bank or Banks shall be deemed to be
Replaced Banks for purposes of such clauses.
13.2 Notices. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
telecopy), and, unless otherwise expressly provided herein, shall be deemed to
have been duly given or made on receipt, addressed as follows in the case of the
Company, the Parent Guarantors and the Administrative Agent, as set forth in
paragraph 5 of the Notice of Additional Borrower relating to any Borrower other
than the Company, in the case of such other Borrower, and as set forth in
Schedule I in the case of the other parties hereto, or to such other address as
may be hereafter notified by the respective parties hereto and any future
holders of the Notes, if any, or any future obligees under the Loans:
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The Company: W. R. Grace & Co.-Conn
One Town Center Road
Boca Raton, Florida 33486-1010
Attention: Treasurer
Telecopy: (407) 362-1944
Telephone: (407) 362-1949
The Parent
Guarantors: W. R. Grace & Co.
One Town Center Road
Boca Raton, Florida 33486-1010
Attention: Treasurer
Telecopy: (407) 362-1944
Telephone: (407) 362-1949
Grace Holding, Inc.
One Town Center Road
Boca Raton, Florida 33486-1010
Attention: Treasurer
Telecopy: (407) 362-1944
Telephone: (407) 362-1949
The
Administrative
Agent: Chemical Bank
270 Park Avenue
New York, New York 10017
Attention: Scott S. Ward
Telecopy: (212) 270-2625
Telephone: (212) 270-3125
With a copy
to: Agent Bank Services Group
140 East 45th Street
New York, New York 10017
Attention: Margaret Swales
Telecopy: (212) 622-0122
Telephone: (212) 622-8433
13.3 No Waiver; Cumulative Remedies. No failure to exercise and no
delay in exercising, on the part of the Administrative Agent or any Bank, any
right, remedy, power or privilege hereunder shall operate as a waiver thereof;
nor shall any single or partial exercise of any right, remedy, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege. The rights, remedies,
powers and privileges herein provided are cumulative and not exclusive of any
rights, remedies, powers and privileges provided by law.
13.4 Survival of Representations and Warranties. All representations
and warranties made hereunder and in any document, certificate or statement
delivered pursuant hereto or
<PAGE> 62
61
in connection herewith shall survive the execution and delivery of this
Agreement and the Notes, if any.
13.5 Payment of Expenses and Taxes. The Company agrees (a) to pay or
reimburse the Administrative Agent for all its out-of-pocket costs and expenses
incurred in connection with the development, preparation and execution of, and
any amendment, supplement or modification to, this Agreement and any Notes and
the other Loan Documents and any other documents prepared in connection herewith
or therewith, and the consummation and administration of the transactions
contemplated hereby and thereby, including, without limitation, the fees and
disbursements of counsel to the Administrative Agent, (b) to pay or reimburse
each Bank and the Administrative Agent for all its costs and expenses incurred
in connection with the enforcement or preservation of any rights under this
Agreement, any Notes, the other Loan Documents and any such other documents,
including, without limitation, fees and disbursements of counsel to the
Administrative Agent and to the several Banks, and (c) to pay, indemnify, and
hold each Bank and the Administrative Agent harmless from, any and all recording
and filing fees and any and all liabilities with respect to, or resulting from
any delay in paying, stamp, excise and other transactional taxes, if any, which
may be payable or determined to be payable in connection with the execution and
delivery of, or consummation or administration of any of the transactions
contemplated by, or any amendment, supplement or modification of, or any waiver
or consent under or in respect of, this Agreement, any Notes, the other Loan
Documents and any such other documents, and (d) to pay, indemnify, and hold each
Bank and the Administrative Agent harmless from and against any and all other
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever with respect
to the execution, delivery and performance by the Loan Parties, and
administration and enforcement by the Administrative Agent and the Banks of this
Agreement, any Notes and the other Loan Documents and any such other documents
(all the foregoing, collectively, the "indemnified liabilities"), provided, that
the Company shall have no obligation hereunder to the Administrative Agent or
any Bank with respect to indemnified liabilities arising from (i) the gross
negligence or willful misconduct of the Administrative Agent or any such Bank,
(ii) legal proceedings commenced against the Administrative Agent or any such
Bank by any security holder or creditor thereof arising out of and based upon
rights afforded any such security holder or creditor solely in its capacity as
such, or (iii) legal proceedings commenced against the Administrative Agent or
any such Bank by any other Bank or by any Transferee (as defined in subsection
13.6). The agreements in this subsection shall survive repayment of the Loans or
Notes, if any, and all other amounts payable hereunder.
<PAGE> 63
62
13.6 Successors and Assigns; Participations; Purchasing Banks.
(a) This Agreement shall be binding upon and inure to the benefit of
the Parent Guarantors, the Borrowers, the Banks, the Administrative Agent, all
future holders of the Notes, if any, all future obligees under the Loans and
their respective successors and assigns, except that neither the Parent
Guarantors nor any Borrower may assign or transfer any of its rights or
obligations under this Agreement without the prior written consent of each Bank.
(b) Any Bank may, in the ordinary course of its commercial banking
business and in accordance with applicable law, at any time sell to one or more
banks or other entities ("Participants") participating interests in any Loan
owing to such Bank, any Note held by such Bank, any Commitments of such Bank or
any other interest of such Bank hereunder and under the other Loan Documents. In
the event of any such sale by a Bank of participating interests to a
Participant, such Bank's obligations under this Agreement to the other parties
to this Agreement shall remain unchanged, such Bank shall remain solely
responsible for the performance thereof, such Bank shall remain the holder of
any such Note, if any, and the obligee under any such Loan for all purposes
under this Agreement and the other Loan Documents, and the Parent Guarantors,
the Borrowers and the Administrative Agent shall continue to deal solely and
directly with such Bank in connection with such Bank's rights and obligations
under this Agreement and the other Loan Documents. Each of the Parent Guarantors
and each of the Borrowers agrees that if amounts outstanding under this
Agreement and the Loans or the Notes, if any, are due or unpaid, or shall have
been declared or shall have become due and payable upon the occurrence of an
Event of Default, each Participant shall be deemed to have the right of set-off
in respect of its participating interest in amounts owing under this Agreement
and any Loan or Note to the same extent as if the amount of its participating
interest were owing directly to it as a Bank under this Agreement or any Loan or
Note, provided that such Participant shall only be entitled to such right of
set-off if it shall have agreed in the agreement pursuant to which it shall have
acquired its participating interest to share with the Banks the proceeds thereof
as provided in subsection 13.7. Each of the Parent Guarantors and each of the
Borrowers also agrees that each Participant shall be entitled to the benefits of
subsections 5.11, 5.12, 5.13 and 13.5 with respect to its participation in the
Commitments and the Loans outstanding from time to time; provided, that no
Participant shall be entitled to receive any greater amount pursuant to such
subsections than the transferor Bank would have been entitled to receive in
respect of the amount of the participation transferred by such transferor Bank
to such Participant had no such transfer occurred.
<PAGE> 64
63
(c) Any Bank may, in the ordinary course of its commercial banking
business and in accordance with applicable law, at any time sell to any Bank or
any affiliate thereof and, with the consent of the Company and upon notice to
the Administrative Agent, to one or more additional banks or financial
institutions ("Purchasing Banks") all or any part of its rights and obligations
under this Agreement and the Loans or the Notes, if any, pursuant to a
Commitment Transfer Supplement, substantially in the form of Exhibit H, executed
by such Purchasing Bank, such transferor Bank (and, in the case of a Purchasing
Bank that is not then a Bank or an affiliate thereof, by the Company and the
Administrative Agent) and delivered to the Administrative Agent for its
acceptance and recording in the Register. Upon such execution, delivery,
acceptance and recording, from and after the Transfer Effective Date determined
pursuant to such Commitment Transfer Supplement, (x) the Purchasing Bank
thereunder shall be a party hereto and, to the extent provided in such
Commitment Transfer Supplement, have the rights and obligations of a Bank
hereunder with a Commitment as set forth therein, and (y) the transferor Bank
thereunder shall, to the extent provided in such Commitment Transfer Supplement,
be released from its obligations under this Agreement (and, in the case of a
Commitment Transfer Supplement covering all or the remaining portion of a
transferor Bank's rights and obligations under this Agreement, such transferor
Bank shall cease to be a party hereto). Such Commitment Transfer Supplement
shall be deemed to amend this Agreement to the extent, and only to the extent,
necessary to reflect the addition of such Purchasing Bank and the resulting
adjustment of Commitment Percentages arising from the purchase by such
Purchasing Bank of all or a portion of the rights and obligations of such
transferor Bank under this Agreement and the Loan or the Notes, if any. On or
prior to the Transfer Effective Date determined pursuant to such Commitment
Transfer Supplement, the relevant Borrower, at its own expense, if the
Purchasing Bank so requests, shall execute and deliver to the Administrative
Agent in exchange for any surrendered Revolving Credit Note and Bid Loan Note a
new Revolving Credit Note and Bid Loan Note to the order of such Purchasing Bank
in an amount equal to the Commitment assumed by it pursuant to such Commitment
Transfer Supplement and, if the transferor Bank has retained a Commitment
hereunder, new Notes to the order of the transferor Bank in an amount equal to
the Commitment retained by it hereunder. Such new Notes shall be dated the
Closing Date and shall otherwise be in the form of the Notes replaced thereby.
Any Notes surrendered by the transferor Bank shall be returned by the
Administrative Agent to the Company marked "cancelled".
(d) The Administrative Agent shall maintain at its address referred to
in subsection 13.2 a copy of each Commitment Transfer Supplement delivered to it
and a register (the "Register") for the recordation of the names and addresses
of the Banks and the Commitment of, and principal amount of the Loans owing to,
each Bank from time to time. The entries in the Register shall be conclusive, in
the absence of manifest error,
<PAGE> 65
64
and the Parent Guarantors, the Borrowers, the Administrative Agent and the Banks
may treat each Person whose name is recorded in the Register as the owner of the
Loan recorded therein for all purposes of this Agreement. The Register shall be
available for inspection by the Parent Guarantors, the Borrowers or any Bank at
any reasonable time and from time to time upon reasonable prior notice.
(e) Upon its receipt of a Commitment Transfer Supplement executed by a
transferor Bank and Purchasing Bank (and, in the case of a Purchasing Bank that
is not then a Bank or an affiliate thereof, by the Company and the
Administrative Agent) together with payment to the Administrative Agent of a
registration and processing fee of $3,500, the Administrative Agent shall (i)
promptly accept such Commitment Transfer Supplement (ii) on the Transfer
Effective Date determined pursuant thereto record the information contained
therein in the Register and give notice of such acceptance and recordation to
the Banks and the Company.
(f) Each of the Parent Guarantors and the Borrowers authorizes each
Bank to disclose to any Participant or Purchasing Bank (each, a "Transferee")
and any prospective Transferee any and all financial information in such Bank's
possession concerning such Borrower and its affiliates which has been delivered
to such Bank by or on behalf of the Parent Guarantors, the Company or such
Borrower pursuant to this Agreement or which has been delivered to such Bank by
or on behalf of the Parent Guarantors, the Company or such Borrower in
connection with such Bank's credit evaluation of such Borrower and its
affiliates prior to becoming a party to this Agreement.
(g) If, pursuant to this subsection, any interest in this Agreement or
any Note is transferred to any Transferee which is organized under the laws of
any jurisdiction other than the United States or any state thereof, the
transferor Bank shall cause such Transferee, concurrently with the effectiveness
of such transfer, (i) to represent to the transferor Bank (for the benefit of
the transferor Bank, the Administrative Agent, the Parent Guarantors and the
Borrowers) that under applicable law and treaties no taxes will be required to
be withheld by the Administrative Agent, the Parent Guarantors, the Borrowers or
the transferor Bank with respect to any payments to be made to such Transferee
in respect of the Loans, (ii) to furnish to the transferor Bank (and, in the
case of any Purchasing Bank registered in the Register, the Administrative
Agent, the Parent Guarantors and the Company) either U.S. Internal Revenue
Service Form 4224 or U.S. Internal Revenue Service Form 1001 (wherein such
Transferee claims entitlement to complete exemption from U.S. federal
withholding tax on all interest payments hereunder) and (iii) to agree (for the
benefit of the transferor Bank, the Administrative Agent, the Parent Guarantors
and the Company) to provide the transferor Bank (and, in the case of any
Purchasing Bank registered in the Register, the Administrative Agent, the
<PAGE> 66
65
Parent Guarantors and the Company) a new Form 4224 or Form 1001 upon the
expiration or obsolescence of any previously delivered form and comparable
statements in accordance with applicable U.S. laws and regulations and
amendments duly executed and completed by such Transferee, and to comply from
time to time with all applicable U.S. laws and regulations with regard to such
withholding tax exemption.
(h) Nothing herein shall prohibit any Bank from pledging or assigning
any Note to any Federal Reserve Bank in accordance with applicable law.
13.7 Adjustments; Set-off.
(a) If any Bank (a "benefitted Bank") shall at any time receive any
payment of all or part of its Revolving Credit Loans, or interest thereon, or
receive any collateral in respect thereof (whether voluntarily or involuntarily,
by set-off, pursuant to events or proceedings of the nature referred to in
Section 10(f), or otherwise), in a greater proportion than any such payment to
or collateral received by any other Bank, if any, in respect of such other
Bank's Revolving Credit Loans, or interest thereon, such benefitted Bank shall
purchase for cash from the other Banks such portion of each such other Bank's
Loan, or shall provide such other Banks with the benefits of any such
collateral, or the proceeds thereof, as shall be necessary to cause such
benefitted Bank to share the excess payment or benefits of such collateral or
proceeds ratably with each of the Banks; provided, however, that if all or any
portion of such excess payment or benefits is thereafter recovered from such
benefitted Bank, such purchase shall be rescinded, and the purchase price and
benefits returned, to the extent of such recovery, but without interest. Each
Borrower agrees that each Bank so purchasing a portion of another Bank's Loan
may exercise all rights of payment (including, without limitation, rights of
set-off) with respect to such portion as fully as if such Bank were the direct
holder of such portion.
(b) In addition to any rights and remedies of the Banks provided by
law, each Bank shall have the right, without prior notice to the Parent
Guarantors and the Borrowers, any such notice being expressly waived by the
Parent Guarantors and the Borrowers, to the extent permitted by applicable law,
upon any amount not being paid when due and payable by any Borrower hereunder or
under the Notes (whether at the stated maturity, by acceleration or otherwise)
to set-off and appropriate and apply against such amount any and all deposits
(general or special, time or demand, provisional or final), in any currency, and
any other credits, indebtedness or claims, in any currency, in each case whether
direct or indirect, absolute or contingent, matured or unmatured, at any time
held or owing by such Bank or any branch or agency thereof to or for the credit
or the account of the Parent Guarantors or such Borrower. Each Bank agrees
promptly to notify the Parent Guarantors, the Borrowers and the
<PAGE> 67
66
Administrative Agent after any such set-off and application made by such Bank,
provided that the failure to give such notice shall not affect the validity of
such set-off and application.
13.8 Counterparts. This Agreement may be executed by one or more of
the parties to this Agreement on any number of separate counterparts, and all of
said counterparts taken together shall be deemed to constitute one and the same
instrument. A set of the copies of this Agreement signed by all the parties
shall be lodged with the Parent Guarantors, the Company and the Administrative
Agent.
13.9 Severability. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
13.10 Integration. This Agreement represents the agreement of the
Parent Guarantors, each Borrower, the Administrative Agent and the Banks with
respect to the subject matter hereof, and there are no promises, undertakings,
representations or warranties by the Administrative Agent or any Bank relative
to subject matter hereof not expressly set forth or referred to herein, in the
other Loan Documents or in any documentation entered into pursuant to subsection
3.1(b).
13.11 GOVERNING LAW. THIS AGREEMENT (INCLUDING SECTION 12) AND THE
NOTES AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT AND THE
NOTES SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH,
THE LAW OF THE STATE OF NEW YORK.
13.12 Submission to Jurisdiction; Waivers. (a) Each of the Parent
Guarantors, each Borrower, the Administrative Agent and the Banks hereby
irrevocably and unconditionally:
(i) submits for itself and its property in any legal action or
proceeding relating to this Agreement and the other Loan Documents to which
it is a party, or for recognition and enforcement of any judgment in
respect thereof, to the non-exclusive general jurisdiction of the Courts of
the State of New York sitting in New York County, the courts of the United
States of America for the Southern District of New York, and the appellate
courts from any thereof;
(ii) consents that any such action or proceeding may be brought in such
courts and waives any objection that it may now or hereafter have to the
venue of any such action or proceeding in any such court or that such
action or
<PAGE> 68
67
proceeding was brought in an inconvenient court and agrees not to plead or
claim the same;
(iii) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail
(or any substantially similar form of mail), postage prepaid, to the Parent
Guarantors or such Borrower at its address set forth in subsection 13.2 or,
with respect to Borrowers other than the Company, the Notice of Additional
Borrower relating to such Borrower or at such other address of which the
Administrative Agent shall have been notified pursuant thereto;
(iv) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the
right to sue in any other jurisdiction; and
(v) waives, to the maximum extent not prohibited by law, any right it
may have to claim or recover in any legal action or proceeding referred to
in this subsection any special, exemplary, punitive or consequential
damages.
(b) Each Borrower other than the Company hereby appoints and empowers
each of the Parent Guarantors and the Company, 1114 Avenue of the Americas, New
York, New York 10036- 7794, Attention: Treasurer, as its authorized agent (the
"Process Administrative Agent") to receive on behalf of such Borrower service of
any and all process and documents in any such legal action or proceeding brought
in a New York state or federal court sitting in New York City. It is understood
that a copy of such process served on the Process Administrative Agent will be
promptly hand delivered or mailed (by registered or certified airmail if
available), postage prepaid, to such Borrower at its address set forth in
paragraph 5 of such Borrower's Notice of Additional Borrower, but the failure of
such Borrower to receive such copy shall not affect in any way the service of
such process on the Process Administrative Agent. If the Process Administrative
Agent shall refuse or be prevented from acting as agent, notice thereof shall
immediately be given by such Borrowers to the Administrative Agent by registered
or certified airmail (if available), postage prepaid, and such Borrowers agree
promptly to designate another agent in New York City, satisfactory to the
Administrative Agent, to serve in place of the Process Administrative Agent and
deliver to the Administrative Agent written evidence of such substitute agent's
acceptance of such designation.
13.13 Acknowledgments. Each of the Parent Guarantors, each Borrower,
the Administrative Agent and the Banks hereby acknowledges that:
<PAGE> 69
68
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement and the Notes and the other Loan Documents;
(b) neither the Administrative Agent nor any Bank has any fiduciary
relationship with or duty to the Parent Guarantors or such Borrower, as the
case may be, arising out of or in connection with this Agreement or any of
the other Loan Documents, and the relationship between Administrative Agent
and Banks, on one hand, and the Parent Guarantors and the Borrowers, on the
other hand, in connection herewith or therewith is solely that of debtor
and creditor; and
(c) as to any matter relating to any Loan Documents, no joint venture
exists among the Banks or among the Parent Guarantors, the Borrowers and
the Banks.
13.14 WAIVERS OF JURY TRIAL. THE PARENT GUARANTORS, THE BORROWERS, THE
ADMINISTRATIVE AGENT AND THE BANKS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE
TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR
THE NOTES OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
13.15 Additional Borrowers. (a) Any Subsidiary of the Company shall
have the right to become a "Borrower" hereunder, and to borrow hereunder subject
to the terms and conditions hereof applicable to a Borrower and to the following
additional conditions:
(i) the Company shall deliver a notice in substantially the form of
Exhibit I hereto (a "Notice of Additional Borrower") signed by such
Subsidiary and countersigned by the Parent Guarantors and the Company to
the Administrative Agent and the Banks stating that such Subsidiary desires
to become a "Borrower" under this Agreement and agrees to be bound by the
terms hereof. From the time of receipt of such Notice of Additional
Borrower by the Administrative Agent and the Banks and subject to the
satisfaction of each condition precedent contained in such Notice of
Additional Borrower, such Subsidiary shall be a "Borrower" hereunder with
all of the rights and obligations of a Borrower hereunder; provided,
however, that the Company may revoke a Notice of Additional Borrower with
respect to any Subsidiary (other than the Company) upon five Business Days'
written notice to the Administrative Agent, so long as such Borrower has no
Obligations outstanding. No Notice of Additional Borrower relating to a
Subsidiary may be revoked as to amounts owed by such Subsidiary to the
Banks under this Agreement or any Notes or when an irrevocable notice
pursuant to subsection 2.3, or a notice of acceptance pursuant to
subsection 3.1 or 4.2, has been given by such Subsidiary as a Borrower and
is effective;
<PAGE> 70
69
(ii) if such Subsidiary is a Foreign Subsidiary, if reasonably
requested by the Majority Banks, such Notice of Additional Borrower shall
be accompanied by an opinion of counsel for such Subsidiary as specified in
paragraph 4(a)(ii) of such Notice of Additional Borrower;
(iii) and the other conditions set forth in such Notice of Additional
Borrower shall have been satisfied (including the representations and
warranties contained therein being true and correct as of the date
thereof).
(b) Promptly, upon receipt of any Notice of Additional Borrower by the
Administrative Agent, the Administrative Agent shall notify each Bank thereof,
and shall deliver to each Bank copies of each document delivered to the
Administrative Agent pursuant to such Notice of Additional Borrower.
13.16 Release of Grace New York. Promptly after the completion of the
NMC Disposition the Administrative Agent, on behalf of the Administrative Agent
and the Banks, shall, upon receipt of the written request of the Parent or Grace
New York, execute an acknowledgment that Grace New York is released from all its
obligations under this Agreement (including, without limitation, its obligations
under the Parent Guarantee) provided that the Administrative Agent shall have
received a certificate dated the date of such request executed by a Responsible
Officer of each of Grace Holding and the Company to the effect that (a) each of
the representations and warranties made by each of the Loan Parties (other than
Grace New York) in or pursuant to subsection 6.1, 6.2, 6.3, 6.5, 6.9, 6.10,
6.11, 6.12 and 6.13 of this Agreement is true and correct in all material
respects as of the date of such certificate as if made on and as of such date
and (b) no Default or Event of Default has occurred and is continuing on the
date of such certificate after giving effect to the NMC Disposition.
<PAGE> 71
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered in New York, New York by their proper and duly
authorized officers as of the day and year first above written.
W. R. GRACE & CO.-CONN.
By: ______________________________
Name: Paul McMahon
Title: Vice President
and Treasurer
W. R. GRACE & CO.
By: ______________________________
Name: Paul McMahon
Title: Vice President
and Treasurer
GRACE HOLDING, INC.
By: ______________________________
Name: Paul McMahon
Title: Vice President
and Treasurer
CHEMICAL BANK, as
Administrative Agent and as
a Bank
By: ______________________________
Name: Scott S. Ward
Title: Vice President
<PAGE> 72
ABN AMRO BANK N.V.
By: ______________________________
Name:
Title:
By: ______________________________
Name:
Title:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By: ______________________________
Name:
Title:
THE BANK OF NOVA SCOTIA
By: ______________________________
Name:
Title:
BARCLAYS BANK PLC
By: ______________________________
Name:
Title:
THE CHASE MANHATTAN BANK, N.A.
By: ______________________________
Name:
Title:
<PAGE> 73
COMMERZBANK AG, ATLANTA AGENCY
By: ______________________________
Name:
Title:
By: ______________________________
Name:
Title:
CREDIT LYONNAIS ATLANTA AGENCY
By: ______________________________
Name:
Title:
DRESDNER BANK AG, NEW YORK AND
GRAND CAYMAN BRANCHES
By: ______________________________
Name:
Title:
By: ______________________________
Name:
Title:
MARINE MIDLAND BANK
By: ______________________________
Name:
Title:
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By: ______________________________
Name:
Title:
<PAGE> 74
NATIONSBANK, N.A. (SOUTH)
By: ______________________________
Name:
Title:
SWISS BANK CORPORATION-NEW
YORK BRANCH
By: ______________________________
Name:
Title:
By: ______________________________
Name:
Title:
UNION BANK OF SWITZERLAND
By: ______________________________
Name:
Title:
By: ______________________________
Name:
Title:
<PAGE> 75
SCHEDULE I
<TABLE>
<CAPTION>
BANK COMMITMENT
- ---- ----------------
<S> <C>
Chemical Bank $ 25,000,000
ABN AMRO Bank $ 25,000,000
Bank of America National
Trust and Savings Assoc. $ 25,000,000
The Bank of Nova Scotia $ 25,000,000
Barclays Bank PLC $ 25,000,000
The Chase Manhattan Bank, N.A. $ 25,000,000
Commerzbank AG, Atlanta Agency $ 25,000,000
Credit Lyonnais,
Atlanta Agency $ 25,000,000
Dresdner Bank AG $ 25,000,000
Marine Midland Bank $ 25,000,000
Morgan Guaranty Trust Company
of New York $ 25,000,000
NationsBank, N.A. (South) $ 25,000,000
Swiss Bank Corporation
New York Branch $ 25,000,000
Union Bank of Switzerland $ 25,000,000
----------------
$350,000,000,000
================
</TABLE>
<PAGE> 1
EXHIBIT 4.6
<TABLE>
<S> <C> <C>
NOT MORE NOT MORE
THAN 100,000 THAN 100,000
SHARES SHARES
NUMBER SHARES
GR
W.R. GRACE & CO. SEE REVERSE FOR CERTAIN DEFINITIONS
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
This Certifies that
COMMON
STOCK
is the owner of
SHARES OF THE FULLY PAID AND NONASSESSABLE COMMON STOCK OF THE PAR VALUE OF $.01 EACH OF
W.R. Grace & Co., transferable on the books of the Company in person or by attorney
upon surrender of this certificate properly endorsed. This certificate is not valid until
countersigned by the Transfer Agent and registered by the Registrar.
Witness the facsimile seal of the Company and the facsimile signatures of its duly
authorized officers.
Dated
/s/ Albert J. Costello
----------------------
COUNTERSIGNED AND REGISTERED: CHAIRMAN
By Robert B. Lamm
------------------------------ ----------------------
TRANSFER AGENT AND REGISTRAR SECRETARY
AUTHORIZED OFFICER
[W.R. GRACE & CO CORPORATE DELAWARE SEAL 1996] [GRACE LOGO]
AMERICAN BANKNOTE COMPANY PRODUCTION COORDINATOR - DEE FERTIG - 215-830-2197
680 BLAIR MILL ROAD PROOF OF JULY 11, 1996
HORSHAM, PA 19044 W.R. GRACE
215-657-3480 H 44625patches LOT 2
SALESPERSON - R. JOHNS - 212-557-9100 Opr. js/hj/eg REV 2
/home/seibert in progress/home 15/wrgrace 44625 /net/banknote/home 15/W
</TABLE>
<PAGE> 2
W.R. GRACE & CO.
------
The Company will furnish without charge to each stockholder who so requests a
copy of the designations, powers, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
The following abbreviations, when used in the inscription of ownership on the
face of this certificate, shall be construed as though they were written out in
full according to applicable laws or regulations:
JT TEN -As joint tenants, with right of
survivorship, and not as tenants
in common
TEN IN COM -As tenants in common
TEN BY ENT -As tenants by the entireties
Abbreviations in addition to those appearing above may be used.
For value received ____hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFICATION NUMBER OF ASSIGNEE
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------shares
of the capital stock represented by the within Certificate,
and do hereby irrevocably constitute and appoint
_________________________________________________________________Attorney
to transfer the said stock on the books of the within named Company with full
power of substitution in the premises.
Dated____________
------------------------------------
Signature(s) Guaranteed:
----------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY
AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH MEM-
BERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.
This certificate also evidences and entitles the holder hereof to
certain rights, as set forth in a Rights Agreement (the "Rights Agreement")
between W.R. Grace & Co. (the "Company") and (the "Rights
Agent"), the terms of which are hereby incorporated herein by reference and a
copy of which is on file at the principal offices of the Company. Under
certain circumstances, as set forth in the Rights Agreement, will be evidenced
by separate certificates and will no longer be evidenced by this certificate.
The Company will mail to the holder of this certificate a copy of the Rights
Agreement, as in effect on the date of mailing, without charge promptly after
receipt of a written request therefor. Under certain circumstances set forth
in the Rights Agreement, rights beneficially owned by an Acquiring Person or
any Affiliates or Associates thereof (as such terms are defined in the Rights
Agreement), or certain transferees thereof, may become null and void.
AMERICAN BANKNOTE COMPANY PRODUCTION COORDINATOR-
680 BLAIR MILL ROAD DEE FERTIG - 215-830-2197
HORSHAM, PA 19044 PROOF OF JULY 18, 1996
215-657-3480 W.R. GRACE
H 44625patches Lot2
SALESPERSON: R. JOHNS-212-557-9100
Opr. js/hj/eg/lr/reg REV 5
Notice: This signature to this assignment must correspond with the name
as written upon the face of the certificate in every particular,
without alteration or enlargement or any change whatever
<PAGE> 1
July 30, 1996
W. R. Grace & Co.
W. R. Grace & Co. - Conn.
National Medical Care, Inc.
One Town Center Road
Boca Raton, FL 33486-1010
Attn: Peter Houchin
Chief Financial Officer
RE: Financing for National Medical Care, Inc.
Ladies and Gentlemen:
You have advised us that National Medical Care, Inc. ("NMC"), a wholly-owned
indirect subsidiary of W.R. Grace & Co. ("WRG-NY") wishes to obtain $2.5
billion in senior bank financing (the "Senior Credit Facilities"). The
proceeds of the Senior Credit Facilities will be used by NMC (i) to make a cash
distribution of approximately $2.1 billion to W.R. Grace & Co. - Conn.
