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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996 Commission file number 1-12139
W. R. GRACE & CO.
Incorporated under the Laws of the I.R.S. Employer Identification No.
State of Delaware 65-0654331
ONE TOWN CENTER ROAD, BOCA RATON, FLORIDA 33486-1010
561/362-2000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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Common Stock, $.01 par value } New York Stock Exchange, Inc.
Preferred Stock Purchase Rights }
7-3/4% Notes Due 2002 }
(issued by W. R. Grace & Co.-Conn., } New York Stock Exchange, Inc.
a wholly owned subsidiary) and }
related Guarantees }
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
Indicate by check mark whether the registrant (including its
predecessor) (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in the Proxy Statement incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
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The aggregate market value of W. R. Grace & Co. voting stock held by
nonaffiliates was approximately $3.8 billion at January 31, 1997.
At February 28, 1997, 74,048,314 shares of W. R. Grace & Co. Common
Stock, $.01 par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Document Where Incorporated
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Proxy Statement for Annual Meeting to be
held May 9, 1997 (specified portions) Part III
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TABLE OF CONTENTS
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Page
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PART I
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Item 1. Business ......................................................... 1
Introduction and Overview ...................................... 1
Products and Markets ........................................... 4
Discontinued Operations ........................................ 11
Research Activities ............................................ 12
Patents and Other Intellectual Property Matters ................ 12
Environmental, Health and Safety Matters ....................... 13
Item 2. Properties ....................................................... 14
Item 3. Legal Proceedings ................................................ 14
Item 4. Submission of Matters to a Vote of Security Holders .............. 22
Executive Officers ........................................................ 22
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters ........................................... 23
Item 6. Selected Financial Data .......................................... 25
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations ........................... 25
Item 8. Financial Statements and Supplementary Data ...................... 25
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure ........................... 25
PART III
Item 10. Directors and Executive Officers of the Registrant ............... 25
Item 11. Executive Compensation ........................................... 26
Item 12. Security Ownership of Certain Beneficial
Owners and Management .......................................... 26
Item 13. Certain Relationships and Related Transactions ................... 26
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K ................................................... 26
Signatures ................................................................ 33
Financial Supplement ...................................................... F-1
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PART I
ITEM 1. BUSINESS.
INTRODUCTION AND OVERVIEW
W. R. Grace & Co., through its subsidiaries, is one of the world's
leading packaging and specialty chemicals companies. Grace's core businesses are
packaging, catalysts and other silica-based products, and construction products.
It began operating these core businesses in 1954, when it acquired both the
Dewey and Almy Chemical Company and the Davison Chemical Company. Grace believes
that each of its core businesses is an industry leader, offers high value-added
products, employs leading technology, and has a global presence. Grace's
products and systems serve highly specialized market segments; 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 generally represent an important component (but a relatively small
portion of the cost) of the end products or processes in which they are used.
Grace believes that it provides highly differentiated, superior products and
services through investments in research and development, facilities that enable
Grace to take advantage of expanding global opportunities, and technology
platforms capable of providing multiple products to anticipate and satisfy
customer needs.
As used in this Report, the term "Company" refers to W. R. Grace & Co.,
a Delaware corporation, and the term "Grace" refers to the Company and/or one or
more of its subsidiaries and, in certain cases, their respective predecessors.
Grace's principal executive offices are located at One Town Center Road, Boca
Raton, Florida 33486-1010, and its telephone number is 561/362-2000. At year-end
1996, Grace had approximately 17,400 full-time employees worldwide in its
continuing operations.
Grace's Consolidated Financial Statements for the three years in the
period ended December 31, 1996 ("Consolidated Financial Statements"), and
certain other financial information included in the Company's 1996 Annual Report
to Shareholders, are set forth in the Financial Supplement to this Report and
incorporated by reference in this Report.
Information concerning the sales and revenues, pretax operating income
and identifiable assets of Grace's continuing operations by geographic area for
1996, 1995 and 1994 is contained in Note 17 to the Consolidated Financial
Statements.
STRATEGIC OBJECTIVES AND ACTIONS. Grace's principal strategic
objective has been, and will continue to be, to increase shareholder value. In
recent years, Grace has sought to achieve this objective by (a) focusing on core
businesses to accelerate profitable growth; (b) upgrading financial performance,
principally by disposing of noncore businesses, strengthening the balance sheet
and reducing overhead; and (c) integrating
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corporate and operating unit functions through global product line management.
In particular, since mid-1995, Grace has:
- - disposed of noncore businesses, including National Medical Care, Inc.
("NMC"), its principal health care business (in a transaction valued at
$4.5 billion), as well as Grace's water treatment and process chemicals
business for $636 million, its cocoa business for approximately $470
million, the transgenic plant business of its Agracetus subsidiary for
$150 million, and its Amicon separations science business for $125
million, in each case consisting of cash plus debt assumed by the
buyer;
- - used the proceeds from these and other transactions to repurchase
stock, reduce indebtedness, and, to a lesser extent, invest in core
businesses;
- - streamlined processes and thereby reduced expenses by approximately
$100 million annually (with further actions being taken to improve
margins);
- - strengthened controls on working capital and capital spending; and
- - focused its research and development spending on core businesses.
In addition, in the early 1990s, the management structure of Grace was
reorganized on the basis of global product lines (as distinguished from regional
product management). As a result of this reorganization, Grace 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. Grace is
completing the disposition of its remaining noncore businesses. In February
1997, Grace entered into an agreement to sell its specialty polymers business
for $147 million in cash, and it expects to dispose of its thermal and emission
control systems business (see "Discontinued Operations" below) in 1997.
To focus on core business growth, Grace has made strategic
acquisitions, totaling $103 million in the 1994-1996 period, directly related to
its core businesses, and has entered into a number of strategic alliances
intended to further expand these businesses internationally. In 1994, Grace
acquired construction chemicals businesses with operations in North America,
Europe and Asia Pacific. In 1995, Grace formed a 68%-owned joint venture with a
Chinese packaging company, primarily to manufacture shrink films for sausage
casings in China, as well as a 51%-owned joint venture with a Russian company to
produce container and closure sealants for sale throughout the Commonwealth of
Independent States. In 1996, Grace formed a joint venture to market coatings and
sealants in India and formed another joint venture to manufacture and market
cement additives and concrete admixtures in Turkey. Also in 1996, Grace acquired
a U.S. manufacturer of flexible plastic packaging materials for the retail
pre-cut produce market segment, a Mexican producer of can coatings and closure
sealants for the rigid container industry, and a construction chemicals business
in Australia.
From 1994 through 1996, Grace's capital expenditures for its core
packaging and specialty chemicals businesses totaled $1.15 billion (including
$389.5 million in 1996). These expenditures were directed towards the expansion
of existing facilities as well as
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the construction of new facilities. Grace anticipates that its capital
expenditures for 1997 will approximate $300 million, all of which will be
directed towards its core businesses.
In the future, Grace intends to continue its emphasis on internal
growth, primarily through new product development and geographic expansion. 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 an opportunity for
geographic expansion) or that provide a combination of a close fit with a core
business and the potential for exceptional returns.
PROJECTIONS AND OTHER FORWARD-LOOKING INFORMATION. This Report
contains, and other communications by Grace may contain, projections or other
"forward-looking" information. Like any other business, Grace is subject to
risks and other uncertainties that could cause its actual results to differ
materially from any such projections or that could cause other forward-looking
information to prove incorrect. In addition to general economic conditions and
conditions in the industries in which Grace competes and the markets it serves,
Grace is subject to risks and uncertainties that could cause its projections and
other forward-looking information to prove incorrect, including the following:
- - technological breakthroughs rendering a product, a class of products or
a line of business obsolete;
- - an inability to adapt to continuing technological improvements by
competitors or customers;
- - incidents (including outbreaks such as those experienced in 1996 with
E. coli bacteria and "mad cow disease") that cause declines in the
consumption of beef or other foods or products served by Grace's
packaging business;
- - a decline in worldwide oil consumption or the development of new
methods of oil refining;
- - increases in prices of raw materials, such as resins and polyethylene;
- - a reversal of the current trend towards more processing of food
products (particularly meats, cheeses and produce) outside of the
supermarket;
- - an inability to gain customer acceptance, or slower than anticipated
acceptance, of new products or product enhancements (particularly in
the construction industry);
- - changes in environmental regulations or societal pressures that make
Grace's businesses more costly or that change the types of products
used, especially packaging products and oil products;
- - slower than anticipated economic advances in less developed countries;
- - a decrease in the use of structural steel in buildings;
- - underutilization of Grace's manufacturing and production plants as a
result of slower than anticipated growth, especially in light of recent
significant capital expenditures; and
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- - the acquisition (through theft or other means) and use by others of
Grace's proprietary formulas and other know-how (particularly in
Grace's container business).
See Notes 1, 3, 4, 6, 7, 11, 12 and 18 to the Consolidated Financial
Statements and "Management's Discussion and Analysis of Results of Operations
and Financial Condition" in the Financial Supplement for additional information.
PRODUCTS AND MARKETS
CHEMICAL INDUSTRY OVERVIEW. Specialty chemicals, such as those produced
by Grace, are high value-added products used as intermediates in a wide variety
of products; they are produced in relatively 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 changing customer needs and reliability of product and supply
are important competitive factors in the specialty chemicals business.
Grace's management 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, lead to high operating margins. Grace 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.
PACKAGING. Grace's packaging and container business ("Grace Packaging")
provides high-performance systems on a worldwide basis, competing principally by
providing superior-quality products and services for specialized customer needs.
Its principal packaging products and services compete 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's container business, operated until 1996 as a separate Grace
business unit, competes primarily through three product lines: container
sealants, closure sealants, and coatings for metal packaging. Grace believes
that the combination of its packaging and container businesses will enable it to
capitalize on the complementary technological, marketing and product development
strengths of each business.
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
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expanded into the retail food market. Today, Cryovac flexible plastic packaging
systems (including material, equipment and services) are used for a broad range
of perishable foods such as fresh, smoked and processed meat products, cheese,
fish, poultry, prepared foods (including soups and sauces for restaurants and
institutions), baked goods and produce. Cryovac packaging technology also is
used in nonfood applications for consumer merchandising of such products as
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 and industrial products 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 with medical products.
Grace Packaging differentiates its flexible packaging products from
competitive products by offering a combination of the following core
competencies: (a) proprietary film processing technology; (b) resin technology,
permitting the production of materials suited to specific customer needs; (c)
packaging and food science expertise, providing better understanding of the
interaction between packaging materials and packaged products; (d) complete
systems support capability, providing a single source for customer needs; (e) a
talented employee base that strives to anticipate, meet and exceed customer
expectations; and (f) effective sales and distribution networks. In addition,
Grace Packaging's systems can be adapted to support customers' changing
marketing goals.
Technological leadership is a key competitive factor in the packaging
business, and Grace Packaging is recognized as a worldwide leader in flexible
packaging technology. Management expects that technological leadership will
continue to spur Grace Packaging's growth in several market segments. For fresh
meat, Grace Packaging's case-ready program reduces supermarkets' in-store
production costs by allowing meat processors to centrally package meat products
suitable for display. For bone-in pork, Grace Packaging's TBG(TM) boneguard
packaging products have revolutionized the distribution of large subprimal cuts
by adding a film patch to certain sections of a high-abuse barrier bag to
prevent bone punctures. For processed meats and poultry, Cryovac cook-in bags
and laminates withstand high cooking temperatures, reducing the potential for
contamination while retaining product shape, clarity and weight. For fresh-cut
produce, Grace Packaging produces films that permit oxygen to pass through at
various rates, thereby matching the
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varying respiration rates of different vegetables and permitting longer shelf
life. Grace Packaging's technological leadership was further enhanced by the
1996 acquisition of Cypress Packaging, Inc., a leader in the retail fresh-cut
produce packaging market. 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.
Grace Packaging has continued to expand its flexible packaging business
in growing markets around the world. In 1993, Grace formed a 51%-owned joint
venture to produce flexible packaging in the Commonwealth of Independent States,
and in 1995 Grace formed a 68%-owned joint venture in China, primarily to
manufacture shrink films for sausage casings.
Grace Packaging's container business group consists primarily of three
product lines: container sealants, closure sealants, and coatings for metal
packaging. 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 body of the container.
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 and plastic container
markets (primarily in beverage and food applications). Coatings are used in the
manufacture of cans and closures to protect 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 sold principally to third parties that
manufacture containers or perform canning and bottling for food and beverage
companies. Grace Packaging is expanding its container 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 Packaging also is expanding its container business
in developing regions through a 51%-owned joint venture to produce container and
closure sealants in the Commonwealth of Independent States and a 51%-owned joint
venture to market coatings and sealants in India. Competition is based on
providing high-quality customer service at 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
leading container manufacturers, canners and bottlers, and assisting them as
they install new production equipment and reengineer processes, are key
elements for success.
Grace Packaging's Formpac business group manufactures and sells
polystyrene foam prepackaging trays used by supermarkets and grocery stores, and
by poultry and other meat processors, to protect and display fresh meat, poultry
and produce. It also manufactures and sells foam food service items such as
hinged-lid containers used in institutional environments, by carry-out
restaurants and by supermarkets for sale to retail
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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 also has 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.
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 typically has 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's 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 $2.01 billion in 1996, $1.97
billion in 1995 and $1.67 billion in 1994. Sales of shrink bags accounted for
24% of the total sales and revenues of Grace's continuing operations in 1996,
and 22% in each of 1995 and 1994. Approximately 46% of Grace Packaging's 1996
sales and revenues were generated in North America, 31% in Europe, 14% in Asia
Pacific and the remainder in Latin America. Grace Packaging estimates that
approximately 80% of its 1996 sales were to the food industry (particularly meat
and poultry processors) and the beverage 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 1996, Grace Packaging employed approximately 11,500 people
in 45 production facilities (13 in Europe, 12 in each of North America and Asia
Pacific and 8 in Latin America) and 89 sales offices, serving approximately
28,000 customers, no one of which accounted for more than 3% of Grace
Packaging's 1996 sales and revenues. Grace Packaging's principal U.S.
manufacturing facilities are located at Simpsonville, South Carolina, Iowa Park,
Texas, Seneca, South Carolina, Cedar Rapids, Iowa, Reading, Pennsylvania, and
Indianapolis, Indiana. 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, Mexico, Canada and Argentina. Grace
Packaging also has recently constructed a manufacturing facility in Kuantan,
Malaysia that has become its principal shrink films manufacturing facility in
Asia. Grace Packaging distributes its products in over
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100 countries through direct sales organizations and distributors, using a
network of distribution facilities located near its manufacturing facilities and
major customer concentrations.
In Grace Packaging's business, the failure to have capacity sufficient
to meet customer needs, or the inability to manufacture in geographic markets in
which customers expand, could damage customer relationships and/or result in a
loss of 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). As a
result, capacity is generally sufficient to meet market demand currently and,
taking planned capacity expansion into account, for the foreseeable future.
CATALYSTS AND OTHER SILICA-BASED PRODUCTS. Grace's Davison unit ("Grace
Davison"), founded in 1832, is composed of two primary product groups: (a)
catalysts and (b) silica products and adsorbents. These products principally
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 believes that its technological expertise provides a competitive
edge, allowing it to quickly design products that meet changing customer
specifications, and to develop new products that expand its existing technology.
For example, Grace Davison estimates that a substantial portion of its 1996
fluid cracking catalyst sales was attributable to products introduced in the
last five years.
Grace Davison produces refinery catalysts, including (a) fluid cracking
catalysts used by petroleum refiners to convert crude oil into more valuable
transportation fuels (such as gasoline and jet and diesel fuels), 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 by refiners 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 the world.
Grace Davison's polyolefin catalysts and catalyst supports are
essential components used in manufacturing nearly half of all high density and
linear low density
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polyethylene resins produced worldwide; these resins 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 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 products and zeolite adsorbents produced by Grace Davison 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 are used in process applications to separate certain
chemicals from mixtures. Competition is based on product performance, customer
service and price.
Grace Davison's sales and revenues were $732 million in 1996, $687
million in 1995 and $610 million in 1994; approximately 50% of Grace Davison's
1996 sales and revenues were generated in North America, 36% in Europe, 12% in
Asia Pacific and 2% in Latin America. Sales of fluid cracking catalysts
accounted for 11% of the total sales and revenues of Grace's continuing
operations in 1996, and 10% in each of 1995 and 1994. At year-end 1996, Grace
Davison employed approximately 2,700 people worldwide in 10 facilities (6 in the
U.S. and 1 each in Canada, Germany, Brazil and Malaysia). 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 over 19,000 customers, the largest of which
accounted for approximately 6% of Grace Davison's 1996 sales and revenues.
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's construction products business ("Grace
Construction") is a leading supplier of specialty materials to the
nonresidential (commercial and government) construction industry and, to a
lesser extent, the residential construction industry. Grace Construction's
products fall into three main groups: (a) concrete admixtures, cement additives
and masonry products (principally chemicals that add
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strength, control corrosion, reduce the amount of water required or modify
setting time); (b) products that prevent water damage to structures (such as
water- and ice-proofing products for residential use and waterproofing systems
for commercial structures); and (c) substances that protect structural steel
against collapse due to fire. In North America, Grace Construction also
manufactures and distributes vermiculite products used in construction and other
industrial applications.
In recent years, Grace Construction has introduced new products and
product enhancements. These new products and enhancements include an admixture
that reduces concrete shrinkage and prevents cracking; a product that enables
contractors to pour and "work" concrete in colder temperatures; an admixture
that inhibits corrosion and prolongs the life of concrete structures; new roof
underlayments that provide added protection from ice and wind-driven rain; and
enhancements to fireproofing products that make Grace Construction's
fireproofing systems more price-competitive for smaller jobs. In addition to
customer acceptance of these and other product introductions, Grace
Construction's growth strategy is dependent on the advancement of less developed
economies (since, as economies develop, they typically use more ready-mix
concrete, which allows for the application of more concrete admixtures).
Grace Construction's products are sold to an extremely broad range of
customers, including cement manufacturers, ready-mix and pre-stressed concrete
producers, local contractors, specialty subcontractors and applicators, masonry
block manufacturers, building materials distributors and other industrial
manufacturers, as well as construction specifiers, such as architects and
structural engineers. For some of these customer groups (such as contractors),
cost and ease of application are the key factors in making purchasing decisions;
for others (such as architects and structural engineers), product performance
and adaptability are the critical factors. In view of this diversity, and
because Grace Construction's business requires intensive sales and customer
service efforts, Grace Construction maintains a separate sales and technical
support force for each of its product groups. These sales and support forces
sell products under global contracts, under U.S. or regional contracts and on a
job-by-job basis. Consequently, Grace Construction competes globally with
several large construction materials suppliers and regionally and locally with
numerous smaller competitors. In recent years, the cement manufacturing business
and the contracting business have experienced substantial consolidation,
particularly in markets outside the U.S. Competition is based largely on
technical support and service, product performance, adaptability of the product
and price.
Grace Construction's 1996 sales and revenues totaled $435 million (64%
in North America, 19% in Asia Pacific, 17% in Europe and less than 1% in Latin
America), versus $397 million in 1995 and $387 million in 1994. At year-end
1996, Grace Construction employed approximately 1,900 people at 56 production
facilities (26 in North America, 11 in Southeast Asia, 7 in each of
Australia/New Zealand and Europe, 4 in Latin America, and 1 in Japan) and 76
sales offices worldwide. Grace Construction's capital expenditures
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tend to be relatively lower, and sales and marketing expenditures tend to be
relatively higher, than those of Grace's 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 1996 from a cyclical low in 1991. During this time,
the 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
plants for its North American fireproofing operations and streamlining its
management structure and consolidating research efforts in its European
waterproofing operations. 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 is no assurance that these initiatives will succeed, and
the cyclicality and seasonality of the construction business could affect Grace
Construction's business and results of operations.
The raw materials used for manufacturing Grace Construction products
are primarily commodities that can be 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. The worldwide supply of
calcium lignin, a wood pulping by-product used as a raw material in the
production of concrete admixtures, had been decreasing as paper mills converted
to new manufacturing processes. In 1996, additional supplies of calcium lignin
became available, alleviating the shortage. However, there is no assurance that
the additional supplies will remain available in sufficient quantities or at
satisfactory prices.
DISCONTINUED OPERATIONS
Grace's thermal and emission control systems business ("Grace TEC
Systems") is Grace's principal discontinued operation that has not yet been
divested. Grace TEC Systems manufactures air flotation dryers and volatile
organic compound control systems. These products are sold principally to the
graphic arts, web coating and paper converting markets. Competition for Grace
TEC Systems' products is based primarily on system design, materials,
technology, customer service, product performance and price. Grace TEC Systems
employed approximately 700 people at year-end 1996 and had sales of $103 million
in 1996, $113 million in 1995 and $90 million in 1994. Grace is actively
pursuing the disposition of this business and its other remaining discontinued
operations.
See "Strategic Objectives and Actions" above, "Management's Discussion
and Analysis of Results of Operations and Financial Condition" and Note 6 to
Grace's
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<PAGE> 14
Consolidated Financial Statements for additional information concerning Grace's
discontinued operations.
RESEARCH ACTIVITIES
Grace engages in research and development programs for its core
businesses. These programs are 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 includes research in
catalysis, construction materials, specialty packaging and process engineering,
principally involving the development of technologies to manufacture chemical
specialties. Grace's research and development strategy is to develop technology
platforms on which new products will be based, while focusing development
efforts in each business unit 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 $94 million in 1996, $112 million in 1995 and $100 million in 1994
(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) is not
material.
See "Management's Discussion and Analysis of Results of Operations and
Financial Condition" in the Financial Supplement for additional information.
PATENTS AND OTHER INTELLECTUAL PROPERTY MATTERS
Grace relies on numerous patents and patent applications, as well as
know-how and other proprietary information. As competition in the markets in
which Grace 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 important. There can be no assurance that Grace's
patents, patent applications or other intellectual property will provide
sufficient proprietary protection. Other companies may independently develop
similar systems or processes that circumvent patents issued to Grace, or may
acquire patent rights within the fields of Grace's businesses. Grace's
competitors may also develop technologies, systems or processes that are more
effective than those developed by Grace, or that render Grace's technology,
systems or processes less competitive or obsolete. Any such events could have an
adverse effect on Grace.
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<PAGE> 15
ENVIRONMENTAL, HEALTH AND SAFETY MATTERS
Manufacturers of specialty chemical products, including Grace, 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 has expended substantial funds in order to comply with
such laws and regulations and expects to continue to do so in the future. The
following table sets forth Grace's expenditures in the past three years, and its
estimated expenditures in 1997 and 1998, for (a) the operation and maintenance
of environmental facilities and the disposal of wastes with respect to
continuing operations; (b) capital expenditures for environmental control
facilities relating to continuing operations; and (c) site remediation:
<TABLE>
<CAPTION>
(a) (b) (c)
Operation of
Facilities and Capital Site
Waste Disposal Expenditures Remediation
-------------- ------------ -----------
($ in millions)
<S> <C> <C> <C>
1994 $35 $22 $31
1995 43 15 31
1996 45 17 20
1997 (est.) 45 13 23
1998 (est.) 47 12 26
</TABLE>
Additional material environmental costs may arise as a result of future
legislation or other developments. Grace's earnings, competitive position and
other capital expenditures have not been, and are not expected to be, materially
adversely affected by compliance with environmental requirements. See Note 11 to
the Consolidated Financial Statements and "Management's Discussion and Analysis
of Results of Operations and Financial Condition" in the Financial Supplement.
With the goal of continuously improving its environment, health and
safety ("EHS") performance, Grace 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 EHS
activities are to be implemented. To the extent applicable, Commitment to Care
extends the basic elements of Responsible Care to all Grace 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.
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<PAGE> 16
See Item 3 below for information concerning environmental proceedings
to which Grace is a party and "Management's Discussion and Analysis of Results
of Operations and Financial Condition" in the Financial Supplement for
additional information concerning environmental matters.
ITEM 2. PROPERTIES.
Grace 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's product lines. Grace considers its
major operating properties to be in good operating condition and suitable for
their current use. Although Grace 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
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" and page F-25 of the Financial
Supplement for information regarding Grace's capital expenditures.
Additional information regarding Grace's properties is set forth in
Item 1 above and in Notes 1, 8 and 11 to the Consolidated Financial Statements.
ITEM 3. LEGAL PROCEEDINGS.
ASBESTOS LITIGATION. Grace 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. Grace was a defendant in approximately
41,500 asbestos-related lawsuits at year-end 1996 (31 involving claims for
property damage and the remainder involving approximately 91,500 claims for
personal injury), as compared to approximately 40,800 lawsuits at year-end 1995
(47 involving claims for property damage and the remainder involving
approximately 92,400 claims for personal injury). In most of these lawsuits,
Grace is one of many defendants.