("WRG-Conn.") the parent of NMC, which distribution shall be used by WRG-Conn.
to retire certain existing indebtedness and for general corporate purposes, and
(ii) for refinancing existing debt, working capital and general corporate
purposes of NMC. You have further advised us that subsequent to the closing of
the Senior Credit Facilities, (i) WRG-Conn. will distribute the shares of NMC
to WRG-NY, (ii) WRG-NY will contribute the shares of WRG-Conn. to Grace
Holding, Inc. ("Grace Holding"), (iii) WRG-NY will spin-off the shares of Grace
Holding to its public shareholders, and (iv) the public shareholders will
exchange the shares of WRG-NY for shares of a newly created company called
Fresenius Medical Care AG ("Holdings"), after which Holdings will own, through
separate chains of ownership, NMC and the worldwide dialysis business of
Fresenius AG (such business of Fresenius AG ("Fresenius") being hereafter
referred to as "FWD").
In connection with the foregoing, each of the institutions listed below is
pleased to advise you of its respective commitment to provide a portion of the
Senior Credit Facilities as set forth in the table below, in each case as
described in the term sheet
<PAGE> 2
July 30, 1996
Page 2
attached hereto as Annex I (the "Term Sheet") and subject to the conditions set
forth below and in the Term Sheet:
<TABLE>
<CAPTION>
Commitment Commitment
Lender Facility Amount Percentage
------ -------- ---------- ----------
<S> <C> <C> <C>
The Bank of Nova Scotia ("BNS") 1 $283,333,333 28.33%
2 $283,333,333 28.33%
3 $166,666,667 33.33%
The Chase Manhattan Bank 1 $283,333,333 28.33%
("Chase")
2 $283,333,333 28.33%
3 $166,666,666 33.33%
Dresdner Bank AG, New York and 1 $150,000,000 15.31%
Grand Cayman Branches
("Dresdner")
2 $150,000,000 15.79%
NationsBank, N.A. 1 $283,333,334 28.34%
("NationsBank)
2 $283,333,334 28.34%
3 $166,666,667 33.34%
</TABLE>
The commitments of BNS, Chase, Dresdner and NationsBank set forth above are
several (and not joint) obligations of such entities. All capitalized terms
used and not otherwise defined herein shall have the meanings set forth in the
Term Sheet.
It is agreed that NationsBank will act as Paying and Issuing Agent for the
Senior Credit Facilities (in such capacity, the "Paying and Issuing Agent") and
that BNS, Chase, Dresdner and NationsBank will act as Managing Agents for the
Senior Credit Facilities. It is further agreed that BNS, Chase Securities,
Inc. ("CSI"), Dresdner and NationsBanc Capital Markets, Inc. ("NCMI") will each
act as a Co-Arranger for Facility 1 and Facility 2 of the Senior Credit
Facilities and that BNS, CSI and NCMI will each act as a Co-Arranger for
Facility 3 of the Senior Credit Facilities. Hereinafter, in such capacity BNS,
CSI, Dresdner and NCMI may be referred to individually as a "Co-Arranger" and
collectively as the "Co-Arrangers". No additional
<PAGE> 3
July 30, 1996
Page 3
agents or arrangers will be appointed or roles or titles granted without the
prior approval of the Managing Agents and the Co-Arrangers.
The commitments and agreements of the Managing Agents and the Co-Arrangers
hereunder are subject to the satisfaction of each of the following conditions
precedent in a manner acceptable to each of the Managing Agents and each of
the Co-Arrangers in their sole discretion:
(a) each of the terms and conditions set forth herein;
(b) each of the terms and conditions set forth in the
Term Sheet;
(c) completion by the Managing Agents and the
Co-Arrangers of due diligence with respect to the financial condition,
business and management of WRG-NY, WRG-Conn., NMC, Fresenius, Holdings
and FWD in such detail as is deemed appropriate by, and with results
satisfactory to, the Managing Agents and the Co-Arrangers in their
sole discretion;
(d) (i) completion by the Managing Agents and the
Co-Arrangers of due diligence with respect to the current
investigation of NMC by the Office of the Inspector General of the
U.S. Department of Health and Human Services (the "OIG Investigation")
in such detail as is deemed appropriate by, and with results
satisfactory to, the Managing Agents and the Co-Arrangers in their
sole discretion (it being understood and agreed that the Managing
Agents and the Co-Arrangers will engage Jones, Day, Reavis & Pogue as
a third party advisor at the expense of NMC in connection with the
completion of such due diligence), and (ii) there shall be no material
change in the status of the OIG Investigation (or material change in
the position of the applicable governmental authorities with respect
thereto) subsequent to the completion of the due diligence referred to
in subclause (i), which change in status or position could reasonably
be expected to either (A) have a material adverse effect on the
condition (financial or otherwise) operations, business, assets,
liabilities or prospects of NMC or its subsidiaries, or (B) cause a
significant disruption in the syndication of the Senior Credit
Facilities, in each case as determined by the Managing Agents in their
sole discretion;
(e) completion by the Managing Agents and the
Co-Arrangers of due diligence with respect to (i) the potential tax
issues related to the distribution to be made by NMC to WRG-Conn., the
spin-off of Grace Holdings to the shareholders of WRG-NY and the
exchange of shares of WRG-NY for shares in Holdings and (ii) the
potential environmental
<PAGE> 4
July 30, 1996
Page 4
liability of WRG-NY, WRG-Conn. and/or NMC with respect to certain
chemical businesses owned, directly or indirectly, by WRG-NY, in each
case in such detail as is deemed appropriate by, and with results
satisfactory to, the Managing Agents and the Co-Arrangers in their
sole discretion (it being understood and agreed that the Managing
Agents and the Co-Arrangers shall have the right to engage third party
advisors at the expense of NMC in connection with the completion of
the due diligence referred to in this subparagraph (e));
(f) execution of a fee letter among WRG-NY, WRG-Conn.,
NMC, the Managing Agents and the Co-Arrangers prior to or
concurrently with the acceptance by WRG-NY, WRG-Conn. and NMC of this
letter;
(g) the negotiation, execution and delivery of definitive
documentation with respect to the Senior Credit Facilities consistent
with the Term Sheet and otherwise satisfactory to the Managing Agents
and the Co-Arrangers; and
(h) there not having occurred and be continuing since the
date hereof a material adverse change in the market for syndicated
bank credit facilities as determined by the Managing Agents and the
Co-Arrangers in their sole discretion.
Furthermore, the commitments and agreements of the Managing Agents and the
Co-Arrangers hereunder are based upon the financial and other information
regarding WRG-NY, WRG-Conn., NMC and their respective subsidiaries previously
provided to the Managing Agents and/or the Co-Arrangers and are subject to the
condition, among others, that there shall not have occurred after the date of
such information, in the opinion of the Managing Agents and the Co-Arrangers,
any material adverse change in the business, assets, liabilities (actual or
contingent), operations, condition (financial or otherwise) or prospects of
WRG-NY, WRG-Conn. or NMC.
As you have informed us, subsequent to the closing of the Senior Credit
Facilities, a transaction will be occurring in which WRG-NY will be acquired by
Holdings. As a result of that transaction, you have informed us that NMC will
become an indirect subsidiary of Holdings, and Holdings will own FWD through a
separate chain of ownership. Because of the transaction, and the possibility
that NMC and FWD may be combined under Holdings, the commitments and agreements
of the Managing Agents and the Co-Arrangers hereunder also are subject to the
satisfaction of each of the following conditions in a manner
<PAGE> 5
July 30, 1996
Page 5
acceptable to each of the Managing Agents and each of the Co-Arrangers in their
sole discretion:
(a) receipt by the Managing Agents and Co-Arrangers of financial
and other information regarding Holdings and Fresenius; and
(b) there not having occurred after the date of such information,
in the opinion of the Managing Agents and Co-Arrangers, any
material adverse change in the business, assets, liabilities
(actual or contingent), operations, condition (financial or
otherwise) or prospects of Holdings or Fresenius.
If the continuing review by the Managing Agents and the Co-Arrangers of the
information referred to in the immediately preceding two paragraphs discloses
conditions or events not previously disclosed to the Managing Agents and the
Co-Arrangers or relating to new information or additional developments
concerning conditions or events previously disclosed to the Managing Agents and
the Co-Arrangers which the Managing Agents and the Co-Arrangers in their sole
discretion believe could reasonably be expected to have a material adverse
effect on the condition (financial or otherwise), assets, properties, business,
operations or prospects of WRG-NY, WRG-Conn., NMC, Fresenius or Holdings, then
the Managing Agents and the Co-Arrangers may, in their sole discretion, suggest
alternative financing amounts or structures that ensure adequate protection for
the Lenders or decline to participate in the proposed financing.
You agree to actively assist the Managing Agents and the Co-Arrangers in
achieving a syndication of the Senior Credit Facilities that is satisfactory to
the Managing Agents, the Co-Arrangers and you. In the event that such
syndication cannot be achieved in a manner satisfactory to the Managing Agents
and the Co-Arrangers and you under the structure outlined in the Term Sheet you
agree to negotiate in good faith with the Managing Agents and the Co-Arrangers
with respect to any changes in the structure or terms of the Senior Credit
Facilities reasonably requested by the Managing Agents and the Co-Arrangers to
facilitate a successful syndication of the Senior Credit Facilities; provided,
however, it is understood and agreed that (i) the aggregate principal amount of
the Senior Credit Facilities shall not be reduced below $2.5 billion, and (ii)
each of the Managing Agents shall remain obligated to provide the amount of
each Senior Credit Facility committed by such Managing Agent pursuant to the
terms of (and subject to the conditions set forth in) this letter.
Syndication of the Senior Credit Facilities will be accomplished by a variety
of means, including direct contact during the syndication between the proposed
lenders and senior management and advisors of WRG-NY, WRG-Conn.,
<PAGE> 6
July 30, 1996
Page 6
NMC, Fresenius, Holdings and FWD. To assist the Managing Agents and the
Co-Arrangers in the syndication efforts, you hereby agree to (a) provide and
cause your advisors to provide the Managing Agents and the Co-Arrangers and the
other Lenders upon request with all information reasonably deemed necessary by
the Managing Agents and the Co-Arrangers to complete syndication, including but
not limited to information and evaluations (i) prepared by WRG-NY, WRG-Conn.
and NMC, and their advisors, or on their behalf, relating to the businesses of
NMC and WRG-Conn., and (ii) prepared by Fresenius and FWD and their advisors,
or on their behalf, relating to the businesses of FWD, (b) assist the Managing
Agents and the Co-Arrangers upon their request in the preparation of an
Information Memorandum to be used in connection with the syndication of the
Senior Credit Facilities and (c) otherwise assist the Managing Agents and the
Co-Arrangers in their syndication efforts, including by making available from
time to time officers and advisors of WRG-NY, WRG-Conn. and NMC and their
subsidiaries, and if NMC and FWD are to be combined under Holdings, officers
and advisors of Fresenius and FWD and their subsidiaries, to attend and make
presentations regarding the business and prospects of WRG-NY, WRG-Conn., NMC,
Holdings and FWD and their subsidiaries, as appropriate, at a meeting or
meetings of prospective Lenders. You further agree to refrain from engaging in
any additional financings during such syndication process for WRG-NY, WRG-Conn.
or NMC, and (if it is to be combined with NMC under Holdings) for FWD (except
as described in this letter and except as described in the Term Sheet) unless
otherwise agreed to by the Managing Agents and the Co-Arrangers.
It is understood and agreed that the Co-Arrangers, after consultation with you,
will manage and control all aspects of the syndication, including decisions as
to the selection of proposed Lenders (who shall be reasonably acceptable to the
Borrower) and any titles or roles offered to proposed Lenders, when commitments
will be accepted and the final allocations of the commitments among the
Lenders. The Co-Arrangers will determine among the Co-Arrangers the allocation
of prospective Lenders to be contacted by each Co-Arranger. It is understood
that no Lender participating in the Senior Credit Facilities will receive
compensation from you outside the terms contained herein and in the Term Sheet
in order to obtain its commitment. It is also understood and agreed that the
amount and distribution of the fees among the Lenders will be at the sole
discretion of the Co-Arrangers and that any syndication prior to execution of
definitive documentation will reduce the commitments of the Managing Agents in
their sole discretion (it being understood and agreed that the Managing Agents
will continue to be obligated to the Borrower for their commitments hereunder
until the execution of such definitive documentation).
<PAGE> 7
July 30, 1996
Page 7
You hereby represent, warrant and covenant that (i) all information, other than
Projections (as defined below), which has been or is hereafter made available
to the Managing Agents, the Co-Arrangers and/or the Lenders by you or any of
your representatives in connection with the transactions contemplated hereby
("Information") is and will be complete and correct in all material respects
and does not and will not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements contained
therein not misleading and (ii) all financial projections concerning WRG-NY,
WRG-Conn., NMC, Holdings or FWD that have been or are hereafter made available
to the Managing Agents, the Co-Arrangers or the Lenders by either you,
WRG-Conn., Holdings, FWD or Fresenius or any of your or their representatives
(the "Projections") have been or will be prepared in good faith based upon
reasonable assumptions. You agree to furnish us with such Information and
Projections as we may reasonably request and to supplement the Information and
the Projections from time to time until the closing date for the Senior Credit
Facilities so that the representation and warranty in the preceding sentence is
correct on the such date. In arranging and syndicating the Senior Credit
Facilities, the Managing Agents and the Co-Arrangers will be using and relying
on the Information and the Projections without independent verification
thereof.
By executing this letter agreement, you agree to reimburse the Managing Agents
and the Co-Arrangers from time to time on demand for all reasonable
out-of-pocket fees and expenses (including, but not limited to, fees and
expenses related to the completion of due diligence, the syndication of the
Senior Credit Facilities (without duplication with respect to the commitment
fees required to be paid pursuant to the fee letter hereafter described) and
the reasonable fees, disbursements and other charges of Moore & Van Allen,
PLLC, as counsel to the Co-Arrangers, the Managing Agents and the other
Lenders) incurred in connection with the Senior Credit Facilities and the
preparation of the definitive documentation for the Senior Credit Facilities
and the other transactions contemplated hereby.
In the event that any Agent or Co-Arranger becomes involved in any capacity in
any action, proceeding or investigation in connection with any matter
contemplated by this letter, you agree to reimburse such Agent or Co-Arranger
for its legal and other expenses (including the cost of any investigation and
preparation) as they are incurred by such Agent or Co-Arranger. By executing
this letter you also agree to indemnify and hold harmless each Agent, each
Co-Arranger and their respective affiliates, directors, officers, employees and
agents (the "Indemnified Parties") from and against any and all losses, claims,
damages and liabilities, joint or several, related to or arising out of any
matters contemplated by this letter, unless
<PAGE> 8
July 30, 1996
Page 8
and only to the extent that such losses, claims, damages or liabilities
resulted primarily from the gross negligence or willful misconduct of the Agent
or Co-Arranger seeking indemnification.
The provisions of the immediately preceding two paragraphs shall remain in full
force and effect regardless of whether definitive financing documentation shall
be executed and delivered and notwithstanding the termination of this letter
agreement or the commitments of the Managing Agents and the Co-Arrangers
hereunder.
As described herein and in the Term Sheet, the Co-Arrangers will act as
Co-Arrangers for the Senior Credit Facilities. Each Agent reserves the right
to allocate, in whole or in part, to its affiliate that is acting as a
Co-Arranger hereunder certain fees payable to such Agent in such manner as such
Agent and Co-Arranger agree in their sole discretion. You acknowledge and
agree that the Managing Agents may share with any of their affiliates
(including specifically their affiliate acting as a Co-Arranger hereunder) any
information relating to the Senior Credit Facilities, WRG-NY, WRG-Conn., NMC,
Fresenius, Holdings and their subsidiaries and affiliates; provided that the
Managing Agents and such affiliates shall hold any such information that is not
public in confidence in accordance with their respective customary policies
relating to non-public information.
This letter agreement may not be assigned by you without the prior written
consent of the Managing Agents and the Co-Arrangers.
If you are in agreement with the foregoing, please execute and return the
enclosed copy of this letter agreement no later than the close of business on
August 2, 1996. This letter agreement will become effective upon your delivery
to us of executed counterparts of this letter agreement, the fee letter among
the Co-Arrangers, the Managing Agents, NMC, WRG- Conn. and WRG-NY (the "Fee
Letter"). In addition, without limiting the more specific terms hereof and of
the Term Sheet, you agree upon acceptance of this commitment to pay the
underwriting and other fees in the amounts and on the dates set forth in the
Fee Letter. This commitment shall terminate if not so accepted by you prior to
that time. Following acceptance by you, this commitment will terminate on
September 30, 1996, unless the Senior Credit Facilities are closed by such
time.
Except as required by applicable law, this letter and the contents hereof shall
not be disclosed by you to any third party without the prior consent of the
Managing Agents and the Co-Arrangers other than to your respective officers,
directors, employees, agents, attorneys, financial advisors and accountants
<PAGE> 9
July 30, 1996
Page 9
and to the management of Fresenius, in each case to the extent necessary in
your reasonable judgment. In addition, after acceptance by you of this letter
you shall be permitted to disclose this letter to the Securities and Exchange
Commission in connection with the transactions referred to herein. Without
limiting the foregoing, in the event that you disclose the contents of this
letter in contravention of the preceding sentence, you shall be deemed to have
accepted the terms of this letter.
This letter may be executed in counterparts which, taken together, shall
constitute an original. This letter, together with the Term Sheet, embodies
the entire agreement and understanding among the Managing Agents, the
Co-Arrangers, WRG-NY and NMC with respect to the specific matters set forth
herein and supersedes any prior agreements and understandings relating to the
subject matter hereof. No party has been authorized by the Managing Agents or
the Co-Arrangers to make any oral or written statements inconsistent with this
letter. THIS LETTER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO ITS PRINCIPLES OF CONFLICTS OF
LAW.
Very truly yours,
THE BANK OF NOVA SCOTIA
By:____________________________
Title:_________________________
THE CHASE MANHATTAN BANK
By:____________________________
Title:_________________________
CHASE SECURITIES, INC.
By:____________________________
Title:_________________________
<PAGE> 10
July 30, 1996
Page 10
DRESDNER BANK AG, New York and
Grand Cayman Branches
By:
----------------------------
Title:
-------------------------
By:
----------------------------
Title:
-------------------------
NATIONSBANK, N.A.
By:
-----------------------------
Title:
--------------------------
NATIONSBANC CAPITAL MARKETS, INC.
By:
-----------------------------
Title:
--------------------------
ACCEPTED AND AGREED TO:
W.R. GRACE & CO.
By:
----------------------------
Title:
-------------------------
Date:
--------------------------
NATIONAL MEDICAL CARE, INC.
By:
----------------------------
Title:
-------------------------
Date:
--------------------------
W.R. GRACE & CO.-CONN.
By:
----------------------------
Title:
-------------------------
Date:
--------------------------
<PAGE> 11
ANNEX I
SUMMARY OF TERMS AND CONDITIONS FOR
NATIONAL MEDICAL CARE, INC.
JULY 30, 1996
SENIOR CREDIT FACILITIES: An aggregate principal amount
of up to $2.5 billion will be
available as follows:
FACILITY 1:
Borrower: National Medical Care, Inc.
("NMC") together with (i) the
subsidiaries of NMC listed on
Schedule 2 hereto (ii) such
other direct or indirect
subsidiaries of NMC as may be
hereafter approved in writing
by the Required Lenders and
(iii) if guarantees are
delivered by Holdings and
certain of its subsidiaries
as described below, the
direct and indirect
subsidiaries of Holdings as
may be hereafter approved in
writing by the Required
Lenders.
Amount and Structure: $1,000,000,000 Revolving
Credit Facility with (i) a
swingline of $20,000,000 for
same day borrowings in U.S.
dollars (the "Domestic
Swingline"), (ii) a swingline
of $20,000,000 for same day
borrowings in other freely
tradable eurocurrencies (the
"Multi-Currency Swingline")
and (iii) a sublimit of
$250,000,000 for the issuance
of letters of credit
Maturity Date: Seventh anniversary of the
Closing Date
Guarantors: W.R. Grace & Co. ("WRG-NY")
and the material domestic
subsidiaries of the Borrower
<PAGE> 12
FACILITY 2:
Borrower: National Medical Care, Inc.
("NMC")
Amount and Structure: $1,000,000,000 Term Loan
Facility
Maturity Date: Seventh anniversary of the
Closing Date
Mandatory Repayments
Under Facility 2: Quarterly principal
payments aggregating (on an
annual basis) the amounts
indicated below, to be
applied to Facility 2 as
follows:
<TABLE>
<CAPTION>
Year Reduction Amounts
---- -----------------
<S> <C>
4 $180 million
5 $200 million
6 $200 million
7 $200 million
End of
Year 7 $220 million
</TABLE>
Guarantors: W.R. Grace & Co. ("WRG-NY"),
W.R. Grace & Co.-Conn.
("WRG-Conn.") and the
material domestic
subsidiaries of the Borrower;
provided, however that the
guaranty of WRG-Conn. shall
be limited to $450 million
and will be structured as two
separate guaranty agreements,
one for $300 million (the
"$300 Million Guaranty") and
one for $150 million (the
"$150 Million Guaranty").
WRG-Conn. Guaranty
Release Triggers: The $300 Million Guaranty of
WRG-Conn. with respect to
Facility 2 will be released
upon the occurrence of any of
the following events within
sixty (60) days (but not
sooner than forty-six (46)
days) after the Closing Date:
(a) the receipt of an
unconditional joint and
several guarantee from
Fresenius Medical Care AG
("Holdings") and the
subsidiaries of Holdings
named on Schedule 3 hereto
(with Holdings to be the
holding company that will
directly or indirectly own
NMC and the worldwide
dialysis business of
-2-
<PAGE> 13
Fresenius AG) for the full
amount of Facility 1,
Facility 2 and
(if not repaid in full)
Facility 3 (in each case to
the extent permitted by
applicable law and consistent
with customary practices for
lenders, guarantors and
borrowers in the applicable
jurisdiction), which guaranty
shall contain financial and
other covenants acceptable to
the Lenders, calculated on a
pro forma consolidated basis
at Holdings and shall be
accompanied by an acceptable
legal opinion regarding the
validity and enforceability
of such guaranty (it being
understood that the form of
such guarantee and related
documentation shall be agreed
to prior to the Closing
Date), or (b) receipt of a
letter of credit (or other
acceptable financial
accommodation) in form and
substance satisfactory to the
Lenders covering a principal
amount of $300,000,000 plus
90 days of interest thereon,
together with an acceptable
legal opinion regarding the
enforceability of such letter
of credit (or other
acceptable financial
accommodation) or (c) the
prepayment of $300,000,000 in
principal amount of Facility
2. If the $300 Million
Guaranty of WRG-Conn. is not
released within sixty (60)
days after the Closing Date
in accordance with either
subparagraph (a), (b) or (c)
above, then demand for
payment shall be made on the
$300 Million Guaranty of
WRG-Conn. The letter of
credit (or other acceptable
financial accommodation)
referred to in subparagraph
(b) must (1) be issued on the
date that is sixty (60) days
after the Closing Date if the
conditions set forth in
subparagraph (a) are not
satisfied prior to such date,
(2) be issued for the account
of WRG-Conn. or Holdings, (3)
in the case of a letter of
credit, be issued by a
domestic financial
institution with a commercial
paper rating of at least A-1
by S&P and at least P-1 by
Moody's and (4) in the case
of a letter of credit, have
an expiry date that is either
(y) at least 90
-3-
<PAGE> 14
days after the maturity date
of Facility 2 or (z) at least
364 days after the issue date
(as extended) of such letter
of credit, with a provision
allowing the beneficiary to
draw if the letter of credit
would otherwise expire
(giving effect to extensions)
prior to a date that is at
least 90 days after the
maturity date of Facility 2.
The $150 Million Guaranty of
WRG-Conn. with respect to
Facility 2 will be released
if at any time during the
term of Facility
2: the Borrower (or Holdings
if Holdings guarantees the
Senior Credit Facilities)
on a consolidated basis,
achieves a ratio of Senior
Debt to EBITDA of equal
to or less than 3.5 to 1.0.
FACILITY 3:
Borrower: National Medical Care, Inc.
Amount and Structure: $500,000,000 Term Loan
Facility
Maturity Date: Second anniversary of the
Closing Date
Amortization: None
Guarantors: WRG-NY, WRG-Conn. and the
material domestic
subsidiaries of the Borrower.
WRG-Conn. Guaranty
Release Triggers: The guaranty of WRG-Conn.
with respect to Facility 3
will be released upon the
occurrence of any of the
following events within sixty
(60) days (but not sooner
than forty-six (46) days)
after the Closing Date:
either (a) repayment in full
of Facility 3, or (b) receipt
of a letter of credit (or
other acceptable financial
accommodation) in form and
substance satisfactory to the
Lenders covering a principal
amount of $500,000,000 plus
90 days of interest
-4-
<PAGE> 15
thereon, together with an
acceptable legal opinion
regarding the enforceability
of such letter of credit (or
other acceptable financial
accommodation), or (c) the
receipt of an unconditional
joint and several guarantee
from Holdings and the
subsidiaries of Holdings
named on Schedule 3 hereto
(to the extent permitted by
applicable law and consistent
with customary practices for
lenders, guarantors and
borrowers in the applicable
jurisdiction), which guaranty
shall contain financial and
other covenants acceptable to
the Lenders, calculated on a
pro forma, consolidated basis
at Holdings and be accompanied
by an acceptable legal opinion
regarding the validity and
enforceability of such
guaranty agreement (it being
understood that the form of
such guarantee and related
documentation shall be agreed
to prior to the Closing Date).
If the guaranty of WRG-Conn.
is not released within sixty
(60) days after the Closing
Date in accordance with either
subparagraph (a), (b) or (c)
above, then demand for
payment shall be made on the
guaranty of WRG-Conn. The
letter of credit (or other
acceptable financial
accommodation) referred to in
subparagraph (b) must (1) be
issued on the date that is
sixty (60) days after the
Closing Date if the conditions
set forth in either
subparagraph (a) or in
subparagraph (c) are not
satisfied prior to such date,
(2) be issued for the account
of WRG-Conn. or Holdings, (3)
in the case of a letter of
credit, be issued by a
domestic financial institution
with a commercial paper
rating of at least A-1 by
S&P and at least P-1 by
Moody's, and (4) in the case
of a letter of credit, have
an expiry date that is either
(y) at least 90 days after
the maturity date of Facility
3 or (z) at least 364 days
after the issue date (as
extended) of such letter of
credit, with a provision
allowing the beneficiary to
draw if the letter of credit
would expire (giving effect
to extensions)
-5-
<PAGE> 16
prior to a date that is
90 days after the maturity
date of Facility 2.
TERMS COMMON TO ALL FACILITIES
PURPOSE: To finance the
distribution and payment of
other amounts to WRG-Conn.
and WRG-NY, to refinance
existing outstanding debt of
the Borrower, to finance
existing and future letters
of credit of the Borrower,
and for general corporate
purposes of the Borrower and
its subsidiaries (and
Holdings and its subsidiaries
if guarantees of Holdings and
the subsidiaries of Holdings
named on Schedule 3 are
hereafter provided),
including working capital and
permitted acquisitions. Use
of proceeds by non-guarantor
subsidiaries of the Borrower
and Holdings will be limited
by basket amounts to be
agreed upon.
SECURITY: A pledge of the
stock of the Borrower (to
secure the guaranty of
WRG-NY), a pledge of 100% of
the stock of the material
domestic subsidiaries of the
Borrower and a pledge of 66%
of the stock of the material
foreign subsidiaries of the
Borrower (to secure the
obligations of the Borrower)
and, if Holdings is a
guarantor of Facility 1,
Facility 2 or Facility 3 as
described above, a pledge of
100% of the stock owned
directly or indirectly by
Holdings in its material
subsidiaries (to secure the
guaranty by Holdings of
Facility 1, Facility 2 and/or
Facility 3, as applicable),
which pledge by Holdings
shall be subject to
applicable law and consistent
with customary practices for
lenders and pledgors in the
applicable jurisdiction. The
documentation will provide
for a release of all
collateral if NMC (or, if
Holdings is a guarantor of
the Senior Credit Facilities,
then Holdings) shall either
(i) obtain an investment
grade rating for its long
term senior unsecured
- 6 -
<PAGE> 17
debt from both Moody's and
S&P, or (ii) satisfy certain
financial ratios to be
negotiated (including Debt
to EBITDA of less than or
equal to 2.0 to 1.0 and
EBITDA to Interest of greater
than or equal to 4.0 to 1.0).
CO-ARRANGERS: The Bank of Nova Scotia
("BNS"), Chase Securities,
Inc. ("CSI"), Dresdner Bank
AG, New York and Grand Cayman
Branches ("Dresdner") and
NationsBanc Capital Markets
Inc. ("NCMI").
PAYING AND ISSUING AGENT: NationsBank, N.A. (the
"Paying and Issuing Agent").
DOMESTIC SWINGLINE LENDER: NationsBank, N.A.
MULTI-CURRENCY SWINGLINE LENDER: Dresdner Bank AG,
New York and Grand Cayman
Branches.
MANAGING AGENTS: Collectively, The
Bank of Nova Scotia, The
Chase Manhattan Bank,
Dresdner Bank AG, New York
and Grand Cayman Branches and
NationsBank, N.A.