The plaintiffs in property damage lawsuits generally seek to have the
defendants absorb the cost of removing, containing or repairing the
asbestos-containing materials in the affected buildings. Through 1996, 135
asbestos property damage cases were dismissed without payment of any damages or
settlement amounts; judgments were entered in favor of Grace in 9 cases
(excluding cases settled following appeals of judgments in favor of Grace);
judgments were entered in favor of the plaintiffs in 7 cases
-14-
<PAGE> 17
for a total of $60.3 million (none of which is on appeal); and 186 property
damage cases were settled for a total of $450.5 million.
Included in the asbestos property damage cases pending against Grace
and others at year-end 1996 were the following class actions: (a) 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 (b) 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 or
one of the other named defendants, other than buildings subject to the class
action lawsuit described above and any building owned by the federal or any
state government. 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 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 the claims under PRINCE
GEORGE CENTER, INC. V. U.S. GYPSUM COMPANY, ET AL., a class action 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 were approved by the Court of Common Pleas of Philadelphia County in July
1996) are not expected to have a significant effect on Grace's consolidated
results of operations or financial position.
Through year-end 1996, approximately 11,800 personal injury lawsuits
involving 27,400 claims were dismissed without payment of any damages or
settlement amounts (primarily on the basis that Grace products were not
involved), and approximately 30,500 such suits involving 66,200 claims were
disposed of for a total of $186 million (see "Insurance Litigation" below).
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;
3,600 new cases involving 7,200 claims against Grace 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 previously purchased insurance policies with respect to its
asbestos-related lawsuits and claims. Grace has settled with and been paid by
its primary insurance carriers with respect to both property damage and personal
injury cases and claims. With one minor exception, Grace also has settled with
its excess insurance carriers that wrote
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<PAGE> 18
policies available for property damage cases; those settlements involve amounts
paid and to be paid to Grace. In addition, Grace has settled with many excess
insurance carriers that wrote policies available for personal injury claims.
Grace is currently in litigation with certain remaining excess insurance
carriers whose policies generally represent layers of coverage Grace has not yet
reached. Such policies are believed by Grace to be available for
asbestos-related personal injury lawsuits. Insurance coverage for
asbestos-related liabilities has not been commercially available since 1985.
Grace's aggregate accrual for asbestos liabilities at December 31, 1996
was $994.1 million; this amount reflects all asbestos-related property damage
and personal injury cases and claims then pending (except for one property
damage case as to which liability is not yet estimable because Grace has not yet
been able to obtain sufficient information through discovery proceedings), as
well as personal injury claims expected to be filed through 2001. Grace's
ultimate exposure with respect to its asbestos-related cases 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. At December 31,
1996, Grace had recorded a receivable of $331.3 million, the amount Grace
estimated to be the probable recovery from its insurance carriers with respect
to pending and projected asbestos cases and claims. A May 1994 decision of the
U.S. Court of Appeals for the Second Circuit limited the amount of insurance
coverage available to Grace with respect to property damage cases. Because
Grace's insurance covers both property damage and personal injury cases 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
claims. However, in Grace's 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 cases and claims pending at year-end 1996, as well as personal injury
claims expected to be filed in the foreseeable future. Consequently, Grace
believes that the resolution of its asbestos-related litigation will not have a
material adverse effect on its consolidated financial position.
See "Insurance Litigation" below and Note 2 to the Consolidated
Financial Statements for additional information.
ENVIRONMENTAL PROCEEDINGS. Grace (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 1996,
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 also is conducting investigatory and remediation activities at sites
under the jurisdiction of state and/or local authorities.
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<PAGE> 19
In November 1995, Grace received a letter from the U.S. Department of
Energy ("DOE") inquiring as to Grace's willingness to contribute to the
continued cleanup of a former Grace property located in Wayne, New Jersey. The
letter asserted that Grace has a legal duty to pay for the cleanup and that the
total cost of the cleanup may exceed $100 million. The operations conducted by
Grace at the Wayne site (from 1955 to 1970) included work done on radioactive
materials under contract with the U.S. government. 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 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 had to contribute to DOE's cleanup effort, while preserving the
rights and liabilities of the parties under other existing applicable laws.
Grace believes that the resolution of the DOE's claim will not have a material
adverse effect on its consolidated financial position.
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, 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 alleged
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. In February 1997, the U.S. District Court approved a decree under
which Grace agreed to pay $700,000 in penalties and $1.6 million towards a
restoration project to settle this action, all of which is expected to be paid
by Grace's insurance carriers on its behalf.
Grace is a party to additional proceedings involving federal, state
and/or local government agencies and private parties regarding Grace's
compliance with environmental laws and regulations. These proceedings are not
expected to result in significant sanctions or in any material liability.
However, Grace may incur material liability in connection with future actions of
governmental agencies and/or private parties relating to past or future
practices of Grace with respect to the generation, storage, handling, discharge
or disposition of hazardous wastes and other materials.
Grace believes that the liabilities for environmental remediation
costs, including costs relating to environmental proceedings, that have been
recorded in the Consolidated Financial Statements are adequate. In addition,
Grace is presently involved in litigation with its insurance carriers seeking to
hold them responsible for certain amounts for which Grace may be held liable
with respect to such costs. The outcome of such litigation, as well as the
amounts of any recoveries that Grace may receive in connection therewith, is
presently uncertain. However, Grace believes that the resolution of pending
environmental proceedings will not have a material adverse effect on its
consolidated financial position, results of operations or liquidity. For further
information, see "Environmental,
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<PAGE> 20
Health and Safety Matters" under Item 1 above and "Management's Discussion and
Analysis of Results of Operations and Financial Condition."
INSURANCE LITIGATION. Grace is involved in litigation with certain of
its insurance carriers with respect to asbestos-related insurance claims and
environmental liabilities. The relief sought by Grace in these actions would
provide insurance that would partially offset Grace's estimated exposure with
respect to amounts previously expended, and that may be expended in the future,
by Grace to defend claims, satisfy judgments and fund settlements. Grace 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. In April 1996, as a result
of rulings in this action favorable to Grace with respect to its
asbestos-related property damage liabilities, the insurers agreed to the entry
of summary judgment in favor of Grace; however, the insurers have stated that
they intend to appeal the District Court's rulings. The District Court has not
yet addressed Grace's claims for insurance coverage for its asbestos-related
personal injury liabilities. Grace's only environmental insurance coverage
action is pending in the U.S. District Court for the Southern District of New
York and is also styled MARYLAND CASUALTY CO. V. W. R. GRACE & CO. 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 received from insurance carriers asbestos-related
payments totaling $97.7 million, the majority of which represented the aggregate
remaining obligations owed to Grace by those carriers for primary-level
insurance coverage written for the period June 30, 1962 through June 30, 1987.
In 1993 and 1994, Grace 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 in connection with asbestos-related
litigation. In 1995, Grace 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 settled with additional
excess-level insurers for a total of $110.5 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's asbestos-related
insurance claims have been dismissed as to the primary-level product liability
insurance coverage previously sold by the relevant insurers to Grace, as well as
to many of Grace's excess-level liability insurers. However, litigation
continues in New York federal court as to certain excess-level carriers that
have not settled.
FUMED SILICA PLANT LITIGATION. In 1993, Grace initiated legal action in
the Belgian courts against the Flemish government to recover losses resulting
from the closing of Grace's fumed silica plant in Puurs, Belgium. Grace is
seeking damages in excess of four billion Belgian francs (approximately $126.1
million at the December 31, 1996 exchange rate), plus interest and lost profits.
This claim was dismissed at the trial court level and is now being appealed by
Grace. The trial court also determined that Grace should repay
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<PAGE> 21
approximately 239 million Belgian francs (approximately $7.5 million at the
December 31, 1996 exchange rate), plus interest, to the Flemish government for
previously received investment grants; this decision is also being appealed by
Grace. In July 1996, Grace received a favorable arbitration ruling, under which
the engineering company responsible for the design and construction of the fumed
silica plant was ordered to pay damages to Grace; the damage award is not
material to Grace.
U.S. JUSTICE DEPARTMENT LAWSUIT. The U.S. Justice Department has
intervened in a QUI TAM lawsuit, originally filed in June 1995, pending in the
U.S. District Court for the Northern District of California (UNITED STATES EX
REL. ROBERT COSTA AND RONALD THORNBURG, ET AL., V. BAKER & TAYLOR, INC., ET
AL.). The complaint in this lawsuit alleges that Baker & Taylor Books, a book
wholesaler sold by Grace in 1992, overcharged public schools, libraries and
federal agencies during the last ten years, including the period during which
Baker & Taylor Books was owned by Grace. Grace, Baker & Taylor, Inc. (the entity
that currently operates Baker & Taylor Books) and one of the current
shareholders of Baker & Taylor, Inc. have been named as defendants. The lawsuit
seeks unspecified damages, punitive damages and civil penalties, as well as
attorneys' fees and expenses and such other relief as the Court may deem proper.
At this time, Grace is unable to determine the liability, if any, to which it
may be subject as a result of this lawsuit.
SHAREHOLDER LITIGATION. W. R. Grace & Co., a New York corporation
subsequently renamed Fresenius National Medical Care Holdings, Inc. ("Grace New
York"), and members of the Grace New York Board of Directors (as well as J. P.
Bolduc, who resigned as president and chief executive officer and a director of
Grace New York in March 1995) are defendants in a case entitled WEISER, ET AL.
V. GRACE, ET AL. pending in New York State Supreme Court, New York County. 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 (a) 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 (b) 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 a retirement plan for nonemployee directors, the return of all
remuneration paid to the directors who are defendants while they were in breach
of their fiduciary duties to Grace New York, attorneys' and experts' fees and
costs, and such other relief as the Court deems proper. A motion to intervene in
the case by the California Public Employees' Retirement System was granted by
the Court in September 1996. Under the terms of the Distribution Agreement
("Distribution Agreement") entered into in connection with the NMC transaction
described in "Strategic Objectives and Actions" above and in Note 1 to the
Consolidated Financial Statements, Grace remains financially responsible for any
liabilities incurred by Grace New York and others as a result of this
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<PAGE> 22
lawsuit, including the fees and disbursements of counsel for Grace and, subject
to certain conditions, counsel for the individual defendants (including certain
current and former directors of the Company). The discussions of the
Distribution Agreement appearing above and in the following paragraphs do not
purport to be complete and are qualified in their entirety by reference to the
Distribution Agreement, which was filed as an exhibit to the Joint Proxy
Statement-Prospectus of Grace New York dated August 2, 1996.
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's Chairman, President and Chief Executive Officer
(and who previously held those offices with Grace New York), 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.). On December 23, 1996,
the parties stipulated to the dismissal of these actions without prejudice and
without costs. No consideration was paid in connection with the dismissals.
SECURITIES AND EXCHANGE COMMISSION INVESTIGATIONS. Grace New York was
previously notified that the Securities and Exchange Commission ("Commission")
had 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. and certain matters relating to J. Peter Grace III, a son of J.
Peter Grace, Jr. Grace is cooperating with the investigation. The outcome of
this investigation and its impact, if any, on Grace cannot be predicted at this
time.
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 laws by filing periodic
reports with the Commission that contained false and misleading financial
information. Pursuant to this formal order of investigation, Grace and others
have received subpoenas from the Southeast Regional Office of the Commission
requiring the production of documents relating principally 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. Grace believes that all financial
statements filed by Grace New York with the Commission during that period, the
financial statements of NMC included in its Form 10 Registration Statement 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 is cooperating with the investigation. The outcome
of this investigation and its impact, if any, on Grace cannot be predicted at
this time.
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<PAGE> 23
Under the terms of the Distribution Agreement, Grace remains
financially responsible for any liabilities incurred by Grace New York and
others as a result of the investigations described above, including the fees and
disbursements of counsel for Grace and, subject to certain conditions, counsel
for certain former directors and officers of the Company.
SHAREHOLDER ACTIONS RELATING TO NMC. Grace New York and certain of its
former officers and directors are defendants in a lawsuit 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 investigations
of NMC by the Office of the Inspector General of the U.S. Department of Health
and Human Services, 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.
Grace New York, certain of its former directors and its former
president and chief executive officer are also defendants in a purported
derivative action pending in the U.S. District Court for the Southern District
of New York (BENNETT V. BOLDUC, ET AL.), alleging that such individuals breached
their fiduciary duties by failing to properly supervise the activities of NMC in
the conduct of its business. The BENNETT action seeks unspecified damages,
attorneys' and experts' fees and costs, and such other relief as the Court deems
proper.
Under the terms of the Distribution Agreement, Grace remains
financially responsible for any liabilities incurred by Grace New York and
others as a result of the lawsuits described above, including the fees and
disbursements of counsel for Grace and, subject to certain conditions, counsel
for the individual defendants (including certain current and former directors
and officers of the Company).
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). On December 19, 1996, the parties
stipulated to the dismissal of this action without prejudice and without costs.
No consideration was paid in connection with the dismissal.
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<PAGE> 24
See Note 6 to the Consolidated Financial Statements and "Management's
Discussion and Analysis of Results of Operations and Financial Condition" for
additional information concerning certain litigation and proceedings involving
NMC.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
This Item is inapplicable, as no matters were submitted to a vote of
the Company's security holders during the fourth quarter of 1996.
EXECUTIVE OFFICERS
The Company's current executive officers are listed below. Executive
officers are elected to serve until the following annual meeting of the
Company's Board of Directors; the next such meeting is scheduled to be held on
May 9, 1997.
<TABLE>
<CAPTION>
Name and Age Office First Elected
------------ ------ -------------
<S> <C> <C>
R. H. Beber (63) Executive Vice President 05/10/93
and General Counsel 09/01/91
Robert J. Bettacchi (54) Vice President 02/01/90
Albert J. Costello (61) Chairman, 05/10/95
President and Chief 05/01/95
Executive Officer
Larry Ellberger (49) Senior Vice President and 07/06/95
Chief Financial Officer 11/14/96
James R. Hyde (58) Senior Vice President 07/06/95
J. Gary Kaenzig, Jr. (52) Senior Vice President 10/05/95
</TABLE>
All the above executive officers have been actively engaged in Grace's
business for the past five years, other than Messrs. Costello and Ellberger. Mr.
Costello served as chairman of the board and chief executive officer of American
Cyanamid Company from April 1993 to December 1994 and as president of American
Cyanamid Company from 1991 through March 1993. Mr. Ellberger was a corporate
vice president and director of corporate development and planning from October
1991 until 1995, and prior to that vice president, industrial and performance
products division, of American Cyanamid Company.
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<PAGE> 25
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
Except as provided below, the information called for by this Item
appears in the Financial Supplement under the heading "Financial Summary"
opposite the caption "Other Statistics - Common shareholders of record" (page
F-26); under the heading "Quarterly Summary and Statistical Information -
Unaudited" opposite the captions "Dividends declared per common share" and
"Market price of common stock" (page F-25); and in Note 13 to the Consolidated
Financial Statements (page F-20).
Each share of the Company's Common Stock, $.01 par value ("Common
Stock"), has an attendant Preferred Stock Purchase Right ("Right"). The Rights
are not and will not become exercisable unless and until certain events occur
(as described below). Until such events occur, the Rights will automatically
trade with the Common Stock, and separate certificates for the Rights will not
be distributed. The Rights will become exercisable on the earlier to occur of
(a) 10 days after a person or group ("Acquiring Person") has acquired beneficial
ownership of 20% or more of the then outstanding shares of Common Stock or (b)
10 business days (or such later date as may be fixed by the Company's Board of
Directors) after an Acquiring Person commences (or announces the intention to
commence) a tender offer or exchange offer that would result in such Acquiring
Person becoming the beneficial owner of 20% or more of the then outstanding
shares of Common Stock. Holders of Rights, as such, have no rights as
stockholders of the Company; consequently, such holders have no rights to vote
or receive dividends, among other things.
When the Rights become exercisable, each Right will initially entitle
the holder to buy from the Company one hundredth of a share of the Company's
Series A Junior Participating Preferred Stock, $.01 par value ("Junior Preferred
Stock"), for $200, subject to adjustment ("exercise price"). If, at any time
after the Rights become exercisable, the Company is acquired in a merger or
other business combination or 50% or more of the Company's consolidated assets
or earning power is sold, each Right will entitle the holder to buy a number of
shares of common stock of the acquiring company having a market value equal to
twice the exercise price. Alternatively, each Right not owned by an Acquiring
Person would become exercisable for Common Stock having a market value equal to
twice the exercise price.
Shares of Junior Preferred Stock that may be purchased upon exercise of
the Rights will not be redeemable. Each share of Junior Preferred Stock will be
entitled to a minimum preferential quarterly dividend payment of $1.00 per share
but will be entitled to an aggregate dividend equal to 100 times the dividend
declared per share of Common
-23-
<PAGE> 26
Stock whenever such dividend is declared. In the event of liquidation, holders
of 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 Common Stock. Each share of Junior
Preferred Stock will have 100 votes, voting together with the Common Stock.
Finally, in the event of any merger, consolidation or other transaction in which
the Common Stock is exchanged, each share of Junior Preferred Stock will be
entitled to receive an amount equal to 100 times the amount received per share
of Common Stock. These rights are protected by customary antidilution
provisions.
Because of the nature of the dividend, liquidation and voting rights of
the Junior Preferred Stock, the value of the one-hundredth interest in a share
of Junior Preferred Stock that may be purchased upon exercise of each Right
should approximate the value of one share of Common Stock.
At any time after any person or group becomes an Acquiring Person, and
prior to the acquisition by such Acquiring Person of 50% or more of the
outstanding shares of Common Stock, the Company's Board of Directors may
exchange the Rights (other than Rights owned by such person or group, which will
become void after such person becomes an Acquiring Person) for Common Stock or
Junior Preferred Stock, in whole or in part, at an exchange ratio of one share
of Common Stock, or one hundredth of a share of Junior Preferred Stock (or of a
share of another series of the Company's Preferred Stock having equivalent
rights, preferences and privileges), per Right (subject to adjustment).
At any time prior to the acquisition by a person or group of beneficial
ownership of 20% or more of the outstanding shares of Common Stock, the
Company's Board of Directors may redeem the Rights in whole, but not in part, at
a price of $.01 per Right.
The terms of the Rights may be amended by the Company's Board of
Directors without the consent of the holders of the Rights, including an
amendment to lower (a) the threshold at which a person becomes an Acquiring
Person and (b) the percentage of Common Stock proposed to be acquired in a
tender or exchange offer that would cause the Rights to become exercisable, to
not less than the greater of (a) the sum of .001% plus the largest percentage of
the Company's outstanding Common Stock then known to the Company to be
beneficially owned by any person or group and (b) 10%, except that, from and
after such time as any person or group becomes an Acquiring Person, no such
amendment may adversely affect the interests of the holders of the Rights.
The Rights will expire in September 2006, unless this expiration date
is extended or unless the Rights are earlier redeemed or exchanged by the
Company.
-24-
<PAGE> 27
The foregoing summary of the Rights does not purport to be complete and
is qualified in its entirety by reference to the Rights Agreement, which was
filed as an exhibit to the Company's Form 8-K filed on October 10, 1996.
ITEM 6. SELECTED FINANCIAL DATA.
The information called for by this Item appears under the heading
"Financial Summary" (page F-26 of the Financial Supplement) and in Notes 5, 6,
9 and 16 to the Consolidated Financial Statements (pages F-13, F-15, F-18 and
F-23 of the Financial Supplement). In addition, Exhibit 12 to this Report (page
F-35 of the Financial Supplement) contains the ratio of earnings to fixed
charges and combined fixed charges and preferred stock dividends for Grace for
the years 1992-1996.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The information called for by this Item appears on pages F-27 to F-32
of the Financial Supplement.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See the Index to Consolidated Financial Statements and Financial
Statement Schedule and Exhibits on page F-1 of the Financial Supplement.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
This item is inapplicable, as no such changes or disagreements have
occurred.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Except for information regarding the Company's executive officers (see
page 22), the information called for by this Item is incorporated in this Report
by reference to the definitive Proxy Statement for the Company's 1997 Annual
Meeting of Shareholders, except for information not deemed to be "soliciting
material" or "filed" with the Commission,
-25-
<PAGE> 28
information subject to Regulations 14A or 14C under the Securities Exchange Act
of 1934 ("Exchange Act") or information subject to the liabilities of Section 18
of the Exchange Act.
ITEM 11. EXECUTIVE COMPENSATION.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information called for by Items 11, 12 and 13 is incorporated in
this Report by reference to the definitive Proxy Statement for the Company's
1997 Annual Meeting of Shareholders, except for information not deemed to be
"soliciting material" or "filed" with the Commission, information subject to
Regulations 14A or 14C under the Exchange Act or information subject to the
liabilities of Section 18 of the Exchange Act.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K.
FINANCIAL STATEMENTS AND SCHEDULES. See the Index to Consolidated
Financial Statements and Financial Statement Schedule and Exhibits on page F-1
of the Financial Supplement.
REPORTS ON FORM 8-K. The Company filed the following Reports on Form
8-K during the fourth quarter of 1996 and the beginning of 1997:
<TABLE>
<CAPTION>
Date of Filing Disclosure(s)
-------------- -------------
<S> <C>
October 10, 1996 Distribution of all of the shares of the Company's outstanding
common stock to the holders of the common stock of Grace
New York, on a one-for-one basis.
November 8, 1996 Announcement of 1996 third quarter results.
</TABLE>
-26-
<PAGE> 29
<TABLE>
<S> <C>
November 21, 1996 Announcement of the election of Larry Ellberger as chief
financial officer.
November 22, 1996 Announcement that Grace had entered into a definitive agreement to
sell its Amicon separations science business to Millipore
Corporation.
January 8, 1997 Announcement that Grace had entered into a definitive agreement to
sell its worldwide cocoa business to Archer-Daniels-Midland Company;
announcement of the completion of the sale of Grace's Amicon
separations science business to Millipore Corporation; and
announcement of the release of W. R. Grace & Co.-Conn., the
Company's principal operating subsidiary, from guarantees of certain
borrowings by National Medical Care, Inc., a former subsidiary.
February 14, 1997 Announcement of 1996 fourth quarter and full year results.
March 4, 1997 Announcement of the completion of the sale of Grace's worldwide
cocoa business to Archer-Daniels-Midland Company; announcement that
Grace had entered into a definitive agreement to sell its specialty
polymers business to National Starch and Chemical Company; and
announcement that Grace had agreed in principle to acquire
Schurpack, Inc.
March 12, 1997 Announcement of the release of additional components of Grace's 1996
financial statements, including a consolidated balance sheet and a
consolidated statement of cash flows
</TABLE>
EXHIBITS. The exhibits to this Report are listed below. Other than
exhibits that are filed herewith, all exhibits listed below are incorporated
herein by reference. Exhibits indicated by an asterisk (*) are the management
contracts and compensatory plans, contracts or arrangements required to be filed
as exhibits to this Report.
<TABLE>
<CAPTION>
Exhibit Where Located
------- -------------
<S> <C>
Amended and Restated Certificate of Exhibit 4.1 to Form 8-K
Incorporation of W. R. Grace & Co (filed 10/10/96)
</TABLE>
-27-
<PAGE> 30
<TABLE>
<S> <C>
Amended and Restated By-laws of W. R. Grace & Co. Exhibit 4.2 to Form 8-K
(filed 10/10/96)
Rights Agreement by and between W. R. Grace & Co. Exhibit 4.3 to Form 8-K
and The Chase Manhattan Bank, as Rights Agent (filed 10/10/96)
Indenture dated as of September 29, 1992 among Exhibit 4.2 to Form 10-K
W. R. Grace & Co.-Conn., W. R. Grace & Co. (filed 3/26/93)
and Bankers Trust Company
Supplemental Indenture dated as of September 24, 1996, Exhibit 4.4 to Form 8-K
among W. R. Grace & Co.-Conn., W. R. Grace & Co., (filed 10/10/96)
Grace Holding, Inc., and Bankers Trust Company, to
Indenture dated as of September 29, 1992
Indenture dated as of January 28, 1993 among W. R. Grace & Exhibit 4.4 to Form 10-K
Co.-Conn., W. R. Grace & Co. and The Bank of New York (filed 3/26/93)
(successor to NationsBank of Georgia, N.A.)
Supplemental Indenture dated as of September 24, 1996, Exhibit 4.5 to Form 8-K
among W. R. Grace & Co.-Conn., W. R. Grace & Co., (filed 10/10/96)
Grace Holding, Inc., and The Bank of New York, to
Indenture dated as of January 28, 1993
364-Day Credit Agreement, dated as of May 17, 1996, Exhibit 4.4 to Registration Statement
among W. R. Grace & Co.-Conn., W. R. Grace & Co., on Form S-1 (filed 8/2/96)
Grace Holding, Inc., the several banks parties thereto,
NationsBank, N.A. (South), as documentation agent, and
Chemical Bank, as administrative agent, for such banks
Amended and Restated Credit Agreement, dated as of Exhibit 4.5 to Registration Statement
May 17, 1996, among W. R. Grace & Co.-Conn., on Form S-1 (filed 8/2/96)
W. R. Grace & Co., Grace Holding, Inc., the several banks
parties thereto and Chemical Bank, as administrative agent
for such banks
W. R. Grace & Co. 1996 Stock Incentive Plan Filed herewith*
W. R. Grace & Co. 1996 Stock Retainer Plan for Exhibit 10.2 to Form 8-K
Nonemployee Directors (filed 10/10/96)*
</TABLE>
-28-
<PAGE> 31
<TABLE>
<S> <C>
W. R. Grace & Co. Supplemental Executive Retirement Filed herewith*
Plan, as amended
W. R. Grace & Co. Executive Salary Protection Filed herewith*
Plan, as amended
W. R. Grace & Co. 1981 Stock Incentive Exhibit 10.3 to Form 8-K
Plan, as amended (filed 10/10/96)*
W. R. Grace & Co. 1986 Stock Incentive Exhibit 10.4 to Form 8-K
Plan, as amended (filed 10/10/96)*
W. R. Grace & Co. 1989 Stock Incentive Exhibit 10.5 to Form 8-K
Plan, as amended (filed 10/10/96)*
W. R. Grace & Co. 1994 Stock Incentive Exhibit 10.6 to Form 8-K
Plan, as amended (filed 10/10/96)*
Forms of Stock Option Agreements Exhibit 10(h) to Form 10-K
(filed 3/28/92)*
Information concerning W. R. Grace & Co. Pages 7-12 and 28-33 of Proxy Statement
Incentive Compensation Program, Deferred (filed 4/10/96)*
Compensation Program and Long-Term Incentive
Program
Form of Long-Term Incentive Program Award Exhibit 10.13 to Registration Statement on
Form S-1 (filed 8/2/96)*
Form of Stock Option Agreement Exhibit 10.14 to Registration Statement on
Form S-1 (filed 8/2/96)*
W. R. Grace & Co. Retirement Plan for Outside Filed herewith*
Directors, as amended
Employment Agreement dated as of April 1, 1991 Exhibit 10(x) to Form 10-K
between W. R. Grace & Co.-Conn. and (filed 3/28/92)*
Constantine L. Hampers, as amended
Letter Agreement dated as of March 29, 1996 Exhibit 10.1 to Form 10-Q
between W. R. Grace & Co. and (filed 5/15/96)*
Constantine L. Hampers
Letter Agreement dated June 14, 1996 Exhibit 10.35 to Registration Statement
between W. R. Grace & Co. and on Form S-1 (filed 8/2/96)*
Constantine L. Hampers
</TABLE>
-29-
<PAGE> 32
<TABLE>
<S> <C>
Form of Executive Severance Agreement Exhibit 10.22 to Registration Statement
between W. R. Grace & Co. and on Form S-1 (filed 8/2/96)*
officers elected prior to May 1996
Form of Executive Severance Agreement Exhibit 10.23 to Registration Statement
between W. R. Grace & Co. and on Form S-1 (filed 8/2/96)*
officers elected in or after May 1996
Consulting Agreement dated June 1, 1992 Exhibit 10.29 to Form 10-K
between W. R. Grace & Co. and (filed 3/26/93)*
Kamsky Associates, Inc.
Incentive Compensation Agreement dated June 1, 1992 Exhibit 10.30 to Form 10-K
between National Medical Care, Inc. and (filed 3/26/93)*
Kamsky Associates, Inc.
Consulting Agreement dated as of December 1993 Exhibit 10.23 to Form 10-K
between National Medical Care, Inc. and (filed 3/31/95)*
Virginia A. Kamsky
Amendment to Consulting Agreement, dated as of Exhibit 10.1 to Form 10-Q
May 1, 1995, among National Medical Care, Inc., (filed 5/12/95)*
Virginia A. Kamsky and Southeast Asia Markets, Inc.
Employment Agreement dated as of May 1, 1995 Exhibit 10.1 to Form 10-Q
between W. R. Grace & Co. and Albert J. Costello (filed 8/14/95)*
Amendment dated August 9, 1996 to Employment Agreement, Exhibit 10.7 to Form 8-K
dated as of May 1, 1995, between W. R. Grace & Co. (filed 10/10/96)*
and Albert Costello
Option Agreement between W. R. Grace & Co. and Exhibit 10.8 to Form 8-K
Albert J. Costello, dated May 1, 1995, as amended (filed 10/10/96)*
Option Agreement between W. R. Grace & Co. and Exhibit 10.37 to Registration Statement
Albert J. Costello, dated March 6, 1996 on Form S-1 (filed 8/2/96)*
Agreement dated September 23, 1996 between Exhibit 10.9 to Form 8-K
W. R. Grace & Co. and Donald H. Kohnken (filed 10/10/96)*
Employment Agreement dated May 15, 1995 between Filed herewith*
W. R. Grace & Co. and Larry Ellberger
</TABLE>
-30-
<PAGE> 33
<TABLE>
<S> <C>
Restricted Stock Award Agreement dated June 6, 1995 Filed herewith*
between W. R. Grace & Co. and Larry Ellberger, as
amended by letter agreement dated August 26, 1996
between Larry Ellberger and W. R. Grace & Co.
Letter Agreement dated December 10, 1996 between Filed herewith*
W. R. Grace & Co. and Larry Ellberger
Bridge Loan Promissory Note dated July 31, 1992 of Filed herewith*
Fred and Jacqueline Lempereur, payable to
W. R. Grace & Co.-Conn.
Employee Relocation Loan Agreement dated July 31, 1992 Filed herewith*
between W. R. Grace & Co.-Conn. and Fred and
Jacqueline Lempereur
Employment Agreement dated August 17, 1992 between Filed herewith*
Grace Specialty Chemicals Co. and Fred Lempereur
Letter Agreement dated January 10, 1997 between Filed herewith*
W. R. Grace & Co. and Fred Lempereur
Distribution Agreement by and among W. R. Grace & Co., Exhibit 2 to Form 8-K
a New York corporation subsequently renamed (filed 2/6/96)
Fresenius National Medical Care Holdings, Inc.,
W. R. Grace & Co.-Conn., and Fresenius AG dated
February 4, 1996
Form of Indemnification Agreement between Exhibit 10.39 to Registration Statement
W. R. Grace & Co. and certain directors on Form S-1 (filed 8/2/96)*
Form of Indemnification Agreement between Filed herewith*
W. R. Grace & Co. and certain officers and
directors
Weighted Average Number of Shares and Earnings Filed herewith (in Financial
Used in Per Share Computations Supplement to Form 10-K)
Computation of Ratio of Earnings to Fixed Charges Filed herewith (in Financial
and Combined Fixed Charges and Preferred Stock Dividends Supplement to Form 10-K)
Selected Portions of the 1996 Annual Report to Filed herewith (in Financial
Shareholders of W. R. Grace & Co. Supplement to Form 10-K)
</TABLE>
-31-
<PAGE> 34
<TABLE>
<S> <C>
List of Subsidiaries of W. R. Grace & Co. Filed herewith
Consent of Independent Accountants Filed herewith (in Financial
Supplement to Form 10-K)
Powers of Attorney Filed herewith
</TABLE>
-32-
<PAGE> 35
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
W. R. GRACE & CO.
By /s/ L. Ellberger
-------------------------
L. Ellberger
(Senior Vice President and
Chief Financial Officer)
Date: March 28, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 28, 1997.
Signature Title
--------- -----
A. J. Costello* President and Director
(Principal Executive Officer)
J. F. Akers* T. A. Holmes* }
H. Brown* V. A. Kamsky* }
C. Cheng* J. J. Murphy* } Directors
H. A. Eckmann* J. E. Phipps* }
M. A. Fox* T. A. Vanderslice* }
J. W. Frick*
/s/ L. Ellberger Senior Vice President
- ------------------- (Principal Financial Officer)
(L. Ellberger)
/s/ K. A. Browne Vice President and Controller
- ------------------ (Principal Accounting Officer)
(K. A. Browne)
- -------
* 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 and filed with the Securities and Exchange
Commission.
By /s/ Robert B. Lamm
------------------------
Robert B. Lamm
(Attorney-in-Fact)
-33-
<PAGE> 36
FINANCIAL SUPPLEMENT
W. R. GRACE & CO.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1996
<PAGE> 37
FINANCIAL SUPPLEMENT
to
Annual Report on Form 10-K for the Year Ended December 31, 1996
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, 1996 ................................................. F-4
Consolidated Statement of Cash Flows for the three years in the
period ended December 31, 1996 ................................................. F-5
Consolidated Balance Sheet at December 31, 1996 and 1995 ......................... F-6
Consolidated Statement of Shareholders' Equity for the three
years in the period ended December 31, 1996 .................................... F-7
Notes to Consolidated Financial Statements ....................................... F-8-F-24
Quarterly Summary and Statistical Information - Unaudited ........................ F-25
Capital Expenditures, Net Fixed Assets and Depreciation and
Lease Amortization ............................................................. F-25
Financial Summary ................................................................ F-26
Management's Discussion and Analysis of Results of Operations
and Financial Condition ........................................................ F-27
Financial Statement Schedule
Schedule II - Valuation and Qualifying Account and Reserves ............ F-33
Exhibit 11: Weighted Average Number of Shares and Earnings Used in
Per Share Computations .................................................. F-34
Exhibit 12: Computation of Ratio of Earnings to Fixed Charges and
Combined Fixed Charges and Preferred Stock Dividends .................... F-35
</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> 38
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 February 3, 1997 appearing on page 27 of the 1996 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
February 3, 1997
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-8 (Nos. 333-13637,
333-13639, 333-13641, 333-13643, 333-14101, 333-13645, 333-13647 and 333-16401)
of W. R. Grace & Co. of our report dated February 3, 1997 appearing on page 27
of the 1996 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 28, 1997
F-2
<PAGE> 39
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.
Management maintains internal control systems to assist it in fulfilling
its responsibility for financial reporting, including selection of personnel;
segregation of duties; 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
their benefits.
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 Larry Ellberger
Chairman, President and Senior Vice President and
Chief Executive Officer Chief Financial Officer
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
PRICE WATERHOUSE LLP February 3, 1997
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-24 of this report present fairly, in all material respects, the
financial position of W. R. Grace & Co. and subsidiaries at December 31, 1996
and 1995, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of 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> 40
<TABLE>
<CAPTION>
CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------------------------------------------
W. R. Grace & Co. and Subsidiaries
CONSOLIDATED STATEMENT OF OPERATIONS
====================================================================================================================
Dollars in millions, except per share amounts 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales and revenues ................................................................ $3,454.1 $3,552.6 $3,128.5
Other income ...................................................................... 38.9 41.2 42.0
-------- -------- --------
TOTAL ......................................................................... 3,493.0 3,593.8 3,170.5
-------- -------- --------
Cost of goods sold and operating expenses ......................................... 2,071.0 2,151.2 1,832.6
Selling, general and administrative expenses ...................................... 713.3 913.7 785.9
Depreciation and amortization ..................................................... 184.4 186.1 164.6
Interest expense and related financing costs ...................................... 71.6 71.3 49.5
Research and development expenses ................................................. 93.9 111.6 99.6
Restructuring costs and asset impairments ......................................... 107.5 169.0 --
Provision relating to asbestos-related liabilities and insurance coverage ......... 229.1 275.0 316.0
Gain on sales of businesses ....................................................... (326.4) -- --
-------- -------- --------
TOTAL ......................................................................... 3,144.4 3,877.9 3,248.2
-------- -------- --------
Income/(loss) from continuing operations before income taxes ...................... 348.6 (284.1) (77.7)
Provision for/(benefit from) income taxes ......................................... 134.8 (104.5) (42.6)
-------- -------- --------
INCOME/(LOSS) FROM CONTINUING OPERATIONS ...................................... 213.8 (179.6) (35.1)
Income/(loss) from discontinued operations ........................................ 2,643.9 (146.3) 118.4
-------- -------- --------
NET INCOME/(LOSS) ............................................................. $2,857.7 $ (325.9) $ 83.3
======== ======== ========
Earnings/(loss) per share:
Continuing operations ......................................................... $ 2.32 $ (1.87) $ (.38)
Net earnings/(loss) ........................................................... $ 31.06 $ (3.40) $ .88
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The Notes to Consolidated Financial Statements, pages F-8 to F-24, are integral
parts of these statements.
F-4
<PAGE> 41
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
====================================================================================================================
Dollars in millions 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Income/(loss) from continuing operations before income taxes ...................... $ 348.6 $ (284.1) $ (77.7)
Reconciliation to cash provided by operating activities:
Depreciation and amortization ................................................. 184.4 186.1 164.6
Provision relating to asbestos-related liabilities and insurance coverage ..... 229.1 275.0 316.0
Provision relating to restructuring costs and asset impairments ............... 107.5 169.0 --
Gain on sales of businesses ................................................... (326.4) -- --
Changes in assets and liabilities, excluding effect of businesses
acquired/divested and foreign currency exchange:
Increase in notes and accounts receivable, net ............................ (126.4) (44.7) (159.5)
Decrease/(increase) in inventories ........................................ 51.9 (62.1) (43.4)
Proceeds from asbestos-related insurance settlements ...................... 184.5 257.3 138.6
Payments made for asbestos-related litigation settlements, judgments and
defense costs ............................................................ (186.6) (160.3) (198.6)
(Decrease)/increase in accounts payable ................................... (36.4) (48.3) 10.3
Other ..................................................................... (74.6) (40.6) 74.5
---------- -------- --------
NET PRETAX CASH PROVIDED BY OPERATING ACTIVITIES OF CONTINUING OPERATIONS 355.6 247.3 224.8
Net pretax cash provided by operating activities of discontinued operations ....... 38.5 96.6 314.7
---------- -------- --------
NET PRETAX CASH PROVIDED BY OPERATING ACTIVITIES .............................. 394.1 343.9 539.5
Income taxes paid ................................................................. (170.8) (236.9) (86.0)
---------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES ..................................... 223.3 107.0 453.5
---------- -------- --------
INVESTING ACTIVITIES (1)
Capital expenditures .............................................................. (456.6) (537.6) (444.6)
Businesses acquired in purchase transactions, net of cash acquired and debt assumed (32.1) (37.4) (276.9)
Net investing activities of discontinued operations ............................... (192.9) (295.2) (32.9)
Net proceeds from divestments ..................................................... 2,720.3 56.7 583.9
Proceeds from disposals of assets ................................................. 36.6 17.9 34.0
Other ............................................................................. (2.4) (6.0) 34.9
---------- -------- --------
NET CASH PROVIDED BY/(USED FOR) INVESTING ACTIVITIES .......................... 2,072.9 (801.6) (101.6)
---------- -------- --------
FINANCING ACTIVITIES (1)
Dividends paid .................................................................... (46.0) (112.6) (132.0)
Repayments of borrowings having original maturities in excess of three months ..... (196.1) (68.1) (141.2)
Increase in borrowings having original maturities in excess of three months ....... .6 148.5 535.1
Net (repayments of)/increase in borrowings having original maturities
of three months or less .......................................................... (344.3) 414.9 (605.8)
Stock options exercised ........................................................... 70.7 164.1 21.1
Net financing activities of discontinued operations ............................... (136.7) 120.8 .2
Purchase of treasury stock ........................................................ (1,319.3) (12.1) --
Repurchase of limited partnership interest ........................................ (297.0) -- --
Other ............................................................................. .3 .2 (.2)
---------- -------- --------
NET CASH (USED FOR)/PROVIDED BY FINANCING ACTIVITIES .......................... (2,267.8) 655.7 (322.8)
---------- -------- --------
Effect of exchange rate changes on cash and cash equivalents ...................... (.7) 1.2 1.6
---------- -------- --------
Increase/(decrease) in cash and cash equivalents .................................. 27.7 (37.7) 30.7
---------- -------- --------
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR .................................. 40.6 78.3 47.6
---------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR ........................................ $ 68.3 $ 40.6 $ 78.3
========== ======== ========
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The Notes to Consolidated Financial Statements, pages F-8 to F-24, are
integral parts of these statements.
(1) See Notes 1 and 6 for supplemental information relating to noncash
investing and financing activities.
F-5
<PAGE> 42
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
=================================================================================================================
Dollars in millions, except par value December 31, 1996 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ....................................................... $ 68.3 $ 40.6
Notes and accounts receivable, net .............................................. 831.4 596.8
Inventories ..................................................................... 376.1 491.9
Net assets of discontinued operations ........................................... 297.4 323.7
Deferred income taxes ........................................................... 183.9 206.1
Other current assets ............................................................ 17.8 22.2
-------- --------
TOTAL CURRENT ASSETS ........................................................ 1,774.9 1,681.3
Properties and equipment, net ................................................... 1,871.3 1,736.1
Goodwill, less accumulated amortization of $18.6 (1995 - $20.6) ................. 40.6 111.8
Net assets of discontinued operations - health care ............................. -- 1,435.3
Asbestos-related insurance receivable ........................................... 296.3 321.2
Deferred income taxes ........................................................... 309.2 386.6
Other assets .................................................................... 653.5 688.3
-------- --------
TOTAL ASSETS ................................................................ $4,945.8 $6,360.6
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt ................................................................. $ 315.2 $ 638.3
Accounts payable ................................................................ 274.7 339.2
Income taxes .................................................................... 123.3 103.3
Other current liabilities ....................................................... 773.9 836.4
Minority interest ............................................................... -- 297.0
-------- --------
TOTAL CURRENT LIABILITIES ................................................... 1,487.1 2,214.2
Long-term debt .................................................................. 1,073.0 1,295.5
Other liabilities ............................................................... 850.7 852.0
Deferred income taxes ........................................................... 43.5 44.8
Noncurrent liability for asbestos-related litigation ............................ 859.1 722.3
-------- --------
TOTAL LIABILITIES ........................................................... 4,313.4 5,128.8
-------- --------
COMMITMENTS AND CONTINGENCIES (Notes 2, 6, 9 and 11)
SHAREHOLDERS' EQUITY
Preferred stock, par value $.01 and $100, respectively .......................... -- 7.4
Common stock, par value $.01 and $1, respectively; 300,000,000 shares authorized;
outstanding at December 31: 1996 - 78,493,000; 1995 - 97,375,000 ........... .8 97.4
Paid in capital ................................................................. 524.1 459.8
Retained earnings ............................................................... 172.6 709.0
Cumulative translation adjustments .............................................. (64.6) (39.4)
Treasury stock, at cost; December 31: 1996 - 10,000; 1995 - 53,000 common shares (.5) (2.4)
-------- --------
TOTAL SHAREHOLDERS' EQUITY .................................................. 632.4 1,231.8
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .................................. $4,945.8 $6,360.6
======== ========
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
The Notes to Consolidated Financial Statements, pages F-8 to F-24, are integral
parts of these statements.
F-6
<PAGE> 43
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
======================================================================================================================
Dollars in millions 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PREFERRED STOCKS
Balance, beginning of year ...................................................... $ 7.4 $ 7.4 $ 7.4
Retirement of preferred stocks .................................................. (7.4) -- --
--------- --------- --------
BALANCE, END OF YEAR ........................................................ -- 7.4 7.4
--------- --------- --------
COMMON STOCK
Balance, beginning of year ...................................................... 97.4 94.1 93.5
Shares issued under stock incentive plans ....................................... 1.4 3.3 .6
Retirement of treasury stock .................................................... (9.9) -- --
Change in par value of common stock ............................................. (88.1) -- --
--------- --------- --------
BALANCE, END OF YEAR ........................................................ .8 97.4 94.1
--------- --------- --------
PAID IN CAPITAL
Balance, beginning of year ...................................................... 459.8 308.8 287.8
Shares issued under stock incentive plans ....................................... 98.5 151.1 20.5
Retirement of treasury stock .................................................... (122.3) -- --
Change in par value of common stock ............................................. 88.1 -- --
Other ........................................................................... -- (.1) .5
--------- --------- --------
BALANCE, END OF YEAR ........................................................ 524.1 459.8 308.8
--------- --------- --------
RETAINED EARNINGS
Balance, beginning of year ...................................................... 709.0 1,147.5 1,196.2
Net income/(loss) ............................................................... 2,857.7 (325.9) 83.3
Dividends paid .................................................................. (46.0) (112.6) (132.0)
Dividend of common equity interest in health care business ...................... (2,172.3) -- --
Retirement of preferred stock ................................................... 7.4 -- --
Retirement of treasury stock .................................................... (1,183.2) -- --
--------- --------- --------
BALANCE, END OF YEAR ........................................................ 172.6 709.0 1,147.5
--------- --------- --------
CUMULATIVE TRANSLATION ADJUSTMENTS
Balance, beginning of year ...................................................... (39.4) (53.3) (67.3)
Translation adjustments ......................................................... (25.2) 13.9 14.0
--------- --------- --------
BALANCE, END OF YEAR ........................................................ (64.6) (39.4) (53.3)
--------- --------- --------
TREASURY STOCK
Balance, beginning of year ...................................................... (2.4) -- --
Purchase of common stock ........................................................ (1,319.3) (12.1) --
Shares issued under stock incentive plans ....................................... 5.8 9.7 --
Retirement of treasury stock .................................................... 1,315.4 -- --
--------- --------- --------
BALANCE, END OF YEAR ........................................................ (.5) (2.4) --
--------- --------- --------
TOTAL SHAREHOLDERS' EQUITY .................................................. $ 632.4 $ 1,231.8 $1,504.5
========= ========= ========
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The Notes to Consolidated Financial Statements, pages F-8 to F-24, are
integral parts of these statements.
F-7
<PAGE> 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
Dollars in millions, except per share amounts
- -------------------------------------------------------------------------------
1. BASIS OF PRESENTATION AND 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. As used in
these notes, the term "Company" refers to Grace New York (as defined below)
through September 27, 1996, and thereafter to W. R. Grace & Co., a Delaware
corporation. The term "Grace" refers to the Company and/or one or more of its
subsidiaries.
REORGANIZATION On September 28, 1996, W. R. Grace & Co., a New York
corporation subsequently renamed Fresenius National Medical Care Holdings,
Inc. (Grace New York), distributed all of the Company's outstanding common
stock (which has a par value of $.01 per share) to the holders of Grace New
York common stock (which had a par value of $1.00 per share) on a one-for-one
basis. As a result of the distribution, Grace New York's principal remaining
asset was the outstanding capital stock of National Medical Care, Inc. (NMC),
a health care company that was classified as a discontinued operation in the
second quarter of 1995. On September 29, 1996, a wholly owned subsidiary of
Fresenius Medical Care AG (FMC), a German corporation, merged with and into
Grace New York, resulting in the combination of NMC with the worldwide
dialysis business of Fresenius AG (Fresenius), a German health care
corporation and the principal shareholder of FMC.
The Grace New York preferred stock issued and outstanding at the time of
the above distribution remained outstanding shares of Grace New York, and the
treasury shares held by Grace New York at the time of the distribution were
retained by Grace New York. Accordingly, the distribution was treated as a
retirement of preferred stocks and a retirement of treasury stock within the
Consolidated Statement of Shareholders' Equity for the year ended December 31,
1996.
For further information, see the Grace New York Joint Proxy
Statement-Prospectus dated August 2, 1996 (Joint Proxy Statement-Prospectus),
the Company's Prospectus dated August 2, 1996 (Prospectus), and Notes 6 and
13.
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 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 that management make
estimates and assumptions affecting the reported amounts of assets and
liabilities (including 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 materials are based on current cost and, for other inventory
classifications, net realizable value.
PROPERTIES AND EQUIPMENT Properties and equipment are stated at the lower of
cost or fair value. Depreciation of properties and equipment is generally
computed using the straight-line method over the estimated useful life of the
asset. Interest is capitalized in connection with major project expenditures
and amortized, generally on a straight-line basis, over the estimated useful
life of the asset. 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.
RESEARCH AND DEVELOPMENT COSTS Research and development costs are charged to
expense as incurred.
F-8
<PAGE> 45
IMPAIRMENT In 1995, Grace 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 an
asset 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 are remeasured as if
the functional currency was the U.S. dollar. The remeasurement creates
translation adjustments that are reflected in net income.
FINANCIAL INSTRUMENTS Grace enters into interest rate swap agreements and
foreign exchange forward and option contracts to manage exposure to
fluctuations in interest and foreign currency exchange rates. Grace does not
hold or issue derivative financial instruments for trading purposes.
The cash differentials paid or received under interest rate swap
agreements are accrued and recognized as adjustments to interest expense. The
related amounts payable to or receivable from the counterparties are included
in other current liabilities or notes and accounts receivable, net. Cash
flows related to interest rate swap agreements are classified within operating
activities in the Consolidated Statement of Cash Flows, consistent with the
interest payments on the underlying debt. The fair values of interest rate
swap agreements are not recognized in the Consolidated Financial Statements,
as these agreements modify the interest rate basis (i.e., whether fixed or
floating rate) of debt instruments of similar face amounts and tenor.