L/C ISSUING BANK: NationsBank or such
other Lender under the Senior
Credit Facilities as may be
selected by the Borrower.
LENDERS: Syndicate of
lenders acceptable to the
Borrower and the Co-
Arrangers.
BORROWING OPTIONS: LIBOR (determined
by reference to the
appropriate page of the Dow
Jones Telerate Screen) and
Base Rate.
LIBOR adjustments for
Reg D will be charged by
Lenders individually.
Base Rate means the
higher of the prime rate of
NationsBank or the federal
funds rate + 0.50%.
INTEREST RATE MARGINS: As set forth on Schedule 1
attached hereto.
UNUSED FEE: As set forth on Schedule 1
attached hereto.
- 7 -
<PAGE> 18
FACILITY FEE: As set forth on Schedule 1
attached hereto.
LETTER OF CREDIT
ISSUANCE FEE: As set forth on Schedule 1
attached hereto.
LETTER OF CREDIT
FRONTING FEE: To be determined by
the Borrower and the L/C
Issuing Bank.
LETTERS OF CREDIT AVAILABILITY: Up to $250,000,000 will be
available for letters of
credit as a subfacility under
Facility 1. Letters of
credit will be issued by the
L/C Issuing Bank. Letters of
credit will expire no later
than the fifth business day
prior to the maturity date of
Facility 1. Drawings under
any letter of credit will be
reimbursed by the Borrower on
the same business day.
Letters of Credit outstanding
under Facility 1 shall be
deemed usage of Facility 1
for the purpose of fees and
availability.
MULTI-CURRENCY AVAILABILITY: Up to $450,000,000
of Facility 1 will be
available for bilateral U.S.
dollar borrowings or
borrowings in other freely
tradable eurocurrencies for
certain of the foreign
subsidiaries of the Borrower
(and foreign subsidiaries of
Holdings if Holdings is a
guarantor of the Senior
Credit Facilities), such
loans to be provided by the
Lenders pro rata based on
their respective commitment
percentages.
MULTI-CURRENCY BID OPTION: The documentation
for Facility 1 will also
allow the Borrower to obtain
loans in foreign currencies
from the Lenders on a
non-prorata basis (from the
Lender(s) selected by the
Borrower and in currencies
and at interest rates agreed
to by such Lender(s) and the
Borrower) through a borrowing
procedure to be administered
by NationsBank; provided,
however, any such non-prorata
borrowings will not be
considered Facility 1 usage
for purposes of calculating
the Unused Fee for Facility
1.
- 8 -
<PAGE> 19
INTEREST PAYMENTS: At the end of each
applicable Interest Period or
quarterly, if earlier.
INTEREST PERIODS: Base Rate Loans - 30 days.
LIBOR Loans - 1, 2, 3, 6
months or longer, as mutually
agreed upon.
DRAWDOWNS: Facility 2 and
Facility 3 will be fully
drawn on the Closing Date.
Advances under Facility 1
will be in minimum amounts of
$10,000,000 for loans and any
amount for letters of credit
with additional increments of
$5,000,000 for loans
(provided, however, that
loans under the swingline may
be obtained in minimum
amounts of $500,000 and loans
under the multi-currency bid
option shall be in such
amount agreed to by the
applicable Lender and
Borrower). Advances under
Facility 1 will be at the
Borrower's option with same
day notice for Base Rate
Loans, and three business
days' notice for LIBOR Loans.
MANDATORY PREPAYMENTS: Mandatory prepayments of the
Senior Credit Facilities will
be required as follows:
1. The net cash proceeds of
any equity or subordinated
debt issued by Holdings (or an
acceptable subsidiary of
Holdings) within ninety (90)
days of the Closing Date will
be applied to Facility 3 until
Facility 3 is paid in full as
more specifically set forth in
the description of Facility
3 hereinabove.
2. 50% of net after-tax cash
proceeds from asset sales
greater than $10 million and
not reinvested in similar
assets within twelve (12)
months.
3. 100% of net
cash proceeds from sale of
accounts receivable (excluding
the proceeds of the accounts
receivable securitization
required to be completed on or
before the Closing Date).
4. Subject to the terms of
paragraph (1) above, 50% of
net cash proceeds from (i) the
issuance of equity not used in
-9-
<PAGE> 20
connection with an
acquisition and (ii) the
issuance of additional
subordinated debt; provided,
however, that up to $100
million in excess equity
proceeds received in
conjunction with the issuance
of equity and subordinated
debt used to repay Facility 3
in full as described in
paragraph 1 above shall not
be subject to this mandatory
prepayment requirement.
Mandatory prepayments will be
applied first to Facility 3
until Facility 3 is paid in
full, then to Facility 2
until Facility 2 is paid in
full and last to Facility 1
until Facility 1 is paid in
full. Amounts applied to
Facility 1, Facility 2 and
Facility 3 will result in a
permanent reduction of the
commitments/loans thereunder
and amounts applied to
Facility 2 shall be applied
pro rata to each scheduled
principal installment under
Facility 2. The mandatory
prepayment requirements will
be modified if NMC (or, if
Holdings is a guarantor of
the Senior Credit Facilities,
then Holdings) shall either
(i) obtain an investment
grade rating for its long
term senior debt from both
Moody's and S&P, or (ii)
satisfy certain financial
ratios to be negotiated
(including Debt to EBITDA of
greater than or equal to
2.0 to 1.0 and EBITDA to
Interest of greater than or
equal to 4.0 to 1.0).
VOLUNTARY PREPAYMENTS: The Borrower may prepay the
Senior Credit Facilities
and/or reduce the available
commitments under Facility 1
by an aggregate amount of at
least $10,000,000 at any time
on three business days'
notice. Base Rate Loans may
be prepaid at any time on
same day's notice. LIBOR
Loans may not be prepaid
before the end of an Interest
Period unless compensation
for funding losses is
provided to the Lenders.
REPRESENTATIONS AND
WARRANTIES: Customary for credit
agreements of this
nature, with respect to the
Guarantors, the
- 10 -
<PAGE> 21
Borrower and their respective
subsidiaries, including but
not limited to the following
(except that the
representations and
warranties of WRG-Conn. while
WRG-Conn. is a guarantor
shall be the same as the
representations and
warranties contained in its
existing credit facilities):
1. Corporate existence.
2. Corporate and governmental
authorization; no
contravention; binding
effect.
3. Financial information.
4. No material adverse
change since December 31,
1995 with respect to the
Borrower and its
subsidiaries taken as a
whole.
5. Environmental matters.
6. Compliance with laws,
including ERISA.
7. No material
litigation (except for
the OIG investigation)
8. Existence, incorporation,
etc. of subsidiaries.
9. Payment of taxes.
10. Full disclosure.
11. Usual representations as
to collateral.
12. No required governmental
or required third party
approvals in connection
with the transaction.
13. Status under Investment
Company Act
- 11 -
<PAGE> 22
CONDITIONS TO CLOSING: Those customarily found in
credit facilities of this
nature, including but not
limited to:
1. Satisfactory closing
documentation, including
receipt and perfection of
security in form and
substance satisfactory to
the Lenders.
2. No material adverse
change shall have
occurred since December
31, 1995.
3. Receipt and approval of
all financial information
regarding WRG-NY, NMC,
WRG-Conn. and each of
their subsidiaries as may
be requested by the
Managing Agents.
4. Because of the
transactions in which
WRG-NY will be acquired by
Holdings, receipt of all
financial information
regarding Holdings and
each of its subsidiaries
as may be requested by the
Managing Agents.
5. Opinions of counsel in
form and substance
satisfactory to the
Lenders.
6. Receipt of required
regulatory approvals and
third party approvals, if
any.
7. Review of environmental
matters, with respect to
all real property owned or
leased by the Borrower and
its subsidiaries and
WRG-Conn. and its
subsidiaries, satisfactory
to the Lenders in form and
substance.
8. Review of and
satisfaction with
(i) tax aspects of the
transactions, (ii) all
documentation to be
entered into by the
Borrower and its
subsidiaries in connection
with the transaction and
(iii) capital and
ownership structure of
WRG-Conn. and its
subsidiaries taken as a
whole after the spin-off
and the Borrower and its
subsidiaries after the
acquisition by Holdings of
WRG-NY.
9. Absence of any change in
any pending investigation
and the
- 12 -
<PAGE> 23
absence of any other
action, suit,
investigation or
proceeding in any court or
before any arbitrator or
governmental
instrumentality, in either
case that could reasonably
be expected to have a
material adverse effect on
the financial condition,
business or prospects of
WRG-NY, NMC, WRG-Conn. or
Holdings and their
subsidiaries or on the
transaction that will
result in the combination
of NMC with the worldwide
dialysis business of
Fresenius AG or any other
transaction contemplated
hereby.
10. Execution of acceptable
agreements with the U.S.
government in connection
with the OIG
investigation relating to
(i) the guarantees
required by Holdings and
WRG-Conn., (ii) the letter
of credit required of NMC
and (iii) the agreement by
the U.S. government (in
connection with the OIG
investigation) to allow
the combination of NMC
with the worldwide
dialysis business of
Fresenius AG.
11. Receipt of a solvency
opinion for the Borrower.
12. Receipt from WRG-Conn. of
a satisfactory indemnity
for potential tax and
environmental liabilities
of the Borrower.
13. Evidence satisfactory to
the Lenders that
WRG-Conn. has sufficient
committed credit capacity
to obtain the letters of
credit referred to in
connection with the
release of the WRG-Conn.
guaranty agreements
executed with respect to
Facility 2 and Facility
3.
14. Evidence that the
Borrower has closed a
$180 million to $200
million securitization of
certain accounts
receivable of the Borrower
and its subsidiaries, such
- 13 -
<PAGE> 24
transaction to be in form
and substance (including
advance rate percentages)
satisfactory to the
Managing Agents. The
securitization facility
will be considered as
debt for purposes of
calculating any financial
tests.
CONDITIONS TO EACH BORROWING: Customary in credit
agreements of this nature,
including but not limited to
the following (except that
the representations and
warranties required to be
accurate with respect to WRG-
Conn. while WRG-Conn. is a
guarantor shall be the same
as those required to be
accurate in connection with
borrowings by WRG-Conn. under
its existing credit
facilities):
1. Absence of default.
2. Accuracy of
representations and
warranties except, in the
case of refunding
borrowings, the
representations relating
to no material adverse
change.
BORROWER COVENANTS: Customary in credit
agreements of this nature
with respect to the Borrower,
the Guarantors and their
respective subsidiaries,
including but not limited to
the following (except that the
covenants of WRG-Conn. while
WRG-Conn. is a guarantor shall
be the same as the covenants
contained in its existing
credit facilities):
1. Information.
2. Maintenance of property;
insurance coverage.
3. Conduct of business;
maintenance of existence.
4. Compliance with laws,
including ERISA and
environmental
regulations.
5. Inspection of property,
books and equipment.
6. Negative pledge (including
subsidiary stock and
assets), with
- 14 -
<PAGE> 25
normal exclusion baskets
to be negotiated.
7. Consolidations, mergers
and sale of assets above a
threshold amount.
8. Limitation on subsidiary
and affiliate debt, to
include a basket for
intercompany debt. Because
of the transaction in
which WRG-NY will be
acquired by Holdings, the
basket will include (a)
debt of up to $200 million
incurred or outstanding at
subsidiaries of Holdings
(which debt may be
guaranteed by Holdings and
the subsidiaries of
Holdings (other than NMC
and its subsidiaries)
which guarantee the Senior
Credit Facilities);
provided, however, that no
more than $180 million of
such indebtedness may be
outstanding at the time
Holdings guarantees the
Senior Credit Facilities
(if such guarantees are
provided by Holdings) and,
if such guarantees are
provided by Holdings, no
more than $170 million of
such indebtedness shall
have been outstanding at
the time NMC was combined
with the worldwide
dialysis business of
Fresenius AG, (b)
subordinated debt of
Holdings (or an acceptable
subsidiary of Holdings) on
terms and conditions
acceptable to the Required
Lenders (which
subordinated debt, if
issued, will be used to
repay Facility 3), and (c)
intercompany debt.
9. Use of proceeds.
10. Limitation on acquisitions
and capital expenditures
($400 million per year
plus proceeds of any asset
sales retained by the
Borrower; $100 million per
acquisition and including
separate sublimit amounts
to be agreed upon for the
acquisition of wholly-
owned, majority-owned and
minority-owned
businesses).
11. Minimum consolidated net
worth.
12. Leverage ratio (initially
calculated at NMC and, if
Holdings guarantees the
Senior Credit
- 15 -
<PAGE> 26
Facilities, then
calculated at Holdings on
a consolidated basis):
The ratio of debt to
EBITDA shall not exceed a
level to be determined
(with step-downs over
time).
13. Coverage ratio (initially
calculated at NMC and, if
Holdings guarantees the
Senior Credit Facilities,
then calculated at
Holdings on a consolidated
basis): The ratio of
EBITDAR minus capital
expenditures to interest
plus dividends plus rents
plus scheduled
amortization plus taxes,
calculated on a rolling
four quarters basis, shall
not be less than a level
to be determined (with
step-ups over time).
14. Limitations on restricted
payments
15. Transactions with
affiliates on arms-length
basis.
16. Other transaction specific
items.
EVENTS OF DEFAULT: Customary in credit
agreements of this nature,
including but not limited to
the following (except that
the defaults related to
WRG-Conn. while WRG-Conn. is
a guarantor shall be the same
as the defaults contained in
its existing credit
facilities):
1. Failure to pay any
principal or
reimbursement obligations
payable under the credit
agreement when due;
failure to pay interest or
fees within three business
days.
2. Failure to meet covenants
(with grace periods, where
appropriate).
3. Representations or
warranties false in any
material respect when
made.
4. Cross default to other
debt of a minimum of $10
million in principal
amount which is
triggered by an event
which, with the giving of
notice or lapse of time or
both,
- 16 -
<PAGE> 27
permits the holder to
accelerate its debt or
terminate its commitment.
5. Change of ownership or
control.
6. Other usual
defaults with respect to
the Borrower and its
subsidiaries, and, while
it is a guarantor,
WRG-Conn. and its
subsidiaries, including
but not limited to
insolvency, bankruptcy,
ERISA, and judgment
defaults.
INCREASED COSTS/CHANGE OF
CIRCUMSTANCES: The credit agreement will
contain customary provisions
protecting the Lenders in the
event of unavailability of
funding, illegality,
increased costs, capital
adequacy and funding losses.
INDEMNIFICATION: The Borrower will indemnify
the Lenders against
all losses, liabilities,
claims, damages, or expenses
relating to their loans, the
Borrower's use of loan
proceeds or the commitments,
including but not limited to
reasonable attorneys' fees
and settlement costs (except
such as result from the
indemnitee's gross negligence
or willful misconduct).
TRANSFERS AND PARTICIPATIONS: The Lenders will have
the right to transfer or
sell participations in their
loans or commitments with the
transferability of voting
rights on amendments and
waivers to be limited to
changes in principal, rate,
fees and term. Assignments,
which must be in amounts of
at least $10,000,000, will be
allowed with the consent of
the Borrower and the Paying
and Issuing Agent, such
consents not to be
unreasonably withheld.
REQUIRED LENDERS: Lenders holding
more than 50% of the
aggregate amount of loans and
commitments under the Senior
Credit Facilities.
GOVERNING LAW: State of New York.
- 17 -
<PAGE> 1
EXHIBIT 5.1
[W. R. GRACE LETTERHEAD]
July 29, 1996
Grace Holding, Inc.
One Town Center Road
Boca Raton, Florida 33486-1010
Gentlemen:
You have asked me, as General Counsel of Grace Holding, Inc.
("Company"), a subsidiary of W. R. Grace & Co., to render my opinion regarding
certain matters in connection with a Registration Statement on Form S-1
("Registration Statement"), to be filed by the Company with the Securities and
Exchange Commission under the Securities Act of 1933, covering shares
("Shares") of the Common Stock, par value $.01 per share, of the Company, and
the associated Preferred Stock Purchase Rights ("Rights").
I have examined, or caused to be examined, the Certificate of
Incorporation and By-laws of the Company, as amended to date, the forms of the
Amended and Restated Certificate of Incorporation of the Company, the Amended
and Restated By-laws of the Company and the Rights Agreement ("Rights
Agreement") between the Company and The Chase Manhattan Bank (each as filed as
exhibits to the Registration Statement), the records of the Company's corporate
proceedings, the Registration Statement and such other documents as I have
deemed necessary in connection with the opinion hereinafter expressed.
Based on the foregoing, I am of the opinion that, upon the filing with
the Secretary of State of the State of Delaware of the Amended and Restated
Certificate of Incorporation in the form filed as an exhibit to the
Registration Statement, the issuance and delivery of the Shares in the manner
prescribed in the Registration Statement, and the taking of other appropriate
corporate action, the Shares will be validly issued, fully paid and
nonassessable shares of the Company's Common Stock, and, assuming the due
authorization, execution and delivery of the Rights Agreement by The Chase
Manhattan Bank, the Rights will be duly and validly authorized by all necessary
corporate action.
I express no opinion as to any laws other than those of the states of
Delaware and New York and the federal laws of the United States.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to me appearing under the caption
"Validity of Securities" in the Prospectus included therein.
Very truly yours,
/s/ Robert H. Beber
<PAGE> 1
EXHIBIT 10.13
<PAGE> 2
PERFORMANCE UNIT AWARD
Granted To: <<FirstName>>
Effective Date of Grant: <<Effdate>>
Targeted Award: <<PUs>> Performance Units
Performance Period: January 1, 1996 through December 31, 1998
Under the Long-Term Incentive Program of W.R. Grace & Co. (the
"Company"), the Compensation, Employee Benefits and Stock Incentive Committee
(the "Committee") of the Company's Board of Directors has granted you a
Performance Unit Award under which you may earn performance units in an amount
equal to (or, in certain circumstances, greater than) the Targeted Award set
forth above, over the Performance Period.
This Targeted Award will be earned by you if the performance objectives
described in Annex B for the performance Period are met. If the performance
objectives are only partially achieved or are over-achieved, the amount you
actually earn under this Award will be decreased (or eliminated) or increased
as set forth in Annex B.
As soon as practicable after the Performance Period is completed, the
number of performance units earned will be calculated and paid in cash, in
shares of the Company's Common Stock, or a combination of the two, at the
discretion of the Committee (after taking your preference into account). The
number of performance units earned is subject to a discretionary downward
adjustment of up to 20% if your individual performance during the Performance
Period does not meet expectations.
The consequences of a change in or termination of your employment
status during the Performance Period are described in the attached
Administrative Practices (Annex C).
THIS DOCUMENT CONSTITUTES PART OF A
PROSPECTUS COVERING SECURITIES THAT
HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933.
<PAGE> 3
-2-
In all matters regarding the administration of Performance Unit Awards,
the Committee has full and sole jurisdiction, subject to the provisions of
Annex C.
Performance Unit Awards are being granted only to a limited number of
executives of the Company and its subsidiaries. This Award should,
consequently, be treated confidentially.
W.R. Grace & Co.
By /s/ A.J. Costello
---------------------------------
A.J. Costello
Chairman, President
and Chief Executive Officer
Acceptance of the foregoing is
acknowledged this ____ day of
_________________, 199___
__________________________________
(Signature of Participant)
__________________________________
(Please Print Full Name)
<PAGE> 4
In all matters regarding the administration of Performance Unit Awards,
the Committee has full and sole jurisdiction, subject to the provisions of
Annex C.
Performance Unit Awards are being granted only to a limited number of
executives of the Company and its subsidiaries. This Award should,
consequently, be treated confidentially.
W. R. Grace & Co.
By /s/ P. J. Hamilton
---------------------------------------
P. J. Hamilton
Senior Vice President,
Human Resources
Acceptance of the foregoing is acknowledged
this day of , 199
------ -------------- --
-------------------------------------------
(Signature of Participant)
-------------------------------------------
(Please Print Full Name)
<PAGE> 5
ANNEX B
CALCULATION OF PERFORMANCE UNITS EARNED*
Name of Participant: name
Incentive Unit: product line
Targeted Award: pus Performance Units
You may earn Performance Units, depending on the performance of your incentive
unit and W. R. Grace & Co. (the "Company") Common Stock over the three-year
Performance Period 1996-1998.
The two measurements of performance ("Performance Objectives") are (1) the
"Value Contribution" of your Incentive Unit and (2) the Market Performance of
the Company's Common Stock and dividends relative to that of other companies.
These Performance Objectives and their components, and examples of calculations
under each, are described below. The number of performance units earned is
calculated separately under each Performance Objective.
1. THE THREE-YEAR CUMULATIVE VALUE CONTRIBUTION PERFORMANCE OF YOUR INCENTIVE
UNIT (67% WEIGHT)
Sixty-seven percent (67%) of your Targeted Award will be earned if the
Performance Target, as shown below, is achieved over the Performance
Period by your product line.
Performance Target: $ Value Contribution (a)
(a) "Value Contribution" equals annual net operating profit after taxes
("NOPAT") cash flow less __% times Average Annual Gross Assets aggregated
for each of the three years during the 1996-1998 Performance Period as
illustrated in the following example:
<TABLE>
<CAPTION>
VALUE CONTRIBUTION PERFORMANCE TARGET CALCULATION ($000)
--------------------------------------------------------
1996 1997 1998 TOTAL
---- ---- ---- -----
<S> <C> <C> <C> <C>
(1) NOPAT Cash Flow NA
(2) Average Annual Gross NA
Asset Base
(3) __% Minimum $ Return
(.__ x Line 2) NA
(4) Value Contribution -----
(Line 1 Less Line 3)
-----
</TABLE>
* Terms not defined herein have the meanings set forth in Annex C.
THIS DOCUMENT CONSTITUTES PART OF A
PROSPECTUS COVERING SECURITIES THAT
HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. GROUP 2
<PAGE> 6
- 2 -
Earned Award Schedule
If your Incentive Unit achieves its Performance Target, you will
earn 67% of your Targeted Performance Unit Award. At various
other achievement levels, the following percentages of your
Performance Unit Award would be earned:
<TABLE>
<CAPTION>
(1) (2) (3)
"Value % of Targeted
Contribution" Performance Unit
Performance Level Achievement* Award Earned*
----------------- ------------- ----------------
($000)
<S> <C> <C> <C>
(1) Performance Tier 3 167.50% (67% of 250%)
(2) Performance Tier 2 134.00% (67% of 200%)
(3) Performance Tier 1 100.50% (67% of 150%)
-------------------------------------------------------------------
(4) Performance Target 67.00% (67% of 100%)
-------------------------------------------------------------------
(5) Interim Target 33.50% (67% of 50%)
Performance
(6) Performance 26.80% (67% of 40%)
Threshold
</TABLE>
* The % of Targeted Award Earned for Value Contribution Achievement between
Performance Levels is interpolated on a straight line basis between each
Performance Level.
If a $ Value Contribution Performance level (Performance Tier 3) or more is
achieved, you will earn the maximum - 167.5% - of your Targeted Performance Unit
Award for Value Contribution Performance.
If a Value Contribution level below $ is achieved, you will not earn any
Performance Units under the Value Contribution Performance component of your
Performance Unit Award.
II. THE COMPANY'S STOCK MARKET PERFORMANCE (33% WEIGHT)
Performance Target: The Company ranks at the 50th percentile among
companies that comprise the Standard and Poor's Industrial Index (the "S&P
Industrials").
GROUP 2
<PAGE> 7
- 3 -
The Company's Market Performance will be measured by its relative
shareholder value created ("SVC") -- defined as stock price
appreciation plus dividends paid -- over the Performance Period,
compared to that of the other companies that comprise the S&P
Industrials for the same period of time.
For measurement purposes, the average of the daily closing prices of
the Company's Common Stock will be calculated for the calendar quarter
immediately preceding the beginning of the Performance Period (the
Beginning Stock Price or "BSP"), and for the final calendar quarter of
the Performance Period (the Final Stock Price or "FSP"). The Company's
SVC will be determined according to the following calculation:
(FSP + Dividends Paid during the Performance Period) - BSP = SVC
----------------------------------------------------------------
BSP
The Company's SVC will be ranked among that of the other companies that
comprise the S&P Industrials at both the beginning and the end of the
Performance Period, and this ranking will be converted to a percentile
ranking. The percentile ranking will be used, as explained below, to
determine the percent of the Market Performance component of your
Targeted Award that you will earn.
Earned Award Schedule
If the Company's Market Performance ranks at the 40th percentile among
the companies that comprise the S&P Industrials at the beginning and
end of the Performance Period, you will earn 13.2% of your Targeted
Award.
For each one-tenth percentile that the Company ranks above the 40th
percentile, you will earn an additional .198% of your Targeted Award up
to and including 33.0% of your Targeted Award if the Company ranks at
the 50th percentile of the S&P Industrials.
For each one-tenth percentile that the Company ranks above the 50th
percentile, you will earn (in addition to 33% of your Targeted Award)
.14143% of your Targeted Award, up to a maximum of 82.5% of your
Targeted Award if the Company's Market Performance ranks at the 85th
percentile or higher.
k k k k k k k k k k k k
A sample calculation of Performance Units Earned is provided below. For purposes
of this sample calculation, assume that your Targeted Award covers 1,000
Performance Units and that the following performance results were achieved:
Value contribution: $ (between Tier 1 and Tier 2 performance)
Market performance: percentile rank
GROUP 2
<PAGE> 8
- 4 -
PERFORMANCE UNITS EARNED FOR YOUR INCENTIVE UNIT'S VALUE CONTRIBUTION
1,005.00 Performance Units for achieving Performance Level Tier 1 of
$ (1.005 x 1,000)
Performance Units for exceeding Performance Level Tier 1 by
$
$____________________________ x (134.00% - 100.50%) =
$
________________ .50244 x 33.50% x 10 = 168.32
Total Performance Units earned for Value Contribution
Performance
PERFORMANCE UNITS EARNED FOR THE COMPANY'S STOCK MARKET PERFORMANCE
330.0 Performance Units (33% of the Targeted Award) for 50th
percentile ranking, plus
216.39 Performance Units for ranking 15.3% points higher than the
_____________ 50th percentile (15.3 x 10 x .0014143 x 1,000)
546.39 Performance Units earned for the Company's market
performance
TOTAL PERFORMANCE UNITS EARNED: _____ (________ + ______), OR _____% OF
YOUR TARGETED AWARD.
k k k k k k k k k k k k
The total number of Performance Units you may earn is limited to 2.5
times the number of your Targeted Performance Units, but there is no
limit on the value of the Performance Units you may earn, because each
such unit is equal in value to a share of the Company's Common Stock at
the end of the Performance Period. For example, if the fair market
value of the Company's Common Stock were $80 per share on the last
trading day of 1998, the value of your Targeted Performance Units
Earned would be $_______ ($80 x _____).
The total number of Performance Units earned may be reduced by up to
20% in the event that your individual performance is less than
satisfactory during the Performance Period.
GROUP 2
<PAGE> 9
ANNEX B
CALCULATION OF PERFORMANCE UNITS EARNED*
Name of Participant: name
Incentive Unit: W. R. Grace & Co. (the "Company")
Targeted Award: <<numberperfunits>> Performance Units
You may earn Performance Units, depending on the performance of your incentive
unit and the Company's Common Stock over the three-year Performance Period
1996-1998.
The two measurements of performance ("Performance Objectives") are (1) the
"Value Contribution" of your Incentive Unit and (2) the Market Performance of
the Company's Common Stock and dividends relative to that of other companies.
These Performance Objectives and their components, and examples of calculations
under each, are described below. The number of performance units earned is
calculated separately under each Performance Objective.
1. THE THREE-YEAR CUMULATIVE VALUE CONTRIBUTION PERFORMANCE OF YOUR INCENTIVE
UNIT (50% WEIGHT)
Fifty percent (50%) of your Targeted Award will be earned if
the Performance Target, as shown below, is achieved over the
Performance Period by your incentive unit.
Performance Target: $ Value Contribution (a)
(a) "Value Contribution" equals annual net operating profit after taxes
("NOPAT") cash flow less __% times Average Annual Gross Assets aggregated
for each of the three years during the 1996-1998 Performance Period as
illustrated in the following example:
<TABLE>
<CAPTION>
VALUE CONTRIBUTION PERFORMANCE TARGET CALCULATION ($000)
--------------------------------------------------------
1996 1997 1998 TOTAL
---- ---- ---- -----
<S> <C> <C> <C> <C>
(1) NOPAT Cash Flow NA
(2) Average Annual Gross NA
Asset Base
(3) __% Minimum $ Return
(.__ x Line 2) NA
(4) Value Contribution -----
(Line 1 Less Line 3)
-----
</TABLE>
*Terms not defined herein have the meanings set forth in Annex C.
THIS DOCUMENT CONSTITUTES PART OF A
PROSPECTUS COVERING SECURITIES THAT
HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. GROUP 1
<PAGE> 10
- 2 -
Earned Award Schedule
If your Incentive Unit achieves its Performance Target, you will
earn 50% of your Targeted Performance Unit Award. At various
other achievement levels, the following percentages of your
Performance Unit Award would be earned:
<TABLE>
<CAPTION>
(1) (2) (3)
"Value % of Targeted
Contribution" Performance Unit
Performance Level Achievement* Award Earned*
----------------- ------------- ----------------
($000)
<S> <C> <C> <C>
(1) Performance Tier 3 or above 125.0% (50% of 250%)
(2) Performance Tier 2 100.0% (50% of 200%)
(3) Performance Tier 1 75.0% (50% of 150%)
------------------------------------------------------------------
(4) Performance Target 50.0% (50% of 100%)
------------------------------------------------------------------
(5) Interim Target 25.0% (50% of 50%)
Performance
(6) Performance 20.0% (50% of 40%)
Threshold
</TABLE>
* The % of Targeted Award Earned for Value Contribution Achievement between
Performance Levels is interpolated on a straight line basis between each
Performance Level.