Gains or losses resulting from the settlement prior to maturity of
interest rate swap agreements are either deferred (recorded as other
liabilities or other assets) and amortized to interest expense and related
financing costs over a period relevant to the agreement (if the underlying
debt remains outstanding) or recognized immediately (if the underlying debt
has been repaid or retired).
Grace enters into foreign currency forward and option contracts to hedge
transactions and firm commitments denominated in foreign currencies and, from
time to time, net investments in foreign subsidiaries. Gains or losses on
hedges of transactional exposures are recorded as adjustments to gains or
losses on the underlying transactions. Gains or losses on hedges of foreign
currency-denominated firm commitments are deferred and recorded as part of the
basis in the transaction in the period in which the transaction is
consummated. Gains and losses on forward contracts that hedge net investments
in foreign subsidiaries are recorded in the cumulative translation adjustments
account in shareholders' equity. Cash flows related to foreign currency
forward and option contracts are classified within operating activities in the
Consolidated Statement of Cash Flows.
OTHER INCOME Other income consists of interest income, equity in earnings of
affiliated companies, gains on sales of investments and other items.
EARNINGS PER SHARE Earnings per share are computed on the basis of the
weighted average number of common shares outstanding.
- -------------------------------------------------------------------------------
2. ASBESTOS AND RELATED INSURANCE LITIGATION
===============================================================================
Grace 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.
Grace was a defendant in approximately 41,500 asbestos-related lawsuits at
December 31, 1996 (31 involving claims for property damage and the remainder
involving approximately 91,500 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).
PROPERTY DAMAGE LITIGATION
The plaintiffs in property damage lawsuits generally seek to have the
defendants absorb the cost of removing, containing or repairing the
asbestos-containing materials in the affected buildings. 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 cases in the future. Information regarding product
identification, the amount of product in 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 meaningful guidance as to the range of
potential costs. Some of this information is not yet available in 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. In accordance with SFAS No. 5, Grace has recorded
an accrual for all existing property damage cases for which sufficient
information is available to form a range of estimated exposure. At December
31, 1996 and 1995, estimates were not accrued for one and four cases,
respectively, due to insufficient information. 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.
F-9
<PAGE> 46
Through December 31, 1996, 135 asbestos property damage cases were
dismissed without payment of any damages or settlement amounts; judgments were
entered in favor of Grace in nine cases (excluding cases settled following
appeals of judgments in favor of Grace); judgments were entered in favor of
the plaintiffs in seven cases for a total of $60.3 (none of which is on
appeal); and 186 property damage cases were settled for a total of $450.5.
Property damage case activity for 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
December 31, 1996 1995
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cases outstanding, beginning of year ................................... 47 65
New cases filed ........................................................ 1 5
Settlements ............................................................ (9) (18)
Dismissals ............................................................. (5) (4)
Judgments, net ......................................................... (3) (1)
-- --
Cases outstanding, end of year ........................................ 31 47
== ==
- ------------------------------------------------------------------------------------------------------
</TABLE>
PERSONAL INJURY LITIGATION
Personal injury claims are generally similar to each other (differing
primarily in the type of asbestos-related illness allegedly suffered by the
plaintiff). However, Grace's estimated liability for such claims is
influenced by numerous variables, including the solvency of other former
asbestos producers, cross-claims by co-defendants, the rate at which new
claims are filed, the jurisdiction in which the filings are made, and the
defense and disposition costs associated with these claims.
Through December 31, 1996, approximately 11,800 asbestos personal injury
lawsuits involving 27,400 claims were dismissed without payment of any
damages or settlement amounts (primarily on the basis that Grace products were
not involved), and approximately 30,500 lawsuits involving 66,200 claims were
disposed of for a total of $186.0. Personal injury claim activity for 1996
and 1995 is as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
December 31, 1996 1995
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Claims outstanding, beginning of year .................................. 92,436 67,889
New claims ............................................................. 30,274 34,306
Claims under amended complaints (1) .................................... 8,298 2,120
Settlements ............................................................ (36,630) (9,585)
Dismissals ............................................................. (2,866) (2,288)
Judgments, net ......................................................... (1) (6)
-------- -------
Claims outstanding, end of year ....................................... 91,511 92,436
======== =======
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Of the 8,298 claims shown, approximately 1,500 were filed under amended
complaints in 1996. The remaining claims relate to disputed filings that
were submitted to local counsel in prior years but were not reported to
Grace until 1996, when a majority of such claims was settled.
ASBESTOS-RELATED LIABILITY
Subject to the factors discussed above, Grace estimates that its probable
liability is as follows with respect to the defense and disposition of
asbestos property damage and personal injury cases and claims at December 31,
1996 and 1995:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
December 31, 1996(1) 1995(2)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current liability for asbestos-related litigation (3) .................. $135.0 $100.0
Noncurrent liability for asbestos-related litigation ................... 859.1 722.3
------- -------
Total asbestos-related liability (4) ................................. $994.1 $822.3
======= =======
- --------------------------------------------------------------------------------------------------------
</TABLE>
(1) Reflects property damage and personal injury cases and claims pending at
December 31, 1996, as well as personal injury claims expected to be filed
through 2001. See discussion below.
(2) Reflects property damage and personal injury cases and claims pending at
December 31, 1995, as well as personal injury claims expected to be filed
through 1998. See discussion below.
(3) Included in "other current liabilities" in the Consolidated Balance
Sheet.
(4) Excludes one property damage case at December 31, 1996 as to which the
liability is not yet estimable because Grace has not yet been able to
obtain sufficient information through discovery proceedings.
Prior to 1995, Grace recorded noncash charges to reflect its estimate of the
costs of defending against and disposing of the asbestos property damage and
personal injury cases and claims then pending. In the fourth quarter of 1995,
Grace determined that it had adequate experience to reasonably estimate the
costs of defending against and disposing of asbestos personal injury claims to
be filed during the three-year period 1996-1998 and recorded a noncash charge
of $260.0 ($169.0 after-tax), primarily to reflect such anticipated filings.
Based on certain developments during 1996, Grace determined in the 1996 fourth
quarter that it had adequate experience to reasonably estimate the costs of
defending against and disposing of asbestos personal injury claims to be filed
during the five-year period 1997-2001 and recorded a noncash charge of $348.4
($226.4 after-tax), primarily to reflect such anticipated filings. The 1996
provision also reflects increases in the estimated costs of defending against
and disposing of personal injury claims pending at year-end 1996, and the 1995
provision also reflects increases in the estimated costs of defending against
and disposing of certain property damage cases pending at year-end 1995 and
personal injury claims filed during 1995. However, as discussed above, these
estimates are
F-10
<PAGE> 47
not necessarily indicative of actual costs. Based on the factors discussed
above, Grace does not believe that it can reasonably estimate the number and
defense and disposition costs of personal injury claims that may be brought
against Grace after 2001. The accruals recorded for future cases and claims
are not discounted to their present values; further, the actual cash payments
related to future cases and claims are expected to continue beyond 2001.
ASBESTOS-RELATED INSURANCE RECEIVABLE
Grace previously purchased insurance policies with respect to its
asbestos-related lawsuits and claims. The following tables display the
activity in Grace's notes receivable and asbestos-related insurance receivable
accounts during 1996 and 1995:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NOTES RECEIVABLE
Notes receivable from insurance carriers, beginning of year, net of discount of $11.6 in 1996 (1995 - $15.0) .. $118.4 $ 187.0
Proceeds from asbestos-related insurance settlements .......................................................... (93.3) (127.0)
Current year asbestos-related insurance settlements ........................................................... 19.2 55.0
Current year amortization, net ................................................................................ 4.2 3.4
------ -------
Notes receivable from insurance carriers at year-end, net of discount of $7.4 (1995 - $11.6) (1) .......... $ 48.5 $ 118.4
INSURANCE RECEIVABLE
Asbestos-related insurance receivable, beginning of year ...................................................... $321.2 $ 512.6
Proceeds from asbestos-related insurance settlements .......................................................... (91.2) (130.3)
Adjustments to asbestos-related insurance receivable (2) ...................................................... 119.3 (15.0)
Transfers from asbestos-related insurance receivable to notes receivable from insurance carriers .............. (19.2) (55.0)
Other ......................................................................................................... 1.2 8.9
------ -------
Asbestos-related insurance receivable, end of year (1) .................................................... $331.3 $ 321.2
------ -------
Total amounts due from insurance carriers ................................................................. $379.8 $ 439.6
====== =======
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) See Note 7 for classification between current portion (classified in
"notes and accounts receivable, net") and noncurrent portion (classified
in "other assets") in the Consolidated Balance Sheet.
(2) Reflects noncash adjustments to receivable in conjunction with increases
in asbestos-related liability and lower than estimated proceeds from
settlements with insurance carriers caused by reduced coverage available
for certain years. See discussion below.
Notes receivable from insurance carriers represent amounts due from insurance
carriers in reimbursement for amounts previously paid by Grace in defending
and disposing of asbestos cases and claims; payments under these notes will be
received through 2001. These notes do not bear stated interest rates and,
therefore, have been discounted using a weighted average interest rate of 6.7%
(which Grace estimates as its borrowing rate for the terms of the notes).
Installments due in 1997 are classified as "current" in the Consolidated
Balance Sheet.
The asbestos-related insurance receivable at December 31, 1996
predominantly represents amounts expected to be received from carriers under
settlement agreements in reimbursement for defense and disposition costs to be
paid by Grace in the future in connection with property damage and personal
injury cases and claims pending at year-end 1996 and personal injury claims
expected to be filed through 2001 (through 1998 as of December 31, 1995).
In the fourth quarter of 1996, Grace recorded a noncash pretax benefit of
$119.3 ($77.5 after-tax), primarily representing the additional insurance
proceeds Grace expects to receive in reimbursement for the cash outflows
associated with personal injury claims expected to be filed against Grace
through 2001.
As a result of fourth quarter 1995 insurance 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. This
charge reflected a reduction in the receivable, primarily due to lower than
estimated proceeds from settlements with insurance carriers (caused by the
reduced coverage available for certain years) and a discount on notes
receivable received 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.
Certain of Grace's insurance carriers have become insolvent. From time
to time, Grace has been successful in collecting funds from insolvent
carriers. However, since recovery from these carriers is not probable, Grace
has not accrued a related receivable.
INSURANCE LITIGATION
Grace has settled with and been paid by its primary insurance carriers with
respect to both property damage and personal injury cases and claims. With
one minor exception, Grace has also settled with its excess insurance carriers
that wrote policies available for property damage cases; those settlements
involve amounts paid and to be paid to Grace. In addition, Grace has settled
with many excess insurance carriers that wrote policies available for personal
injury claims. Grace is currently in litigation with certain remaining excess
insurance carriers whose policies generally represent layers of coverage Grace
has not yet reached and, therefore, are not reflected in the asbestos-related
insurance receivable referred to above. Such policies are believed by Grace
to be available for asbestos-related personal injury lawsuits. Insurance
coverage for asbestos-related liabilities has not been commercially available
since 1985.
F-11
<PAGE> 48
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), coverage for
asbestos property damage cases is triggered based on the date of installation
of asbestos-containing materials. This decision was initially reversed in the
fourth quarter of 1993 but subsequently confirmed in the second quarter of
1994. As a result of this decision (which had the effect of reducing the
amount of insurance coverage available to Grace with respect to asbestos
lawsuits) Grace recorded a noncash pretax charge of $316.0 ($200.0 after-tax)
in the second quarter of 1994.
Grace's ultimate exposure with respect to its asbestos-related cases 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.
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 property damage and personal
injury cases and claims pending at December 31, 1996, as well as personal
injury claims expected to be filed in the foreseeable future. Consequently,
Grace believes that the resolution of its asbestos-related litigation will not
have a material adverse effect on its consolidated financial position.
- -------------------------------------------------------------------------------
3. ACQUISITIONS AND DIVESTMENTS
===============================================================================
ACQUISITIONS
During 1996, Grace acquired a manufacturer of flexible packaging, a producer
of can coatings and closure sealants for the rigid container industry, and
kidney dialysis centers purchased by NMC prior to disposition, for a total of
$122.1 in cash. In 1995, Grace made acquisitions totaling $260.8, all of
which involved cash purchases of kidney dialysis centers and medical imaging
facilities by NMC. Acquisitions in the first quarter of 1995, prior to the
classification of NMC as a discontinued operation (see Note 6), totaled $41.1.
Acquisitions by NMC after the first quarter of 1995 are presented as an
investing activity and are included in net investing activities of
discontinued operations in the Consolidated Statement of Cash Flows for 1996
and 1995.
In 1994, Grace made acquisitions totaling $351.7, primarily in health
care. These include the purchases of Home Nutritional Services, Inc. for
$131.8 in cash and kidney dialysis centers and other health care businesses
for an aggregate of $145.3 in cash. 1994 acquisitions also included
construction chemicals businesses and a European flexible packaging business.
DIVESTMENTS
During 1996, Grace completed divestments for gross proceeds totaling $5,394.0
(inclusive of debt assumed by buyers). In addition to the disposition of NMC
(see Notes 1 and 6), Grace sold its water treatment and process chemicals
business to Betz Laboratories, Inc. for cash proceeds of $636.4 (subject to
adjustment), the final $100.0 of which was paid in January 1997, plus the
assumption of certain liabilities. Sales and revenues of the water treatment
and process chemicals business for the six months ended June 30, 1996 and for
the years ended December 31, 1995 and 1994 were $201.2, $398.5 and $363.4,
respectively; its financial position and results of operations were not
significant for those periods. The divestment of this business and Grace's
biopesticides business resulted in a pretax gain of $326.4, and an after-tax
gain of $210.1 ($2.28 per common share), in continuing operations. In 1996
Grace also divested its worldwide separations science business (Amicon) and
the transgenic plant business of its Agracetus subsidiary. These businesses
had previously been classified as discontinued operations.
In 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
consisted of three small units of Grace's construction products business, the
composite materials business, 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 in 1994 included $42.8 received
for Grace's remaining interest in The Restaurant Enterprises Group, Inc.
(REG).
See Note 6 for a discussion of divestment activity related to
discontinued operations.
- -------------------------------------------------------------------------------
4. RESTRUCTURING COSTS AND ASSET IMPAIRMENTS
===============================================================================
RESTRUCTURING COSTS
Grace recorded restructuring charges of $75.4 in 1996 and $129.8 in 1995
($49.0 and $85.1 after-tax, respectively). Grace began implementing a
worldwide program in 1995 to streamline processes and reduce general and
administrative expenses, factory administration costs and noncore corporate
research and development expenses. Under this program, Grace has implemented,
and expects to further implement, additional cost reductions and efficiency
improvements, as it further evaluates and reengineers its operations. In
connection with these actions, Grace recorded pretax charges of $53.7 and
$21.7 in the second and fourth quarters of 1996, respectively. These charges
primarily relate to headcount reductions, the restructuring of Grace's
European packaging operations (in areas such as working capital management,
manufacturing and sales) and the further restructuring of Grace's corporate
research activities, certain of which are now conducted at product line
facilities.
F-12
<PAGE> 49
The components of the 1996 and 1995 restructuring charges, spending and
other activity during 1995 and 1996, and the remaining reserve balances at
December 31, 1996, were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Employee
Termination Plant/Office Asset Other
Benefits Closures Write-downs Costs Total
----------- ------------ ----------- ----- -----
<S> <C> <C> <C> <C> <C>
Restructuring provisions recorded in 1995 ..... $ 74.3 $13.4 $ 18.6 $ 23.5 $129.8
Cash payments during 1995 ..................... (13.0) (3.5) -- (3.1) (19.6)
Noncash activity .............................. -- -- (4.3) (1.5) (5.8)
------ ----- ------ ------ ------
Restructuring reserve at December 31, 1995 .. $ 61.3 $ 9.9 $ 14.3 $ 18.9 $104.4
Restructuring provisions recorded in 1996 ..... 69.3 6.1 -- -- 75.4
Cash payments during 1996 ..................... (57.8) (.6) -- (16.0) (74.4)
Noncash activity .............................. -- -- (14.3) -- (14.3)
------ ----- ------ ------ ------
Restructuring reserve at December 31, 1996 .. $ 72.8 $15.4 $ -- $ 2.9 $ 91.1
====== ===== ====== ====== ======
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Employee termination benefits primarily represent severance pay and other
benefits (including benefits under long-term incentive programs paid over
time) associated with the elimination of approximately 1,300 positions
worldwide, with more than 60% of the eliminated positions coming from
worldwide corporate staff functions and the restructuring of Grace's worldwide
packaging operations. Through December 31, 1996, approximately 800 positions
had been eliminated worldwide.
ASSET IMPAIRMENTS
During 1996 and 1995, Grace determined that, due to various events and changes
in circumstances (including the worldwide restructuring programs described
above), certain long-lived assets and related goodwill were impaired. As a
result, in the fourth quarters of 1996 and 1995, Grace recorded noncash pretax
charges of $32.1 and $39.2, respectively ($20.9 and $26.6 after-tax,
respectively), the majority of which related to assets that will continue to
be held and used in Grace's packaging and specialty chemicals businesses. The
components of the 1996 and 1995 charges were (a) goodwill and other
intangibles of $11.1 and $4.7, respectively; (b) properties and equipment of
$9.0 and $20.0, respectively; (c) long-term investments of $6.7 and $8.6,
respectively; and (d) other assets of $5.3 and $5.9, respectively. Grace
determined the amounts of the charges based on various valuation techniques,
including discounted cash flow, replacement cost and net realizable value for
assets to be disposed of, as prescribed by SFAS No. 121.
- -------------------------------------------------------------------------------
5. INCOME TAXES
===============================================================================
Grace applies SFAS No. 109, "Accounting for Income Taxes," which specifies 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 deferred tax
assets will not be realized, a valuation allowance is provided against such
deferred tax assets.
The components of income/(loss) from continuing operations before income
taxes and the related provision for/(benefit from)
income taxes are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
CONTINUING OPERATIONS 1996 1995 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income/(loss) from continuing operations before income taxes:
Domestic ................................................. $101.5 $(401.1) $(174.4)
Foreign .................................................. 247.1 117.0 96.7
------ ------- --------
$348.6 $(284.1) $ (77.7)
====== ======= =======
Provision for/(benefit from) income taxes:
Federal - current ........................................ $ 7.6 $ 37.8 $ (77.2)
Federal - deferred ....................................... 35.1 (154.3) (7.2)
State and local - current ................................ 1.4 1.5 2.3
Foreign - current ........................................ 54.3 61.4 44.6
Foreign - deferred ....................................... 36.4 (50.9) (5.1)
------ ------- -------
$134.8 $(104.5) $ (42.6)
====== ======= =======
- ----------------------------------------------------------------------------------------------
</TABLE>
F-13
<PAGE> 50
The components of income/(loss) from consolidated operations before income
taxes and the related provision for/(benefit from) income taxes are as
follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
CONSOLIDATED OPERATIONS 1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income/(loss) from consolidated operations before income taxes:
Domestic ................................................... $2,847.1 $(480.5) $ 44.3
Foreign .................................................... 259.4 72.7 94.8
-------- ------- ------
$3,106.5 $(407.8) $139.1
======== ======= ======
Provision for/(benefit from) income taxes:
Federal - current .......................................... $ 75.6 $ 105.6 $ 25.3
Federal - deferred ......................................... 57.0 (226.3) (34.8)
State and local - current .................................. 18.9 21.7 21.8
Foreign - current .......................................... 60.9 68.5 49.1
Foreign - deferred ......................................... 36.4 (51.4) (5.6)
-------- ------- ------
$ 248.8 $ (81.9) $ 55.8
======== ======= ======
- -----------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1996 and 1995, deferred tax assets and liabilities consisted
of the following items:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
NET DEFERRED TAX ASSETS 1996 1995
- -----------------------------------------------------------------------
<S> <C> <C>
Provision relating to asbestos-related expenses, net .. $240.4 $219.4
Reserves not yet deductible for tax purposes .......... 167.8 223.6
Research and development expenses ..................... 102.7 115.8
Postretirement benefits other than pensions ........... 95.2 88.9
State deferred taxes .................................. 70.1 70.1
Foreign net operating loss carryforwards .............. 37.0 47.1
Pension and insurance reserves ........................ 31.9 35.2
Tax credit carryforwards .............................. 31.9 27.2
Capitalized inventory costs and inventory reserves .... 11.0 11.9
Other ................................................. 39.8 43.9
------ ------
Total deferred tax assets ........................... 827.8 883.1
====== ======
Depreciation and amortization ......................... 154.0 112.6
Prepaid pension cost .................................. 76.8 104.8
Other ................................................. 75.0 20.1
------ ------
Total deferred tax liabilities ...................... 305.8 237.5
====== ======
Valuation allowance for deferred tax assets ........... 72.4 97.7
------ ------
Net deferred tax assets ............................. $449.6 $547.9
====== ======
- -----------------------------------------------------------------------
</TABLE>
The valuation allowance shown above arises from uncertainty as to the
realization of certain deferred tax assets, primarily state and local net
operating loss carryforwards and net deferred tax assets. Tax planning
strategies during 1996 enabled Grace to reverse the valuation allowance on tax
credit carryforwards during the year. Based upon anticipated future results,
Grace has concluded that it is more likely than not that the remaining balance
of the net deferred tax assets, after consideration of the valuation
allowance, will be realized.
At December 31, 1996, there were $31.9 of tax credit carryforwards with
expiration dates through 2001. Additionally, there were foreign net operating
loss carryforwards with a tax benefit of $37.0 having various expiration
dates.
The U.S. federal corporate tax rate reconciles to the effective tax rate
for continuing operations as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------------------------
<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 ................................... (1.6) (.7) (1.4)
Basis difference on sale of investment ..................................... -- -- (10.5)
U.S. state and local income taxes, net of U.S. federal income tax benefit .. .4 .2 1.5
U.S. and foreign taxes on foreign operations ............................... 4.8 9.8 .3
General business credits ................................................... -- (.5) (9.1)
Valuation allowance for deferred tax assets ................................ -- (14.4) --
Other, net ................................................................. .1 3.8 (.6)
----- ------- -------
Effective tax rate .......................................................... 38.7% (36.8)% (54.8)%
===== ======= =======
- ------------------------------------------------------------------------------------------------------
</TABLE>
F-14
<PAGE> 51
U.S. state and local and foreign taxes have not been provided on approximately
$236.4 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 $22.5 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.
- -------------------------------------------------------------------------------
6. DISCONTINUED OPERATIONS
===============================================================================
HEALTH CARE
NMC
As discussed in Note 1, Grace New York completed the distribution of the
Company's common stock and the combination of NMC with the worldwide dialysis
business of Fresenius in September 1996. Prior to the completion of these
transactions, Grace received a tax-free distribution from NMC of approximately
$2,300 (consisting of cash and the assumption of debt). As part of these
transactions, for each Grace New York common share outstanding at the close of
trading on September 27, 1996, Grace New York shareholders received one share
of a new class of Grace New York preferred stock and 1.04909 American
Depositary Shares (ADS), each representing one-third of an ordinary share of
FMC (which ADSs collectively represent approximately 44.8% of FMC's common
equity).
The distribution of approximately $2,300, along with the 44.8% common
equity interest in FMC, valued at approximately $2,200 (based upon the number
of ADSs and their initial price per share on September 30, 1996), resulted in
a transaction valued at approximately $4,500. That amount, less Grace New
York's investment in NMC and transaction costs, resulted in a tax-free gain to
Grace of approximately $2,500, in discontinued operations. The 44.8% common
equity interest in FMC is reflected as a dividend of approximately $2,200
within the Consolidated Statement of Shareholders' Equity.
In connection with these transactions, NMC borrowed approximately $2,500
under a stand-alone credit agreement, primarily to fund the distribution to
Grace. Grace guaranteed $950.0 of this borrowing, but the guarantee was
released as to $800.0 in November 1996 and the balance in December 1996.
Under the terms of the transactions, NMC will remain responsible for all
liabilities, if any, resulting from the previously reported investigation by
the Office of the Inspector General (OIG) of the U.S. Department of Health and
Human Services and certain related matters. In July 1996, an agreement was
entered into with the U.S. government under which, subject to certain
conditions and limitations, (a) FMC and Grace New York guaranteed the payment
of the obligations, if any, of NMC to the U.S. government in respect of the
OIG investigation and another proceeding; (b) Grace guaranteed the obligations
of FMC under the foregoing guarantee with respect to acts and transactions
that took place prior to the consummation of the transaction (but only if such
obligations become due and payable and remain uncollected for 120 days); and
(c) NMC delivered a standby letter of credit in the principal amount of $150.0
in favor of the U.S. government to support its payment of such obligations.
See Notes 7 and 20 to the consolidated financial statements included in
the Prospectus, and "Business of Fresenius Medical Care -- Regulatory and
Legal Matters -- Legal and Regulatory Proceedings -- OIG Investigation" and
"-- OIG Agreements" in the Joint Proxy Statement-Prospectus, for additional
information.
Amicon
On December 31, 1996, Grace completed the sale of Amicon, resulting in a
pretax gain of $70.4 and an after-tax gain of $40.0 ($0.44 per common share of
the Company). The sale price was $125.0 (inclusive of debt assumed), subject
to a post-closing working capital adjustment; $6.5 was paid at closing and the
balance was paid in January 1997.
COCOA
Grace's cocoa business was classified as a discontinued operation in 1993.
During the fourth quarter of 1995, Grace revised the divestment plan for the
business. The revised plan focused on the improvement of operating cash flow
through the adoption of new strategies and a new global organizational
structure, while better positioning the business for outright sale. As a
result of this revised divestment plan, Grace recorded an additional provision
of $151.3 (net of an applicable tax effect of $48.7) related to the cocoa
business and other remaining discontinued operations. In December 1996, Grace
announced that it had entered into a definitive agreement to sell the cocoa
business to Archer-Daniels-Midland Company. As a result, in the fourth
quarter of 1996, Grace reassessed its estimated loss on the divestment of the
business and reversed previously recorded provisions of $31.9 (net of an
applicable tax effect of $18.1), within income from discontinued operations.
The divestment of the cocoa business was completed in February 1997 with Grace
receiving $470.0 (inclusive of debt assumed by the buyer), subject to
adjustment.
OTHER
In the fourth quarter of 1996, Grace classified its thermal and emission
control systems business (TEC Systems) as a discontinued operation. In
connection with classifying TEC Systems as a discontinued operation, Grace
recorded a provision of $4.6 (net of an applicable tax benefit of $2.4)
related to TEC Systems' anticipated net operating results through the expected
date of divestment, as well as the loss anticipated on the divestment.
F-15
<PAGE> 52
In May 1996, Grace completed the sale of the transgenic plant business of
its Agracetus subsidiary to the Monsanto Company for $150.0, resulting in a
pretax gain of $129.0 ($79.4 after-tax, or $0.86 per common share of the
Company). Additionally, in March 1996, Grace sold its microwave business for
gross proceeds of $3.9.
In February 1995, Grace sold its composite materials business for gross
proceeds of $3.0. During 1994, Grace sold its battery separators business and
a portion of its engineered materials and systems businesses for gross
proceeds of $316.2, approximating prior estimates. Grace also sold its animal
genetics and Caribbean fertilizer operations in 1994 for proceeds of $44.1.
In 1994, Grace also sold substantially all of its interests in Colowyo Coal
Company (Colowyo) 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.
These businesses were classified as discontinued operations in 1993
(other than TEC Systems in 1996 and Colowyo in 1992).
RESULTS OF DISCONTINUED OPERATIONS
Losses from Grace's discontinued operations (other than its discontinued
health care operations and TEC Systems), subsequent to their classification as
such were $11.6 in 1996, $45.2 in 1995 and $14.2 in 1994. These amounts have
been charged against established reserves as adjusted in 1996 and 1995.
Results of Grace's discontinued operations that have not been charged against
previously established reserves are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
HEALTH CARE (THROUGH 1996 THIRD QUARTER)
Sales and revenues ................................................................... $1,666.9 $2,076.8 $1,875.1
-------- -------- --------
Income from operations before taxes(1) ............................................... $ 60.3 $ 104.6 $ 227.1
Income tax provision ................................................................. 35.5 82.6 102.4
-------- -------- --------
Income from discontinued health care operations .................................. $ 24.8 $ 22.0 $ 124.7
-------- -------- --------
TEC SYSTEMS (PRIOR TO CLASSIFICATION AS A DISCONTINUED OPERATION AT DECEMBER 31, 1996)
Sales and revenues ................................................................... $ 102.5 $ 112.9 $ 89.7
-------- -------- --------
Loss from operations before taxes .................................................... $ (18.5) $ (28.3) $ (10.3)
Income tax benefit ................................................................... (7.2) (11.3) (4.0)
-------- -------- --------
Loss from discontinued TEC Systems operations .................................... $ (11.3) $ (17.0) $ (6.3)
-------- -------- --------
Total operating results .......................................................... $ 13.5 $ 5.0 $ 118.4
GAIN/(NET LOSS) ON DISPOSITIONS OF BUSINESSES ........................................ 2,716.1 (200.0) --
PROVISION FOR/(BENEFIT FROM) INCOME TAXES ON DISPOSITIONS OF BUSINESSES .............. 85.7 (48.7) --
-------- -------- --------
TOTAL INCOME/(LOSS) FROM DISCONTINUED OPERATIONS ................................. $2,643.9 $ (146.3) $ 118.4
======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Reflects an allocation of interest expense based on the ratio of the net
assets of the health care businesses as compared to Grace's total
capital. The above operating results include interest expense
allocations of $76.3, $93.5 and $60.4 for 1996, 1995 and 1994,
respectively.
For financial reporting purposes, the assets, liabilities, results of
operations and cash flows of Grace Cocoa Associates, L.P. (LP) are included in
the Consolidated Financial Statements as a component of discontinued
operations, and the outside investors' former interests in LP (at December 31,
1995) are reflected as a minority interest in the Consolidated Balance Sheet.
Grace purchased the minority interest during the fourth quarter of 1996 in
anticipation of the sale of the cocoa business.
The net assets of Grace's remaining discontinued operations (excluding
intercompany assets) at December 31, 1996 are as
follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
COCOA OTHER TOTAL
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Current assets ....................................... $312.3 $48.2 $360.5
Properties and equipment, net ........................ 185.8 21.4 207.2
Investments in and advances to affiliated companies .. -- 12.1 12.1
Other assets ......................................... 59.2 5.9 65.1
------ ----- ------
Total assets ...................................... $557.3 $87.6 $644.9
------ ----- ------
Current liabilities .................................. $241.3 $21.5 $262.8
Other liabilities .................................... 81.1 3.6 84.7
------ ----- ------
Total liabilities ................................. $322.4 $25.1 $347.5
------ ----- ------
Net assets ........................................ $234.9 $62.5 $297.4
====== ===== ======
- -----------------------------------------------------------------------------
</TABLE>
F-16
<PAGE> 53
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
7. OTHER BALANCE SHEET ITEMS
================================================================================================================
1996 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NOTES AND ACCOUNTS RECEIVABLE, NET
Trade receivables, less allowances of $11.3 (1995 - $12.8) ..................................... $501.7 $488.5
Notes receivable from dispositions of businesses ............................................... 215.6 --
Asbestos-related insurance receivable - current ................................................ 35.0 --
Notes receivable from insurance carriers - current, net of discounts of $2.5 (1995 - $4.3) ..... 17.2 62.0
Other receivables, less allowances of $.2 (1995 - $.1) ......................................... 61.9 46.3
------ ------
$831.4 $596.8
====== ======
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
INVENTORIES
Raw and packaging materials .................................................................... $100.9 $137.1
In process ..................................................................................... 67.6 78.0
Finished products .............................................................................. 179.0 248.6
General merchandise ............................................................................ 73.4 76.6
Less: Adjustment of certain inventories to a last-in/first-out (LIFO) basis .................... (44.8) (48.4)
------ ------
$376.1 $491.9
====== ======
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
OTHER ASSETS
Prepaid pension costs .......................................................................... $275.1 $245.8
Long-term receivables, less allowances of $42.7 (1995 - $24.7) ................................. 152.9 146.5
Deferred charges ............................................................................... 102.4 106.9
Long-term investments .......................................................................... 57.4 69.4
Notes receivable from insurance carriers - noncurrent, net of discounts of $4.9 (1995 - $7.3) .. 31.3 56.4
Patents and licenses ........................................................................... 15.8 34.0
Investments in and advances to affiliated companies ............................................ 9.5 17.4
Other .......................................................................................... 9.1 11.9
------ ------
$653.5 $688.3
====== ======
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
In 1995, Grace entered into agreements to sell up to $300.0 of interests in
designated pools of trade receivables ($180.0 pertaining to NMC). At December
31, 1995, $295.8 had been received pursuant to such sales ($179.8 pertaining
to NMC); these amounts were reflected as reductions to trade accounts
receivable. Under the terms of these agreements, new interests in trade
receivables were sold as collections reduced previously sold trade
receivables. While only interests in designated pools of trade receivables
were sold, the entire designated pools were available as the sole recourse
with respect to the interests sold. There was no further recourse to Grace,
nor was Grace required to repurchase any of the trade receivables in the
pools. The costs related to such sales were expensed as incurred and recorded
as interest expense and related financing costs. There were no gains or
losses on these transactions. These agreements were terminated as to Grace in
connection with the NMC transaction discussed in Note 6.
Inventories valued at LIFO cost comprised 26.6% and 21.6% of total
inventories at December 31, 1996 and 1995, respectively. The liquidation of
prior years' LIFO inventory layers in 1996, 1995 and 1994 did not materially
affect the cost of goods sold in any of these years.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
8. PROPERTIES AND EQUIPMENT
=========================================================================
1996 1995
- -------------------------------------------------------------------------
<S> <C> <C>
Land ....................................... $ 51.5 $ 44.1
Buildings .................................. 622.6 595.5
Machinery, equipment and other ............. 2,088.1 1,967.1
Projects under construction ................ 545.7 548.2
--------- ---------
Properties and equipment, gross ........... 3,307.9 3,154.9
Accumulated depreciation and amortization .. (1,436.6) (1,418.8)
--------- ---------
Properties and equipment, net ............. $ 1,871.3 $ 1,736.1
========= =========
- -------------------------------------------------------------------------
</TABLE>
Interest costs are incurred in connection with the financing of certain assets
prior to placing them in service. Interest costs capitalized in 1996, 1995
and 1994 were $23.5, $21.3 and $9.4, respectively.
Depreciation and lease amortization expense relating to properties and
equipment amounted to $179.7, $179.5 and $157.9 in 1996, 1995 and 1994,
respectively.
Grace's rental expense for operating leases amounted to $25.6, $25.7 and
$28.8 in 1996, 1995 and 1994, respectively. See Note 11 for information
regarding contingent rentals.
F-17
<PAGE> 54
At December 31, 1996, minimum future payments for operating leases are:
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
1997 .......................... $ 26.3
1998 .......................... 22.3
1999 .......................... 18.8
2000 .......................... 17.1
2001 .......................... 11.4
Later years ................... 20.8
------
Total minimum lease payments .. $116.7
======
</TABLE>
- --------------------------------------------------------------------------------
The above minimum lease payments reflect anticipated sublease income of $12.3
per year for 1997 through 2001 and a total of $17.5 in later years.
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
9. DEBT
====================================================================================================================================
<S> <C> <C>
1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM DEBT
Bank borrowings (6.1% and 6.2% weighted average interest rates at year-end 1996 and 1995, respectively) (1) ... $ 178.7 $ 295.3
Current maturities of long-term debt .......................................................................... 105.5 22.2
Other short-term borrowings (2) ............................................................................... 31.0 320.8
-------- --------
$ 315.2 $ 638.3
======== ========
LONG-TERM DEBT
Commercial paper (5.8% and 6.2% weighted average interest rates at year-end 1996 and 1995, respectively) (1) .. $ 77.8 $ 45.7
Bank borrowings (6.1% and 6.2% weighted average interest rates at year-end 1996 and 1995, respectively) (1) ... 272.2 304.3
8.0% Notes Due 2004 (3) ....................................................................................... 276.0 300.0
7.4% Notes Due 2000 (3) ....................................................................................... 248.7 287.0
7.75% Notes Due 2002 (3) ...................................................................................... 119.0 131.0
Term Loan Agreement (6.3% weighted average interest rate at year-end 1996 and 1995) (4) ....................... -- 30.0
Medium-Term Notes, Series A (6.9% weighted average interest rate at year-end 1996 and 1995) (5) ............... 113.5 128.5
Sundry indebtedness with various maturities through 2002 ...................................................... 71.3 91.2
-------- --------
1,178.5 1,317.7
Less current maturities of long-term debt ..................................................................... 105.5 22.2
-------- --------
$1,073.0 $1,295.5
======== ========
Full-year weighted average interest rate on total debt (6) .................................................... 7.3% 7.8%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Under bank revolving credit agreements in effect at year-end 1996, Grace
may borrow up to $1,000.0 at interest rates based upon the prevailing
prime, federal funds and/or Eurodollar rates. Of that amount, $650.0 is
available under short-term facilities expiring on May 16, 1997, unless
extended, and $350.0 is available under a long-term facility expiring in
September 1999. These agreements also support the issuance of commercial
paper and bank borrowings, $528.7 of which was outstanding at December
31, 1996 (included in both short-term debt and long-term debt above). At
December 31, 1996, the aggregate amount of net unused and unreserved
borrowings under short-term and long-term facilities was $471.3. Grace's
ability to borrow under its existing facilities is subject to compliance
with various covenants, including covenants requiring maintenance of
total debt to total capitalization and interest coverage ratios.
(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%. During the first quarter of 1993, Grace sold at par $300.0 of
7.4% notes due 2000. During 1992, Grace sold at par $150.0 of 7.75%
notes due 2002. Interest on all three series of notes 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.
(4) During the second quarter of 1995, Grace entered into a three-year term
loan agreement maturing on April 24, 1998. The agreement provided for
interest at a Eurodollar floating rate, payable semiannually. Grace's
borrowings under this agreement were repaid in October 1996 with proceeds
from the NMC transaction discussed in Note 6, and the agreement was
terminated.
(5) The Medium-Term Notes (MTNs) bear interest at either fixed or floating
rates and have maturity dates through July 19, 1999. Interest on each
fixed-rate MTN is payable semiannually, and interest on each
floating-rate MTN is payable either monthly or quarterly, depending on
the issue.
(6) Computation includes interest expense allocated to discontinued
operations.
Scheduled maturities of long-term debt outstanding at December 31, 1996 are:
1997 - $105.5; 1998 - $9.0; 1999 - $350.5; 2000 - $316.9; 2001 - $.5; and
thereafter - $396.1. Payment of a majority of Grace's borrowings may be
accelerated, and its principal borrowing agreements terminated, upon the
occurrence of a default under other Grace borrowings.
Total interest expense and financing costs, including amounts allocated
to discontinued operations, were $147.9 for 1996, $164.8 for 1995 and $109.9
for 1994. Including amounts allocated to discontinued operations, interest
payments made in 1996, 1995 and 1994, excluding related financing costs,
amounted to $154.4, $183.1 and $101.8, respectively.
F-18
<PAGE> 55
- --------------------------------------------------------------------------------
10. FINANCIAL INSTRUMENTS
================================================================================
DEBT AND INTEREST RATE SWAP AGREEMENTS
Grace's debt and interest rate management objective is to reduce the cost of
borrowing over the long term. This debt management strategy emphasizes
maintaining borrowing liquidity by developing and maintaining access to a
variety of long-term and short-term capital markets. Grace's interest rate
profile is managed separately by using interest rate swap agreements to modify
the rate profile of the underlying debt. Most of Grace's interest rate swap
agreements currently have the effect of converting fixed-rate term debt into
variable-rate debt based on LIBOR. Grace enters into only standard swap
agreements that have readily quantifiable impacts on interest cost and are
characterized by broad market liquidity. The maturities and notional amounts
of interest rate swap agreements generally match the underlying debt,
resulting in changes in the fair value of these interest rate swap agreements
being substantially offset by changes in the fair value of the debt. Grace
does not use derivative financial instruments (interest rate or foreign
currency) for trading purposes and is not a party to leveraged instruments.
At December 31, 1996 and 1995, the notional amounts of interest rate swap
agreements that convert fixed-rate debt to variable-rate were $505.5 and
$1,157.5, respectively, and the notional amounts of interest rate swap
agreements that convert variable-rate debt to fixed-rate were $36.0 and
$626.0, respectively. Notional amounts are used in calculating the amounts
paid or received under interest rate swap agreements but do not represent
assets or liabilities of Grace or provide a meaningful estimate of risk.
During 1996 and 1995, Grace realized negative cash flows from interest
rate swap agreements of $13.5 and $16.5, respectively. In addition, interest
expense was reduced by $8.9 and $11.1 in 1996 and 1995, respectively, due to
the amortization of deferred gains on interest rate agreements. Unamortized
net gains as of December 31, 1996 and 1995 were $22.8 and $31.7, respectively.
FAIR VALUE OF INTEREST RATE SWAP AGREEMENTS, DEBT AND OTHER FINANCIAL
INSTRUMENTS
At December 31, 1996 and 1995, Grace would have been required to pay net
amounts of $34.7 and $32.5, respectively, to terminate its interest rate swap
agreements. At those dates, the fair values of Grace's long-term debt were
$1,207.1 and $1,361.1, respectively (as compared to recorded values of
$1,178.5 and $1,317.7, 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. At
December 31, 1996 and 1995, the recorded values of other 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 of these instruments.
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, 1996 and 1995, Grace had notional amounts of approximately
$50.2 and $45.5, respectively, in contracts to buy or sell foreign currencies
in the future.
CREDIT RISK
Grace is exposed to credit risk to the extent of potential nonperformance by
counterparties to financial instruments. The counterparties to Grace's
interest rate swap agreements and foreign 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. At December 31, 1996,
Grace's credit exposure was not significant and was limited to the fair values
of these instruments; 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 and foreign
exchange agreements and 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.
- --------------------------------------------------------------------------------
11. COMMITMENTS AND CONTINGENT LIABILITIES
================================================================================
ENVIRONMENTAL
Grace is subject to loss contingencies resulting from environmental laws
and regulations. 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. These accruals do not take
into account any discounting for the time value of money. At December 31,
1996, Grace's liability for environmental investigatory and remediation costs
related to continuing and discontinued operations totaled $256.4, as compared
to $280.3 at December 31, 1995. These amounts reflect provisions of $77.0
($50.0 after-tax) recorded in the fourth quarter of 1995 and $40.0 ($26.0
after-tax) recorded in the first quarter of 1994, which are reflected in the
Consolidated Statement of Operations as
F-19
<PAGE> 56
part of cost of goods sold and operating expenses. The 1995 provision related
principally to increased cost estimates associated with five former
manufacturing sites. Grace is in litigation with certain excess insurance
carriers regarding the applicability of the carriers' policies to
environmental remediation costs; given the uncertainties inherent in this
litigation, Grace has not recorded a receivable with respect to such insurance
coverage (except in one instance where a settlement with a carrier has been
reached).
Grace made cash payments of $20.3 in 1996, $31.3 in 1995 and $30.8 in
1994 to remediate environmentally impaired sites. These amounts have been
charged against previously established reserves. Grace's environmental
liabilities are reassessed whenever circumstances become better defined and/or
remediation efforts and their costs can be better estimated. These
liabilities are currently evaluated quarterly, based on 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
outcomes of which are subject to 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. However, Grace
believes that it is adequately reserved for all probable and estimable
environmental exposures. Grace's classification of its environmental reserves
between current and noncurrent liabilities is considered appropriate in
relation to expected future cash outlays.
CONTINGENT RENTALS
Grace is the named tenant or guarantor with respect to leases entered
into by previously divested businesses. These leases, some of which extend
through the year 2017, have future minimum lease payments aggregating $203.1,
offset by $201.8 of anticipated future minimum rental income from existing
tenants and subtenants. In addition, Grace is liable for other expenses
(primarily property taxes) relating to the above leases; these expenses are
paid by tenants and subtenants. Grace believes that the risk of significant
loss from these lease obligations is remote. However, a significant portion
of the rental income and other expenses is payable by tenants and subtenants
that have filed for bankruptcy protection or are otherwise experiencing
financial difficulties. Further, Grace may incur losses as a result of
unforeseen developments that can not be reasonably estimated.
- --------------------------------------------------------------------------------
12. MINORITY INTEREST
================================================================================
Minority interest in the Consolidated Financial Statements as of December 31,
1995 consisted of a limited partnership interest in LP (see Note 6). Four
Grace entities served as general partners of LP, and its sole limited partner
acquired its interest in exchange for a $300.0 cash capital contribution
($297.0 of which was funded by outside investors). In November 1996, Grace
purchased the limited partnership interest. For financial reporting purposes,
the assets, liabilities, results of operations and cash flows of LP were
included in Grace's Consolidated Financial Statements as a component of
discontinued operations and the limited partnership interest was reflected as
a minority interest. At December 31, 1995, the assets of LP consisted of
Grace's worldwide cocoa business and long-term notes and demand notes due from
or guaranteed by Grace. Grace sold its cocoa business in February 1997.
- --------------------------------------------------------------------------------
13. SHAREHOLDERS' EQUITY
================================================================================
Under its Certificate of Incorporation, the Company is authorized to issue
300,000,000 shares of common stock, $.01 par value. Of the common stock
unissued at December 31, 1996, approximately 13,190,000 shares were reserved
for issuance pursuant to stock options and other stock incentives. The
Certificate of Incorporation also authorizes 53,000,000 shares of preferred
stock, $.01 par value, none of which has been issued. 3,000,000 of such
shares have been designated Series A Junior Participating Preferred Stock and
are reserved for issuance in connection with the Company's Preferred Stock
Purchase Rights (Rights). A Right trades together with each outstanding share
of common stock and entitles the holder to purchase one hundredth of a share
of Series A Junior Participating Preferred Stock under certain circumstances
and subject to certain conditions. 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.
Grace New York initiated a share repurchase program in April 1996.
Through September 27, 1996, Grace New York acquired 9,864,800 shares of its
common stock under this program for $727.1, or an average price of
approximately $73.70 per share. From September 28, 1996 (see Note 1) through
December 31, 1996, the Company acquired 11,193,700 shares of its common stock
for $592.2, or an average purchase price of $52.90 per share. Prior to
year-end 1996, the Company retired substantially all of these shares of
treasury stock using the cost method. The weighted average number of shares
of common stock outstanding during 1996 was 91,976,000 (1995 - 95,822,000;
1994 - 93,936,000).
Dividends paid on the Grace New York preferred stocks issued and
outstanding prior to the NMC transaction, as discussed in Notes 1 and 6,
amounted to $.4 in 1996 and $.5 in each of 1995 and 1994.
F-20
<PAGE> 57
- --------------------------------------------------------------------------------
14. STOCK INCENTIVE PLANS
================================================================================
Each stock option granted under the Company's stock incentive plans 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 of the Company's Board of Directors and may have
terms of up to ten years and one month. In connection with the transactions
described in Notes 1 and 6, the number of shares covered by outstanding
options and the exercise prices of such options were adjusted to preserve
their economic value. The following table sets forth information relating to
such options, as so adjusted:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
--------------------------- --------------------- --------------------------
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, as adjusted .. 8,833,450 $26.06 11,819,009 $24.53 10,813,635 $23.50
Options granted ............................ 1,009,818 51.47 2,645,693 30.05 2,109,692 27.23
----------- ----------- ----------
9,843,268 14,464,702 12,923,327
Options exercised .......................... (3,331,555) 24.56 (5,513,119) 24.67 (941,504) 18.81
Options terminated or canceled ............. (371,947) 28.21 (118,133) 27.23 (162,814) 24.05
----------- ----------- ----------
Balance at end of year, as adjusted .... 6,139,766 30.92 8,833,450 26.06 11,819,009 24.53
=========== =========== ==========
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1996, options covering 3,994,828 shares (1995 - 6,477,637;
1994 - 8,746,414) were exercisable and 6,975,000 shares (1995 - 2,970,186;
1994 - 5,506,863) were available for additional grants. Currently outstanding
options expire on various dates through October 2006.
The Company has adopted SFAS No. 123, "Accounting for Stock-Based
Compensation." As permitted by SFAS No. 123, the Company continues to follow
the measurement provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and does not recognize
compensation expense for its stock-based incentive plans. Had compensation
cost for the Company's stock-based incentive compensation plans been
determined based on the fair value at the grant dates for awards under those
plans consistent with the methodology prescribed by SFAS No. 123, the
Company's net income and earnings per share for 1996 and 1995 would have been
reduced to the pro forma amounts indicated below.
<TABLE>
<CAPTION>
- --------------------------------------------------------------
1996 1995
- --------------------------------------------------------------
<S> <C> <C>
Net income/(loss):
As reported .............. $2,857.7 $(325.9)
Pro forma ................ $2,854.0 $(334.3)
Earnings/(loss) per share:
As reported .............. $ 31.06 $ (3.40)
Pro forma ................ $ 31.02 $ (3.49)
- --------------------------------------------------------------
</TABLE>
These pro forma amounts may not be indicative of future pro forma income and
earnings per share.
The fair value of each option is estimated on the date of grant using the
Black-Scholes option pricing model, with the following historical weighted
average assumptions applied to grants in 1996 and 1995:
<TABLE>
<CAPTION>
- --------------------------------------------------------------
1996 1995
- --------------------------------------------------------------
<S> <C> <C>
Dividend yields ........... 1% 3%
Expected volatility ....... 26% 25%
Risk-free interest rates .. 6% 7%
Expected life (in years) .. 4 4
- --------------------------------------------------------------
</TABLE>
Based upon the above assumptions, the weighted-average fair value of options
granted during 1996 and 1995 was $14.00 and $7.00, respectively.