If a $ Value Contribution Performance level (Performance Tier 3) or more
is achieved, you will earn the maximum - 125.0% - of your Targeted Performance
Unit Award.
If a Value Contribution level below $ is achieved, you will not earn any
Performance Units under the Value Contribution Performance component of your
Performance Unit Award.
GROUP 1
<PAGE> 11
- 3 -
II. THE COMPANY'S STOCK MARKET PERFORMANCE (50% WEIGHT)
Performance Target: The Company ranks at the 50th percentile among
companies that comprise the Standard and Poor's Industrial Index (the "S&P
Industrials").
The Company's Market Performance will be measured by its relative
shareholder value created ("SVC") -- defined as stock price appreciation
plus dividends paid -- over the Performance Period, compared to that of the
other companies that comprise the S&P Industrials for the same period of
time.
For measurement purposes, the average of the daily closing prices of the
Company's Common Stock will be calculated for the calendar quarter
immediately preceding the beginning of the Performance Period (the
Beginning Stock Price or "BSP"), and for the final calendar quarter of the
Performance Period (the Final Stock Price or "FSP"). The Company's SVC will
be determined according to the following calculation:
(FSP + Dividends Paid during the Performance Period) - BSP = SVC
----------------------------------------------------------------
BSP
The Company's SVC will be ranked among that of the other companies that
comprise the S&P Industrials at both the beginning and the end of the
Performance Period, and this ranking will be converted to a percentile
ranking. The percentile ranking will be used, as explained below, to
determine the percent of the Market Performance component of your Targeted
Award that you will earn.
Earned Award Schedule
If the Company's Market Performance ranks at the 40th percentile among the
companies that comprise the S&P Industrials at the beginning and end of the
Performance Period, you will earn 20.0% of your Targeted Award.
For each one-tenth percentile that the Company ranks above the 40th
percentile, you will earn an additional .30% of your Targeted Award up to
and including 50.0% of your Targeted Award if the Company ranks at the 50th
percentile of the S&P Industrials.
For each one-tenth percentile that the Company ranks above the 50th
percentile, you will earn (in addition to 50% of your Targeted Award)
.2143% of your Targeted Award, up to a maximum of 125% of your Targeted
Award if the Company's Market Performance ranks at the 85th percentile or
higher.
k k k k k k k k k k k k
GROUP 1
<PAGE> 12
- 4 -
A sample calculation of Performance Units Earned is provided below. For purposes
of this sample calculation, assume that your Targeted Award covers 1,000
Performance Units and that the following performance results were achieved:
Value contribution: $ (between Tier 1 and Tier 2 performance)
Market performance: percentile rank
PERFORMANCE UNITS EARNED FOR YOUR INCENTIVE UNIT'S VALUE CONTRIBUTION
750.00 Performance Units for achieving Performance Level Tier 1 of
$ (.75 x 1,000)
Performance Units for exceeding Performance Level Tier 1 by
$
$ x (100.0% - 75.0%) =
$
.10845 x 25.0% x 10 = 27.11
- --------------
777.11 Total Performance Units earned for Value Contribution
Performance
PERFORMANCE UNITS EARNED FOR THE COMPANY'S STOCK MARKET PERFORMANCE
500.00 Performance Units (50% of the Targeted Award) for 50th
percentile ranking, plus
327.88 Performance Units for ranking 15.3% points higher than the
50th percentile (15.3 x 10 x .002143 x 1,000)
- --------------
827.88 Performance Units earned for the Company's market
performance
TOTAL PERFORMANCE UNITS EARNED: _____ (______ + ______), OR _____% OF
YOUR TARGETED AWARD.
k k k k k k k k k k k k
GROUP 1
<PAGE> 13
- 5 -
The total number of Performance Units you may earn is limited to 2.5 times
the number of your Targeted Performance Units, but there is no limit on the
value of the Performance Units you may earn, because each such unit is
equal in value to a share of the Company's Common Stock at the end of the
Performance Period. For example, if the fair market value of the Company's
Common Stock were $80 per share on the last trading day of 1998, the value
of your Targeted Performance Units Earned would be $_______ ($80 x _____).
The total number of Performance Units earned may be reduced by up to 20% in
the event that your individual performance is less than satisfactory during
the Performance Period.
GROUP 1
<PAGE> 14
ANNEX C
W. R. GRACE & CO.
Administrative Practices - Performance Unit Awards
1. Definitions
"Board of Directors": The Board of Directors of the Company.
"Business": As the context may require, a product line, group,
division, Subsidiary or other unit of the Company.
"Change in Control of the Company": A "Change in Control of the
Company" means and shall be deemed to have occurred if (a) the Company
determines that any "person" (as such term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934), other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Company or a
corporation owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company,
has become the "beneficial owner" (as defined in Rule 13d-3 under such Act),
directly or indirectly, of 20% or more of the outstanding Common Stock of the
Company; (b) individuals who are Continuing Directors cease to constitute a
majority of any class of the Board of Directors; (c) there occurs a
reorganization, merger, consolidation or other corporate transaction involving
the Company (a "Corporate Transaction"), in each case with respect to which the
stockholders of the Company immediately prior to such Corporate Transaction do
not, immediately after the Corporate Transaction, own more than 60% of the
combined voting power of the corporation resulting from such Corporate
Transaction; or (d) the stockholders of the Company approve a complete
liquidation or dissolution of the Company. Notwithstanding any other provision
of this definition, the NMC Disposition shall not be deemed a "Change in Control
of the Company" for purposes of this definition.
THIS DOCUMENT CONSTITUTES PART OF A
PROSPECTUS COVERING SECURITIES THAT
HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933.
<PAGE> 15
"Committee": The Compensation, Employee Benefits and Stock Incentive
Committee of the Board of Directors or a successor to such Committee.
"Common Stock": The common stock of the Company, par value $1.00 per
share, or such other class of shares or other securities or property as may be
applicable pursuant to the provisions of Section 7(b).
"Company": W. R. Grace & Co., a New York corporation, and/or, if
applicable in the context, one or more of its Subsidiaries.
"Continuing Director": Any member of the Board of Directors who was
such a member on March 6, 1996 and any successor to a Continuing Director who is
approved as a nominee or elected to succeed a Continuing Director by a majority
of the Continuing Directors who are then members of the Board of Directors.
"Cost of Capital": The rate of return on assets necessary to adequately
compensate investors for the risks they bear when investing in the debt and/or
equity securities of the Company.
"Incentive Unit": The Company, or one or more product lines, groups,
divisions, Subsidiaries or other units of the Company, or any combination of the
foregoing, the performance of which during the Performance Period will determine
whether and to what extent the Performance Units granted to a Participant will
be actually earned.
"Incomplete Performance Unit Award": A Performance Unit Award for which
the Performance Period has not been completed as of the date referred to.
"Key Executive": An officer or other senior, full-time employee of the
Company who, in the opinion of the Committee, can contribute significantly to
the growth and successful operations of the Company.
"NMC Disposition": A transaction or series of transactions whereby
control of the business presently conducted by the Company's National Medical
Care, Inc. subsidiary (such business, the "NMC Businesses") is separated from
control of substantially all of the other businesses presently conducted by the
Company and its affiliates (the "Non-NMC Businesses"), regardless of the
structure of such transaction, and which may
2
<PAGE> 16
include (among other actions by the Company) a distribution by the Company, with
respect to each share of its Common Stock, of one share of a newly formed
corporation that directly or indirectly owns or controls the Non-NMC Businesses.
"Participant": A Key Executive who is a recipient of a Performance Unit
Award.
"Performance Period": A period of three calendar years (or, if the
Committee so determines, a "Shortened Performance Period" consisting of less
than three calendar years) over which Performance Units may be earned.
Performance Periods with respect to different Performance Awards made to the
same individual may overlap.
"Performance Unit Award": An undertaking by the Company, set forth in a
written document, to financially reward a Key Executive, which undertaking is
contingent upon or measured by the attainment over the Performance Period of
specified performance objectives ("Performance Objectives") determined by the
Committee within 90 days after the beginning of each Performance Period, which
Performance Objectives may be based on or determined by reference to (a) the
performance of the Company relative to the performance of other companies, as
measured by stock price appreciation, dividends paid over the Performance
Period, and/or such other criteria as may be determined by the Committee in its
sole discretion, (b) the performance of the Company or one or more Incentive
Units in terms of Value Contribution or earnings during the Performance Period,
and/or (c) such other measures, standards or other criteria as may be determined
by the Committee in its sole discretion.
"Performance Units": Numerical units granted to Key Executives under
the Program.
"Performance Units Earned": The number of Performance Units actually
earned by a Participant pursuant to the terms of a Performance Unit Award.
"Program": The Company's Long-Term Incentive Program, as set forth (a)
herein, (b) in a Performance Unit Award accompanying this document and (c) in
Annex B ("Calculation of Performance Units Earned") to such Performance Unit
Award.
"Subsidiary": A corporation (or other form of business association) of
which common stock (or other ownership interests) (i) having more than 50% of
the voting
3
<PAGE> 17
power regularly entitled to vote for directors (or equivalent management rights)
or (ii) regularly entitled to receive more than 50% of the dividends (or their
equivalents) paid on the common stock (or its equivalent) are owned, directly or
indirectly, by the Company.
"Targeted Award": The number of Performance Units subject to and
covered by the terms of a Performance Unit Award.
"Value Contribution": (a) Cash flow attributable to annual net
operating profit after taxes of the Incentive Unit, less a charge based on the
average annual gross assets of the Incentive Unit, aggregated for each of the
three years during the Performance Period; or (b) such other measures, standards
or other criteria as may be determined by the Committee in its sole discretion.
2. Program Administration
(a) The Program shall be administered by the Committee, which shall
take the actions permitted or required under the Program and shall be solely
responsible for interpreting the provisions of the Program. All such actions
shall be taken, and all such interpretations shall be made, by and in the sole
discretion of the Committee and shall be final and binding upon the Company, the
Key Executives and the Participants. No member of the Committee shall be
eligible to receive a Performance Unit Award while serving on the Committee.
(b) In addition to any other actions that the Committee shall be
permitted or required to take pursuant to paragraph 2(a) above, the Committee
shall approve (i) the Performance Objectives for each Performance Unit Award;
(ii) the Performance Period over which a Performance Unit Award may be earned;
(iii) the Key Executives who are to be granted Performance Unit Awards, and (iv)
the Targeted Award subject to each Performance Unit Award, including adjustments
thereof as permitted or required hereunder, in any Performance Unit Award or in
Annex B thereto.
(c) Except as provided in Section 7(f), the Committee may, in the event
of the sale, spin-off or other disposition of a Business, require that
Participants employed in or by such Business remain in the employ of the
successor employer (except for
4
<PAGE> 18
reasons of death, total disability, retirement at age 62 or later, or
termination of employment not for cause) until the end of the Performance Period
in order to receive payment with respect to Performance Units Earned, whether or
not the Program (either in its entirety or as in effect during such Performance
Period) or such Participants' participation therein is terminated prior to the
end of the Performance Period.
3. Performance Unit Awards
(a) The Committee may at any time, or from time to time, grant
Performance Unit Awards to Key Executives. Each Performance Unit Award shall be
evidenced by a written instrument containing such terms and conditions as the
Committee shall approve, provided the instrument is consistent with the terms
hereof.
(b) No Performance Unit Award, nor any payment or right thereunder,
shall be subject in any manner to alienation, sale, transfer, assignment,
pledge, encumbrance or charge, except by will or the laws of descent and
distribution, or by the terms of a Participant's Designation of Beneficiary, if
any, filed with the Company.
(c) In the case of a Key Executive who becomes a Participant after the
beginning of a Performance Period, the Committee may ratably reduce the amount
of the Targeted Award covered by such Executive's Performance Unit Award or
otherwise appropriately adjust the terms of the Performance Unit Award to
reflect the fact that the Key Executive is to be a Participant for only part of
the Performance Period.
(d) Performance Unit Awards are intended to be related to the results
of the ongoing businesses of the Company. Consequently, to the extent
practicable, (i) Performance Units Earned will be calculated on the basis of the
Company as constituted at the beginning of the Performance Period and (ii)
subject to the provisions hereof applicable to termination or change in
employment status and to the amendment or discontinuance of Performance Unit
Awards, the Performance Objectives applicable to Performance Unit Awards will
remain unchanged during the Performance Period, except as follows:
(A) In the event of an acquisition that is within a product line
president's approval authority, or that of the Executive
Committee, and that is
5
<PAGE> 19
difficult to track separately, such acquisition will be
included in the Incentive Unit's operating results, but the
Performance Objectives will not be adjusted therefor.
(B) In the event that a Business is transferred from one
Incentive Unit to another, the Performance Objectives will
not be adjusted for either Incentive Unit; rather, operating
results for both Incentive Units will be restated as if the
Business had remained under the supervision of the original
Incentive Unit during the entire Performance Period.
(C) If so determined by the Chief Executive Officer, gains and
losses from unbudgeted extraordinary events may be excluded
from the operating results of an Incentive Unit, except that
such exclusions must be approved by the Committee if they
affect the calculation of Performance Units Earned with
respect to a Participant who is an executive officer of the
Company.
4. Termination or Change in Employment Status
(a) In the event that during any Performance Period a Participant
resigns without the consent of the Committee, or retires under a retirement plan
of the Company or a Subsidiary before age 62 without the consent of the
Committee, or is terminated for cause, such Participant shall forfeit all rights
in any Incomplete Performance Unit Award.
(b) Except as specified in Section 2(c), in the event that during any
Performance Period a Participant ceases to be an employee for any reason other
than those indicated in Section 4(a), his or her rights in any Incomplete
Performance Unit Award shall thereupon vest and, after the completion of the
Performance Period, he or she shall be entitled to receive any Performance Units
Earned he or she would otherwise have received under his or her Performance Unit
Award, except that the amount of any Performance Units Earned shall be reduced
ratably in proportion to the portion of the Performance Period during which the
Participant was not an employee.
6
<PAGE> 20
(c) Unless the Committee otherwise directs, a Participant who is
transferred or promoted to a new or different position, whether with Performance
Objectives the same as or different from those applicable to his or her former
position, will have his or her Performance Units Earned calculated on the basis
of the Performance Objectives that were established for his or her former
position.
(d) Except as modified by the provisions of Sections 4(b) and 4(c),
payments due to Participants pursuant to the applicable preceding paragraphs,
above, shall be calculated and made in accordance with the provisions of Section
5, "Calculation of Performance Units Earned: Form of Payment."
(e) A leave of absence, if approved by the Committee, shall not be
deemed a termination or change of employment for the purposes of this Section 4,
but, unless the Committee otherwise directs, any Performance Units Earned a
Participant would otherwise have received under a Performance Unit Award shall
be reduced ratably in proportion to the portion of the Performance Period during
which the Participant was on such leave of absence.
(f) Upon completion of a Performance Period, the Participant's rights
in respect of any Performance Units Earned shall become fully vested.
(g) Any consent, approval or direction which the Committee may give
under this section in respect of an event or transaction may be given before or
after the event or transaction.
5. Calculation of Performance Units Earned: Form of Payment
(a) As soon as practicable after the completion of a Performance Period or a
Shortened Performance Period, the extent to which the Performance Objectives of
a Performance Unit Award have been achieved and the amount and value of any
Performance Units Earned shall be determined by the Committee as set forth in
Annex B. The value of any Performance Units Earned shall be calculated based on
the Fair Market Value per share of the Company's Common Stock on the last
trading date of the Performance Period. All calculations shall be made in
accordance with the generally accepted accounting principles customarily applied
by the Company and shall be
7
<PAGE> 21
submitted to the Committee for its review and approval. The number of
Performance Units Earned, as so determined, may be decreased in individual
cases, at the Committee's discretion, by as much as 20% in the event individual
performance is less than satisfactory.
(b) Except as set forth in Section 7(f), the value of any Performance
Units Earned shall be paid as soon as practicable after the end of the
Performance Period or, if so determined by the Committee, the Shortened
Performance Period. The Committee may determine (after taking into account the
preferences indicated by individual Participants) that a portion (up to 100%) of
the value of the Performance Units Earned by a Participant may be paid in shares
of the Company's Common Stock under a Stock Incentive Plan of the Company (with
the balance, if any, paid in cash). The number of shares to be delivered shall
be determined by dividing (i) the value of the portion of the Performance Units
Earned to be paid in shares of the Company's Common Stock by (ii) the Fair
Market Value (as defined in the relevant stock incentive plans of the Company)
of the Company's Common Stock on the date of such determination by the
Committee.
6. General
(a) Nothing contained herein or in any instrument executed in
connection with the Program shall confer upon a Participant any right to
continue in the employ of the Company or a Subsidiary, or shall affect the right
of the Company or a Subsidiary to terminate his or her employment with or
without cause.
(b) The Company or a Subsidiary may make such provisions as it may deem
appropriate for the withholding of any taxes which the Company or a Subsidiary
determines it is required to withhold in connection with any Performance Units
Earned.
(c) Nothing in a Performance Unit Award is intended to be a substitute
for, or shall preclude or limit the establishment or continuation of, any other
plan, practice or arrangement for the payment of compensation or benefits to
employees generally, or to any class or group of employees, which the Company or
a Subsidiary now has or may hereafter lawfully put into effect, including,
without limitation, any retirement, pension, group insurance, annual bonus,
stock purchase, stock bonus or stock option plan; provided, however, that no
amounts awarded or paid pursuant to any Performance Unit
8
<PAGE> 22
Award shall be included or counted as compensation for the purposes of any
employee benefit plan of the Company or a Subsidiary where contributions to the
plan, or the benefits received from the plan, are measured or determined, in
whole or in part, by the amount of the employee's compensation.
(d) The grant of a Performance Unit Award to an employee of a
Subsidiary shall be contingent on the approval of the Performance Unit Award by
the Subsidiary and the Subsidiary's agreement that (i) the Company may
administer such Award on its behalf and (ii) the Subsidiary will make, or
reimburse the Company for, the payments called for by the Performance Unit
Award. The provisions of this paragraph and the obligations of the Subsidiary so
undertaken may be waived, in whole or in part, from time to time by the Company.
7. Adjustments, Amendments and Discontinuance
(a) In the event that an acquisition, a divestment, a substantial
change in tax or other laws or in accounting principles or practices, a natural
disaster or an unbudgeted or unanticipated event renders fulfillment of the
Performance Objectives by a Participant, on an individual basis, impossible or
impracticable, or result in the achievement of the Performance Objectives
without appreciable effort by a Participant on an individual basis, the
Committee may amend the relevant Participant's Performance Unit Award in any
appropriate manner so that the Participant may earn Performance Units comparable
to those that might have been earned if the event had not occurred.
(b) In the event that there occurs any reclassification, split-up or
consolidation of the Common Stock or any spin-off or other distribution of the
assets of the Company to its shareholders (including without limitation an
extraordinary dividend), or in the event that the outstanding shares of Common
Stock are, in connection with a merger or consolidation of the Company or a sale
by the Company of all or part of its assets, exchanged for a different number or
class of shares of stock or other securities or property of the Company or for
shares of the stock or other securities or property of any other corporation or
person, or a record date for the determination of the holders of Common Stock
entitled to receive a dividend payable in shares of Common Stock shall
9
<PAGE> 23
occur, then in any such case, the Targeted Awards of the Participants shall be
equitably adjusted as determined by the Committee.
(c) The Chief Executive Officer of the Company may approve such
technical changes and clarifications to Performance Unit Awards as may be
necessary, provided that such changes or clarifications do not vary
substantially from the terms and conditions contained herein.
(d) The granting of Performance Unit Awards may be amended or
discontinued by the Committee at any time.
(e) No amendment or discontinuance of Performance Unit Awards shall,
without a Participant's consent, adversely affect his or her rights in any
Performance Unit Awards theretofore granted to him or her, except that, if the
Committee so directs, all Incomplete Performance Unit Awards may be terminated
prospectively with the same effect as a termination of employment under Section
4(b).
(f) Notwithstanding Section 7(e), the following amounts shall be paid
to Participants as promptly as practicable following a Change in Control of the
Company, which amounts shall not be pro rated or otherwise adjusted in any
manner whatsoever:
(i) if the Change in Control of the Company occurs during the
third year of a Performance Period, the actual award earned
for such Performance Period; and
(ii) if the change in Control of the Company occurs during the
first year or the second year of a Performance Period, the
Targeted Award for such performance Period.
10
<PAGE> 1
EXHIBIT 10.14
<PAGE> 2
W. R. GRACE & CO.
NON-STATUTORY STOCK OPTION
Under the W. R. Grace & Co. 1994 Stock Incentive Plan ("Plan")
Granted To: <<GRANTEE>>
Date of Grant: March 6, 1996
Expiration Date: March 5, 2006
In accordance with the Plan (a copy of which is attached hereto as
Annex A), you are hereby granted an Option to purchase <<totalnumbershares>>
shares of the Company's Common Stock ("Option") upon the following terms and
conditions:
(1) The purchase price shall be $79.875 per share.
(2) Subject to the other provisions hereof, this Option shall become
exercisable as follows:
<<shareson1>> shares on March 7, 1997
<<shareson2>> shares on March 7, 1998
<<shareson3>> shares on March 7, 1999
except that it shall become exercisable in full upon the occurrence of a "Change
in Control of the Company." "Change in Control of the Company" means and shall
be deemed to have occurred if (i) the Company determines that any "person" (as
such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of
1934), other than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or a corporation owned, directly or
indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company, has become the
"beneficial owner" (as defined in Rule 13d-3 under such Act), directly or
indirectly, of 20% or more of the outstanding Common Stock of the Company; (ii)
individuals who are "Continuing Directors" (as defined below) cease to
constitute a majority of any class of the Board of Directors of the Company;
(iii) there occurs a reorganization, merger, consolidation or other corporate
transaction involving the Company (a "Corporate Transaction"), in each case,
with respect to which the stockholders of the Company immediately prior to such
Corporate Transaction do not, immediately after the Corporate Transaction, own
more than 60% of the combined voting power of the corporation resulting from
such Corporate Transaction; or (iv) the shareholders of the Company approve a
complete liquidation or dissolution of the Company. Notwithstanding any other
provision of this Option, the NMC Disposition shall not be deemed a "Change in
Control of the Company" for purposes of this Option. "Continuing Director" means
any member of the Board who was such a member on the date hereof and any
successor to such a Continuing Director who is approved as a nominee or elected
to succeed a Continuing Director by a majority of Continuing Directors who are
then members of the Board. "NMC Disposition" means a transaction
THIS DOCUMENT CONSTITUTES PART OF A
PROSPECTUS COVERING SECURITIES THAT
HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. <<grantnumber>>
<PAGE> 3
- 2 -
or series of transactions whereby control of the business presently conducted by
the Company's National Medical Care, Inc. subsidiary (such business, the "NMC
Businesses") is separated from control of substantially all of the other
businesses presently conducted by the Company and its affiliates (the "Non-NMC
Businesses"), regardless of the structure of such transaction, and which may
include (among other actions by the Company) a distribution by the Company, with
respect to each share of its Common Stock, of one share of a newly formed
corporation that directly or indirectly owns or controls the Non-NMC Businesses.
Once exercisable, an installment may be exercised (together with any other
installments that have become exercisable) at any time, in whole or in part,
until the expiration or termination of this Option.
(3) This Option shall not be treated as an Incentive Stock Option (as
such term is defined in the Plan.)
(4) This Option may be exercised only by serving written notice on the
Treasurer of the Company or his designee. The purchase price shall be paid in
cash or, with the permission of the Company (which may be subject to certain
conditions), in shares of Common Stock or in a combination of cash and such
shares (see section 6(a) of the Plan).
(5) Neither this Option nor and any right thereunder nor any interest
therein may be assigned or transferred by you, except by will or the laws of
descent and distribution. This Option is exercisable during your lifetime only
by you. If you cease to serve the Company or a Subsidiary (as defined in the
Plan), this Option shall terminate as provided in section 6(d) of the Plan,
subject, however, to the following:
(a) For the purposes of said section 6(d), your service shall be
deemed to have terminated by reason of retirement if (i) you
retire under a retirement plan of the Company or a
Subsidiary, (ii) the retirement is voluntary, and (iii) you
have served the Company or a Subsidiary for at least five
years. Any other retirement may, at the discretion of the
Company, be deemed to be a resignation.
<PAGE> 4
- 3 -
(b) In the event you should become incapacitated or die and
neither you nor your legal representative(s) or other
person(s) entitled to exercise this Option exercise this
Option to the fullest extent possible on or before its
termination, the Company shall pay you, your legal
representative(s) or such other person(s), as the case may
be, an amount of money equal to the Fair Market Value (as
defined in the Plan) of any shares remaining subject to this
Option on the last date it could have been exercised, less
the aggregate purchase price of such shares.
(c) Notwithstanding any provision of the Plan, in the event (i)
you voluntarily retire under a retirement plan of the
Company or a Subsidiary prior to the date on which the first
installment of this Option becomes exercisable and (ii) you
do not continue to serve the Company or a Subsidiary until
such date, this Option shall terminate as of the date you
cease to serve.
(d) In the event you cease to serve the Company or a Subsidiary
as an employee but immediately thereafter commence to serve
as a consultant and subsequently you cease to serve as a
consultant for reasons other than those described in clause
(i) of section 6(d) of the Plan, this Option shall terminate
three years after the cessation of your service as a
consultant, but subject to the limitation set forth in the
fifth sentence of such section 6(d).
(6) If you are or become an employee of, or a consultant to, a
Subsidiary, the Company's obligations hereunder shall be contingent on the
approval of the Plan and this Option by the Subsidiary and the Subsidiary's
agreement that (a) the Company may administer this Plan on its behalf and, (b)
upon the exercise of this Option, the Subsidiary will purchase from the Company
the shares subject to the exercise at their Fair Market Value on the date of
exercise, such shares to be then transferred by the Subsidiary to the holder of
this Option upon payment by the holder of the purchase price to the Subsidiary.
Where appropriate, such approval and agreement of the Subsidiary shall be
indicated by its signature below. The provisions of this paragraph and the
obligations of the Subsidiary so undertaken may be waived, in whole or in part,
at any time or from time to time by the Company.
<PAGE> 5
- 4 -
(7) The Plan is hereby incorporated by reference. Terms defined in the
Plan shall have the same meaning herein. This Option is granted subject to the
Plan and shall be construed in conformity with the Plan.
W. R. GRACE & CO.
By /s/ A. J. Costello
----------------------------
A. J. Costello
Chairman, President and
Chief Executive Officer
Approved and Agreed to:*
- ----------------------------
(Name of Subsidiary)
By
-------------------------
(Authorized Officer)
RECEIPT ACKNOWLEDGED:
- ------------------------- -------------------------
* This will be completed only if you are or become an employee of, or a
consultant to, a Subsidiary.
<PAGE> 1
EXHIBIT 10.22
<PAGE> 2
CONFIDENTIAL
April __, 1996
____________________
W. R. Grace & Co.
One Town Center Road
Boca Raton, FL 33486
Dear Mr. _______:
W. R. Grace & Co., a New York corporation (the "Company"),
considers it essential to the best interests of its stockholders to foster the
continuous employment of key management personnel. In this connection, the Board
of Directors of the Company (the "Board") recognizes that, as is the case with
many publicly held corporations, the possibility of a change in control may
exist and that such possibility, and the uncertainty and questions which it may
raise among management, may result in the departure or distraction of management
personnel to the detriment of the Company, its subsidiaries and other business
units, and its stockholders.
Accordingly, the Board has determined that appropriate steps
should be taken to reinforce and encourage the continued attention and
dedication of members of the Company's management, including yourself, to their
assigned duties without distraction in the face of potentially disturbing
circumstances arising from the possibility of a change in control of the
Company, although no such change is now contemplated.
<PAGE> 3
In order to induce you to remain in the employ of Grace (as
hereafter defined), the Company agrees that you shall receive the severance
benefits set forth in this letter agreement ("Agreement") in the event your
employment with Grace is terminated subsequent to a Change in Control of the
Company (as hereinafter defined) under the circumstances provided in this
Agreement.
1. Definitions. When used in this Agreement as
capitalized terms, the following defined terms shall have the meanings set forth
or specified in this Section.
(a) "Advance" shall have the meaning specified in Section
4(d)(ii).
(b) "After-Tax Total Payment" means the sum of the
Severance Payment plus the Other Payments, if any, plus, if applicable, any
Gross-Up Payment to which you are entitled, after reducing such sum by all
applicable federal, state, local and foreign taxes (including, but not limited
to, the Excise Tax). The applicable federal, state, local and foreign taxes
shall be those taxes that, in the opinion of the Tax Advisor, will be imposed
upon you as a result of the receipt or enjoyment of the Severance Payment, the
Other Payments and/or the Gross-Up Payment and shall be calculated based upon
the assumption that you will at all times be subject to tax at the highest
possible marginal tax rates that could be applicable to you for the year of
receipt, unless you inform the Tax Advisor that a different marginal tax rate is
applicable with respect to you for that year.
- 2 -
<PAGE> 4
(c) "Board" shall have the meaning specified in the first
paragraph of this Agreement.
(e) "Change in Control of the Company" means and shall be
deemed to have occurred if (i) the Company determines that any "person" (as such
term is used in Sections 13(d) and 14(d) of the Exchange Act), other than a
trustee or other fiduciary holding securities under an employee benefit plan of
the Company or a corporation owned, directly or indirectly, by the stockholders
of the Company in substantially the same proportions as their ownership of stock
of the Company, has become the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of 20% or more of the
outstanding common stock of the Company; (ii) individuals who are Continuing
Directors cease to constitute a majority of any class of directors of the Board;
(iii) there occurs a reorganization, merger, consolidation or other corporate
transaction involving the Company (a "Corporate Transaction"), in each case,
with respect to which the stockholders of the Company immediately prior to such
Corporate Transaction do not, immediately after the Corporate Transaction, own
more than 60% of the combined voting power of the corporation resulting from
such Corporate Transaction; or (iv) the shareholders of the Company approve a
complete liquidation or dissolution of the Company. Notwithstanding any other
provision of this Agreement, the NMC Disposition shall not be deemed a "Change
in Control of the Company" for purposes of this Agreement.
- 3 -
<PAGE> 5
(f) "Code" means the Internal Revenue Code of 1986, as
amended and in effect at the time of a Change in Control of the Company.
(g) "Company" means W. R. Grace & Co., a New York
corporation, and any successor as provided in Section 6(a).
(h) "Continuing Director" means any member of the Board
who was such a member on the date hereof and any successor to such a Continuing
Director who is approved as a nominee or elected to succeed a Continuing
Director by a majority of Continuing Directors who are then members of the
Board.
(i) "Corporate Transaction" shall have the meaning
specified in Section 1(e).
(j) "Date of Termination" shall have the meaning
specified in Section 3(e).
(k) "Disability" shall have the meaning specified in
Section 3(a).
(l) "Exchange Act" means the Securities Exchange Act of
1934, as amended.
(m) "Excise Tax" means the excise tax imposed by Section
4999 of the Code and/or any interest or penalties with respect to such excise
tax.
(n) "Formula Compensation" means the "base amount" as
defined under Section 280G(b)(3) of the Code. For purposes of this Agreement,
"base amount" shall not include payments received under Retirement Arrangements
and shall be computed as though a Change in
- 4 -
<PAGE> 6
Control of the Company constituted a change in ownership or effective control
under Section 280G of the Code.
(o) "Grace" means the Company and/or one or more of its
subsidiaries.
(p) "Good Reason" shall have the meaning specified in
Section 3(c).
(q) "Gross-Up Payment" shall have the meaning specified
in Section 4(c)(ii)(A)(2).
(r) "NMC Disposition" means a transaction or series of
transactions whereby control of the business presently conducted by the
Company's National Medical Care, Inc. subsidiary (such business, the "NMC
Businesses") is separated from control of substantially all of the other
businesses presently conducted by the Company and its affiliates (the "Non-NMC
Businesses"), regardless of the structure of such transaction, and which may
include (among other actions by the Company) a distribution by the Company, with
respect to each share of its common stock, of one share of a newly formed
corporation that directly or indirectly owns or controls the Non-NMC Businesses.
References herein to the "Successor Corporation" refer to the entity that, after
completion of the NMC Disposition, controls the Non-NMC Businesses.
(s) "Notice Period" shall have the meaning specified in
Section 4(d)(ii).
(t) "Notice of Termination" means a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and
- 5 -
<PAGE> 7
circumstances claimed to provide a basis for termination of your employment
under the provision so indicated.
(u) "Other Payments" means payments and/or the value of
benefits to which you are entitled (other than the Severance Payment and, if
applicable, the Gross-Up Payment) pursuant to any agreement (including this
Agreement) that constitute "parachute payments" (as defined in Section 280G of
the Code and the regulations thereunder).
(v) "Post-1998 Period" means the period of time
commencing on January 1, 1999 and continuing thereafter.
(w) "Pre-1999 Period" means the period of time commencing
on the date hereof and ending on December 31, 1998.
(x) "Retirement" shall have the meaning specified in
Section 4(a).
(y) "Retirement Plans" means retirement plans of Grace;
"Retirement Arrangements" means Retirement Plans and agreements of Grace
relating to retirement benefits, and "Insurance Plans" means Grace's basic life
and health insurance plans, the survivor benefit under any Grace deferred
compensation program, and the Executive Salary Protection Plan.
(z) "Severance Payment" means a single, lump sum payment.
(aa) "Successor Corporation" shall have the meaning
specified in Section 1(r).
(bb) "Tax Advisor" means a tax advisor that, in the
reasonable judgment of the Company, is familiar with and
- 6 -
<PAGE> 8
experienced in the tasks required of the "tax advisor" hereunder, and is
selected by the Company to perform those tasks. The Company shall pay all of the
fees and expenses of the Tax Advisor.
(cc) "Underpayment" shall have the meaning specified in
Section 4(d)(i).
2. Term of Agreement. This Agreement shall commence on
the date hereof and shall continue in effect through December 31, 1996;
provided, however, that commencing on each January 1 thereafter, the term of
this Agreement shall automatically be extended for one additional year unless,
not later than September 30 of the preceding year, the Company shall have given
notice that it does not wish to extend this Agreement or you shall have given
such notice to the Company; provided, further, if a Change in Control of the
Company shall have occurred during the original or any extended term of this
Agreement, this Agreement shall continue in effect for a period of 24 months
beyond the month in which such Change in Control of the Company occurred. This
Agreement shall terminate upon your ceasing to be an officer of the Company
unless prior thereto a Change in Control of the Company shall have occurred.
3. Termination Following Change in Control. No benefits
shall be payable hereunder unless there shall have been a Change in Control of
the Company during the term of this Agreement. If any of the events described in
Section 1(e) constituting a Change in Control of the Company shall have
occurred, you shall be entitled to the benefits provided in Section 4 upon the
subsequent
- 7 -
<PAGE> 9
termination of your employment during the term of this Agreement unless such
termination is (i) because of your death, Disability or Retirement, (ii) by the
Company for Cause, or (iii) by you other than for Good Reason, as specified
below.
(a) Disability. If, as a result of your incapacity due to
physical or mental illness, you shall have been absent from the full-time
performance of your duties with Grace for six consecutive months, and within 30
days after written notice of termination is given you shall not have returned to
the full-time performance of your duties, your employment may be terminated for
"Disability".
(b) Cause. The Company shall be entitled to terminate
your employment for Cause. For the purposes of this Agreement, "Cause" means (i)
the willful and continued failure by you to substantially perform your duties
with Grace (other than any such failure resulting from your incapacity due to
physical or mental illness or any such actual or anticipated failure after the
issuance of a Notice of Termination by you for Good Reason) after a written
demand for substantial performance is delivered to you as authorized by the
Board, which demand specifically identifies the manner in which the Board
believes that you have not substantially performed your duties, or (ii) the
willful engaging by you in conduct which is demonstrably and materially
injurious to Grace, monetarily or otherwise. For purposes of this Subsection, no
act, or failure to act, on your part shall be deemed "willful" unless done, or
omitted to be done, by you not in good faith and without reasonable belief that
your action or omission was in the best interest of Grace. Any act or omission
based upon authority given
- 8 -
<PAGE> 10
pursuant to authorization of the Board or upon the advice of counsel for Grace
shall be conclusively presumed to be done or omitted by you in good faith and in
the best interest of Grace. Notwithstanding the foregoing, your employment shall
not be deemed to have been terminated for Cause unless and until there shall
have been delivered to you 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, held after reasonable notice to you and an
opportunity for you, together with your counsel, to be heard before the Board,
finding that in the good faith opinion of the Board you were guilty of conduct
set forth above in clause (i) or (ii) of the second sentence of this Subsection
and specifying the particulars thereof in detail.
(c) Good Reason. You shall be entitled to terminate your
employment for "Good Reason". For purposes of this Agreement, "Good Reason"
means the occurrence after a Change in Control of the Company of any of the
following circumstances, without your express written consent, unless such
circumstances (other than that specified in paragraph (iii)) are fully corrected
prior to the Date of Termination specified in the Notice of Termination given by
you in respect thereof:
(i) The assignment to you of any duties inconsistent with
your status as an officer of the Company and an executive of Grace or a
substantial adverse alteration in the nature or status of your
responsibilities from those in effect immediately prior to the Change
in Control of the Company.
- 9 -
<PAGE> 11
(ii) A reduction in your annual base salary as in effect
on the date hereof or as the same may be increased from time to time,
or Grace's failure to increase your annual base salary substantially in
accordance with increases given to other officers of the Company.
(iii) Grace's requiring you to be based anywhere other than
the metropolitan area in which your office is located immediately prior
to the Change in Control of the Company, except for required travel on
Grace's business to an extent substantially consistent with your
business travel obligations immediately prior to the Change in Control
of the Company.
(iv) The failure by Grace, without your consent, to pay to
you any portion of your then current compensation, or the failure by
Grace (and/or any trust of which Grace is the grantor) to pay to you
any portion of an installment of deferred compensation under any
deferred compensation program of Grace within seven days of the date
such deferred compensation is due.
(v) The failure by Grace to continue in effect any
compensation plan or program in which you participate immediately prior
to the Change in Control of the Company which is material to your total
compensation, including but not limited to Grace's incentive
compensation, long-term incentive compensation, stock incentive and
deferred compensation plans or programs or any substitute plans or
programs adopted prior to such Change in Control of the
- 10 -
<PAGE> 12
Company, unless an equitable arrangement (embodied in an ongoing
substitute or alternative plan or program) has been made with respect
to such plan or program, or the failure by Grace to continue your
participation therein (or in such substitute or alternative plan or
program) on a basis not materially less favorable, both in terms of the
amount of benefits provided and the level of your participation
relative to other participants, as existed at the time of such Change
in Control of the Company.
(vi) The failure by Grace to continue to provide you with
benefits substantially similar to those enjoyed by you under any of the
Retirement Arrangements or Insurance Plans in which you were
participating at the time of the Change in Control of the Company, the
taking of any action by Grace that would directly or indirectly
materially reduce any of such benefits or deprive you of any material
fringe benefit enjoyed by you at the time of the Change in Control of
the Company, or the failure by Grace to provide you with the number of
paid vacation days to which you are entitled on the basis of your years
of service with Grace in accordance with Grace's normal vacation
policies in effect at the time of the Change in Control of the Company.
(vii) The failure of the Company to obtain a satisfactory
agreement from the Successor Corporation and/or any other successor to
assume and agree to perform this Agreement, as contemplated in Section
6.
- 11 -
<PAGE> 13
(viii) Any purported termination of your employment which is
not effected pursuant to a Notice of Termination satisfying the
requirements of Subsection (d) below (and, if applicable, the
requirements of Subsection (b) above). For purposes of this Agreement,
no such purported termination shall be effective.
Your right to terminate your employment pursuant to this Subsection shall not be
affected by your incapacity due to physical or mental illness. Your continued
employment shall not constitute consent to, or a waiver of rights with respect
to, any circumstances constituting Good Reason hereunder.
(d) Notice of Termination. Any purported termination of
your employment by Grace or by you following a Change in Control of the Company
shall be communicated by a Notice of Termination to the other party hereto in
accordance with Sections 1(t) and 7.
(e) Date of Termination, Etc. "Date of Termination" shall
mean (i) if your employment is terminated for Disability, 30 days after Notice
of Termination is given (provided that you shall not have returned to the
full-time performance of your duties during such 30-day period), and (ii) if
your employment is terminated pursuant to Subsection (b) or (c) above or for
Retirement or for any reason (other than Disability), the date specified in the
Notice of Termination (which, in the case of a termination pursuant to
Subsection (b) above shall not be less than 30 days, and in the case of a
termination pursuant to Subsection (c) above shall not be less than 15 nor more
than 60 days,
- 12 -
<PAGE> 14
respectively, after the date such Notice of Termination is given); provided that
if within 15 days after any Notice of Termination is given, or, if later, prior
to the Date of Termination (as determined without regard to this proviso), the
party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination shall be the
date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (which is not
appealable or with respect to which the time for appeal therefrom has expired
and no appeal has been perfected); provided further that the Date of Termination
shall be extended by a notice of dispute only if such notice is given in good
faith and the party giving such notice pursues the resolution of such dispute
with reasonable diligence. Notwithstanding the pendency of any such dispute, the
Company will continue to pay, or cause a subsidiary to pay, you your full
compensation in effect when the notice giving rise to the dispute was given
(including, but not limited to, base salary) and continue you as a participant
in all compensation plans and programs, Retirement Arrangements and Insurance
Plans in which you were participating when the notice giving rise to the dispute
was given, until the dispute is finally resolved in accordance with this
Subsection. Amounts paid under this Subsection are in addition to all other
amounts due under this Agreement and shall not be offset against or reduce any
other amounts due under this Agreement.
- 13 -
<PAGE> 15
4. Compensation During Disability and upon Termination.
Following a Change in Control of the Company, upon termination of your
employment or during a period of disability you shall be entitled to the
following benefits:
(a) Disability; Retirement. During any period that you
fail to perform your full-time duties with Grace as a result of incapacity due
to physical or mental illness, you shall continue to receive your full base
salary at the rate in effect at the commencement of any such period, plus all
other amounts to which you are entitled under any compensation plan or program
of Grace in effect during such period, until your employment is terminated for
Disability pursuant to Section 3(a). Thereafter your benefits shall be
determined under the Retirement Arrangements, Insurance Plans and other
compensation plans and programs then in effect in accordance with the terms of
such plans and programs (without regard to any amendment to such plans and
programs made subsequent to a Change in Control of the Company and on or prior
to the Date of Termination).
If your employment shall be terminated by your Retirement, or
by reason of your death, the Company shall pay, or cause a subsidiary to pay,
you your full base salary through the Date of Termination or the date of your
death plus all other amounts to which you are entitled under any compensation
plan or program of Grace. Thereafter your benefits shall be determined in
accordance with the Retirement Arrangements, Insurance Plans and other
compensation plans and programs then in effect in accordance
- 14 -
<PAGE> 16
with the terms of such plans and programs (without regard to any amendment to
such plans and programs made subsequent to a Change in Control of the Company
and on or prior to the Date of Termination). As used herein, "Retirement" shall
mean termination of employment and retirement under a Retirement Plan but shall
not include termination of employment for Good Reason or involuntary retirement
by reason of the failure of the Company to approve your continued employment
after you reach normal retirement age.
(b) Cause; Voluntary Termination. If your employment
shall be terminated by the Company for Cause or by you other than for Good
Reason, Disability, Retirement or death, the Company shall pay, or cause a
subsidiary to pay, you your full base salary through the Date of Termination at
the rate in effect at the time the Notice of Termination is given, plus all
other amounts to which you are entitled under any compensation plan or program
of Grace at the time such payments are due, and the Company shall have no
further obligations to you under this Agreement except as provided in Subsection
(g) below.
(c) Involuntary Termination. If your employment shall be
terminated by you for Good Reason, or by the Company other than for Cause or
Disability, you shall be entitled to the benefits provided below:
(i) The Company shall pay, or cause a subsidiary to pay,
you your full base salary and vacation pay accrued (but not taken)
through the Date of Termination at the rate in effect at the time
Notice of Termination is given, plus accrued
- 15 -
<PAGE> 17
incentive compensation (under the annual incentive compensation
program) through the Date of Termination at the same percentage rate
(i.e., percentage of your previous year-end salary) applicable to the
calendar year immediately prior to the Date of Termination, plus all
other amounts to which you are entitled under any compensation plan or
program of Grace at the time such payments are due.
(ii) In lieu of any further salary payments to you for
periods subsequent to the Date of Termination:
A. If (but only if) the Date of Termination
occurs during the Pre-1999 Period, the
Company shall pay you the payment(s),
calculated in accordance with Subparagraph
(1) or Subparagraph (2) below, whichever
such Subparagraph results in the greatest
After-Tax Total Payment to you:
(1) A Severance Payment equal to your
Formula Compensation multiplied by 2.99,
subject to any reduction necessary to
satisfy the provisions of Section 4(c)(iv);
or
(2) A Severance Payment equal to 3.00
multiplied by the sum of (a) your annual
base salary in effect on the day immediately
preceding the Date of Termination plus (b)
an amount equal to the greatest of (i) your
targeted annual incentive compensation award
for the year of the Date of Termination,
(ii)
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<PAGE> 18
your annual incentive compensation award
that was actually paid to you for the year
immediately prior to the year of the Date of
Termination or (iii) your targeted annual
incentive compensation award for such prior
year; and, if the Severance Payment, either
individually or in combination with Other
Payments, if any, to which you are entitled,
are subject to the Excise Tax, an additional
payment (the "Gross-Up Payment") in an
amount necessary, as determined by the Tax
Advisor, to place you in the same economic
position that you would have enjoyed if the
Excise Tax had not been applied to the
Severance Payment and/or Other Payments.
B. If your Date of Termination occurs during
the Post-1998 Period, the Company shall pay
to you a Severance Payment and, if
applicable, a Gross-Up Payment that will be
equal to the amount of such Payments
calculated in accordance with Subparagraph 2
of Section 4(c)(ii)(A).
(iii) For a 24-month period following the Date of
Termination, the Company shall arrange to provide you with basic life
and health insurance benefits substantially similar to those you are
receiving under Insurance Plans immediately prior to the Notice of
Termination, and with salary
- 17 -
<PAGE> 19
continuance benefits similar to those which you would receive under the
Executive Salary Protection Plan had you continued to be employed at
the date of your death less the amount of your Severance Payment
hereunder. Benefits otherwise receivable by you pursuant to this
paragraph shall be reduced to the extent comparable benefits are
actually received by you during the 24-month period following the Date
of Termination, and any such benefits actually received by you shall be
reported by you to the Company. Thereafter your benefits shall be
determined in accordance with the Insurance Plans as in effect at the
Date of Termination (without regard to any amendment to such plans made
subsequent to a Change in Control of the Company and on or prior to the
Date of Termination).
(iv) With respect to the calculation of the Severance
Payment under Subparagraph (1) of Section 4(c)(ii)(A) if, in addition
to the Severance Payment, you are entitled to Other Payments, the
Severance Payment calculated under Subparagraph (1) of Section
4(c)(ii)(A) shall be reduced (but not below zero) by the amount
necessary to avoid the imposition of the Excise Tax with regard to the
Severance Payment and/or Other Payments; provided that such reduction
shall only be effective if, as calculated in accordance with this
Agreement, the total amount of the Severance Payment, as so reduced,
plus Other Payments (together, the "Reduced Payment") would be greater
than the total amount of the Severance Payment, without regard to any
such reduction, plus Other Payments (together, the
- 18 -
<PAGE> 20
"Full Payment"), after reducing the amount of both the Reduced Payment
and the Full Payment by the total of all applicable federal, state,
local and foreign taxes (including, but not limited to, the Excise
Tax). The applicable federal, state, local and foreign taxes shall be
calculated by the Tax Advisor in the same manner as is applicable to
the calculation of the After-Tax Total Payment.
(d) The following provisions shall apply with respect to
the calculation of, and other matters involving, a Gross-Up Payment under
Subparagraph (2) of Section 4(c)(ii)(A):
(i) All determinations required with respect to the
calculation of a Gross-Up Payment, including whether a Gross-Up Payment
is required, the amount of the payments constituting "excess parachute
payments" (as defined under Section 280G(b) of the Code), and the
amount of the Gross-Up Payment, shall be made by the Tax Advisor, which
shall provide detailed supporting calculations both to you and the
Company within thirty days after the Date of Termination. All such
determinations shall be made based upon the assumption that you are at
all times subject to income tax at the highest marginal rates that
could be applicable to you for the relevant periods, unless you inform
the Tax Advisor that a different marginal tax rate is applicable with
respect to you for income tax for such periods. The Company shall pay
to you the initial Gross-Up Payment within five days of the receipt by
you and the Company of the Tax Advisor's determination. If
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<PAGE> 21
the Tax Advisor determines that no Excise Tax is payable by you, the
Company shall cause the Tax Advisor to provide you with an opinion that
the Tax Advisor has substantial authority under the Code and the
regulations thereunder not to report an Excise Tax on your federal
income tax return for each relevant period. If the initial Gross-Up
Payment is insufficient to cover the amount of the Excise Tax that is
ultimately determined to be owing by you with respect to any Payment
(hereinafter an "Underpayment"), the Company, after exhausting its
remedies under Subsection (ii) below (in the event of a claim by the
Internal Revenue Service), shall promptly pay to you an additional
Gross-Up Payment in respect of the Underpayment.
(ii) You shall notify the Company in writing of any claims
by the Internal Revenue Service that, if successful, would require the
payment by the Company of a Gross-Up Payment. Such notice shall be
given as soon as practicable after you know of such claim and shall
apprise the Company of the nature of the claim and the date on which
the claim is requested to be paid. You agree not to pay the claim until
the expiration of the 30-day period following the date on which you
notify the Company, or such shorter period ending on the date the
federal income and excise taxes with respect to such claim are due (the
"Notice Period"). If the Company notifies you in writing prior to the
expiration of the Notice Period that it desires to contest the claim,
you shall: (i)
- 20 -
<PAGE> 22
give the Company any information reasonably requested by the Company
relating to the claim; (ii) cooperate with the Company in good faith in
contesting the claim; and (iii) permit the Company to participate in
any proceedings relating to the claim. If you pay such claim and pursue
a refund, the Company shall advance the amount of such payment to you
on an after-tax and interest-free basis (the "Advance"). If the Company
does not notify you in writing prior to the end of the Notice Period of
its desire to contest the claim, the Company shall pay to you an
additional Gross-Up Payment in respect of the "excess parachute
payments" that are the subject of the claim, and you agree to pay the
amount of the Excise Tax that is the subject of the claim to the
applicable taxing authority in accordance with applicable law.
(iii) If, after receipt by you of an Advance, you become
entitled to a refund with respect to the claim to which such Advance
relates, you shall pay the Company the amount of the refund (together
with any interest paid or credited thereon after any taxes applicable
thereto). If, after receipt by you of an Advance, a determination is
made by a competent authority that you are not entitled to any refund
with respect to the claim and the Company does not promptly notify you
of its intent to contest the denial of such refund, then the amount of
the Advance shall not be required to be repaid by you and the amount
thereof shall offset the amount of the additional Gross-Up Payment then
owing to you.
- 21 -
<PAGE> 23
(iv) The Company shall indemnify you and hold you
harmless, on an after-tax basis, from and against any costs, expenses,
penalties, fines, interest or other liabilities ("Losses") incurred by
you with respect to the exercise by the Company of any of its rights
under this Section 4(d), including, without limitation, any Losses
related to the Company's decision to contest a claim or participate in
such contest or any imputed income to you resulting from any Advance or
action taken on your behalf by the Company hereunder.
(e) Payment Of Severance Payment.
(i) The Severance Payment to which you are entitled shall
be paid to you not later than the fifth day following your Date of
Termination, provided, however, that if the amount of such payment
cannot be fully determined on or before such day, the Company shall pay
to you on such day an estimate, as determined in good faith by the Tax
Advisor, of the amount of such payment and shall pay the remainder of
such payment (together with interest from such fifth day to the date of
such payment at a rate of interest per annum equal to the prime rate of
interest announced by Morgan Guaranty Trust Company of New York from
time to time plus 2 percentage points) as soon as the amount thereof
can be determined but in no event later than the thirtieth day after
your Date of Termination. In the event that the amount of the estimated
payment exceeds the amount subsequently determined to have
- 22 -
<PAGE> 24
been due, such excess shall be payable by you to the Company, without
interest, on the fifth day after demand by the Company.
(ii) The Company also shall pay to you all legal fees and
expenses incurred by you as a result of your termination of employment
(including all such fees and expenses, if any, incurred in contesting
or disputing any such termination, in seeking to obtain or enforce any
right or benefit provided by this Agreement or in connection with any
tax audit or proceeding to the extent attributable to the application
of Section 4999 of the Code to any payment or benefit provided
hereunder). Such payments shall be made at the later of the times
specified in paragraph (i) above, or within five days after your
request for payment accompanied with such evidence of fees and expenses
incurred as the Company reasonably may require.
(f) No Mitigation. You shall not be required to mitigate
the amount of any payment provided for in this Section 4 by seeking other
employment or otherwise, nor shall the amount of any payment or benefit provided
for in this Section 4 be reduced by any compensation earned by you as the result
of employment by another employer, by retirement benefits, by offset against any
amount claimed to be owing by you to the Company, or otherwise, except as
provided in Section 4(c)(iii) above.
(g) Retirement Benefits. In addition to all other amounts
payable to you under this Section 4, you shall be entitled
- 23 -
<PAGE> 25
to receive all benefits payable to you under all Retirement Arrangements.
(h) Tax Advisor. Each calculation necessary to effectuate
the provisions of this Section 4 shall be performed by the Tax Advisor within
the appropriate time periods specified herein for such calculation or, absent
such specification, prior to the date the Severance Payment is made to you
pursuant to Section 4(e) above. All issues with regard to those calculations
that are not specifically provided for by this Agreement shall be decided in a
manner that provides you with the greatest After-Tax Total Payment. Any
determination by the Tax Advisor shall be binding upon you and the Company.
5. Relationship to Other Agreements and Plans. To the
extent that any provision of any other agreement between Grace and you shall
limit, qualify or be inconsistent with any provision of this Agreement, then for
the purposes of this Agreement (while this Agreement remains in effect) the
provision of this Agreement shall control and such provision of such other
agreement shall be deemed to have been superseded, and to be of no force or
effect, as if such other agreement had been formally amended to the extent
necessary to accomplish such purpose. The Severance Payment shall not be
considered to be compensation for the purpose of any Retirement Arrangements,
Insurance Plans or compensation plans of Grace.
- 24 -
<PAGE> 26
6. Successors.
(a) Successors to the Company.
If the NMC Disposition occurs and the Company is not the
Successor Corporation, the Company shall require the Successor Corporation to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would have been required to perform this
Agreement if the NMC Disposition had not taken place. The Company shall also
require any successor (whether direct or indirect, by purchase or merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of the Company (either before or after the NMC Disposition) to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would have been required to perform it if no such
succession had taken place. Failure of the Company to obtain such assumption and
agreement prior to the effectiveness of any such succession shall be a breach of
this Agreement and shall entitle you to compensation from the Company in the
same amount and on the same terms as you would be entitled hereunder if you
terminate your employment for Good Reason following a Change in Control of the
Company, except that for purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be deemed the Date of
Termination (provided you shall have delivered a Notice of Termination to the
Company). As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and/or any successor
- 25 -
<PAGE> 27
to the Company's business and/or assets as aforesaid (including, but not limited
to, the Successor Corporation) which assumes and agrees to perform this
Agreement by operation of law or otherwise.
(b) Your Successors. This Agreement shall inure to the
benefit of and be enforceable by your personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If you should die while any amount would still be payable to you
hereunder if you had continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement to
your devisee, legatee or other designee or, if there is no such designee, to
your estate.
7. Notices. Notices and all other communications
provided for in this Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States registered or
certified mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement, provided
that all notices to the Company shall be directed to the attention of the Board
with a copy to the Secretary of the Company, or to such other address as either
party may have furnished to the other in writing in accordance herewith, except
that notice of change of address shall be effective only upon receipt.
8. Governing Law. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of New York.
- 26 -
<PAGE> 28
9. Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
10. Arbitration. Any dispute or controversy arising under
or in connection with this Agreement shall be settled exclusively by arbitration
in accordance with the Commercial Arbitration Rules of the American Arbitration
Association. Such arbitration, whether commenced by you or the Company, shall be
conducted in either the city and state in which you reside, the city and state
in which the Company maintains its principal offices or the city and state in
which you were employed at the time the dispute or controversy arose, as
designated by you. Any arbitration pursuant to this provision shall be conducted
before an arbitrator to be selected by the Company from a list of three
arbitrators to be provided by you to the Company. All expenses, including
attorneys fees, which you incur as a result of the arbitration and/or the
dispute or controversy giving rise to the arbitration shall be paid directly by
the Company. In the event that you are entitled to, or believe that you are
entitled to, compensation pursuant to Section 4, the Company shall pay you such
compensation unless and until directed to cease such payments pursuant to an
award issued in accordance with this Section. Judgment may be entered on an
award issued pursuant to this Section in any court of competent jurisdiction. In
the event that the Company seeks to stay an arbitration sought under this
Section 10,
- 27 -
<PAGE> 29
it shall post a bond, or provide similar security, in an amount equal to any
unpaid compensation which is due you, or claimed to be due you, pursuant to
Section 4.
11. General. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing and signed by you and such officer as may be specifically
designated by the Board or its Compensation, Employee Benefits and Stock
Incentive Committee or any successor to such Committee. No waiver by either
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.
No agreements or representations, oral or otherwise, express
or implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement.
The section and subsection headings contained in this
Agreement are for convenient reference only, and shall not in any way affect the
meaning or interpretation of this Agreement.
Any payments provided for hereunder shall be paid net of any
applicable withholding required under federal, state, local or foreign law.
- 28 -
<PAGE> 30
The obligations of the Company under Section 4 shall survive
the expiration of the term of this Agreement.
12. Counterparts. This Agreement may be executed in
several counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument. If this letter sets
forth our agreement on the subject matter hereof, kindly sign and return to the
Secretary of the Company the enclosed copy of this letter which will then
constitute our agreement on this subject.
By your signing this Agreement, you agree that, as of the date
hereof, this Agreement supersedes any and all prior agreements between you and
the Company setting forth your severance benefits in the event of a Change in
Control of the Company.