F-21
<PAGE> 58
- --------------------------------------------------------------------------------
15. 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 U.S. federal laws and regulations. Non-U.S. pension plans
are funded under a variety of methods as required under differing local laws
and customs and, therefore, cannot be summarized. Approximately 60% of U.S.
and non-U.S. plan assets at December 31, 1996 were common stocks, with the
remainder primarily fixed-income securities.
Pension cost/(benefit) is comprised of the following components:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
------------------ ----------------- ---------------
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 ........... $ 15.2 $ 10.7 $ 14.6 $10.5 $19.8 $13.4
Interest cost on benefits earned in prior years ........... 55.5 23.1 50.6 21.4 46.9 19.3
Actual (return)/loss on plan assets ....................... (98.2) (39.1) (132.3) (52.0) 16.9 10.6
Deferred loss/(gain) on plan assets ....................... 30.4 8.2 71.1 26.2 (84.6) (37.4)
Amortization of net loss/(gains) and prior service costs .. .1 (.3) (.8) (.8) (7.1) (1.6)
Net curtailment and settlement gain(1) .................... (1.3) (2.4) -- -- -- --
------ ------ ------ ----- ----- -----
Net pension cost/(benefit) ............................ $ 1.7 $ 0.2 $ 3.2 $ 5.3 $(8.1) $ 4.3
====== ====== ====== ===== ===== =====
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) As a result of selling its water treatment and process chemicals business
in 1996, Grace's U.S. and non-U.S. plans recognized curtailment gains of
$1.3 and $6.3, respectively.
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
- -------------------------------------------------------------------------------------------------------------------------
1996 1995 1996 1995 1996 1995 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Actuarial present value of benefit obligation:
Vested .......................................... $655.4 $679.6 $55.6 $52.0 $161.8 $133.5 $75.2 $67.5
====== ====== ===== ===== ====== ====== ===== =====
Accumulated benefit obligation ................... $659.3 $680.4 $55.7 $52.0 $162.5 $133.9 $82.8 $75.1
====== ====== ===== ===== ====== ====== ===== =====
Total projected benefit obligation ............... $680.8 $710.0 $57.0 $55.7 $183.2 $189.4 $103.3 $92.4
Plan assets at fair value ........................ 822.2 795.8 -- -- 313.4 302.5 6.1 7.3
------ ------ ----- ----- ------ ------ ------ -----
Plan assets in excess of/(less than) projected
benefit obligation ............................. 141.4 85.8 (57.0) (55.7) 130.2 113.1 (97.2) (85.1)
Unamortized net (gain)/loss at initial adoption .. (60.4) (73.7) 4.2 4.9 (4.7) (6.3) 3.8 4.5
Unamortized prior service cost ................... 34.3 41.7 13.7 16.3 4.1 3.6 -- --
Unrecognized net loss/(gain) ..................... 47.5 97.6 8.9 8.6 (17.3) (16.0) 15.0 (3.2)
------ ------ ----- ----- ------ ------ ------ -----
Prepaid/(accrued) pension cost ................. $162.8 $151.4 $(30.2) $(25.9) $112.3 $94.4 $(78.4) $(83.8)
====== ====== ====== ====== ====== ===== ====== ======
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following significant assumptions were used in 1996, 1995 and 1994:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
------------------- ------------------ --------------------
U.S. Non-U.S. U.S. Non-U.S. U.S. Non-U.S.
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Discount rate at December 31, ...... 8.0% 3.4 - 8.7% 7.3% 5.1 - 11.6% 8.5% 5.0 - 12.0%
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 2.5 - 7.5 4.5 4.0 - 7.5 5.5 4.0 - 7.5
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-22
<PAGE> 59
- --------------------------------------------------------------------------------
16. 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 dates 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, 1996 and 1995 are the
following:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
1996 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees ..................................................... $199.9 $209.0
Fully eligible participants .................................. 6.4 15.2
Active ineligible participants ............................... 43.7 34.4
------ ------
250.0 258.6
Unrecognized net loss ........................................ (39.9) (54.9)
Unrecognized prior service benefit ........................... 32.8 44.3
------ ------
Accrued postretirement benefit obligation ....................... $242.9 $248.0
====== ======
- ----------------------------------------------------------------------------------------------
</TABLE>
Net periodic postretirement benefit cost for 1996, 1995 and 1994 is
comprised of the following components:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
1996 1995 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost .................................................... $ 1.9 $ 1.6 $ 2.1
Interest cost on accumulated postretirement benefit obligation .. 19.0 18.3 16.2
Amortization of net loss ........................................ 1.9 .2 1.2
Amortization of prior service benefit ........................... (3.7) (4.3) (4.3)
Curtailment gain ................................................ (.9) -- --
------ ------ ------
Net periodic postretirement benefit cost ..................... $ 18.2 $ 15.8 $ 15.2
====== ====== ======
- ----------------------------------------------------------------------------------------------
</TABLE>
During 1996, Grace's retiree medical plans were amended to enhance benefits to
retirees effective January 1, 1997. This amendment, including a previous plan
amendment, decreased the accumulated postretirement benefit obligation by
$32.8 at December 31, 1996 and will be amortized over an average remaining
future service life of approximately 10 years.
Medical care cost trend rates were projected at 9.2% in 1996, declining
to 6.0% through 2001 and remaining level thereafter. An increase of one
percentage point 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 $2.3 and the accumulated postretirement benefit
obligation by $19.9. The discount rates at December 31, 1996, 1995 and 1994
were 8.0%, 7.3% and 8.5%, 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-23
<PAGE> 60
- -------------------------------------------------------------------------------
17. GEOGRAPHIC AREA INFORMATION
===============================================================================
The table below presents information related to Grace's continuing operations
by geographic region for the years 1996 -1994.
<TABLE>
- ------------------------------------------------------------------------------------------------
United States Asia Latin
and Canada Europe Pacific America Total
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales and revenues ...................... 1996 $1,690 $1,056 $468 $240 $3,454
1995 1,735 1,120 445 253 3,553
1994 1,606 939 366 218 3,129
Pretax operating income/(loss) (1) (2) .. 1996 (33) 52 53 29 101
1995 (186) 44 61 9 (72)
1994 (190) 69 55 20 (46)
Identifiable assets (3) ................. 1996 1,963 879 505 203 3,550
1995 2,132 998 411 246 3,787
1994 1,879 905 308 208 3,300
- ------------------------------------------------------------------------------------------------
</TABLE>
Pretax operating income and identifiable assets are reconciled below to
income/(loss) from continuing operations before income taxes and total assets,
respectively, as presented in the Consolidated Statement of Operations and the
Consolidated Balance Sheet.
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pretax operating income (1) ........................................... $ 101 $ (72) $ (46)
Gain on sales of businesses ........................................... 326 -- --
Interest expense and related financing costs (2) ...................... (72) (71) (50)
Corporate restructuring costs and asset impairments/other activities .. (18) (122) --
Provision for corporate governance .................................... -- (30) --
Gain on sale of remaining interest in REG ............................. -- -- 27
Other income/(expenses), net (2) ...................................... 12 11 (9)
------ ------ ------
Income/(loss) from continuing operations before income taxes ...... $ 349 $ (284) $ (78)
====== ====== ======
- ------------------------------------------------------------------------------------------------
Identifiable assets (3) ............................................... $3,550 $3,787 $3,300
General corporate assets (4) .......................................... 1,099 815 860
Net assets of discontinued operations ................................. 297 1,759 2,071
------ ------ ------
Total assets ...................................................... $4,946 $6,361 $6,231
====== ====== ======
- ------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes (a) 1996, 1995 and 1994 pretax provisions of $229, $275 and
$316, respectively, relating to asbestos-related liabilities and
insurance coverage (see Note 2); and (b) 1996 and 1995 pretax charges of
$90 and $87, respectively, relating to restructuring costs, asset
impairments and other costs (see Note 4).
(2) Corporate interest and financing costs and nonallocable expenses are not
reflected in pretax operating income because significant financing
decisions are centralized at the corporate level. Other
income/(expenses), net includes interest income relating to the
settlement of prior years' federal income tax returns of $7.5 and $9.8 in
1996 and 1995, respectively.
(3) Includes asbestos-related receivables and settlements due from insurance
carriers, net of discounts, of $331 and $49, respectively, in 1996; $321
and $118, respectively, in 1995; and $513 and $187, respectively, in
1994.
(4) General corporate assets consist principally of deferred tax assets,
prepaid pension costs and corporate receivables and investments. At
December 31, 1996, general corporate assets include $215.6 of receivables
from the sales of Amicon and Grace's water treatment and process
chemicals business.
- --------------------------------------------------------------------------------
18. SUBSEQUENT EVENT
================================================================================
In February 1997, Grace announced that it had entered into an agreement to
sell its specialty polymers business to National Starch and Chemical Company
for $147.0, subject to adjustment. The transaction is expected to be
completed in the second quarter of 1997.
F-24
<PAGE> 61
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
QUARTERLY SUMMARY AND STATISTICAL INFORMATION
Unaudited - dollars in millions, except per share
=================================================================================================
QUARTER ENDED March 31 June 30 September 30 December 31
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996
Sales and revenues ......................... $ 862 $ 920 $ 821 $ 851
Cost of goods sold and operating expenses .. 512 549 503 507
Net income/(loss) .......................... 63 334 2,518 (57)
Earnings/(loss) per share:
Net earnings/(loss) ..................... $ .65 $3.45 $27.66 $ (.70)
Dividends declared per common share ........ $.125 $.125 $ .125 $ .125
Market price of common stock: (1)
High .................................... $ 52 3/16 $ 53 5/16 $ 52 $ 56 1/4
Low ..................................... 34 3/4 45 5/8 33 1/16 46 1/4
Close ................................... 50 5/8 45 5/8 52 51 3/4
- -------------------------------------------------------------------------------------------------
1995
Sales and revenues ......................... $ 830 $ 901 $ 916 $ 906
Cost of goods sold and operating expenses .. 482 527 542 600
Net income/(loss) .......................... 47 79 22 (474)
Earnings/(loss) per share:
Net earnings/(loss) ..................... $ .50 $ .83 $ .22 $ (4.87)
Dividends declared per common share ........ $ .35 $ .35 $ .35 $ .125
Market price of common stock: (1)
High .................................... $ 35 1/8 $ 41 15/16 $ 45 7/8 $ 42 11/16
Low ..................................... 24 13/16 33 1/16 39 5/8 35 1/4
Close ................................... 34 5/16 39 9/16 43 38 1/16
- -------------------------------------------------------------------------------------------------
</TABLE>
(1) Principal market: New York Stock Exchange. The stock prices for 1995
and the first nine months of 1996 have been adjusted so that they are on
a basis comparable to the stock prices following the disposition of NMC.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
CAPITAL EXPENDITURES, NET FIXED ASSETS AND DEPRECIATION AND LEASE AMORTIZATION Dollars in millions
====================================================================================================================
Depreciation and
Capital Expenditures (1) Net Fixed Assets Lease Amortization (2)
---------------------------- ---------------------- ----------------------------
1996 1995 1994 1996 1995 1994 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating units ............... $397 $455 $327 $1,691 $1,565 $1,249 $164 $163 $142
General corporate ............. 57 49 30 180 155 144 16 17 16
-------- -------- -------- ------ ------ ------ -------- -------- --------
Total continuing operations 454 504 357 1,871 1,720 1,393 180 180 158
Discontinued operations ....... 3 34 88 -- 16 337 -- -- --
-------- -------- -------- ------ ------ ------ -------- -------- --------
Total ..................... $457 $538 $445 $1,871 $1,736 $1,730 $180 $180 $158
======== ======== ======== ====== ====== ====== ======== ======== ========
GEOGRAPHIC LOCATION
United States and Canada ...... $186 $242 $200 $941 $854 $702 $82 $82 $75
Europe ........................ 83 100 75 403 440 381 58 60 51
Other areas ................... 128 113 52 347 271 166 24 21 16
-------- -------- -------- ------ ------ ------ -------- -------- --------
Subtotal .................. 397 455 327 1,691 1,565 1,249 164 163 142
General corporate ............. 57 49 30 180 155 144 16 17 16
-------- -------- -------- ------ ------ ------ -------- -------- --------
Total continuing operations 454 504 357 1,871 1,720 1,393 180 180 158
Discontinued operations ....... 3 34 88 -- 16 337 -- -- --
-------- -------- -------- ------ ------ ------ -------- -------- --------
Total ..................... $457 $538 $445 $1,871 $1,736 $1,730 $180 $180 $158
======== ======== ======== ====== ====== ====== ======== ======== ========
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Excludes capital expenditures of discontinued operations subsequent to
their classification as such.
(2) Certain 1995 and 1994 amounts have been reclassified to conform to the
1996 presentation.
F-25
<PAGE> 62
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
FINANCIAL SUMMARY (1) Dollars in millions, except per share amounts
- ------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS
Sales and revenues ............................................ $3,454.1 $3,552.6 $3,128.5
Cost of goods sold and operating expenses ..................... 2,071.0 2,151.2 1,832.6
Depreciation and amortization ................................. 184.4 186.1 164.6
Interest expense and related financing costs .................. 71.6 71.3 49.5
Research and development expenses ............................. 93.9 111.6 99.6
Income/(loss) from continuing operations before income taxes 348.6 (284.1) (77.7)
Provision for/(benefit from) income taxes ..................... 134.8 (104.5) (42.6)
Income from continuing operations before special items (2) .... 222.5 205.7 163.9
Income/(loss) from continuing operations ...................... 213.8 (179.6) (35.1)
Income/(loss) from discontinued operations (3) ................ 2,643.9 (146.3) 118.4
Cumulative effect of accounting changes ....................... -- -- --
Net income/(loss) ............................................. 2,857.7 (325.9) 83.3
- ------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Current assets ................................................ $1,774.9 $1,681.3 $2,228.9
Current liabilities ........................................... 1,487.1 2,214.2 2,231.5
Properties and equipment, net ................................. 1,871.3 1,736.1 1,730.1
Total assets .................................................. 4,945.8 6,360.6 6,230.6
Total debt .................................................... 1,388.2 1,933.8 1,529.7
Shareholders' equity - common stock ........................... 632.4 1,224.4 1,497.1
- ------------------------------------------------------------------------------------------------------------------------
DATA PER COMMON SHARE
Earnings from continuing operations before special items (2) .. $ 2.41 $ 2.14 $ 1.74
Earnings/(loss) from continuing operations .................... 2.32 (1.87) (.38)
Cumulative effect of accounting changes ....................... -- -- --
Net earnings/(loss) ........................................... 31.06 (3.40) .88
Dividends ..................................................... .50 1.175 1.40
Book value .................................................... 8.06 12.57 15.91
Average common shares outstanding (thousands) ................. 91,976 95,822 93,936
- ------------------------------------------------------------------------------------------------------------------------
OTHER STATISTICS
Dividends paid on common stock ................................ $ 45.6 $ 112.1 $ 131.5
Capital expenditures .......................................... 456.6 537.6 444.6
Common shareholders of record ................................. 17,415 19,496 18,501
Common stock price range (4) .................................. 56 1/4 - 33 1/16 45 7/8 - 24 13/16 29 15/16 - 23 3/16
Number of employees - continuing operations (thousands) ....... 17.4 20.3 19.9
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
FINANCIAL SUMMARY (1) Dollars in millions, except per share amounts
1993 1992
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
STATEMENT OF OPERATIONS
Sales and revenues ............................................ $2,824.7 $2,985.2
Cost of goods sold and operating expenses ..................... 1,692.9 1,814.0
Depreciation and amortization ................................. 153.9 164.6
Interest expense and related financing costs .................. 43.0 49.4
Research and development expenses ............................. 100.8 99.5
Income/(loss) from continuing operations before income taxes 44.5 91.9
Provision for/(benefit from) income taxes ..................... 16.4 84.1
Income from continuing operations before special items (2) .... 128.1 152.8
Income/(loss) from continuing operations ...................... 28.1 7.7
Income/(loss) from discontinued operations (3) ................ (2.1) (112.2)
Cumulative effect of accounting changes ....................... -- (190.0)
Net income/(loss) ............................................. 26.0 (294.5)
- -------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Current assets ................................................ $2,077.6 $2,091.4
Current liabilities ........................................... 1,992.6 1,639.6
Properties and equipment, net ................................. 1,454.1 1,707.9
Total assets .................................................. 6,108.6 5,598.6
Total debt .................................................... 1,706.1 1,819.2
Shareholders' equity - common stock ........................... 1,510.2 1,537.5
- ------------------------------------------------------------------------------------------------------------
DATA PER COMMON SHARE
Earnings from continuing operations before special items (2) .. $ 1.39 $ 1.70
Earnings/(loss) from continuing operations .................... .30 .08
Cumulative effect of accounting changes ....................... -- (2.12)
Net earnings/(loss) ........................................... .28 (3.29)
Dividends ..................................................... 1.40 1.40
Book value .................................................... 16.16 17.10
Average common shares outstanding (thousands) ................. 91,461 89,543
- ------------------------------------------------------------------------------------------------------------
OTHER STATISTICS
Dividends paid on common stock ................................ $ 127.9 $ 125.4
Capital expenditures .......................................... 309.6 398.4
Common shareholders of record ................................. 19,358 20,869
Common stock price range (4) .................................. 26 9/16 - 22 5/16 29 - 20 5/8
Number of employees - continuing operations (thousands) ....... 19.8 19.4
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Certain prior-year amounts have been reclassified to conform to the 1996
presentation.
(2) Income from continuing operations before special items reconciles to
income/(loss) from continuing operations as follows:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Income from continuing operations before special items .... $222.5 $ 205.7 $ 163.9 $ 128.1 $ 152.8
Special items (after-tax):
Gain on sales of businesses .............................. 210.1 -- -- -- --
Restructuring costs and asset impairments/other activities (69.9) (138.0) -- -- --
Provisions relating to asbestos-related liabilities
and insurance coverage ................................ (148.9) (178.7) (200.0) (100.0) --
Provision for corporate governance ....................... -- (18.6) -- -- --
Provisions for environmental liabilities at former
manufacturing sites ................................... -- (50.0) (26.0) -- --
Gain on sale of remaining interest in REG ................ -- -- 27.0 -- --
Provision relating to fumed silica plant ................. -- -- -- -- (140.0)
Postretirement benefits prior to plan amendments ......... -- -- -- -- (5.1)
------- -------- ------- ------- -------
Income/(loss) from continuing operations .................. $213.8 $ (179.6) $ (35.1) $ 28.1 $ 7.7
======= ======== ======= ======= =======
</TABLE>
The special items included in the foregoing table also have been excluded
in determining earnings per common share from continuing operations before
special items.
(3) Comprised of income from operations of $13.5, $5.0 and $118.4 in 1996,
1995 and 1994, respectively. 1996 also includes (a) the gain of $2,603.1
on the dispositions of NMC, Amicon and Agracetus and (b) a $31.9 reversal
of a previously recorded provision for Grace's cocoa business, partially
offset by (c) the charge of $4.6 recorded in connection with the
classification of TEC Systems as a discontinued operation. 1995 includes
a provision of $151.3 relating to Grace's remaining discontinued
operations, primarily Grace's cocoa business.
(4) The stock prices for 1995 - 1992 and the first nine months of 1996 have
been adjusted so that they are on a basis comparable to the stock prices
following the disposition of NMC.
F-26
<PAGE> 63
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
REVIEW OF OPERATIONS
OVERVIEW
Sales and revenues decreased 3% in 1996 versus 1995, and increased 14% in
1995 over 1994. Excluding divested businesses from all periods, sales and
revenues increased 3% in 1996 over 1995 and 14% in 1995 over 1994.
Pretax income/(loss) from continuing operations was $348.6 million in
1996, $(284.1) million in 1995 and $(77.7) million in 1994. As noted in the
table below, pretax income/(loss) from continuing operations for all three
years was affected by various special items. Grace's 1996 pretax operating
income before special items of $419.4 million increased 14% over 1995, and
1995 pretax operating income before special items of $367.4 million
increased 19% over 1994. Excluding divested businesses, pretax operating
income before special items increased 12% in 1996 over 1995 and 20% in 1995
over 1994.
For all periods presented, pretax operating results have been restated
to reflect the classification of certain businesses as discontinued
operations.
<TABLE>
<CAPTION>
W. R. GRACE & CO. AND SUBSIDIARIES (Dollars in millions)
PRETAX OPERATING RESULTS - CONTINUING OPERATIONS 1996 1995 1994
- ------------------------------------------------------------------------------ -------- --------- --------
<S> <C> <C> <C>
Sales and revenues, before divested businesses ............................... $3,252.2 $ 3,150.9 $2,758.7
Sales and revenues of divested businesses (1) ................................ 201.9 401.7 369.8
-------- --------- --------
Sales and revenues ...................................................... $3,454.1 $ 3,552.6 $3,128.5
======== ========= ========
Operating income before special items and divested businesses ................ $ 417.4 $ 374.0 $ 311.7
Operating income of divested businesses (1) .................................. 2.0 (6.6) (1.9)
-------- --------- --------
Operating income before special items (2) ............................... $ 419.4 $ 367.4 $ 309.8
Special items:
Gain on sales of businesses ................................................ 326.4 -- --
Restructuring costs and asset impairments/other activities ................. (107.5) (209.5) --
Provisions relating to asbestos-related liabilities and insurance coverage.. (229.1) (275.0) (316.0)
Provision for corporate governance ......................................... -- (30.0) --
Provisions for environmental liabilities at former manufacturing sites ... -- (77.0) (40.0)
Gain on sale of remaining interest in REG .................................. -- -- 27.0
-------- --------- --------
Operating income/(loss) from continuing operations ...................... $ 409.2 $ (224.1) $ (19.2)
-------- --------- --------
Other income/(expenses) (3):
Interest expense and related financing costs ............................. (71.6) (71.3) (49.5)
Other income/(expenses), net ............................................. 11.0 11.3 (9.0)
-------- --------- --------
Income/(loss) from continuing operations ................................ $ 348.6 $ (284.1) $ (77.7)
======== ========= ========
</TABLE>
(1) Primarily reflects Grace's water treatment and process chemicals
business, divested in June 1996.
(2) Reflects the allocation of general corporate overhead, general
corporate research expenses and certain other income and expense items
that can be identified with continuing operations.
(3) Corporate interest and financing costs and nonallocable expenses are
not reflected in pretax operating income from continuing operations
because significant financing decisions are centralized at the
corporate level. Other income/(expenses), net includes interest income
relating to the settlement of prior years' federal income tax returns
of $7.5 million in 1996 and $9.8 million in 1995.
<TABLE>
<CAPTION>
W. R. GRACE & CO. AND SUBSIDIARIES (Dollars in millions) Percentage Change
(excluding divested businesses) ------------------------------ ------------------------
SALES AND REVENUES 1996 1995 1994 '96 VS. '95 '95 vs. '94
- ---------------------------------------------------- --------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Packaging .......................................... $1,735.4 $1,692.1 $1,417.5 2.6 % 19.4 %
Container .......................................... 274.7 279.9 252.9 (1.9) 10.7
--------- -------- --------
Total Packaging ................................. $2,010.1 $1,972.0 $1,670.4 1.9 18.1
Catalysts and other silica-based products .......... 732.2 699.9 615.1 4.6 13.8
Construction ....................................... 435.0 397.2 387.1 9.5 2.6
Other (1) .......................................... 74.9 81.8 86.1 (8.4) (5.0)
--------- -------- --------
Sales and revenues .............................. $3,252.2 $3,150.9 $2,758.7 3.2 % 14.2 %
========= ======== ========
</TABLE>
<TABLE>
1996 AS A PERCENTAGE OF 1995 1995 as a Percentage of 1994
----------------------------------------- ---------------------------------------
SALES AND REVENUES ESTIMATED VARIANCE ANALYSIS VOLUME PRICE/MIX TRANSLATION TOTAL Volume Price/Mix Translation Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Packaging .................................. 3.9 % (1.0)% (.3)% 2.6 % 10.2 % 6.0 % 3.2 % 19.4 %
Container .................................. 1.0 (.3) (2.6) (1.9) 4.9 .8 5.0 10.7
Total Packaging ......................... 3.4 (.9) (.6) 1.9 9.4 5.2 3.5 18.1
Catalysts and other silica-based products .. 7.2 (1.3) (1.3) 4.6 4.7 4.7 4.4 13.8
Construction ............................... 8.8 .9 (.2) 9.5 .4 1.1 1.1 2.6
Other (1) .................................. (5.9) .1 (2.6) (8.4) (8.2) (.8) 4.0 (5.0)
Sales and revenues ...................... 4.7 % (.8)% (.7)% 3.2 % 9.7 % 1.7 % 2.8 % 14.2 %
</TABLE>
(1) Primarily reflects Grace's specialty polymers business, which is
expected to be divested in 1997.