Sincerely,
W. R. GRACE & CO.
By _____________________________
Chairman, President and
Chief Executive Officer
Agreed to __________, 1996
__________________________
Name: ____________________
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<PAGE> 1
EXHIBIT 10.23
<PAGE> 2
[FOR NEWLY ELECTED OFFICERS]
CONFIDENTIAL
_________, 1996
____________________
W. R. Grace & Co.
One Town Center Road
Boca Raton, FL 33486
Dear Mr./Ms. _______:
W. R. Grace & Co., a New York corporation (the "Company"),
considers it essential to the best interests of its stockholders to foster the
continuous employment of key management personnel. In this connection, the Board
of Directors of the Company (the "Board") recognizes that, as is the case with
many publicly held corporations, the possibility of a change in control may
exist and that such possibility, and the uncertainty and questions which it may
raise among management, may result in the departure or distraction of management
personnel to the detriment of the Company, its subsidiaries and other business
units, and its stockholders.
Accordingly, the Board has determined that appropriate steps
should be taken to reinforce and encourage the continued attention and
dedication of members of the Company's management, including yourself, to their
assigned duties without distraction in the face of potentially disturbing
circumstances arising from the possibility of a change in control of the
Company, although no such change is now contemplated.
<PAGE> 3
In order to induce you to remain in the employ of Grace (as
hereafter defined), the Company agrees that you shall receive the severance
benefits set forth in this letter agreement ("Agreement") in the event your
employment with Grace is terminated subsequent to a Change in Control of the
Company (as hereinafter defined) under the circumstances provided in this
Agreement.
1. Definitions. When used in this Agreement as
capitalized terms, the following defined terms shall have the meanings set forth
or specified in this Section.
(a) "Advance" shall have the meaning specified in Section
4(d)(ii).
(b) "After-Tax Total Payment" means the sum of the
Severance Payment plus the Other Payments, if any, plus, if applicable, any
Gross-Up Payment to which you are entitled, after reducing such sum by all
applicable federal, state, local and foreign taxes (including, but not limited
to, the Excise Tax). The applicable federal, state, local and foreign taxes
shall be those taxes that, in the opinion of the Tax Advisor, will be imposed
upon you as a result of the receipt or enjoyment of the Severance Payment, the
Other Payments and/or the Gross-Up Payment and shall be calculated based upon
the assumption that you will at all times be subject to tax at the highest
possible marginal tax rates that could be applicable to you for the year of
receipt, unless you inform the Tax Advisor that a different marginal tax rate is
applicable with respect to you for that year.
- 2 -
<PAGE> 4
(c) "Board" shall have the meaning specified in the first
paragraph of this Agreement.
(d) "Change in Control of the Company" means and shall be
deemed to have occurred if (i) the Company determines that any "person" (as such
term is used in Sections 13(d) and 14(d) of the Exchange Act), other than a
trustee or other fiduciary holding securities under an employee benefit plan of
the Company or a corporation owned, directly or indirectly, by the stockholders
of the Company in substantially the same proportions as their ownership of stock
of the Company, has become the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of 20% or more of the
outstanding common stock of the Company; (ii) individuals who are Continuing
Directors cease to constitute a majority of any class of directors of the Board;
(iii) there occurs a reorganization, merger, consolidation or other corporate
transaction involving the Company (a "Corporate Transaction"), in each case,
with respect to which the stockholders of the Company immediately prior to such
Corporate Transaction do not, immediately after the Corporate Transaction, own
more than 60% of the combined voting power of the corporation resulting from
such Corporate Transaction; or (iv) the shareholders of the Company approve a
complete liquidation or dissolution of the Company. Notwithstanding any other
provision of this Agreement, the NMC Disposition shall not be deemed a "Change
in Control of the Company" for purposes of this Agreement.
- 3 -
<PAGE> 5
(e) "Code" means the Internal Revenue Code of 1986, as
amended and in effect at the time of a Change in Control of the Company.
(f) "Company" means W. R. Grace & Co., a New York
corporation, and any successor as provided in Section 6(a).
(g) "Continuing Director" means any member of the Board
who was such a member on the date hereof and any successor to such a Continuing
Director who is approved as a nominee or elected to succeed a Continuing
Director by a majority of Continuing Directors who are then members of the
Board.
(h) "Corporate Transaction" shall have the meaning
specified in Section 1(d).
(i) "Date of Termination" shall have the meaning
specified in Section 3(e).
(j) "Disability" shall have the meaning specified in
Section 3(a).
(k) "Exchange Act" means the Securities Exchange Act of
1934, as amended.
(l) "Excise Tax" means the excise tax imposed by Section
4999 of the Code and/or any interest or penalties with respect to such excise
tax.
(m) "Grace" means the Company and/or one or more of its
subsidiaries.
(n) "Good Reason" shall have the meaning specified in
Section 3(c).
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<PAGE> 6
(o) "Gross-Up Payment" shall have the meaning specified
in Section 4(c)(ii).
(p) "NMC Disposition" means a transaction or series of
transactions whereby control of the business presently conducted by the
Company's National Medical Care, Inc. subsidiary (such business, the "NMC
Businesses") is separated from control of substantially all of the other
businesses presently conducted by the Company and its affiliates (the "Non-NMC
Businesses"), regardless of the structure of such transaction, and which may
include (among other actions by the Company) a distribution by the Company, with
respect to each share of its common stock, of one share of a newly formed
corporation that directly or indirectly owns or controls the Non-NMC Businesses.
References herein to the "Successor Corporation" refer to the entity that, after
completion of the NMC Disposition, controls the Non-NMC Businesses.
(q) "Notice Period" shall have the meaning specified in
Section 4(d)(ii).
(r) "Notice of Termination" means a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of your employment under the provision so
indicated.
(s) "Other Payments" means payments and/or the value of
benefits to which you are entitled (other than the Severance Payment and, if
applicable, the Gross-Up Payment) pursuant to any agreement (including this
Agreement) that constitute "parachute
- 5 -
<PAGE> 7
payments" (as defined in Section 280G of the Code and the regulations
thereunder).
(t) "Retirement" shall have the meaning specified in
Section 4(a).
(u) "Retirement Plans" means retirement plans of Grace;
"Retirement Arrangements" means Retirement Plans and agreements of Grace
relating to retirement benefits, and "Insurance Plans" means Grace's basic life
and health insurance plans, the survivor benefit under any Grace deferred
compensation program, and the Executive Salary Protection Plan.
(v) "Severance Payment" means a single, lump sum payment.
(w) "Successor Corporation" shall have the meaning
specified in Section 1(p).
(x) "Tax Advisor" means a tax advisor that, in the
reasonable judgment of the Company, is familiar with and experienced in the
tasks required of the "tax advisor" hereunder, and is selected by the Company to
perform those tasks. The Company shall pay all of the fees and expenses of the
Tax Advisor.
(y) "Underpayment" shall have the meaning specified in
Section 4(d)(i).
2. Term of Agreement. This Agreement shall commence on
the date hereof and shall continue in effect through December 31, 1996;
provided, however, that commencing on each January 1 thereafter, the term of
this Agreement shall automatically be extended for one additional year unless,
not later than September
- 6 -
<PAGE> 8
30 of the preceding year, the Company shall have given notice that it does not
wish to extend this Agreement or you shall have given such notice to the
Company; provided, further, if a Change in Control of the Company shall have
occurred during the original or any extended term of this Agreement, this
Agreement shall continue in effect for a period of 24 months beyond the month in
which such Change in Control of the Company occurred. This Agreement shall
terminate upon your ceasing to be an officer of the Company unless prior thereto
a Change in Control of the Company shall have occurred.
3. Termination Following Change in Control. No benefits
shall be payable hereunder unless there shall have been a Change in Control of
the Company during the term of this Agreement. If any of the events described in
Section 1(d) constituting a Change in Control of the Company shall have
occurred, you shall be entitled to the benefits provided in Section 4 upon the
subsequent termination of your employment during the term of this Agreement
unless such termination is (i) because of your death, Disability or Retirement,
(ii) by the Company for Cause, or (iii) by you other than for Good Reason, as
specified below.
(a) Disability. If, as a result of your incapacity due to
physical or mental illness, you shall have been absent from the full-time
performance of your duties with Grace for six consecutive months, and within 30
days after written notice of termination is given you shall not have returned to
the full-time performance of your duties, your employment may be terminated for
"Disability".
- 7 -
<PAGE> 9
(b) Cause. The Company shall be entitled to terminate
your employment for Cause. For the purposes of this Agreement, "Cause" means (i)
the willful and continued failure by you to substantially perform your duties
with Grace (other than any such failure resulting from your incapacity due to
physical or mental illness or any such actual or anticipated failure after the
issuance of a Notice of Termination by you for Good Reason) after a written
demand for substantial performance is delivered to you as authorized by the
Board, which demand specifically identifies the manner in which the Board
believes that you have not substantially performed your duties, or (ii) the
willful engaging by you in conduct which is demonstrably and materially
injurious to Grace, monetarily or otherwise. For purposes of this Subsection, no
act, or failure to act, on your part shall be deemed "willful" unless done, or
omitted to be done, by you not in good faith and without reasonable belief that
your action or omission was in the best interest of Grace. Any act or omission
based upon authority given pursuant to authorization of the Board or upon the
advice of counsel for Grace shall be conclusively presumed to be done or omitted
by you in good faith and in the best interest of Grace. Notwithstanding the
foregoing, your employment shall not be deemed to have been terminated for Cause
unless and until there shall have been delivered to you 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, held after reasonable
notice to you and an opportunity for you, together with your counsel, to be
heard before the Board, finding that in the
- 8 -
<PAGE> 10
good faith opinion of the Board you were guilty of conduct set forth above in
clause (i) or (ii) of the second sentence of this Subsection and specifying the
particulars thereof in detail.
(c) Good Reason. You shall be entitled to terminate your
employment for "Good Reason". For purposes of this Agreement, "Good Reason"
means the occurrence after a Change in Control of the Company of any of the
following circumstances, without your express written consent, unless such
circumstances (other than that specified in paragraph (iii)) are fully corrected
prior to the Date of Termination specified in the Notice of Termination given by
you in respect thereof:
(i) The assignment to you of any duties inconsistent with
your status as an officer of the Company and an executive of Grace or a
substantial adverse alteration in the nature or status of your
responsibilities from those in effect immediately prior to the Change
in Control of the Company.
(ii) A reduction in your annual base salary as in effect
on the date hereof or as the same may be increased from time to time,
or Grace's failure to increase your annual base salary substantially in
accordance with increases given to other officers of the Company.
(iii) Grace's requiring you to be based anywhere other than
the metropolitan area in which your office is located immediately prior
to the Change in Control of the Company, except for required travel on
Grace's business to an extent
- 9 -
<PAGE> 11
substantially consistent with your business travel obligations
immediately prior to the Change in Control of the Company.
(iv) The failure by Grace, without your consent, to pay to
you any portion of your then current compensation, or the failure by
Grace (and/or any trust of which Grace is the grantor) to pay to you
any portion of an installment of deferred compensation under any
deferred compensation program of Grace within seven days of the date
such deferred compensation is due.
(v) The failure by Grace to continue in effect any
compensation plan or program in which you participate immediately prior
to the Change in Control of the Company which is material to your total
compensation, including but not limited to Grace's incentive
compensation, long-term incentive compensation, stock incentive and
deferred compensation plans or programs or any substitute plans or
programs adopted prior to such Change in Control of the Company, unless
an equitable arrangement (embodied in an ongoing substitute or
alternative plan or program) has been made with respect to such plan or
program, or the failure by Grace to continue your participation therein
(or in such substitute or alternative plan or program) on a basis not
materially less favorable, both in terms of the amount of benefits
provided and the level of your participation relative to other
participants, as existed at the time of such Change in Control of the
Company.
- 10 -
<PAGE> 12
(vi) The failure by Grace to continue to provide you with
benefits substantially similar to those enjoyed by you under any of the
Retirement Arrangements or Insurance Plans in which you were
participating at the time of the Change in Control of the Company, the
taking of any action by Grace that would directly or indirectly
materially reduce any of such benefits or deprive you of any material
fringe benefit enjoyed by you at the time of the Change in Control of
the Company, or the failure by Grace to provide you with the number of
paid vacation days to which you are entitled on the basis of your years
of service with Grace in accordance with Grace's normal vacation
policies in effect at the time of the Change in Control of the Company.
(vii) The failure of the Company to obtain a satisfactory
agreement from the Successor Corporation and/or any other successor to
assume and agree to perform this Agreement, as contemplated in Section
6.
(viii) Any purported termination of your employment which is
not effected pursuant to a Notice of Termination satisfying the
requirements of Subsection (d) below (and, if applicable, the
requirements of Subsection (b) above). For purposes of this Agreement,
no such purported termination shall be effective.
Your right to terminate your employment pursuant to this Subsection shall not be
affected by your incapacity due to physical or mental illness. Your continued
employment shall not constitute consent
- 11 -
<PAGE> 13
to, or a waiver of rights with respect to, any circumstances
constituting Good Reason hereunder.
(d) Notice of Termination. Any purported termination of
your employment by Grace or by you following a Change in Control of the
Company shall be communicated by a Notice of Termination to the other
party hereto in accordance with Sections 1(r) and 7.
(e) Date of Termination, Etc. "Date of Termination" shall
mean (i) if your employment is terminated for Disability, 30 days after
Notice of Termination is given (provided that you shall not have
returned to the full-time performance of your duties during such 30-day
period), and (ii) if your employment is terminated pursuant to
Subsection (b) or (c) above or for Retirement or for any reason (other
than Disability), the date specified in the Notice of Termination
(which, in the case of a termination pursuant to Subsection (b) above
shall not be less than 30 days, and in the case of a termination
pursuant to Subsection (c) above shall not be less than 15 nor more
than 60 days, respectively, after the date such Notice of Termination
is given); provided that if within 15 days after any Notice of
Termination is given, or, if later, prior to the Date of Termination
(as determined without regard to this proviso), the party receiving
such Notice of Termination notifies the other party that a dispute
exists concerning the termination, the Date of Termination shall be the
date on which the dispute is finally determined, either by mutual
written agreement of the parties, by a binding arbitration award, or by
a final judgment, order or decree of a court of
- 12 -
<PAGE> 14
competent jurisdiction (which is not appealable or with respect to which the
time for appeal therefrom has expired and no appeal has been perfected);
provided further that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Company will continue to
pay, or cause a subsidiary to pay, you your full compensation in effect when the
notice giving rise to the dispute was given (including, but not limited to, base
salary) and continue you as a participant in all compensation plans and
programs, Retirement Arrangements and Insurance Plans in which you were
participating when the notice giving rise to the dispute was given, until the
dispute is finally resolved in accordance with this Subsection. Amounts paid
under this Subsection are in addition to all other amounts due under this
Agreement and shall not be offset against or reduce any other amounts due under
this Agreement.
4. Compensation During Disability and upon Termination.
Following a Change in Control of the Company, upon termination of your
employment or during a period of disability you shall be entitled to the
following benefits:
(a) Disability; Retirement. During any period that you
fail to perform your full-time duties with Grace as a result of incapacity due
to physical or mental illness, you shall continue to receive your full base
salary at the rate in effect at the commencement of any such period, plus all
other amounts to which
- 13 -
<PAGE> 15
you are entitled under any compensation plan or program of Grace in effect
during such period, until your employment is terminated for Disability pursuant
to Section 3(a). Thereafter your benefits shall be determined under the
Retirement Arrangements, Insurance Plans and other compensation plans and
programs then in effect in accordance with the terms of such plans and programs
(without regard to any amendment to such plans and programs made subsequent to a
Change in Control of the Company and on or prior to the Date of Termination).
If your employment shall be terminated by your Retirement, or
by reason of your death, the Company shall pay, or cause a subsidiary to pay,
you your full base salary through the Date of Termination or the date of your
death plus all other amounts to which you are entitled under any compensation
plan or program of Grace. Thereafter your benefits shall be determined in
accordance with the Retirement Arrangements, Insurance Plans and other
compensation plans and programs then in effect in accordance with the terms of
such plans and programs (without regard to any amendment to such plans and
programs made subsequent to a Change in Control of the Company and on or prior
to the Date of Termination). As used herein, "Retirement" shall mean termination
of employment and retirement under a Retirement Plan but shall not include
termination of employment for Good Reason or involuntary retirement by reason of
the failure of the Company to approve your continued employment after you reach
normal retirement age.
- 14 -
<PAGE> 16
(b) Cause; Voluntary Termination. If your employment
shall be terminated by the Company for Cause or by you other than for Good
Reason, Disability, Retirement or death, the Company shall pay, or cause a
subsidiary to pay, you your full base salary through the Date of Termination at
the rate in effect at the time the Notice of Termination is given, plus all
other amounts to which you are entitled under any compensation plan or program
of Grace at the time such payments are due, and the Company shall have no
further obligations to you under this Agreement except as provided in Subsection
(g) below.
(c) Involuntary Termination. If your employment shall be
terminated by you for Good Reason, or by the Company other than for Cause or
Disability, you shall be entitled to the benefits provided below:
(i) The Company shall pay, or cause a subsidiary to pay,
you your full base salary and vacation pay accrued (but not taken)
through the Date of Termination at the rate in effect at the time
Notice of Termination is given, plus accrued incentive compensation
(under the annual incentive compensation program) through the Date of
Termination at the same percentage rate (i.e., percentage of your
previous year-end salary) applicable to the calendar year immediately
prior to the Date of Termination, plus all other amounts to which you
are entitled under any compensation plan or program of Grace at the
time such payments are due.
- 15 -
<PAGE> 17
(ii) In lieu of any further salary payments to you for
periods subsequent to the Date of Termination, the Company shall pay
you a Severance Payment equal to 3.00 multiplied by the sum of (a) your
annual base salary in effect on the day immediately preceding the Date
of Termination plus (b) an amount equal to the greatest of (i) your
targeted annual incentive compensation award for the year of the Date
of Termination, (ii) your annual incentive compensation award that was
actually paid to you for the year immediately prior to the year of the
Date of Termination or (iii) your targeted annual incentive
compensation award for such prior year; and, if the Severance Payment,
either individually or in combination with Other Payments, if any, to
which you are entitled, are subject to the Excise Tax, an additional
payment (the "Gross-Up Payment") in an amount necessary, as determined
by the Tax Advisor, to place you in the same economic position that you
would have enjoyed if the Excise Tax had not been applied to the
Severance Payment and/or Other Payments.
(iii) For a 24-month period following the Date of
Termination, the Company shall arrange to provide you with basic life
and health insurance benefits substantially similar to those you are
receiving under Insurance Plans immediately prior to the Notice of
Termination, and with salary continuance benefits similar to those
which you would receive under the Executive Salary Protection Plan had
you continued to be employed at the date of your death less the amount
of your Severance Payment hereunder. Benefits otherwise
- 16 -
<PAGE> 18
receivable by you pursuant to this paragraph shall be reduced to the
extent comparable benefits are actually received by you during the
24-month period following the Date of Termination, and any such
benefits actually received by you shall be reported by you to the
Company. Thereafter your benefits shall be determined in accordance
with the Insurance Plans as in effect at the Date of Termination
(without regard to any amendment to such plans made subsequent to a
Change in Control of the Company and on or prior to the Date of
Termination).
(d) The following provisions shall apply with respect to
the calculation of, and other matters involving, a Gross-Up Payment
under Section 4(c)(ii):
(i) All determinations required with respect to the
calculation of a Gross-Up Payment, including whether a Gross-Up Payment
is required, the amount of the payments constituting "excess parachute
payments" (as defined under Section 280G(b) of the Code), and the
amount of the Gross-Up Payment, shall be made by the Tax Advisor, which
shall provide detailed supporting calculations both to you and the
Company within thirty days after the Date of Termination. All such
determinations shall be made based upon the assumption that you are at
all times subject to income tax at the highest marginal rates that
could be applicable to you for the relevant periods, unless you inform
the Tax Advisor that a different marginal tax rate is applicable with
respect to you for income tax for such periods. The Company shall pay
to you the initial Gross-Up Payment within five days of the receipt
- 17 -
<PAGE> 19
by you and the Company of the Tax Advisor's determination. If the Tax
Advisor determines that no Excise Tax is payable by you, the Company
shall cause the Tax Advisor to provide you with an opinion that the Tax
Advisor has substantial authority under the Code and the regulations
thereunder not to report an Excise Tax on your federal income tax
return for each relevant period. If the initial Gross-Up Payment is
insufficient to cover the amount of the Excise Tax that is ultimately
determined to be owing by you with respect to any Payment (hereinafter
an "Underpayment"), the Company, after exhausting its remedies under
Subsection (ii) below (in the event of a claim by the Internal Revenue
Service), shall promptly pay to you an additional Gross-Up Payment in
respect of the Underpayment.
(ii) You shall notify the Company in writing of any claims
by the Internal Revenue Service that, if successful, would require the
payment by the Company of a Gross-Up Payment. Such notice shall be
given as soon as practicable after you know of such claim and shall
apprise the Company of the nature of the claim and the date on which
the claim is requested to be paid. You agree not to pay the claim until
the expiration of the 30-day period following the date on which you
notify the Company, or such shorter period ending on the date the
federal income and excise taxes with respect to such claim are due (the
"Notice Period"). If the Company notifies you in writing prior to the
expiration of the Notice
- 18 -
<PAGE> 20
Period that it desires to contest the claim, you shall: (i) give the
Company any information reasonably requested by the Company relating to
the claim; (ii) cooperate with the Company in good faith in contesting
the claim; and (iii) permit the Company to participate in any
proceedings relating to the claim. If you pay such claim and pursue a
refund, the Company shall advance the amount of such payment to you on
an after-tax and interest-free basis (the "Advance"). If the Company
does not notify you in writing prior to the end of the Notice Period of
its desire to contest the claim, the Company shall pay to you an
additional Gross-Up Payment in respect of the "excess parachute
payments" that are the subject of the claim, and you agree to pay the
amount of the Excise Tax that is the subject of the claim to the
applicable taxing authority in accordance with applicable law.
(iii) If, after receipt by you of an Advance, you become
entitled to a refund with respect to the claim to which such Advance
relates, you shall pay the Company the amount of the refund (together
with any interest paid or credited thereon after any taxes applicable
thereto). If, after receipt by you of an Advance, a determination is
made by a competent authority that you are not entitled to any refund
with respect to the claim and the Company does not promptly notify you
of its intent to contest the denial of such refund, then the amount of
the Advance shall not be required to be repaid by
- 19 -
<PAGE> 21
you and the amount thereof shall offset the amount of the additional
Gross-Up Payment then owing to you.
(iv) The Company shall indemnify you and hold you
harmless, on an after-tax basis, from and against any costs, expenses,
penalties, fines, interest or other liabilities ("Losses") incurred by
you with respect to the exercise by the Company of any of its rights
under this Section 4(d), including, without limitation, any Losses
related to the Company's decision to contest a claim or participate in
such contest or any imputed income to you resulting from any Advance or
action taken on your behalf by the Company hereunder.
(e) Payment Of Severance Payment.
(i) The Severance Payment to which you are entitled shall
be paid to you not later than the fifth day following your Date of
Termination, provided, however, that if the amount of such payment
cannot be fully determined on or before such day, the Company shall pay
to you on such day an estimate, as determined in good faith by the Tax
Advisor, of the amount of such payment and shall pay the remainder of
such payment (together with interest from such fifth day to the date of
such payment at a rate of interest per annum equal to the prime rate of
interest announced by Morgan Guaranty Trust Company of New York from
time to time plus 2 percentage points) as soon as the amount thereof
can be determined but in no event later than the thirtieth day after
your Date of
- 20 -
<PAGE> 22
Termination. In the event that the amount of the estimated payment
exceeds the amount subsequently determined to have been due, such
excess shall be payable by you to the Company, without interest, on the
fifth day after demand by the Company.
(ii) The Company also shall pay to you all legal fees and
expenses incurred by you as a result of your termination of employment
(including all such fees and expenses, if any, incurred in contesting
or disputing any such termination, in seeking to obtain or enforce any
right or benefit provided by this Agreement or in connection with any
tax audit or proceeding to the extent attributable to the application
of Section 4999 of the Code to any payment or benefit provided
hereunder). Such payments shall be made at the later of the times
specified in paragraph (i) above, or within five days after your
request for payment accompanied with such evidence of fees and expenses
incurred as the Company reasonably may require.
(f) No Mitigation. You shall not be required to mitigate
the amount of any payment provided for in this Section 4 by seeking other
employment or otherwise, nor shall the amount of any payment or benefit provided
for in this Section 4 be reduced by any compensation earned by you as the result
of employment by another employer, by retirement benefits, by offset against any
amount claimed to be owing by you to the Company, or otherwise, except as
provided in Section 4(c)(iii) above.
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<PAGE> 23
(g) Retirement Benefits. In addition to all other amounts
payable to you under this Section 4, you shall be entitled to receive all
benefits payable to you under all Retirement Arrangements.
(h) Tax Advisor. Each calculation necessary to effectuate
the provisions of this Section 4 shall be performed by the Tax Advisor within
the appropriate time periods specified herein for such calculation or, absent
such specification, prior to the date the Severance Payment is made to you
pursuant to Section 4(e) above. All issues with regard to those calculations
that are not specifically provided for by this Agreement shall be decided in a
manner that provides you with the greatest After-Tax Total Payment. Any
determination by the Tax Advisor shall be binding upon you and the Company.
5. Relationship to Other Agreements and Plans. To the
extent that any provision of any other agreement between Grace and you shall
limit, qualify or be inconsistent with any provision of this Agreement, then for
the purposes of this Agreement (while this Agreement remains in effect) the
provision of this Agreement shall control and such provision of such other
agreement shall be deemed to have been superseded, and to be of no force or
effect, as if such other agreement had been formally amended to the extent
necessary to accomplish such purpose. The Severance Payment shall not be
considered to be compensation for the purpose of any Retirement Arrangements,
Insurance Plans or compensation plans of Grace.
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<PAGE> 24
6. Successors.
(a) Successors to the Company.
If the NMC Disposition occurs and the Company is not the
Successor Corporation, the Company shall require the Successor Corporation to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would have been required to perform this
Agreement if the NMC Disposition had not taken place. The Company shall also
require any successor (whether direct or indirect, by purchase or merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of the Company (either before or after the NMC Disposition) to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would have been required to perform it if no such
succession had taken place. Failure of the Company to obtain such assumption and
agreement prior to the effectiveness of any such succession shall be a breach of
this Agreement and shall entitle you to compensation from the Company in the
same amount and on the same terms as you would be entitled hereunder if you
terminate your employment for Good Reason following a Change in Control of the
Company, except that for purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be deemed the Date of
Termination (provided you shall have delivered a Notice of Termination to the
Company). As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and/or any successor
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<PAGE> 25
to the Company's business and/or assets as aforesaid (including, but not limited
to, the Successor Corporation) which assumes and agrees to perform this
Agreement by operation of law or otherwise.
(b) Your Successors. This Agreement shall inure to the
benefit of and be enforceable by your personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If you should die while any amount would still be payable to you
hereunder if you had continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement to
your devisee, legatee or other designee or, if there is no such designee, to
your estate.
7. Notices. Notices and all other communications
provided for in this Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States registered or
certified mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement, provided
that all notices to the Company shall be directed to the attention of the Board
with a copy to the Secretary of the Company, or to such other address as either
party may have furnished to the other in writing in accordance herewith, except
that notice of change of address shall be effective only upon receipt.
8. Governing Law. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of New York.
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<PAGE> 26
9. Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
10. Arbitration. Any dispute or controversy arising under
or in connection with this Agreement shall be settled exclusively by arbitration
in accordance with the Commercial Arbitration Rules of the American Arbitration
Association. Such arbitration, whether commenced by you or the Company, shall be
conducted in either the city and state in which you reside, the city and state
in which the Company maintains its principal offices or the city and state in
which you were employed at the time the dispute or controversy arose, as
designated by you. Any arbitration pursuant to this provision shall be conducted
before an arbitrator to be selected by the Company from a list of three
arbitrators to be provided by you to the Company. All expenses, including
attorneys fees, which you incur as a result of the arbitration and/or the
dispute or controversy giving rise to the arbitration shall be paid directly by
the Company. In the event that you are entitled to, or believe that you are
entitled to, compensation pursuant to Section 4, the Company shall pay you such
compensation unless and until directed to cease such payments pursuant to an
award issued in accordance with this Section. Judgment may be entered on an
award issued pursuant to this Section in any court of competent jurisdiction. In
the event that the Company seeks to stay an arbitration sought under this
Section 10,
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<PAGE> 27
it shall post a bond, or provide similar security, in an amount equal to any
unpaid compensation which is due you, or claimed to be due you, pursuant to
Section 4.
11. General. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing and signed by you and such officer as may be specifically
designated by the Board or its Compensation, Employee Benefits and Stock
Incentive Committee or any successor to such Committee. No waiver by either
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.
No agreements or representations, oral or otherwise, express
or implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement.
The section and subsection headings contained in this
Agreement are for convenient reference only, and shall not in any way affect the
meaning or interpretation of this Agreement.
Any payments provided for hereunder shall be paid net of any
applicable withholding required under federal, state, local or foreign law.
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<PAGE> 28
The obligations of the Company under Section 4 shall survive
the expiration of the term of this Agreement.
12. Counterparts. This Agreement may be executed in
several counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument. If this letter sets
forth our agreement on the subject matter hereof, kindly sign and return to the
Secretary of the Company the enclosed copy of this letter which will then
constitute our agreement on this subject.
By your signing this Agreement, you agree that, as of the date
hereof, this Agreement supersedes any and all prior agreements between you and
the Company setting forth your severance benefits in the event of a Change in
Control of the Company.
Sincerely,
W. R. GRACE & CO.
By_______________________________
Chairman, President and
Chief Executive Officer
Agreed to __________, 1996
__________________________
Name: ____________________
- 27 -
<PAGE> 1
EXHIBIT 10.35
<PAGE> 2
[GRACE LOGO]
C. L. Hampers, M.D.
Executive Vice President
& Director
W. R. Grace & Co.
National Medical Care, Inc.
Chief Executive Officer
1601 Trapelo Road
Waltham, MA 02154
June 14, 1996
Mr. Albert J. Costello
Chairman, President and
Chief Executive Officer
W. R. Grace & Co.
One Town Center Road
Boca Raton, Florida 33486-1010
Dear Al:
The purpose of this letter is to confirm our agreement
regarding (a) my resignation from various positions I hold with W. R. Grace &
Co. ("Grace") and its subsidiaries, including National Medical Care, Inc.
("NMC"), and (b) my Employment Agreement dated as of April 1, 1991 with W. R.
Grace & Co.-Conn. ("Grace Connecticut"), a subsidiary of Grace, as amended by a
letter agreement dated March 29, 1996 (such Employment Agreement, as so amended,
the "Employment Agreement"), as follows:
1. Effective immediately, I hereby resign all offices
and directorships I hold with Grace and its subsidiaries and affiliates
(including, without limitation, NMC).
2. I will continue to receive my current salary (at the
annual rate of $875,270), as well as the benefits that I currently receive
pursuant to the Employment Agreement, until December 31, 1996 (except that my
participation in the Grace Long Term Disability Income Plan and the disability
provisions of the Executive Salary Protection Plan will cease immediately).
3. As of January 1, 1997, I will be eligible to commence
receiving the pension benefit specified in Section 3.5 of the Employment
Agreement.
4. I will be entitled to participate in Grace's Annual
Incentive Compensation Program for 1996, and the amount of any award payable to
me under that Program for 1996 shall not be paid on a pro rata basis. I
understand that the
<PAGE> 3
Mr. Albert J. Costello
June 14, 1996 Page 2.
amount of my award under that Program will be calculated by multiplying (a) my
1996 annual incentive compensation award target (which is $490,151 -- i.e., 56%
of my annual salary) by (b) the percentage of the 1996 NMC incentive
compensation pool that is earned by reference to the actual 1996 performance of
NMC, as specified by the attached 1996 NMC annual bonus schedule.
5. My participation in Grace's Long-Term Incentive
Program ("LTIP") for the 1994-1996 and 1995-1997 Performance Periods will vest
immediately, and any awards payable with respect thereto shall be paid to me at
the same time as other participants. Any such award payable with respect to the
1994-1996 Performance Period will not be paid on a pro rata basis. Any such
award payable with respect to the 1995-1997 Performance Period will be paid on a
pro rata basis to reflect a "cut-off" date of December 31, 1996. I understand
that I will not participate in the LTIP with respect to any Performance Periods
other than those specified in this paragraph.
6. I will continue to have the use of the "Plane" (as
defined in the Employment Agreement) until June 30, 1996. For the period from
June 30, 1996 to the date of the merger of Grace (the parent company of NMC)
with a subsidiary of Fresenius Medical Care AG (the "Fresenius Transaction"), I
may submit to you a request to use the "Plane" and you will permit me to use the
"Plane" subject to its availability.
7. You have informed me that Grace would be willing to
sell me the "Plane" at fair market value. I agree to notify Brian McGowan at
Grace Headquarters in writing by no later than June 30, 1996 if I wish to
purchase the "Plane". Grace agrees to inform me in writing of the "Plane's" fair
market value by no later than 7 days after receiving my notification. If I
object to the amount determined by Grace to be the fair market value of the
"Plane", I will notify Grace in writing within 10 days after receiving the
notice from Grace of its determination of fair market value, and I and Grace
will select a mutually agreeable appraiser (within 10 days of Grace receiving my
objection) whose determination of fair market value shall be final and binding
on Grace and me. If I notify Grace that I wish to purchase the "Plane" in
accordance with this paragraph, Grace and I agree to negotiate in good faith the
definitive terms of the agreement providing for such purchase, and agree that
the purchase by me of the "Plane" must be substantially completed by the date of
the Fresenius Transaction.
If I purchase the "Plane", the following amount will be
deducted from the purchase price of the "Plane": 65 minus the number of hours
actually used by me for private purposes in 1996 (up to the date that the
ownership of the "Plane" is transferred to me), multiplied by $1,800.
<PAGE> 4
Mr. Albert J. Costello
June 14, 1996 Page 3.
8. As you know, under Section 3.6 of the Employment
Agreement, each year I am entitled to a payment from Grace equal to 3% of my
base salary and annual incentive compensation, which is a savings and investment
plan replacement payment. That payment is made each March for the prior calendar
year. I will receive such a payment in March of 1997, which will equal 3% of my
the base salary and annual incentive compensation that I receive in 1996.
9. As you know, I am currently provided with the use of
an automobile at the expense of Grace (and/or NMC). I will continue to be
provided with the use of such automobile until the date of the Fresenius
Transaction. If I notify Grace that I wish to purchase such automobile on or
before that date, Grace agrees to sell such automobile to me at its sales price
offered by the leasing company or other owner of the automobile.
10. My Executive Severance Agreement with Grace, dated
September 1, 1992, is hereby terminated and of no further force and effect,
effective immediately.
11. The Employment Agreement is hereby terminated and of
no further force and effect, effective immediately; except as set forth herein
and except that the provisions of Article 4 of the Employment Agreement (which
is entitled "Non-competition Covenant"), and of Section 2(a) of the March 29,
1996 letter agreement amending the Employment Agreement (which is my
acknowledgment that I will not be eligible for certain compensation programs
including the "stay bonuses" established in connection with the NMC
disposition), shall remain in effect. Therefore, in accordance with this
paragraph, I will not be entitled to serve as a consultant to Grace (and/or its
subsidiaries and affiliates) as provided by the Employment Agreement.
12. The provisions of Sections 8.4 and 8.5 of the
Employment Agreement shall apply to this letter agreement as if fully set forth
herein.
As you know, this letter agreement is in conjunction with an
agreement that I am endeavoring to enter with Fresenius AG and/or its
subsidiaries, which will provide that I receive certain payments and which will
otherwise outline the terms of my relationship with that organization. In the
event that I do not finalize such an agreement with Fresenius AG and/or its
subsidiaries, then, effective January 1, 1997, the Employment Agreement will be
converted into a consulting agreement upon the terms and conditions set forth in
Section 7 of the Employment Agreement, and paragraphs 6 and 8 of this letter
agreement will become void.
<PAGE> 5
Mr. Albert J. Costello
June 14, 1996 Page 4.
If the foregoing correctly sets forth our understanding,
please sign this letter and the accompanying copy as indicated below and return
one copy to me.
Very truly yours,
Constantine L. Hampers
Agreed as set forth above:
W. R. Grace & Co.
By: /s/ Albert J. Costello
-------------------------
Albert J. Costello
Chairman, President and
Chief Executive Officer
<PAGE> 6
Proposed Payout Schedule for 1996 Annual Bonus Pool
NMC (Ex-Amicon Only)
(000 $s)
<TABLE>
<CAPTION> Incentive
Pool as a %
1996 of Targeted
Earnings Award
-------- -----------
<S> <C>
264,777* 90.0%
265,350 91.0%
265,923 92.0%
266,497 93.0%
267,070 94.0%
267,643 95.0%
268,216 96.0%
268,790 97.0%
269,363 98.0%
269,936 99.0%
270,509 100.0%
271,958 105.0%
273,408 110.0%
274,857 115.0%
276,306 120.0%
277,755 125.0%
279,204 130.0%
280,653 135.0%
282,102 140.0%
283,551 145.0%
285,000 150.0%
286,000 155.0%
287,000 160.0%
288,000 165.0%
289,000 170.0%
290,000 175.0%
291,000 180.0%
292,000 185.0%
293,000 190.0%
294,000 195.0%
295,000 200.0%
</TABLE>
*1995A Earnings (without Amicon) = $264,777. Assumes starting point can't be
less than prior year actuals.
<PAGE> 1
EXHIBIT 10.36
<PAGE> 2
W. R. GRACE & CO.
NON-STATUTORY STOCK OPTION
Under the W. R. Grace & Co. 1994 Stock Incentive Plan (the "Plan")
Granted To: ALBERT J. COSTELLO
Date of Grant: May 1, 1995
Expiration Date: April 30, 2005
In accordance with the Plan (a copy of which is attached
hereto as Annex A), you are hereby granted an Option to purchase 300,000 shares
of Common Stock upon the following terms and conditions:
(1) The purchase price shall be $52.3750 per share.
(2) Subject to the other provisions hereof, this Option shall become
exercisable as follows:
100,000 shares on May 2, 1996
100,000 shares on May 2, 1997
100,000 shares on May 2, 1998,
except that it shall become exercisable in full upon the occurrence of any of
the events specified in section 3(g)(iii) of the Employment Agreement dated May
1, 1995 between you and the Company, as such Agreement may be amended from time
to time.
Once exercisable, an installment may be exercised (together with any other
installments that have become exercisable) at any time in whole or in part until
the expiration or termination of this Option.
(3) This Option shall not be treated as an Incentive Stock Option (as
such term is defined in the Plan.)
(4) This Option may be exercised only by serving written notice on the
Treasurer of the Company. The purchase price shall be paid in cash or, with the
permission of the Company, in shares of Common Stock or in a combination of cash
and such shares (see section 6(a) of the Plan). Any shares of Common Stock
applied toward the purchase price payable upon exercise of this Option must have
been owned by you for at least six months prior to such exercise, and if such
shares were granted to you by the Company subject to restrictions, such
restrictions must have lapsed at least six months prior to such exercise.
(5) This Option and any right thereunder is nonassignable and
nontransferable except by will or the laws of descent and distribution, and is
exercisable during your lifetime only by you. If you cease to serve the Company
or a Subsidiary, this Option shall terminate as provided in section 6(d) of the
Plan, subject, however, to the following:
THIS DOCUMENT CONSTITUTES PART OF A
PROSPECTUS COVERING SECURITIES THAT
HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933.
0000080563
<PAGE> 3
-2-
(a) In the event you should become incapacitated or die and
neither you nor your legal representative(s) or other
person(s) entitled to exercise this Option exercise this
Option to the fullest extent possible on or before its
termination, the Company shall pay you, your legal
representative(s) or such other person(s), as the case may
be, an amount of money equal to the Fair Market Value of any
shares remaining subject to this Option on the last date it
could have been exercised, less the aggregate purchase price
of such shares.
(b) Notwithstanding any provision of the Plan, in the event (i)
you voluntarily retire under a retirement plan of the Company
or a Subsidiary prior to the date on which the first
installment of this Option becomes exercisable and (ii) you
do not continue to serve the Company or a Subsidiary until
such date, this Option shall terminate as of the date you
cease to serve.
(c) In the event you cease to serve as an employee but
immediately thereafter commence to serve as a consultant and
subsequently you cease to serve as a consultant for reasons
other than those described in clause (i) of section 6(d) of
the Plan, this Option shall terminate three years after the
cessation of your service as a consultant, but subject to the
limitation set forth in the fifth sentence of such section
6(d).
(6) If you are or become an employee of, or a consultant to, a
Subsidiary, the Company's obligations hereunder shall be contingent on the
approval of the Plan and this Option by the Subsidiary and the Subsidiary's
agreement that (a) the Company may administer this Plan on its behalf and, (b)
upon the exercise of this Option, the Subsidiary will purchase from the Company
the shares subject to the exercise at their Fair Market Value on the date of
exercise, such shares to be then transferred by the Subsidiary to the holder of
this Option upon payment by the holder of the purchase price to the Subsidiary.
Where appropriate, such approval and agreement of the Subsidiary shall be
indicated by its signature below. The provisions of this paragraph and the
obligations of the Subsidiary so undertaken may be waived, in whole or in part,
from time to time by the Company.
<PAGE> 4
-3-
(7) The Plan is hereby incorporated by reference. Terms defined in the
Plan shall have the same meaning herein. This Option is granted subject to the
Plan and shall be construed in conformity with the Plan.
W. R. GRACE & CO.
/s/ Donald H. Kohnken
Executive Vice President
Approved and Agreed to:*
____________________________
(Name of Subsidiary)
By__________________________
(Authorized Officer)
RECEIPT ACKNOWLEDGED:
______________________
=========================
* This will be completed only if you are or become an employee of, or a
consultant to, a Subsidiary.
<PAGE> 1
EXHIBIT 10.37
<PAGE> 2
W. R. GRACE & CO. ("COMPANY")
NON-STATUTORY STOCK OPTION
Under the W. R. Grace & Co. 1989 Stock Incentive Plan ("Plan")
Granted To: ALBERT J. COSTELLO
Date of Grant: March 6, 1996
Expiration Date: March 5, 2006
In accordance with the Plan (a copy of which is attached
hereto as Annex A), you are hereby granted an Option to purchase 50,000 shares
of the Company's Common Stock ("Option") upon the following terms and
conditions:
(1) The purchase price shall be $79.875 per share.
(2) Subject to the other provisions hereof, this Option shall become
exercisable as follows:
16,666 shares on March 7, 1997
16,667 shares on March 7, 1998
16,667 shares on March 7, 1999,
except that it shall become exercisable in full upon the occurrence of any of
the events specified in section 3(g)(iii) of the Employment Agreement dated May
1, 1995 between you and the Company, as such Agreement may be amended from time
to time.
Once exercisable, an installment may be exercised (together with any other
installments that have become exercisable) at any time, in whole or in part,
until the expiration or termination of this Option.
(3) This Option shall not be treated as an Incentive Stock Option (as
such term is defined in the Plan.)
(4) This Option may be exercised only by serving written notice on the
Treasurer of the Company or his designee. The purchase price shall be paid in
cash or, with the permission of the Company, in shares of Common Stock or in a
combination of cash and such shares (see section 6(a) of the Plan). Any shares
of Common Stock applied toward the purchase price payable upon exercise of this
Option must have been owned by you for at least six months prior to such
exercise, and if such shares were granted to you by the Company subject to
restrictions, such restrictions must have lapsed at least six months prior to
such exercise.
(5) Neither this Option nor any right thereunder nor any interest
therein may be assigned or transferred by you, except by will or the laws of
descent and distribution. This Option is exercisable during your lifetime only
by you. If you cease to serve the Company or a Subsidiary (as defined in the
Plan), this Option shall terminate as provided in section 6(d) of the Plan,
subject, however, to the following:
THIS DOCUMENT CONSTITUTES PART OF A
PROSPECTUS COVERING SECURITIES THAT
HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933.
<PAGE> 3
-2-
(a) For the purposes of said section 6(d), your service shall be
deemed to have terminated by reason of retirement if (i) you
retire under a retirement plan of the Company or a
Subsidiary, (ii) the retirement is voluntary, and (iii) you
have served the Company or a Subsidiary for at least five
years. Any other retirement may, at the discretion of the
Company, be deemed to be a resignation.
(b) In the event you should become incapacitated or die and
neither you nor your legal representative(s) or other
person(s) entitled to exercise this Option exercise this
Option to the fullest extent possible on or before its
termination, the Company shall pay you, your legal
representative(s) or such other person(s), as the case may
be, an amount of money equal to the Fair Market Value (as
defined in the Plan) of any shares remaining subject to this
Option on the last date it could have been exercised, less
the aggregate purchase price of such shares.
(c) Notwithstanding any provision of the Plan, in the event (i)
you voluntarily retire under a retirement plan of the Company
or a Subsidiary prior to the date on which the first
installment of this Option becomes exercisable and (ii) you
do not continue to serve the Company or a Subsidiary until
such date, this Option shall terminate as of the date you
cease to serve.
(d) In the event you cease to serve the Company or a Subsidiary
as an employee but immediately thereafter commence to serve
as a consultant and subsequently you cease to serve as a
consultant for reasons other than those described in clause
(i) of section 6(d) of the Plan, this Option shall terminate
three years after the cessation of your service as a
consultant, but subject to the limitation set forth in the
fifth sentence of such section 6(d).
(6) If you are or become an employee of, or a consultant to, a
Subsidiary, the Company's obligations hereunder shall be contingent on the
approval of the Plan and this Option by the Subsidiary and the Subsidiary's
agreement that (a) the Company may administer this Plan on its behalf and, (b)
upon the exercise of this Option, the Subsidiary will purchase from the Company
the shares subject to the exercise at their Fair Market Value on the date of
exercise, such shares to be then transferred by the Subsidiary to the holder of
this Option upon payment by the holder of the purchase price to the Subsidiary.
Where appropriate, such approval and agreement of the Subsidiary shall be
indicated by its signature below. The provisions of this paragraph and the
obligations of the Subsidiary so undertaken may be waived, in whole or in part,
at any time or from time to time, by the Company.
<PAGE> 4
-3-
(7) The Plan is hereby incorporated by reference. Terms defined in the
Plan shall have the same meaning herein. This Option is granted subject to the
Plan and shall be construed in conformity with the Plan.
W. R. GRACE & CO.
By_________________
P. J. Hamilton
Senior Vice President, Human Resources
Approved and Agreed to:*
____________________________
(Name of Subsidiary)
By__________________________
(Authorized Officer)
RECEIPT ACKNOWLEDGED:
________________________
* This will be completed only if you are or become an employee of, or a
consultant to, a Subsidiary.
<PAGE> 1
EXHIBIT 10.39
<PAGE> 2
April 11, 1996
Dear :
------------------------
Re: Indemnification
This will confirm that W. R. Grace & Co. ("Grace") will defend and indemnify you
in accordance with the provisions of Article VII of its by-laws in the various
actions in which you are a defendant which are listed on the enclosure to this
letter (the "Lawsuits"). The law firm of Wachtell, Lipton, Rosen & Katz
("Wachtell, Lipton") has been retained to represent Grace and the individual
defendants in the defense of the Lawsuits. For so long as Grace deems it
appropriate and in the best interest of Grace to do so, Grace will pay the
ordinary and necessary attorneys' fees and related expenses incurred by all
defendants (including you) in the joint defense of the Lawsuits. In the event
that it is ultimately determined pursuant to the provisions of the New York
Business Corporation Law that you are not entitled to indemnification, you agree
to repay the amounts advanced by Grace on your behalf.
Grace is not aware at this time of any facts which might lead to a conflict of
interest between Grace, you or the other individual defendants in connection
with the defense of the Lawsuits. You are certainly free to consult your own
lawyer to confirm this, and we encourage you to do so if you have any reason to
believe that a conflict may develop in the future. In the event that such a
conflict should develop, Wachtell, Lipton may be required to resign your
representation. In that event, you will need to obtain new counsel. It is
understood and agreed, however, that Wachtell, Lipton may continue to represent
Grace and the other individual defendants in the Lawsuits.
You acknowledge and confirm that you shall, during the period in which Grace is
providing you with a defense in accordance with the provisions of this letter,
fully cooperate in the defense of the Lawsuits.
<PAGE> 3
-2-
This undertaking on the part of Grace does not constitute an acknowledgment or
agreement by Grace that its payment of Wachtell, Lipton's fees and expenses will
continue for any specific time period or that Grace will reimburse you for any
other legal fees or expenses you may incur with respect to the Lawsuits. Grace
may discontinue the undertaking stated herein at any time in its sole
discretion, with or without cause. This undertaking by Grace does not constitute
an acknowledgment or agreement by Grace that you are entitled to indemnification
or that any of your conduct was within or outside the scope of your duties as an
officer and/or director of Grace or that the conduct in the performance of your
duties was not wrongful.
No provision of this letter may be modified, waived or discharged unless such
modification, waiver or discharge is agreed to in writing and signed by you and
an authorized representative of Grace. The terms of this letter shall be
governed by the laws of the State of New York.
By signing the acknowledgment appearing at the end of this letter, you confirm
that this letter is in accordance with your understanding of how you and Grace
will proceed in connection with the defense of the Lawsuits. Please sign and
date the enclosed copy of this letter in the spaces provided for those purposes,
have a witness also sign and date the enclosed copy of this letter in the spaces
provided below for those purposes, and return the fully signed copy of this
letter to me. You should also keep a fully signed copy of this letter for your
file. Please do not hesitate to contact either me or Bob Lamm if you have any
questions or comments concerning this matter.
Very truly yours,
<PAGE> 4
-3-
AGREED AND ACCEPTED:
_____________________________
(Name)
Date:________________________
WITNESS:
____________________________
Date:________________________
<PAGE> 1
[Execution Copy]
GUARANTEE AGREEMENT
AGREEMENT dated as of July 31, 1996 among FRESENIUS MEDICAL
CARE GMBH, a German corporation and the predecessor of Fresenius Medical Care AG
("FMC"), the UNITED STATES OF AMERICA ("Beneficiary"), W. R. GRACE & CO., a New
York corporation ("Grace-NY") and NATIONAL MEDICAL CARE, INC., an indirect
wholly-owned subsidiary of Grace-NY (the "Primary Guarantee").
Background
A. National Medical Care, Inc. and its subsidiaries,
affiliates and divisions, including, but not limited to NMC Homecare Division,
NMC Dialysis Services Division, LifeChem, Inc., NMC Diagnostic Services, Inc.
and NMC Medical Products Division, and any divisions and subsidiaries thereof
(collectively referred to as "NMC") are the subject of an investigation being
conducted by the Office of the Inspector General of the United States Department
of Health and Human Services, the United States Department of Justice Civil
Division, the United States Attorneys for the Districts of Massachusetts and the
Southern District of Florida and others concerning possible violations of
federal laws relating to health care payments and reimbursement (the "OIG
Investigation").
B. A qui tam action has been filed under seal in the United
States District Court for the Southern District of Florida in the name and on
behalf of Beneficiary against NMC, NMC Homecare Division, Inc., Grace-NY and W.
R. Grace & Co.-- Conn. ("Grace Chemicals") alleging, inter alia, that NMC,
Grace-NY and Grace Chemicals violated the False Claims Act,
<PAGE> 2
31 U.S.C. Sections 3729 et seq., and seeking a preliminary injunction and other
equitable relief with respect to the Reorganization, as defined below (the
"Florida Action"). The matters alleged in the Florida Action are also a subject
of the OIG Investigation.
C. Grace-NY and Fresenius AG, a German health care
corporation, have entered into an Agreement and Plan of Reorganization dated as
of February 4, 1996 (as amended, modified or supplemented from time to time on
or before the Closing Date referred to therein, the "Reorganization Agreement")
pursuant to which Grace-NY will become a wholly-owned subsidiary of FMC. The
transactions contemplated by the Reorganization Agreement and all or any part
thereof are hereinafter referred to as the "Reorganization." The Reorganization
shall be deemed to have been consummated as of the Effective Time as defined in
the Reorganization Agreement. After consummation of the Reorganization,
Fresenius USA, Inc. will be contributed to Grace-NY.
D. Beneficiary has (i) expressed concerns that the
Reorganization may adversely affect the financial ability of NMC to pay any
liability that it may have relating to or arising out of the OIG Investigation
and the Florida Action (the "Government Claims") and (ii) advised Grace-NY and
FMC that Beneficiary is considering its remedies with respect to the
Reorganization.
E. Beneficiary has agreed to refrain from taking certain
action as set forth in Section 6 below if FMC and Grace-NY (jointly, the
"Guarantors") provide a guarantee and NMC provides a letter of credit with
respect to payment of the Government Claims, and the Guarantors and NMC are
willing to provide such a guarantee and letter of credit, all subject to and in
accordance with the terms and conditions set forth below.
<PAGE> 3
[Execution Copy]
Contemporaneously herewith, Grace Chemicals and Beneficiary are entering into a
separate guarantee agreement (the "Grace Chemicals Guarantee"), the execution
and delivery of which are essential elements and conditions of Beneficiary's
agreement to the terms set forth below.
THEREFORE, it is agreed:
Terms and Conditions
1. Guarantee. (a) Effective upon consummation of the
Reorganization, the Guarantors jointly and severally unconditionally guarantee
to Beneficiary the prompt payment when due of all obligations (the
"Obligations") of NMC to Beneficiary in respect of the Government Claims. For
purposes of this Agreement, an alleged liability or other obligation shall be
deemed an Obligation only if (i) it is determined to be an actual liability or
obligation of NMC to Beneficiary in respect of a Government Claim pursuant to an
Actionable Order (as defined below) or (ii) it is agreed to be such in a writing
(a "Settlement Agreement") executed by FMC, Grace-NY or NMC and Beneficiary. An
"Actionable Order" is an order entered by a court of competent jurisdiction (x)
that has become final and nonappealable or (y) with respect to which enforcement
during the pendency of an appeal has not been stayed by the posting of a
supersedeas bond (or similar bond or credit support) or otherwise by order of a
court of competent jurisdiction. For purposes of this Agreement, an Obligation
is due on the date (the "Obligation Due Date") when the order giving rise to
such Obligation becomes an Actionable Order or when the Settlement Agreement
<PAGE> 4
giving rise to such Obligation states that such Obligation is due.
(b) As credit support for the foregoing guarantee, NMC shall
deliver to Beneficiary on or before consummation of the Reorganization an
irrevocable standby letter of credit (including any renewals thereof or
replacements therefor, the "Letter of Credit") issued by The Chase Manhattan
Bank, NationsBank, N.A. or another bank acceptable to Beneficiary and in a form
acceptable to Beneficiary in the amount of $150 million, which Letter of Credit
shall provide that it may be drawn immediately upon the presentation by
Beneficiary to the issuer at an office located in the United States of a sight
draft payable to Beneficiary or its designee in the amount of the draw and a
certificate signed by Beneficiary stating that (i) Obligations in the amount of
the draw have not been paid as of the Obligation Due Date (an "Obligation
Payment Default") or (ii) the Letter of Credit is scheduled to expire within 30
days and as of the 30th day prior to expiration Beneficiary has not received a
new Letter of Credit on the same terms. FMC shall provide Beneficiary with at
least 30 days prior written notice of the expiration of the Letter of Credit
unless the Letter of Credit has been renewed or replaced before the 30th day
preceding its expiration. Beneficiary shall return the Letter of Credit for
cancellation when all Obligations shall have been paid in full and no other
Government Claims remain outstanding or it is determined, by Beneficiary or
pursuant to a final and nonappealable order of a court of competent
jurisdiction, that NMC does not have any liability or obligations to Beneficiary
in respect of the Government Claims (the "Cancellation Date"). Delivery to
Beneficiary of the Letter of Credit is an express condition to Beneficiary's
agreement to the terms of this
<PAGE> 5
[Execution Copy]
Agreement.
(c) If Beneficiary draws on the Letter of Credit pursuant to
clause (ii) of the first sentence of Section 1(b) above at a time when no
Obligation Payment Default exists, the proceeds of such draw shall be held in an
interest-bearing escrow arrangement (the "Escrow Arrangement") that will provide
for (i) prompt payment of the escrowed funds to Beneficiary to the extent of any
Obligation Payment Default, (ii) if the amount of the Obligations has been
established by an Actionable Order or Settlement Agreement, prompt payment of
escrowed funds to NMC to the extent the amount of the escrowed funds exceeds the
amount of the unpaid Obligations and no other Government Claims remain
outstanding and (iii) prompt payment of all then remaining escrowed funds to NMC
upon the Cancellation Date. Such Escrow Arrangement will be established pursuant
to an escrow agreement to be negotiated in good faith by NMC and Beneficiary and
the expense of which will be borne by NMC, provided, however, that in the event
NMC and Beneficiary have not executed and delivered such an escrow agreement by
the time the proceeds of such draw have been received by Beneficiary or its
designee, then Beneficiary shall deposit (or arrange to have deposited) such
proceeds with a bank or trust company in escrow pursuant to an escrow
arrangement (at the expense of NMC) that Beneficiary determines to be consistent
with the immediately preceding sentence.
2. Nature of Guarantee. The guarantee of the Guarantors set
forth in Section 1 hereof constitutes a guarantee of payment upon the Obligation
Due Date and not collection. The
<PAGE> 6
obligation of the Guarantors hereunder shall not be affected by any event,
occurrence or circumstance which might otherwise constitute a legal or equitable
discharge or defense of a guarantor or surety (other than payment of the
Obligations). In the event that any payment by NMC of any Obligations is
rescinded or must otherwise be returned for any reason whatsoever, the
Guarantors shall remain liable hereunder with respect to such Obligations as if
such payment had not been made. The Guarantors agree that Beneficiary may resort
to either or both of them for payment of any of the Obligations, whether or not
Beneficiary shall have resorted to any collateral security, or shall have
proceeded against NMC or any other person or entity primarily or secondarily
obligated in respect of any of the Obligations.
3. Subrogation. The Guarantors shall not exercise any rights
which they may acquire by way of subrogation until all of the Obligations to
Beneficiary shall have been paid in full. Subject to the foregoing, upon payment
of all of the Obligations, each Guarantor shall to the extent of its payment of
the Obligations be subrogated to the rights of Beneficiary against NMC, and
Beneficiary agrees to take at each Guarantor's expense such steps as such
Guarantor may reasonably request to implement such subrogation.