F-27
<PAGE> 64
SALES AND REVENUES
As noted in the preceding table, sales and revenues (excluding divested
businesses) increased 3% in 1996 over 1995, reflecting a favorable volume
variance estimated at 5% (with increased volumes in all core product lines),
offset by unfavorable price/product mix and currency translation variances
estimated at 1% each. The following is a discussion of the sales and
revenues of Grace's product lines.
PACKAGING
- ---------
1996 sales increased 3% over 1995, a year in which sales increased 19% over
1994. 1996 laminate sales increased in all regions, particularly in Latin
America and Asia Pacific due to market share growth, and in North America
primarily due to a strong fourth quarter in the rollstock and processed and
prepared foods market segments. 1996 sales growth in bags was modest
overall. Sales volumes in bags increased in Latin America due to economic
improvement in Argentina, increased cattle slaughter rates in Uruguay and
higher per capita beef consumption in Brazil. Growth in North American bag
sales, due to continued penetration of TBG (total boneguard) bags in the
fresh red meat segment, was partially offset by lower volumes in the meat
producing and processing industries, as higher corn prices led to reductions
in beef herds, which in turn drove down volumes. Sales of bags in Asia
Pacific and Europe were flat, as the negative effects of reduced beef
consumption due to consumer fears associated with the outbreak of E. coli
bacteria and the publicity surrounding bovine spongiform encephalopathy in
the United Kingdom --- commonly referred to as "mad cow disease" --- were
partially offset by the positive effects of increased consumption of other
fresh red meats, poultry and fish. Film sales in 1996 were flat, as sales
growth in Europe was offset by sales declines in North America and Asia
Pacific due to continued pricing pressures. The improvement in Europe
resulted from growth in demand in the U.K. bakery market segment and higher
sales from new product introductions.
CONTAINER
- ---------
Sales decreased slightly in 1996 versus 1995, as sales declines in closure
compounds (due to lower consumer demand for beverage products in Europe and
a decrease in market share in Asia Pacific) were partially offset by volume
increases from improved market penetration of can coating products in Latin
America (primarily due to the 1996 acquisition of Bayem S.A. de C.V., a
Mexican producer of can coatings and closure sealants for the rigid
container industry). North American container sales were up slightly due to
strong sales of can sealing compounds.
CATALYSTS AND OTHER SILICA-BASED PRODUCTS
- -----------------------------------------
1996 sales of catalysts and other silica-based products benefited from
continued expansion into new markets and the introduction of
higher-value-added products and new technologies, partially offset by
competitive pricing pressures. Volumes increased in all regions, especially
in Asia Pacific due to an increase in market share in refinery catalysts.
However, in Europe and North America, refinery catalyst sales continued to
be negatively impacted by competitive pricing pressures. Polyolefin
catalyst sales were positively impacted by the strong resin market, and
silica/adsorbent sales benefited from new product applications in Europe and
Asia Pacific.
CONSTRUCTION
- ------------
Sales increased in all regions and within all product lines, especially in
North America, where volumes in concrete and waterproofing products
benefited from growth in housing starts and infrastructure projects. Also
significantly contributing to the increase was the positive impact of an
increase in market share for fire protection and concrete products in Asia
Pacific. Sales also have risen due to the introduction of new products.
OPERATING RESULTS - 1996 COMPARED TO 1995
- -----------------------------------------
Pretax operating income before special items (excluding divested businesses)
increased 12% in 1996 as compared to 1995, as cost management programs
continued to favorably impact results across all regions and product lines.
As further discussed below under "Statement of Operations: Restructuring
Costs, Asset Impairments and Other Costs," Grace has implemented a worldwide
program to streamline processes and reduce general and administrative
expenses, factory administration costs and noncore corporate research and
development expenses. In addition, North American results in 1996 were
positively affected by sales volume increases in construction products and
bags and laminates, partially offset by a decline in refinery catalyst
sales. European results were favorably impacted by volume increases in
construction products and silicas/adsorbents. In Asia Pacific, results
declined, reflecting lower pricing and an unfavorable product mix in bags,
and volume declines in closure compounds, partially offset by volume
increases in construction products and refinery and polyolefin catalysts, as
discussed above. Also affecting 1996 results were higher expenses
associated with the start-up of new silica and packaging plants in Kuantan,
Malaysia. Latin American results were favorably impacted by volume
increases in bags and can coating products, as discussed above.
OPERATING RESULTS - 1995 COMPARED TO 1994
- -----------------------------------------
As noted above, sales and revenues (excluding divested businesses) increased
14% in 1995 over 1994, reflecting favorable volume, price/product mix and
currency translation variances estimated at 10%, 1% and 3%, respectively.
Pretax operating income before special items (excluding divested businesses)
increased 20% in 1995 over 1994. Volumes increased in all core product
lines. Packaging volume increases reflected higher sales of bags, films and
laminates in all regions, other than laminates in Latin America. Container
volume increases resulted from increased sales of can sealing products in
Asia Pacific and coating products in Latin
F-28
<PAGE> 65
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. North American operations experienced reduced profitability in
refinery catalysts; refiners continued to experience low margins, as the
narrow spread between light and heavy crude oil prices led customers to
crack higher-quality light crude (which requires fewer catalysts).
Construction products experienced volume increases, primarily in Asia
Pacific due to increased construction activity, partially offset by volume
decreases in fire protection products in North America (due to a small
market share decline) and waterproofing products in North America and Europe
(due to higher material costs and a slowdown in the nonresidential
construction market). Operating income before taxes also benefited from an
economic recovery in Europe that revitalized key markets and the absence of
costs incurred in 1994 to streamline European packaging and container
operations, partially offset by higher operating costs incurred to increase
market share in the Asia Pacific region.
STATEMENT OF OPERATIONS
INTEREST EXPENSE AND RELATED FINANCING COSTS
- --------------------------------------------
Excluding amounts allocated to discontinued operations, interest expense and
related financing costs of $71.6 million in 1996 were flat versus 1995.
Including amounts allocated to discontinued operations, interest expense and
related financing costs decreased 10% in 1996 over 1995, to $147.9 million,
primarily due to lower average short-term interest rates.
Grace's debt and interest rate management objectives are to reduce its
cost of funding over the long term. To manage the interest profile on its
debt, Grace enters into interest rate agreements; during 1996 most of these
agreements effectively converted fixed-rate debt into variable-rate debt.
These agreements have readily quantifiable impacts on interest cost and are
characterized by broad market liquidity.
See "Financial Condition: Liquidity and Capital Resources" below for
further information on borrowings and interest rate agreements.
RESEARCH AND DEVELOPMENT EXPENSES
- ---------------------------------
Research and development spending decreased 16% in 1996 versus 1995. The
decrease reflects the positive impact of cost management initiatives, primarily
the closing of Grace's corporate research facility, the transfer of core
research and development activities to existing product line facilities, and
the termination of activities not related to Grace's core packaging and
specialty chemicals businesses. Research and development activities include
research in specialty packaging, catalysts, construction materials and process
engineering.
RESTRUCTURING COSTS, ASSET IMPAIRMENTS AND OTHER COSTS
- ------------------------------------------------------
Restructuring Costs
- -------------------
Grace recorded restructuring charges of $75.4 million in 1996 and $129.8
million in 1995 ($49.0 million and $85.1 million after-tax, respectively).
Grace began implementing a worldwide program in 1995 to streamline processes
and reduce general and administrative expenses, factory administration costs
and noncore corporate research and development expenses. Under this program
Grace has implemented, and expects to further implement, additional cost
reductions and efficiency improvements, as it further evaluates and
reengineers its operations. In connection with these actions, Grace
recorded pretax charges of $53.7 million and $21.7 million in the second and
fourth quarters of 1996, respectively. These charges primarily relate to
headcount reductions, the restructuring of Grace's European packaging
operations (in areas such as working capital management, manufacturing and
sales) and the further restructuring of Grace's corporate research
activities, certain of which are now conducted at product line facilities.
The components of the 1996 and 1995 restructuring charges, spending and
other activity during 1995 and 1996, and the remaining reserve balances at
December 31, 1996, were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Employee
Termination Plant/Office Asset Other
Benefits Closures Write-downs Costs Total
----------- ------------ ----------- ------ ------
<S> <C> <C> <C> <C> <C>
Restructuring provisions recorded in 1995 ... $ 74.3 $ 13.4 $ 18.6 $23.5 $129.8
Cash payments during 1995 ................... (13.0) (3.5) -- (3.1) (19.6)
Noncash activity ............................ -- -- (4.3) (1.5) (5.8)
---------- ----------- --------- ----- ------
Restructuring reserve at December 31, 1995 .. $ 61.3 $9.9 $ 14.3 $18.9 $104.4
Restructuring provisions recorded in 1996 ... 69.3 6.1 -- -- 75.4
Cash payments during 1996 ................... (57.8) (.6) -- (16.0) (74.4)
Noncash activity ............................ -- -- (14.3) -- (14.3)
---------- ----------- --------- ----- ------
Restructuring reserve at December 31, 1996 .. $ 72.8 $ 15.4 $ -- $ 2.9 $ 91.1
========== =========== ========= ===== ======
- -----------------------------------------------------------------------------------------------------
</TABLE>
Employee termination benefits primarily represent severance pay and other
benefits (including benefits under long-term incentive programs paid over
time) associated with the elimination of approximately 1,300 positions
worldwide, with more than 60% of the eliminated positions coming from
worldwide corporate staff functions and the restructuring of Grace's
worldwide packaging operations. Through December 31, 1996, approximately
800 positions had been eliminated worldwide.
F-29
<PAGE> 66
Grace's estimated annual cost savings under the restructuring programs
are expected to total approximately $140 million when fully realized, with
approximately $100 million being realized annually as a result of the
actions taken through the end of 1996. The remaining actions under the
programs are expected to be substantially implemented during 1997.
Asset Impairments
- -----------------
During 1996 and 1995, Grace determined that, due to various events and
changes in circumstances (including the worldwide restructuring programs
described above), certain long-lived assets and related goodwill were
impaired. As a result, in the fourth quarters of 1996 and 1995, Grace
recorded noncash pretax charges of $32.1 million and $39.2 million,
respectively ($20.9 million and $26.6 million after-tax, respectively), the
majority of which related to assets that will continue to be held and used
in Grace's packaging and specialty chemicals businesses. The components of
the 1996 and 1995 charges were (a) goodwill and other intangibles of $11.1
million and $4.7 million, respectively; (b) properties and equipment of $9.0
million and $20.0 million, respectively; (c) long-term investments of $6.7
million and $8.6 million, respectively; and (d) other assets of $5.3 million
and $5.9 million, respectively. Grace determined the amounts of the charges
based on various valuation techniques, including discounted cash flow,
replacement cost and net realizable value for assets to be disposed.
Other Costs
- -----------
In the fourth quarter of 1995, Grace recorded pretax charges totaling $40.5
million ($25.9 million after-tax) relating to the write-down of corporate
assets ($27.0 million) and working capital assets ($13.5 million).
INCOME TAXES
- ------------
Grace's effective tax (benefit) rates were 38.7% in 1996, (36.8)% in 1995
and (54.8)% in 1994. Excluding the special items shown in the table under
"Review of Operations: Overview" above, Grace's effective tax rates were
38.0%, 33.1% and 34.8% in 1996, 1995 and 1994, respectively. The lower
effective tax rate in 1995 compared to 1996 was largely due to the reversal
in 1995 of a valuation allowance on foreign net operating losses. The lower
effective tax rate in 1995 compared to 1994 was primarily due to the
reversal in 1995 of the valuation allowance on foreign net operating losses
and lower state income taxes, partially offset by higher taxes on foreign
operations.
Grace has provided a valuation allowance relating to uncertainty as to
the realization of certain deferred tax assets, primarily state and local
net operating loss carryforwards and net deferred tax assets. Tax planning
strategies during 1996 enabled Grace to reverse the valuation allowance on
tax credit carryforwards during the year. Based on anticipated future
results, Grace has concluded that it is more likely than not that the
remaining balance of the net deferred tax assets, after consideration of the
valuation allowance, will be realized.
DISCONTINUED OPERATIONS
HEALTH CARE
- -----------
During 1996, Grace completed the separation of National Medical Care, Inc.
(NMC) and sold its separations science business (Amicon). These businesses,
representing Grace's principal health care businesses, had been classified
as discontinued operations in 1995. 1996 income from discontinued
operations of $2,643.9 million includes income of $24.8 million ($60.3
million pretax) from health care operations, a tax-free gain of
approximately $2.5 billion on the NMC transaction, and a gain of $40.0
million ($70.4 million pretax) on the sale of Amicon. (Loss)/income from
discontinued operations of $(146.3) million in 1995 and $118.4 million in
1994 includes income from health care operations of $22.0 million ($104.6
million pretax) and $124.7 million ($227.1 million pretax), respectively.
COCOA
- -----
Grace's cocoa business was classified as a discontinued operation in 1993.
During the fourth quarter of 1995, Grace revised the divestment plan for the
business. The revised plan focused on the improvement of operating cash
flow through the adoption of new strategies and a new global organizational
structure, while better positioning the business for outright sale. As a
result of this revised divestment plan, Grace recorded an additional
provision of $151.3 million (net of an applicable tax effect of $48.7
million) related to the cocoa business and other remaining discontinued
operations. In December 1996, Grace announced that it had entered into a
definitive agreement to sell the cocoa business to Archer-Daniels-Midland
Company. As a result, in the fourth quarter of 1996, Grace reassessed its
estimated loss on the divestment of the business and reversed previously
recorded provisions of $31.9 million (net of an applicable tax effect of
$18.1 million), within income from discontinued operations. The divestment
of the cocoa business was completed in February 1997, with Grace receiving
$470.0 million (inclusive of debt assumed by the buyer), subject to
adjustment.
OTHER
- -----
In the fourth quarter of 1996, Grace classified its thermal and emission
control systems business (TEC Systems) as a discontinued operation. In
connection with classifying TEC Systems as a discontinued operation, Grace
recorded a provision of $4.6 million (net of an applicable tax benefit of
$2.4 million) related to TEC Systems' anticipated net operating results
through the expected date of divestment, as well as the loss anticipated on
the divestment.
In May 1996, Grace completed the sale of the transgenic plant business
of its Agracetus subsidiary to the Monsanto Company for $150.0 million,
resulting in a pretax gain of $129.0 million ($79.4 million after-tax, or
$0.86 per common share of the Company). Additionally, in March 1996, Grace
sold its microwave business for gross proceeds of $3.9 million.
F-30
<PAGE> 67
In February 1995, Grace sold its composite materials business for gross
proceeds of $3.0 million. During 1994, Grace sold its battery separators
business and a portion of its engineered materials and systems businesses
for gross proceeds of $316.2 million, approximating prior estimates. Grace
also sold its animal genetics and Caribbean fertilizer operations in 1994
for proceeds of $44.1 million. In 1994, Grace also sold substantially all
of its interests in Colowyo Coal Company (Colowyo) for proceeds of $218.3
million, including $192.8 million 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.
These businesses were classified as discontinued operations in 1993
(other than TEC Systems in 1996 and Colowyo in 1992).
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Grace's continuing operating activities provided net pretax cash of $355.6
million in 1996, versus $247.3 million in 1995. The improved cash flow from
operations in 1996 was offset by the expenditure of $2.1 million for the
defense and disposition of asbestos-related property damage and personal
injury litigation, net of amounts received under settlements with insurance
carriers, compared to a cash inflow from asbestos-related litigation, net of
insurance recoveries, of $97.0 million in 1995. After giving effect to the
net pretax cash provided by operating activities of discontinued operations
and payments of income taxes, the net cash provided by operating activities
increased $116.3 million in 1996 versus 1995.
Investing activities provided $2,072.9 million of cash in 1996, largely
reflecting net cash proceeds of $2,720.3 million from divestments of
businesses. This excluded (a) $100.0 million received in January 1997 on
the 1996 sale of the water treatment and process chemicals business; and (b)
$115.6 million received in January 1997 on the 1996 sale of Amicon. Grace
made capital expenditures of $456.6 million in 1996, primarily related to
the packaging and catalysts and other silica-based products businesses.
Also, net investing activities of discontinued operations for 1996 used
$192.9 million of cash (compared to $295.2 million in 1995); primarily
decreasing as a result of the disposition of NMC in the 1996 third quarter.
Grace anticipates total capital expenditures for 1997 to approximate $300
million, all of which will be directed towards its core businesses.
Net cash used for financing activities in 1996 was $2,267.8 million,
primarily reflecting reductions in debt, the repurchase of stock (discussed
below), and the payment of dividends, partially offset by proceeds from the
exercise of employee stock options. Total debt was $1,388.2 million at
December 31, 1996, a decrease of $545.6 million from December 31, 1995. In
addition to the reduction of debt, in 1996 Grace terminated agreements to
sell up to $300 million of interests in designated pools of trade
receivables, $180 million of which pertained to NMC. At December 31, 1995,
$295.8 million had been received pursuant to such sales, $179.8 million of
which pertained to NMC.
Grace initiated a program in April 1996 to repurchase 10.0 million
shares of its common stock. As of September 27, 1996, Grace had acquired
9,864,800 shares under this program at a cost of $727.1 million (or an
average price of approximately $73.70 per share, before adjustment for the
effect of the NMC transaction on the price per share of Grace stock).
Following the NMC transaction, Grace implemented a second program to
repurchase up to 20% of the approximately 89.0 million shares then
outstanding. Through March 4, 1997, Grace had repurchased 16,019,900 shares
at a cost of $849.1 million (or an average price of approximately $53.00 per
share).
As Grace's balance sheet is restructured to support its core
businesses, Grace is targeting a ratio of debt (net of cash and short-term
investments) to earnings before interest, taxes, depreciation and
amortization (EBITDA) of 1.6 to 2.0. Grace believes this ratio is the
appropriate measure of leverage for management purposes because it compares
debt to the pretax cash flow available to service debt. Also, it is not
subject to distortion (as traditional debt/equity or debt/capital ratios
are) following a major share repurchase program such as those Grace has
executed. At the targeted debt/EBITDA level of 1.6 to 2.0, Grace benefits
from the tax advantages of debt financing on its overall weighted average
cost of capital while retaining the financial flexibility to invest in the
continued growth of its core businesses. Grace believes it can safely
exceed its target leverage range on a short-term basis to meet its
investment needs. The cash received and to be received from divestments is
being used to reduce debt and repurchase shares to bring the capital
structure within the target range. At December 31, 1996, the debt/EBITDA
ratio was 2.3, outside the target range primarily due to the timing of the
share repurchases ahead of cash divestment proceeds. It is expected that
the ratio will be within the target range in 1997.
In May 1996, Grace entered into a revolving credit agreement, expiring
May 1997, providing for total borrowings of $1.85 billion, and terminated
three previous agreements providing for total borrowings of $850 million.
During the fourth quarter of 1996, Grace reduced the borrowings available
under this new credit agreement to $650 million, reflecting the completion
of the NMC transaction. In addition, Grace continues to have $350 million
available under a separate long-term facility expiring on September 1, 1999.
Thus, Grace had committed borrowing facilities totaling $1.0 billion, of
which $471.3 million was available, at the end of 1996.
In October 1996, Grace announced that it expected to divest four
noncore businesses by late 1996 or 1997. The businesses to be sold were
Grace's cocoa business, Amicon, TEC Systems and Grace's specialty polymers
business. As noted above, in December 1996, Grace completed the sale of
Amicon and announced that it had entered into a definitive agreement to sell
its cocoa business. In February 1997, Grace completed the sale of the cocoa
business and entered into an agreement to sell its specialty polymers
business. Grace expects to complete the sale of its specialty polymers
business in the second quarter of 1997 and the sale of TEC Systems in 1997.
F-31
<PAGE> 68
ASBESTOS-RELATED MATTERS
- ------------------------
Grace is a defendant in lawsuits relating to previously sold
asbestos-containing products. In 1996, Grace paid $2.1 million for the
defense and disposition of asbestos-related property damage and personal
injury litigation, net of amounts received under settlements with insurance
carriers. During the fourth quarter of 1996, Grace recorded a noncash
pretax charge of $229.1 million ($148.9 million after-tax), primarily to
reflect the estimated costs of defending against and disposing of personal
injury claims expected to be filed through 2001. The estimated costs used
to determine the amount of this charge have not been discounted to their
present values, and the time period over which the associated cash is
actually expended is likely to extend beyond 2001. The balance sheet at
year-end 1996 includes a receivable of $331.3 million due from insurance
carriers. Grace also has recorded notes receivable of $55.9 million ($48.5
million after discounts) for amounts to be received from 1997 to 2001
pursuant to settlement agreements previously entered into with insurance
carriers.
Although the total amounts to be paid in 1997 with respect to
asbestos-related claims (after giving effect to payments to be received from
insurance carriers), cannot be precisely estimated, Grace expects that it
will be required to expend approximately $75-$100 million (pretax) in 1997
to defend against and dispose of such claims (after giving effect to
anticipated insurance recoveries). The amounts with respect to the probable
cost of defending against and disposing of asbestos-related claims and
probable recoveries from insurance carriers represent estimates and are on
an undiscounted basis; the outcomes of such claims cannot be predicted with
certainty. See Note 2 to the Consolidated Financial Statements for further
information concerning asbestos-related lawsuits and claims.
ENVIRONMENTAL MATTERS
- ---------------------
Grace is subject to loss contingencies resulting from environmental laws and
regulations. Worldwide expenses of continuing operations related to the
operation and maintenance of environmental facilities and the disposal of
hazardous and nonhazardous wastes totaled $44.5 million in 1996, $42.6
million in 1995 and $35.0 million in 1994. Such costs are estimated to be
$45.0 million in 1997 and $47.0 million in 1998. In addition, worldwide
capital expenditures for continuing operations relating to environmental
protection totaled $17.1 million in 1996, compared to $14.9 million and
$21.5 million in 1995 and 1994, respectively. Capital expenditures to
comply with environmental initiatives in future years are estimated to be
$13.0 million in 1997 and $12.0 million in 1998. Grace also has incurred
costs to remediate environmentally impaired sites. These costs were $20.3
million in 1996, $31.3 million in 1995 and $30.8 million in 1994. These
amounts have been charged against previously established reserves. Future
cash outlays for remediation costs are expected to total $23.0 million in
1997 and $26.0 million in 1998. 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 where an assessment has indicated that a loss is
probable and can be reasonably estimated. In the fourth quarter of 1995 and
the 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.
The 1995 provision related principally to increased cost estimates
associated with five former manufacturing sites. At December 31, 1996,
Grace's liability for environmental investigatory and remediation costs
related to continuing and discontinued operations totaled $256.4 million, as
compared to $280.3 million at December 31, 1995. These accruals do not take
into account any discounting for the time value of money. Additionally,
Grace is in litigation with certain excess insurance carriers regarding the
applicability of the carriers' policies to environmental remediation costs;
given the uncertainties inherent in this litigation, Grace has not recorded
a receivable with respect to such insurance coverage (except in one instance
where a settlement with a carrier has been reached).
Grace's environmental liabilities are reassessed whenever circumstances
become better defined and/or remediation efforts and their costs can be
better estimated. These liabilities are currently evaluated quarterly,
based on 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 outcomes of which are
subject to 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. However, Grace believes that it is
adequately reserved for all probable and estimable environmental exposures.