4. No Waiver; Cumulative Rights. No failure on the part of
Beneficiary to exercise, and no delay in exercising, any right, remedy or power
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise by Beneficiary of any right, remedy or power hereunder preclude any
other or future exercise of any right, remedy or power. Each and every right,
remedy and power hereby granted to Beneficiary or allowed it by law or other
agreement shall be cumulative and not
<PAGE> 7
[Execution Copy]
exclusive of any other, and may be exercised by Beneficiary from time to time.
5. Waiver of Notice. Each Guarantor waives notice of the
acceptance of this guarantee, presentment, demand, notice of dishonor, protest,
notice of sale of any collateral security and all other notices whatsoever.
6. Agreements of Beneficiary. Except as set forth in Section 7
below, Beneficiary, acting solely in its capacity as holder of the Government
Claims, agrees that (a) it shall not take any action whatsoever to impede,
prohibit, enjoin, delay or otherwise interfere with consummation of the
Reorganization on grounds that the Reorganization constitutes a fraudulent
transfer, fraudulent conveyance or other similarly avoidable transfer as to
Beneficiary, (b) upon request by FMC, NMC or Grace-NY, it shall represent to any
court presented with an attempt by the Relator in the Florida Action or any
other Relator in any other qui tam action relating in substantial part to
matters that are the subject of the Florida Action or the OIG Investigation to
impede, prohibit, enjoin, delay or otherwise interfere with consummation of the
Reorganization that the terms of this Agreement and the Grace Chemicals
Guarantee together satisfy its concerns with respect to the Reorganization as
expressed in paragraph D above, and (c) effective upon consummation of the
Reorganization, it releases and discharges Grace-NY, NMC, FMC, the financial
institutions underwriting, arranging or otherwise participating in any manner in
the Reorganization or the financings contemplated thereby or consummated in
connection therewith, all of the corporate parents,
<PAGE> 8
subsidiaries and affiliates of the foregoing persons and entities described in
this clause (c), and all of the respective shareholders, officers, directors,
investment bankers, agents, accountants and attorneys of the foregoing persons
and entities described in this clause (c) (collectively, the "Releasees") from
any and all claims, liabilities and causes of action to the effect that the
Reorganization constitutes a fraudulent transfer, fraudulent conveyance or other
similarly avoidable transfer as to Beneficiary, solely in its capacity as holder
of the Government Claims. Notwithstanding the foregoing, in the event this
Agreement, the Grace Chemicals Guarantee or the Letter of Credit (or the Escrow
Arrangement established for the proceeds thereof pursuant to Section 1(c) above)
shall become invalid or unenforceable (except to the extent that enforcement is
stayed pursuant to a bankruptcy proceeding or similar proceeding for the relief
of debtors) then the releases contained in clause 6(c) shall be deemed null and
void.
7. Matters Not Released. (a) Beneficiary is not releasing
under this Agreement, and the releases contained in Section 6 hereof do not
include within their coverage, claims, liabilities and other obligations to (i)
Beneficiary arising under the terms of this Agreement, (ii) the Internal Revenue
Service arising under the Internal Revenue Code, (iii) the Securities and
Exchange Commission arising under any applicable securities laws, and (iv) the
Antitrust Division of the Department of Justice arising under any applicable
antitrust or trade regulation laws.
(b) Nothing in this Agreement shall be construed to constitute
a release by any agency or instrumentality of the United States (including the
Department of Justice) that does not derive a benefit under this Agreement, the
Letter of Credit
<PAGE> 9
[Execution Copy]
(or the Escrow Arrangement established for the proceeds thereof pursuant to
Section 1(c) above) and the Grace Chemicals Guarantee.
(c) Nothing in this Agreement shall be construed to constitute
a release from any claim, liability or obligation (criminal, civil or
administrative) arising out of or relating in any way to the OIG Investigation
and the Florida Action; although not exhaustive, specifically excluded from the
scope of the release contained in Section 6 of this Agreement are claims,
liabilities or obligations under the civil False Claims Act, 31 U.S.C. Sections
3729 et seq. (as amended), the Medicare Anti-kickback Act, 42 U.S.C. Section
1320a-7(b), the Civil Monetary Penalties Law, 42 U.S.C. Sections 1320a-7a, the
Program Fraud Civil Remedies Act, 31 U.S.C. Sections 3801-3812, Title XVIII of
the Social Security Act, 42 U.S.C. Section 1395 et seq., Sections 287, 371,
1001, 1341 and 1343 of Title 18 of the United States Code, common law theories
for breach of contract, fraud (other than the fraudulent transfer theories
described in Section 6(c)), payment by mistake of fact or unjust enrichment, or
the provisions for suspension of Medicare funds in 42 C.F.R. Section 371(a) or
(b) or exclusion from the Medicare and State health care programs in 42 U.S.C.
Section 1320a-7(b). This Agreement shall not be construed to release any entity
or individual not referred to in Section 6 above.
8. Good Faith Negotiations. The parties hereto agree that they
will negotiate in good faith to attempt to arrive at a consensual resolution of
the Government Claims and, in the context of such negotiations, will negotiate
in good faith as to the need for any structuring of the payment of any
<PAGE> 10
Obligations arising under such resolution, taking into account the ability of
FMC to pay the Obligations. Nothing herein shall be construed to obligate any
person to enter into any settlement of the Government Claims or to agree to a
structured settlement. The provisions of this Section 8 are precatory and a
statement of intent only, and (a) compliance by Beneficiary with such provisions
is not a condition or defense to the obligations of any Guarantor under this
Agreement and (b) breach of such provisions by Beneficiary cannot and will not
be raised by any Guarantor to excuse performance of its obligations hereunder.
9. Termination of Agreement. If the Reorganization is not
consummated on or before October 1, 1996, this Agreement shall terminate and be
of no further force and effect unless all of the parties hereto agree otherwise
in writing. If the Reorganization Agreement is amended, modified or supplemented
(other than an amendment, modification or supplement that solely extends to a
date not later than October 1, 1996 the date by which consummation of the
Reorganization is required to occur) after the date of this Agreement, FMC shall
provide Beneficiary with written notice (the "Amendment Notice") describing the
nature of such amendment, modification or supplement together with a copy of all
documents constituting such amendment, modification or supplement. If
Beneficiary determines that such amendment, modification or supplement is
adverse to its interests, Beneficiary shall have the right to terminate this
Agreement and the Grace Chemicals Guarantee (but not solely this Agreement) by
delivering written notice of such termination to the Guarantors within 10
business days of Beneficiary's actual receipt of such Amendment Notice.
10. Miscellaneous. No party to this Agreement may assign its
rights, interest or obligations hereunder to any
<PAGE> 11
[Execution Copy]
other person or entity without the prior written consent of the other parties.
This Agreement shall not be amended except in a writing signed by all of the
parties hereto. The provisions of this Agreement shall be binding upon the
parties hereto and their successors (including, in the case of FMC, Fresenius
Medical Care AG). This Agreement may be executed in counterparts, each of which
shall constitute an original and all of which shall constitute one and the same
agreement. Each Releasee which is not a party to this Agreement is a third party
beneficiary hereof solely for purposes of asserting this Agreement as a defense
in any action brought by Beneficiary in violation of Section 6(c) hereof. The
parties acknowledge and agree that Grace Chemicals is a third party beneficiary
hereof solely for purposes of enforcing, by an action in its own name against
each Guarantor, the obligation of such Guarantor under this Agreement to pay the
Obligations to Beneficiary, provided, however that no such action by Grace
Chemicals shall in any way affect, limit or delay Beneficiary's rights under the
Grace Chemicals Guarantee or Grace Chemicals' obligations thereunder. Each
signatory hereto represents and warrants that he or she is authorized to execute
and deliver this Agreement on behalf of the party for whom he or she is
purporting to act. Each party hereto represents and warrants that this Agreement
constitutes its valid and binding agreement, enforceable against such party in
accordance with its terms. This Agreement embodies the entire agreement between
Guarantors and Beneficiary. There are no promises, terms, conditions, or
obligations other than those contained in this Agreement. This Agreement
supersedes all previous communications, representations, or agreements either
<PAGE> 12
verbal or written, between Guarantors and Beneficiary. FMC, Grace-NY and NMC
represent to Beneficiary that the Reorganization Agreement provided to
Beneficiary as part of and as described in the draft proxy materials dated July
3, 1996 has not been modified, amended or supplemented except to extend the date
by which any party to the Reorganization Agreement may terminate such Agreement
from September 1, 1996 to October 1, 1996.
11. Notices. All notices or other communications hereunder
shall be in writing, delivered in person or sent by certified or registered mail
or the equivalent (return receipt requested), at the addresses set forth below:
if to FMC:
Fresenius Medical Care AG
Borkenberg 14
61440 Oberusel, Germany
Attention: Corporate Secretary
if to Grace-NY or NMC:
W. R. Grace & Co.-NY
c/o National Medical Care, Inc.
1601 Trapelo Road
Reservoir Place
Waltham, Massachusetts 02154
Attention: General Counsel
with a copy to:
Ulrich Wagner, Esq.
O'Melveny & Myers
Citicorp Center
153 East 53rd Street
New York, New York 10022
if to Beneficiary:
U.S. Attorney for the
District of Massachusetts
1003 J.W. McCormack Post Office
and Courthouse
Boston, MA 02109
Attention: Peter Mullin, Esq.
Michael F. Hertz, Esq.
Director Commercial Litigation Branch
U.S. Department of Justice
Tenth Street and Constitution Avenue, N.W.
Room 3647
<PAGE> 13
[Execution Copy]
Washington, D.C. 20530
(or, if by mail:
P.O. Box 261
Ben Franklin Station
Washington, D.C. 20044)
Attention: Lucy Eldridge, Esq.
(D.J. No. 46-18-1901)
12. Governing Law; Consent to Jurisdiction. This Agreement
shall be governed by and construed in accordance with United States of America
federal law. FMC and Grace-NY consent to the nonexclusive jurisdiction of the
United States District Courts for the District of Massachusetts and the Southern
District of Florida in any action to enforce any term of this Agreement. FMC and
Grace-NY hereby appoint the General Counsel of NMC as their agent for service of
process. In the event that NMC shall at any time fail to have a General Counsel,
FMC and Grace-NY shall promptly appoint Corporation Trust Company (or a similar
firm) as their agent for service of process and provide Beneficiary with written
notice of such appointment (or, if no agent for service of process is appointed
when required, they shall be deemed to have appointed the Secretary of the
Commonwealth of the Commonwealth of Massachusetts as such agent, and Beneficiary
shall promptly send to FMC in accordance with Section 10 above a copy of any
documents served on such Secretary as such agent).
<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
W. R. GRACE & CO. UNITED STATES OF AMERICA
By:________________________ By:________________________
Title:_____________________ Title: Trial Attorney,
Commercial Litigation
Branch, Civil Division
U.S. Department of Justice
By:________________________
Title: A.U.S.A., District of
Massachusetts
FRESENIUS MEDICAL CARE GMBH, NATIONAL MEDICAL CARE, INC.
predecessor to Fresenius
Medical Care AG
By:________________________ By:_______________________
Title:_____________________ Title:____________________
<PAGE> 1
[Execution Copy]
GUARANTEE AGREEMENT
AGREEMENT dated as of July 31, 1996 between W. R. GRACE &
CO.-CONN., a Connecticut corporation ("Guarantor"), and the UNITED STATES OF
AMERICA ("Beneficiary") (the "Grace Chemicals Guarantee").
Background
A. National Medical Care, Inc., a wholly-owned subsidiary of
Guarantor, and its subsidiaries, affiliates and divisions, including, but not
limited to NMC Homecare Division, NMC Dialysis Services Division, LifeChem,
Inc., NMC Diagnostic Services, Inc. and NMC Medical Products Division, and any
divisions and subsidiaries thereof (collectively referred to as "NMC") are the
subject of an investigation being conducted by the Office of the Inspector
General of the United States Department of Health and Human Services, the United
States Department of Justice Civil Division, the United States Attorneys for the
Districts of Massachusetts and the Southern District of Florida and others
concerning possible violations of federal laws relating to health care payments
and reimbursement (the "OIG Investigation").
B. A qui tam action has been filed under seal in the United
States District Court for the Southern District of Florida in the name and on
behalf of Beneficiary against NMC, NMC Homecare Division, Inc., W. R. Grace &
Co. ("Grace-NY") and Guarantor alleging, inter alia, that NMC, Grace-NY and
Guarantor violated the False Claims Act, 31 U.S.C. Sections 3729 et seq., and
seeking a preliminary injunction and other equitable relief with
<PAGE> 2
respect to the Reorganization, as defined below (the "Florida Action"). The
matters alleged in the Florida Action are also a subject of the OIG
Investigation.
C. Grace-NY and Fresenius AG, a German health care
corporation, have entered into an Agreement and Plan of Reorganization dated as
of February 4, 1996 (as amended, modified or supplemented from time to time on
or before the Closing Date referred to therein, the "Reorganization Agreement"),
pursuant to which Grace-NY will become a wholly-owned subsidiary of Fresenius
Medical Care AG ("FMC") and Guarantor will obtain a substantial cash
distribution from NMC. The transactions contemplated by the Reorganization
Agreement and all or any part thereof are hereinafter referred to as the
"Reorganization." The Reorganization shall be deemed to have been consummated as
of the Effective Time as defined in the Reorganization Agreement.
D. Beneficiary has (i) expressed concerns that the
Reorganization may adversely affect the financial ability of NMC to pay any
liability that it may have relating to or arising out of the OIG Investigation
and the Florida Action (the "Government Claims") and (ii) advised Guarantor that
Beneficiary is considering its remedies with respect to the Reorganization.
E. Beneficiary has agreed to refrain from taking certain
action as set forth in Section 6 below if Guarantor, FMC and Grace-NY provide
guarantees and NMC provides a letter of credit with respect to payment of the
Government Claims, and Guarantor is willing to provide such a guarantee, all
subject to and in accordance with the terms and conditions set forth below.
Contemporaneously herewith, FMC, Grace-NY, NMC and Beneficiary are entering into
a separate guarantee agreement (the "Primary
<PAGE> 3
[Execution Copy]
Guarantee"), the execution and delivery of which are essential elements and
conditions of Beneficiary's agreement to the terms set forth below.
THEREFORE, it is agreed:
Terms and Conditions
1. Guarantee. Effective upon consummation of the
Reorganization, as provided herein Guarantor unconditionally guarantees to
Beneficiary the payment of all obligations (the "Obligations") of FMC to
Beneficiary under the Primary Guarantee in respect of the Government Claims for
acts, omissions and transactions that took place at any time up to the
consummation of the Reorganization. For purposes of this Agreement, an alleged
liability or other obligation shall be deemed an Obligation only if (i) it is
determined to be an actual liability or obligation of NMC to Beneficiary in
respect of a Government Claim pursuant to an Actionable Order (as defined below)
or (ii) it is agreed to be such in a writing (a "Settlement Agreement") executed
by FMC, Grace-NY or NMC and Beneficiary. An "Actionable Order" is an order
entered by a court of competent jurisdiction (x) that has become final and
nonappealable or (y) with respect to which enforcement during the pendency of an
appeal has not been stayed by the posting of a supersedeas bond (or similar bond
or credit support) or otherwise by order of a court of competent jurisdiction.
For purposes of this Agreement, an Obligation is due on the date (the
"Obligation Due Date") when the order giving rise to such Obligation becomes an
Actionable Order or when the Settlement Agreement giving rise to such
<PAGE> 4
Obligation states that such Obligation is due.
2. Nature of Guarantee. Guarantor shall pay the Obligations
only if and to the extent that (a) such Obligations have not been paid as of the
Obligation Due Date and (b) Beneficiary has made demand for payment of such
Obligations from FMC, has provided Guarantor with a copy of such demand and such
Obligations nonetheless remain uncollected for at least 120 days after the date
such copy of the demand is provided to Guarantor (which copy may be provided by
first class mail and which shall be deemed provided when deposited in such mail
addressed to Guarantor as specified in Section 10 below). Guarantor shall have
the right to make payment under this Agreement in accordance with any payment
schedule agreed to by FMC and Beneficiary without giving effect to any
acceleration that may have occurred due to default so long as any such default
is cured. The obligation of Guarantor hereunder shall not be affected by any
event, occurrence or circumstance which might otherwise constitute a legal or
equitable discharge or defense of a guarantor or surety (other than payment of
the Obligations). Guarantor waives any defense relating to any (i) invalidity or
unenforceability of the obligations of FMC under the Primary Guarantee or (ii)
breach by Beneficiary of the provisions of Section 8 of the Primary Guarantee.
In the event that any payment by NMC, FMC or Grace-NY of any Obligations is
rescinded or must otherwise be returned for any reason whatsoever, Guarantor
shall remain liable hereunder with respect to such Obligations as if such
payment had not been made.
3. Subrogation. The Guarantor shall not exercise any rights
which it may acquire by way of subrogation until all of the Obligations to
Beneficiary shall have been paid in full. Subject to the foregoing, upon payment
of all of the Obligations, Guarantor shall to the extent of its payment of the
Obliga-
<PAGE> 5
[Execution Copy]
tions be subrogated to the rights of Beneficiary against NMC, FMC and Grace-NY,
and Beneficiary agrees to take at Guarantor's expense such steps as Guarantor
may reasonably request to implement such subrogation.
4. No Waiver; Cumulative Rights. No failure on the part of
Beneficiary to exercise, and no delay in exercising, any right, remedy or power
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise by Beneficiary of any right, remedy or power hereunder preclude any
other or future exercise of any right, remedy or power. Each and every right,
remedy and power hereby granted to Beneficiary or allowed it by law or other
agreement shall be cumulative and not exclusive of any other, and may be
exercised by Beneficiary from time to time.
5. Waiver of Notice. Guarantor waives notice of the acceptance
of this guarantee, presentment, demand, notice of dishonor, protest, notice of
sale of any collateral security and all other notices whatsoever.
6. Agreements of Beneficiary. Except as set forth in Section 7
below, Beneficiary, acting solely in its capacity as holder of the Government
Claims, agrees that (a) it shall not take any action whatsoever to impede,
prohibit, enjoin, delay or otherwise interfere with consummation of the
Reorganization on grounds that the Reorganization constitutes a fraudulent
transfer, fraudulent conveyance or other similarly avoidable transfer as to
Beneficiary, (b) upon request by FMC, Grace-NY
<PAGE> 6
or NMC, it shall represent to any court presented with an attempt by the Relator
in the Florida Action or any other Relator in any other qui tam action relating
in substantial part to matters that are the subject of the Florida Action or the
OIG Investigation to impede, prohibit, enjoin, delay or otherwise interfere with
consummation of the Reorganization that the terms of this Agreement and the
Primary Guarantee together satisfy its concerns with respect to the
Reorganization as expressed in paragraph D above, and (c) effective upon
consummation of the Reorganization, it releases and discharges Guarantor,
Grace-NY, NMC, FMC, the financial institutions underwriting, arranging or
otherwise participating in any manner in the Reorganization or the financings
contemplated thereby or consummated in connection therewith, all of the
corporate parents, subsidiaries and affiliates of the foregoing persons and
entities described in this clause (c), and all of the respective shareholders,
officers, directors, investment bankers, agents, accountants and attorneys of
the foregoing persons and entities described in this clause (c) (collectively,
the "Releasees") from any and all claims, liabilities and causes of action to
the effect that the Reorganization constitutes a fraudulent transfer, fraudulent
conveyance or other similarly avoidable transfer as to Beneficiary, solely in
its capacity as holder of the Government Claims. Notwithstanding the foregoing,
in the event this Agreement, the Primary Guarantee or the Letter of Credit (or
the Escrow Arrangement established pursuant to the Primary Guarantee) shall
become invalid or unenforceable (except to the extent that enforcement is stayed
pursuant to a bankruptcy proceeding or other similar proceeding for the relief
of debtors) then the releases contained in clause 6(c) shall be deemed null and
void.
<PAGE> 7
[Execution Copy]
7. Matters Not Released. (a) Beneficiary is not releasing
under this Agreement, and the releases contained in Section 6 hereof do not
include within their coverage, claims, liabilities and other obligations to (i)
Beneficiary arising under the terms of this Agreement, (ii) the Internal Revenue
Service arising under the Internal Revenue Code, (iii) the Securities and
Exchange Commission arising under any applicable securities laws, and (iv) the
Antitrust Division of the Department of Justice arising under any applicable
antitrust or trade regulation laws.
(b) Nothing in this Agreement shall be construed to constitute
a release by any agency or instrumentality of the United States (including the
Department of Justice) that does not derive a benefit under this Agreement, the
Letter of Credit or the Escrow Arrangement (as defined in the Primary Guarantee)
and the Primary Guarantee.
(c) Nothing in this Agreement shall be construed to constitute
a release from any claim, liability or obligation (criminal, civil or
administrative) arising out of or relating in any way to the OIG Investigation
and the Florida Action; although not exhaustive, specifically excluded from the
scope of the release contained in Section 6 of this Agreement are claims,
liabilities or obligations under the civil False Claims Act, 31 U.S.C. Sections
3729 et seq. (as amended), the Medicare Anti-kickback Act, 42 U.S.C. Section
1320a-7(b), the Civil Monetary Penalties Law, 42 U.S.C. Sections 1320a-7a, the
Program Fraud Civil Remedies Act, 31 U.S.C. Sections 3801-3812, Title XVIII of
the Social Security Act, 42 U.S.C. Section 1395 et seq., Sections 287, 371,
1001, 1341 and 1343 of
<PAGE> 8
Title 18 of the United States Code, common law theories for breach of contract,
fraud (other than the fraudulent transfer theories described in Section 6(c)),
payment by mistake of fact or unjust enrichment, or the provisions for
suspension of Medicare funds in 42 C.F.R. Section 371(a) or (b) or exclusion
from the Medicare and State health care programs in 42 U.S.C. Section
1320a-7(b). This Agreement shall not be construed to release any entity or
individual not referred to in Section 6 above.
8. Termination of Agreement. If the Reorganization is not
consummated on or before October 1, 1996, this Agreement shall terminate and be
of no further force and effect unless the parties hereto agree otherwise in
writing. If the Reorganization Agreement is amended, modified or supplemented
(other than an amendment, modification or supplement that solely extends to a
date not later than October 1, 1996 the date by which consummation of the
Reorganization is required to occur) after the date of this Agreement, Guarantor
shall provide Beneficiary with written notice (the "Amendment Notice")
describing the nature of such amendment, modification or supplement together
with a copy of all documents constituting such amendment, modification or
supplement. If Beneficiary determines that such amendment, modification or
supplement is adverse to its interests, Beneficiary shall have the right to
terminate this Agreement and the Primary Guarantee (but not solely the Primary
Guarantee) by delivering written notice of such termination to Guarantor within
10 business days of Beneficiary's actual receipt of such Amendment Notice.
9. Miscellaneous. No party to this Agreement may assign its
rights, interest or obligations hereunder to any other person or entity without
the prior written consent of the other parties. This Agreement shall not be
amended except in a
<PAGE> 9
[Execution Copy]
writing signed by all of the parties hereto. The provisions of this Agreement
shall be binding upon the parties hereto and their successors. This Agreement
may be executed in counterparts, each of which shall constitute an original and
all of which shall constitute one and the same agreement. Each Releasee which is
not a party to this Agreement is a third party beneficiary hereof solely for
purposes of asserting this Agreement as a defense in any action brought by
Beneficiary in violation of Section 6(c) hereof. Each signatory hereto
represents and warrants that he or she is authorized to execute and deliver this
Agreement on behalf of the party for whom he or she is purporting to act. Each
party hereto represents and warrants that this Agreement constitutes its valid
and binding agreement, enforceable against such party in accordance with its
terms. This Agreement embodies the entire agreement between Guarantor and
Beneficiary. There are no promises, terms, conditions, or obligations other than
those contained in this Agreement. This Agreement supersedes all previous
communications, representations, or agreements, either verbal or written,
between Guarantor and Beneficiary. Guarantor represents to Beneficiary that the
Reorganization Agreement provided to Beneficiary as part of and as described in
the draft proxy materials dated July 3, 1996 has not been modified, amended or
supplemented except to extend the date by which any party to the Reorganization
Agreement may terminate such Agreement from September 1, 1996 to October 1,
1996.
10. Notices. All notices or other communications hereunder
shall be in writing, delivered in person or sent by
<PAGE> 10
certified or registered mail or the equivalent (return receipt requested), at
the addresses set forth below:
if to Guarantor:
W. R. Grace & Co.-Conn.
One Town Center Road
Boca Raton, Florida 33486
Attention: General Counsel
if to Beneficiary:
U.S. Attorney for the District of Massachusetts
1003 J.W. McCormack Post Office
and Courthouse
Boston, MA 02109
Attention: Peter Mullin, Esq.
Michael F. Hertz, Esq.
Director Commercial Litigation Branch
U.S. Department of Justice
Tenth Street and Constitution Avenue, N.W.
Room 3647
Washington, D.C. 20530
(or, if by mail:
P.O. Box 261
Ben Franklin Station
Washington, D.C. 20044)
Attention: Lucy Eldridge, Esq.
(D.J. No. 46-18-1901)
11. Governing Law. This Agreement shall be governed by and
construed in accordance with the United States of America federal law. Guarantor
consents to the non-exclusive jurisdiction of the United States District Courts
for the District of Massachusetts and the Southern District of Florida in any
action to enforce any term of this Agreement.
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
W. R. GRACE & CO.-CONN. UNITED STATES OF AMERICA
By:________________________ By:____________________________
Title:_____________________ Title: Trial Attorney,
Commercial Litigation
Branch, Civil Division
U.S. Department of
Justice
By:____________________________
Title: A.U.S.A., District of
Massachusetts
<PAGE> 1
W.R. GRACE & CO.
W. R. GRACE & CO.-CONN.
One Town Center Road
Boca Raton, Florida
July 31, 1996
FRESENIUS MEDICAL CARE AG
61440 Oberursel
61343 Bad Homburg
Germany
Ladies and Gentlemen:
Capitalized terms used in this letter without definition shall have the
meanings ascribed to such terms in the Agreement and Plan of Reorganization
dated as of February 4, 1996 by and between W. R. Grace & Co. and Fresenius AG
(the "Reorganization Agreement") and related agreements.
In connection with the transactions contemplated by the Reorganization
Agreement and as a result of negotiations between the parties and the United
States of America, Fresenius Medical Care AG ("FMC") and Grace are entering
into a Guarantee Agreement with the United States of America attached hereto as
Annex 1 (the "FMC Guarantee") and Grace-Conn. is entering into a Guarantee
Agreement with the United States of America attached hereto as Annex 2 (the
"Grace-Conn. Guarantee").
In connection with the respective parties entering into the FMC
Guarantee and the Grace-Conn. Guarantee, the parties hereto have agreed as
follows:
1. For as long as the Grace-Conn. Guarantee remains in effect, FMC,
Grace and NMC shall provide Grace-Conn. with an opportunity to remain advised
on a current basis through counsel selected by Grace-Conn. of the OIG
Investigation (as defined in the FMC Guarantee) and the Florida Action (as
defined in the FMC Guarantee), without limitation to any rights under Section
4.03 of the Distribution Agreement.
2. FMC (a) agrees to pay to Grace-Conn., promptly upon demand, all
amounts paid by Grace-Conn. under the Grace-Conn. Guarantee, together with
interest thereon (at the rate applicable to Fresenius Medical Care's senior
debt agreements) for the period from the date of payment of such amounts by
Grace-Conn. through the date of payment hereunder by FMC to Grace-Conn., and
(b) consents to the rights of subrogation in favor of Grace-Conn. created
pursuant to the Grace-Conn. Guarantee.
3. FMC agrees that Grace-Conn. is a third party beneficiary of the
FMC guarantee and that Grace-Conn. shall have the right to enforce, in its own
name against FMC and Grace, the obligation of FMC and Grace to pay the
obligations to the United States under the FMC Guarantee.
<PAGE> 2
July 31, 1996
Page 2
4. For the purposes of Section 4.05 of the Distribution Agreement,
the NMC Group shall include FMC and all its Affiliates.
5. FMC consents to the jursidiction of the United States District
Court for the Southern District of New York to enforce the terms of this
Agreement.
Please indicate your agreement with the foregoing by signing where
indicated below.
W. R. GRACE & CO.
W. R. GRACE & CO. - CONN.
--------------------------------
By:
Title:
AGREED AND ACCEPTED:
FRESENIUS MEDICAL CARE AG
- --------------------------------------
By:
Title:
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report January 31, 1996 relating to
the financial statements of W. R. Grace & Co., which appears in such Prospectus.
We also consent to the use of our report on the Financial Statement Schedule,
which appears on page F-2 of the Prospectus. We also consent to the references
to us under the headings "Experts" and "Selected Financial Data" in such
Prospectus. However, it should be noted that Price Waterhouse LLP has not
prepared or certified such "Selected Financial Data."
PRICE WATERHOUSE LLP
Ft. Lauderdale, FL
July 29, 1996
<PAGE> 1
EXHIBIT 24.1
POWER OF ATTORNEY
The undersigned hereby appoints ROBERT B. LAMM as his true and lawful
attorney-in-fact for the purpose of signing a registration statement under the
Securities Act of 1933, and all amendments thereto, to be filed with the
Securities and Exchange Commission with respect to the issuance of common stock
of GRACE HOLDING, INC., a Delaware corporation, as a result of the distribution
of such stock by W. R. Grace & Co., a New York corporation.
Dated: July 26, 1996 /s/ Robert H. Beber
Dated: July 26, 1996 /s/ Kathleen A. Browne
Dated: July 26, 1996 /s/ Albert J. Costello
Dated: July 26, 1996 /s/ Peter D. Houchin