F-32
<PAGE> 69
SCHEDULE II
W. R. GRACE & CO. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(in millions)
For the Year 1996
<TABLE>
<CAPTION>
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 . . . . . $ 12.9 $ 4.9 $ (6.3) $ 11.5
----------- ----------- ----------- -----------
Allowances for long-term receivables . . . . . . . . . $ 24.7 $ 3.7 $ 14.3 $ 42.7
----------- ----------- ----------- -----------
Securities of divested businesses. . . . . . . . . . . $ 3.5 $ - $ 0.4 $ 3.9
----------- ----------- ----------- -----------
Valuation allowance for deferred tax assets. . . . . . $ 97.7 $ (25.3) $ - $ 72.4
----------- ----------- ----------- -----------
Reserves:
Foreign employee benefit obligations* . . . . . . . . $ 95.3 $ 6.9 $ (17.3) $ 84.9
----------- ----------- ----------- -----------
Discontinued operations. . . . . . . . . . . . . . . . $ 366.7 $ (105.7) $ (91.8) $ 169.2
----------- ----------- ----------- -----------
</TABLE>
For the Year 1995
<TABLE>
<CAPTION>
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 $ 0.4 $ 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
----------- ----------- ----------- -----------
</TABLE>
For the Year 1994
<TABLE>
<CAPTION>
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 $ 0.3 $ 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
----------- ----------- ----------- -----------
</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-33
<PAGE> 70
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)
--------------------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Weighted average number of shares of Common Stock
outstanding . . . . . . . . . . . . . . . . . . . . . . 91,976 95,822 93,936
Additional dilutive effect of outstanding options (as determined
by the application of the treasury stock method) . . . . 2,504 2,189 659
------ ------ ------
Weighted average number of shares of Common Stock
outstanding assuming full dilution . . . . . . . . . . . 94,480 98,011 94,595
====== ====== ======
</TABLE>
Income/(loss) used in the computation of earnings/(loss) per share were as
follows:
<TABLE>
<CAPTION>
(in millions, except per share)
------------------------------------
1996 1995 1994
-------- ------- ------
<S> <C> <C> <C>
Net income/(loss) . . . . . . . . . . . . . . . . . . . . . . $2,857.7 $(325.9) $ 83.3
Dividends paid on preferred stocks . . . . . . . . . . . . . (.4) (.5) (.5)
-------- ------- ------
Income/(loss) used in per share computation of earnings and in
per share computation of earnings assuming full dilution . $2,857.3 $(326.4) $82.8
======== ======= =====
Earnings/(loss) per share . . . . . . . . . . . . . . . . . . $ 31.06 $ (3.40) $ .88
Earnings/(loss) per share assuming full dilution . . . . . . $ 30.24 $ (3.33) $ .88
</TABLE>
F-34
<PAGE> 71
EXHIBIT 12
W. R. GRACE & CO. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND
COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (a)
(in millions, except ratios)
(Unaudited)
<TABLE>
<CAPTION>
Years Ended December 31, (c)
------------------------------------------------------------
1996 (d) 1995 (e) 1994 (f) 1993 (g) 1992 (h)
-------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Net income/(loss) from continuing operations . . . . $213.8 $(179.6) $(35.1) $ 28.1 $ 7.7
Add (deduct):
Provision for/(benefit from) income taxes . . . . 134.8 (104.5) (42.6) 16.4 84.1
Income taxes of 50%-owned companies . . . . . . . - - - .1 2.1
Equity in unremitted (earnings)/losses
of less than 50%-owned companies . . . . . . . (.4) .8 (.6) (.5) (2.0)
Interest expense and related financing costs,
including amortization of capitalized interest . 160.8 179.8 138.5 122.7 162.7
Estimated amount of rental expense
deemed to represent the interest factor . . . . 8.4 8.5 10.1 11.3 14.0
------ ------- ------ ------ ------
(Loss)/income as adjusted . . . . . . . . . . . . . . $517.4 $ (95.0) $ 70.3 $178.1 $268.6
====== ======= ====== ====== ======
Combined fixed charges and preferred stock dividends:
Interest expense and related financing costs,
including capitalized interest . . . . . . . . $177.1 $ 195.5 $143.2 $122.8 $176.3
Estimated amount of rental expense
deemed to represent the interest factor . . . . 8.4 8.5 10.1 11.3 14.0
------ ------- ------ ------ ------
Fixed charges . . . . . . . . . . . . . . . . . . . . 185.5 204.0 153.3 134.1 190.3
Preferred stock dividend requirements (b) . . . . . . .6 .5 .5 .8 .8
------ ------- ------ ------ ------
Combined fixed charges and preferred
stock dividends . . . . . . . . . . . . . . . . . $186.1 $ 204.5 $153.8 $134.9 $191.1
====== ======= ====== ====== ======
Ratio of earnings to fixed charges . . . . . . . . . 2.79 (i) (i) 1.33 1.41
====== ======= ====== ====== ======
Ratio of earnings to combined fixed charges and
preferred stock dividends . . . . . . . . . . . . 2.78 (i) (i) 1.32 1.41
====== ======= ====== ====== ======
</TABLE>
(a) Grace's preferred stocks were retired in 1996; see Note 1 to the
Consolidated Financial Statements.
(b) For each period with an income tax provision, the preferred stock
dividend requirements have been increased to an amount representing the
pretax earnings required to cover such requirements based on Grace's
effective tax rate.
(c) Certain amounts have been restated to conform to the 1996 presentation.
(d) Includes a pretax gain of $326.4 on sales of businesses, offset by pretax
provisions of $229.1 for asbestos-related liabilities and insurance
coverage and $107.5 for restructuring costs and asset impairments.
(e) Includes pretax provisions of $275.0 for asbestos-related liabilities and
insurance coverage; $209.5 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.
(f) Includes a pretax provision of $316.0 relating to asbestos-related
liabilities and insurance coverage.
(g) Includes a pretax provision of $159.0 relating to asbestos-related
liabilities and insurance coverage.
(h) Includes a pretax provision of $140.0 relating to a fumed silica plant in
Belgium.
(i) 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-35
<PAGE> 72
W. R. Grace & Co.
Annual Report on Form 10-K
for the Fiscal Year Ended December 31, 1996
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT WHERE LOCATED
- ----------- ------- -------------
<S> <C> <C>
3.01 Amended and Restated Certificate of Incorporation of Exhibit 4.1 to Form 8-K
W. R. Grace & Co. (filed 10/10/96)
3.02 Amended and Restated By-laws of W. R. Grace & Co. Exhibit 4.2 to Form 8-K
(filed 10/10/96)
4.01 Rights Agreement by and between W. R. Grace & Co. and Exhibit 4.3 to Form 8-K
The Chase Manhattan Bank, as Rights Agent (filed 10/10/96)
4.02 Indenture dated as of September 29, 1992 among W. R. Exhibit 4.2 to Form 10-K
Grace & Co.-Conn., W. R. Grace & Co. and Bankers (filed 3/26/93)
Trust Company
4.03 Supplemental Indenture dated as of September 24, 1996, Exhibit 4.4 to Form 8-K
among W. R. Grace & Co.-Conn., W. R. Grace & Co., (filed 10/10/96)
Grace Holding, Inc., and Bankers Trust Company, to
Indenture dated as of September 29, 1992
</TABLE>
_________
Other than exhibits that are filed herewith, all exhibits listed in this Exhibit
Index are incorporated herein by reference. Exhibits indicated by an asterisk
(*) are the management contracts and compensatory plans, contracts or
arrangements required to be filed as exhibits to this Report. In accordance with
paragraph (b)(4)(iii) of Item 601 of Regulation S-K, certain instruments
relating to long-term debt are not being filed; W. R. Grace & Co. agrees to
furnish a copy of any such instrument to the Securities and Exchange Commission
upon request.
<PAGE> 73
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT WHERE LOCATED
- ----------- ------- -------------
<S> <C> <C>
4.04 Indenture dated as of January 28, 1993 among W. R. Grace Exhibit 4.4 to Form
& Co.-Conn., W. R. Grace & Co. and Bank of New York 10-K (filed 3/26/93)
(successor to NationsBank of Georgia, N.A.)
4.05 Supplemental Indenture dated as of September 24, 1996, Exhibit 4.5 to Form 8-K
among W. R. Grace & Co.-Conn., W. R. Grace & Co., (filed 10/10/96)
Grace Holding, Inc., and Bank of New York, to Indenture
dated as of January 28, 1993
4.06 364-Day Credit Agreement, dated as of May 17, 1996, Exhibit 4.4 to Registration
among W. R. Grace & Co.-Conn., W. R. Grace & Co., Statement on Form S-1 (filed
Grace Holding, Inc., the several banks parties thereto, 8/2/96)
NationsBank, N.A. (South), as documentation agent, and
Chemical Bank, as administrative agent, for such banks
4.07 Amended and Restated Credit Agreement, dated as of May Exhibit 4.5 to Registration
17, 1996, among W. R. Grace & Co.-Conn., W. R. Grace Statement on Form S-1
& Co., Grace Holding, Inc., the several banks parties (filed 8/2/96)
thereto and Chemical Bank, as administrative agent for
such banks
10.01 W. R. Grace & Co. 1996 Stock Incentive Plan Filed herewith*
10.02 W. R. Grace & Co. 1996 Stock Retainer Plan for Exhibit 10.2 to Form 8-K
Nonemployee Directors (filed 10/10/96)*
10.03 W. R. Grace & Co. Supplemental Executive Retirement Filed herewith*
Plan, as amended
10.04 W. R. Grace & Co. Executive Salary Protection Plan, as Filed herewith*
amended
</TABLE>
-2-
<PAGE> 74
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT WHERE LOCATED
- ----------- ------- -------------
<S> <C> <C>
10.05 W. R. Grace & Co. 1981 Stock Incentive Plan, as amended Exhibit 10.3 to Form 8-K
(filed 10/10/96)*
10.06 W. R. Grace & Co. 1986 Stock Incentive Plan, as amended Exhibit 10.4 to Form 8-K
(filed 10/10/96)*
10.07 W. R. Grace & Co. 1989 Stock Incentive Plan, as amended Exhibit 10.5 to Form 8-K
(filed 10/10/96)*
10.08 W. R. Grace & Co. 1994 Stock Incentive Plan, as amended Exhibit 10.6 to Form 8-K
(filed 10/10/96)*
10.09 Forms of Stock Option Agreements Exhibit 10(h) to Form 10-K
(filed 3/28/92)*
10.10 Information concerning W. R. Grace & Co. Incentive Pages 7-12 and 28-33 of
Compensation Program, Deferred Compensation Program and Proxy Statement (filed
Long-Term Incentive Program 4/10/96)*
10.11 Form of Long-Term Incentive Program Award Exhibit 10.13 to
Registration Statement on
Form S-1 (filed 8/2/96)*
10.12 Form of Stock Option Agreement Exhibit 10.14 to
Registration Statement on
Form S-1 (filed 8/2/96)*
10.13 W. R. Grace & Co. Retirement Plan for Outside Directors, Filed herewith*
as amended
10.14 Employment Agreement dated as of April 1, 1991 between Exhibit 10(x) to Form 10-K
W. R. Grace & Co.-Conn. and Constantine L. Hampers, (filed 3/28/92)*
as amended
</TABLE>
-3-
<PAGE> 75
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT WHERE LOCATED
- ----------- ------- -------------
<S> <C> <C>
10.15 Letter Agreement dated as of March 29, 1996 between Exhibit 10.1 to Form 10-Q
W. R. Grace & Co. and Constantine L. Hampers (filed 5/15/96)*
10.16 Letter Agreement dated June 14, 1996 between W. R. Grace Exhibit 10.35 to
& Co. and Constantine L. Hampers Registration Statement on
Form S-1 (filed 8/2/96)*
10.17 Form of Executive Severance Agreement between W. R. Exhibit 10.22 to
Grace & Co. and officers elected prior to May 1996 Registration Statement on
Form S-1 (filed 8/2/96)*
10.18 Form of Executive Severance Agreement between W. R. Exhibit 10.23 to
Grace & Co. and officers elected in or after May 1996 Registration Statement on
Form S-1 (filed 8/2/96)*
10.19 Consulting Agreement dated June 1, 1992 between W. R. Exhibit 10.29 to Form 10-K
Grace & Co. and Kamsky Associates, Inc. (filed 3/26/93)*
10.20 Incentive Compensation Agreement dated June 1, 1992 Exhibit 10.30 to Form 10-K
between National Medical Care, Inc. and Kamsky (filed 3/26/93)*
Associates, Inc.
10.21 Consulting Agreement dated as of December 1993 between Exhibit 10.23 to Form 10-K
National Medical Care, Inc. and Virginia A. Kamsky (filed 3/31/95)*
10.22 Amendment to Consulting Agreement, dated as of May 1, Exhibit 10.1 to Form 10-Q
1995, among National Medical Care, Inc., Virginia A. (filed 5/12/95)*
Kamsky and Southeast Asia Markets, Inc.
10.23 Employment Agreement dated as of May 1, 1995 between Exhibit 10.1 to Form 10-Q
W. R. Grace & Co. and Albert J. Costello (filed 8/14/95)*
</TABLE>
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<PAGE> 76
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT WHERE LOCATED
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<S> <C> <C>
10.24 Amendment dated August 9, 1996 to Employment Agreement, Exhibit 10.7 to Form 8-K
dated as of May 1, 1995, between W. R. Grace & Co. and (filed 10/10/96)*
Albert Costello
10.25 Option Agreement between W. R. Grace & Co. and Albert J. Exhibit 10.8 to Form 8-K
Costello, dated May 1, 1995, as amended (filed 10/10/96)*
10.26 Option Agreement between W. R. Grace & Co. and Albert J. Exhibit 10.37 to
Costello, dated March 6, 1996 Registration Statement on
Form S-1 (filed 8/2/96)*
10.27 Agreement dated September 23, 1996 between W. R. Grace & Exhibit 10.9 to Form 8-K
Co. and Donald H. Kohnken (filed 10/10/96)*
10.28 Employment Agreement dated May 15, 1995 between W. R. Filed herewith*
Grace & Co. and Larry Ellberger
10.29 Restricted Stock Award Agreement dated June 6, 1995 Filed herewith*
between W. R. Grace & Co. and Larry Ellberger, as
amended by letter agreement dated August 26, 1996
between Larry Ellberger and W. R. Grace & Co.
10.30 Letter Agreement dated December 10, 1996 between W. R. Filed herewith*
Grace & Co. and Larry Ellberger
10.31 Bridge Loan Promissory Note dated July 31, 1992 of Fred Filed herewith*
and Jacqueline Lempereur, payable to W. R. Grace &
Co.-Conn.
10.32 Employee Relocation Loan Agreement dated July 31, 1992 Filed herewith*
between W. R. Grace & Co.-Conn. and Fred and
Jacqueline Lempereur
</TABLE>
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<PAGE> 77
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT WHERE LOCATED
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<S> <C> <C>
10.33 Employment Agreement dated August 17, 1992 between Filed herewith*
Grace Specialty Chemicals Co. and Fred Lempereur
10.34 Letter Agreement dated January 10, 1997, between W. R. Filed herewith*
Grace & Co. and Fred Lempereur
10.35 Distribution Agreement by and among W. R. Grace & Co., Exhibit 2 to Form 8-K (filed
a New York corporation subsequently renamed Fresenius 2/6/96)
National Medical Care Holdings, Inc., W. R. Grace &
Co.-Conn., and Fresenius AG dated February 4, 1996
10.36 Form of Indemnification Agreement between W. R. Grace Exhibit 10.39 to
& Co. and certain directors Registration Statement on
Form S-1 (filed 8/2/96)*
10.37 Form of Indemnification Agreement between W. R. Grace Filed herewith*
& Co. and certain officers and directors
11 Weighted Average Number of Shares and Earnings Used in Filed herewith (in Financial
Per Share Computations Supplement to Form 10-K)
12 Computation of Ratio of Earnings to Fixed Charges and Filed herewith (in Financial
Combined Fixed Charges and Preferred Stock Dividends Supplement to Form 10-K)
13 Selected Portions of the 1996 Annual Report to Filed herewith (in Financial
Shareholders of W. R. Grace & Co. Supplement to Form 10-K)
21 List of Subsidiaries of W. R. Grace & Co. Filed herewith
23 Consent of Independent Accountants Filed herewith (in Financial
Supplement to Form 10-K)
24 Powers of Attorney Filed herewith
</TABLE>
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<PAGE> 1
EXHIBIT 10.01
W. R. GRACE & CO.
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 con structive 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 ser vice 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 Sub sidiary) shall be deemed to
have ceased service.
Change in Control: Shall be deemed to have occurred if (a) the Company
deter mines 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 Com pany, 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 Com pany;
(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 Transac tion"), 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 Plan, the distribution of all of the shares of Common Stock of the
Company to the shareholders of W. R. Grace & Co., a New York corporation, 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,
<PAGE> 2
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: W.R. Grace & Co., 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 preced ing 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.
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<PAGE> 3
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 regu lations 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 Subsid iary.
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.
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.
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<PAGE> 4
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 agree ment 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.
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<PAGE> 5
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 in stallments 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
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
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<PAGE> 6
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 Com mittee 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 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
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<PAGE> 7
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 Person 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 con ditions as may be specified therein, including without limitation
a provision terminating in
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<PAGE> 8
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 instru ment 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 Com mon 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 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., a New
York corporation, 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
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<PAGE> 9
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
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<PAGE> 10
any Stock Incentive except as to such shares of Common Stock, if any, as shall
have been issued to him.
(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 ac cordance 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 ad ditional
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 pay ment 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 in consistent 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
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<PAGE> 11
conditions are permitted under the plan of the acquired entity. For the purposes
of any ap plicable 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 pro vided 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
(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 deter mine 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 sur render 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.
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<PAGE> 12
(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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<PAGE> 1
EXHIBIT 10.03
W. R. GRACE & CO.
SUPPLEMENTAL EXECUTIVE
RETIREMENT PLAN
AS AMENDED
THROUGH
SEPTEMBER 28, 1996
________________________________________________
AS ADOPTED AND CONTINUED BY
W. R. GRACE & CO.,
A DELAWARE CORPORATION,
EFFECTIVE SEPTEMBER 28, 1996
<PAGE> 2
W. R. GRACE & CO. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Introduction
Effective October 4, l984, W. R. Grace & Co., a Connecticut
corporation ("Grace Connecticut"), adopted a supplemental executive retirement
plan which constitutes in part an "excess benefit plan" under section 3(36) of
the Employee Retirement Income Security Act of l974, as amended ("ERISA"), and
which constitutes in part an unfunded deferred compensation arrangement for a
select group of highly compensated or management employees under section 20l(2)
of ERISA, for the Eligible Persons described in the Plan.
The W. R. Grace & Co. Supplemental Executive Retirement Plan (the
"Plan") was amended effective May l, l988 for all Eligible Persons who
terminate service on or after such date.
As a result of a corporate reorganization whereby Grace Connecticut
became a subsidiary of W. R. Grace & Co., a New York corporation ("Grace New
York") (and was renamed "W. R. Grace & Co.-Conn."), Grace Connecticut amended
the Plan, effective May 25, l988, and Grace New York adopted and assumed the
sponsorship of the Plan, as amended, as of such date, for the benefit of all
Eligible Persons and other persons who, on the immediately preceding date, were
participants in the Plan (as maintained by Grace Connecticut) and all other
employees of Grace New York or its subsidiaries who on or after May 25, l988
become Eligible Persons or otherwise covered under the Plan.
Grace New York further amended the Plan, effective as of January l,
l993.
<PAGE> 3
As a result of a transaction occurring in September 1996, Grace
Connecticut became a subsidiary of W. R. Grace & Co., a Delaware corporation
("Grace Delaware"). Effective September 28, 1996, Grace Delaware adopted and
assumed the sponsorship of the Plan and amended the Plan as set forth herein.
<PAGE> 4
Section l
Definitions
When used herein, the words and phrases defined hereinafter shall have the
following meanings unless a different meaning is clearly required by the
context of the Plan.
1.01 Affiliate:
Any corporation or trade or business (other than the
Company) that is treated under the first sentence of
section 4l4(b) or under section 4l4(c) of the Code as
constituting the same "employer" as the Company, during
the period of controlled status thereunder.
1.02 Board of Directors:
The Board of Directors of the Company.
1.03 Code:
The Internal Revenue Code of l986, as amended.
1.04 Committee:
The Compensation, Employee Benefits and Stock Incentive
Committee of the Board of Directors.
<PAGE> 5
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1.05 Company:
W. R. Grace & Co., a Delaware corporation. After May 25,
l988, and prior to September 28, 1996, the term "Company"
meant W. R. Grace & Co., a New York corporation. Prior
to May 25, l988, the term "Company" meant W. R. Grace &
Co., a Connecticut corporation.
1.06 Effective Date:
October 4, l984.
1.07 Eligible Person:
A person who is described in Section 2 as eligible to
receive benefits under the Plan.
1.08 Employee:
An Employee of the Company or an Affiliate under the
Plan.
1.09 Employing Unit:
Any employing unit described in Section l.l4 of the
Grace Salaried Plan.
<PAGE> 6
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1.10 Grace Salaried Plan:
W. R. Grace & Co. Retirement Plan for Salaried Employees
(including the "old plans" and "predecessor plans"
defined therein and the plans merged therein). Any
reference to a section of the Grace Salaried Plan shall
include the corresponding section of any future text
thereof.
1.11 Plan:
W. R. Grace & Co. Supplemental Executive Retirement Plan.
1.12 Masculine pronouns used herein shall refer to men or women or both
and nouns and pronouns when stated in the singular shall include
the plural and when stated in the plural shall include the
singular, wherever appropriate.
1.13 Any reference in the Plan to a "Section" shall refer to a Section
of the Plan unless otherwise specified.
Section 2
Eligibility and Vesting
2.01 Any Employee who (i) is accruing credited service (as defined in
section 4.0l of the Grace Salaried Plan) under the Grace Salaried
Plan on or after the Effective Date of the Plan, (ii) has an annual
base salary of at least $75,000 at any time during the period that
he is accruing such credited service under the Grace Salaried Plan,
and (iii) satisfies the provisions of Section 2.04 shall
<PAGE> 7
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be eligible to receive benefits under this Plan in accordance with
Section 3 of the Plan.
2.02 If so designated by the Board of Directors, (A) an Employee who (i)
accrued credited service (as defined in Section 2.0l above) under
the Grace Salaried Plan prior to (but not on or after) the
Effective Date of the Plan (and whose benefits under the Grace
Salaried Plan have not commenced prior to such designation), (ii)
has an annual base salary of at least $75,000 on or after the
Effective Date of the Plan while still employed by the Company or
an Affiliate, and (iii) satisfies the provisions of Section 2.04,
or (B) an Employee who (i) is accruing credited service (as defined
in Section 2.0l above) under the Grace Salaried Plan on or after
the Effective Date of the Plan, (ii) has an annual base salary of
at least $75,000 at any time after (but not during) the period that
he is accruing credited service (as defined in Section 2.0l above)
under the Grace Salaried Plan, and (iii) satisfies the provisions
of Section 2.04 shall be eligible to receive benefits under the
Plan in accordance with Section 3 of the Plan.
2.03 If so designated by the Board of Directors, an Employee who (i) is
not accruing and never has accrued credited service (as defined in
Section 2.0l above) under the Grace Salaried Plan, (ii) is an
Employee of the Company or an Affiliate on or after the Effective
Date of the Plan, (iii) has an annual base salary of at least
$75,000 at any time while employed by the Company or an Affiliate,
and (iv) satisfies the provisions of Section 2.04 shall be eligible
to receive benefits under the Plan in accordance with Section 3 of
the Plan.
2.04 An Eligible Person must terminate service with the Company and its
Affiliates on or after the earliest of (i) the date he attains age
55, (ii) the date he
<PAGE> 8
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completes at least ten (l0) years of vesting service, effective
January 1, 1988 (or, effective January l, l989, the date he
completes at least five (5) years of vesting service) (as defined
in Section l.38 of the Grace Salaried Plan) or (iii) the date as of
which he otherwise becomes vested under the Grace Salaried Plan, in
order to be eligible to receive benefits, if any, under the Plan.
The benefits, if any, provided under the Plan to an Eligible Person
shall vest upon the earliest of (i) his attainment of age 55, (ii)
his completion of at least ten (l0) years of vesting service
(effective January l, l989, five (5) years of vesting service) (as
defined in Section l.38 of the Grace Salaried Plan) or (iii) the
date as of which he otherwise becomes vested under the Grace
Salaried Plan. In the event that an Eligible Person terminates
service with the Company and its Affiliates prior to the date his
benefits become vested in accordance with this Section 2.04, he
shall be entitled to no benefits under the Plan. Notwithstanding
the foregoing, in the event that an Eligible Person terminates
service with the Company and its Affiliates by reason of death
prior to the date his benefits become vested in accordance with
this Section 2.04, benefits under the Plan will be payable in
respect of him to the extent provided in Section 3.05 or Section
3.09.
Section 3
Benefits
3.01 The monthly benefit payable to an Eligible Person under the Plan
shall be equal to the excess, if any, of
(a) The amount of the monthly benefit which would be payable
to such Eligible Person under the Grace Salaried Plan if
the provisions set
<PAGE> 9
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forth in the Grace Salaried Plan to comply with the benefit
limitations of section 4l5 of the Code, the compensation
limitations of section 40l(a)(l7) of the Code and any other Code
provisions that become effective after December 3l, l988 which
similarly limit the amount of retirement benefit that may be
accrued under the Grace Salaried Plan were inapplicable, and
determined in accordance with the following additional principles:
(i) credited service (as defined in section 4.0l of the Grace
Salaried Plan) shall include any period of employment, or
period of disability which satisfies the provisions of
section 6 of the Grace Salaried Plan, not otherwise
credited under the Grace Salaried Plan, prior to the date
he attains age 70 in the case of an Eligible Person who
terminates service with the Company and its affiliates
prior to January l, l988 and any period of employment
after the date he attains age 70, in the case of an
Eligible Person who terminates service with the Company
and its Affiliates after December 3l, l987, with a
division of the Company or an Affiliate, which does not
participate in the Grace Salaried Plan (other than (A)
any period during which the Eligible Person was
satisfying the eligibility requirements of the Grace
Salaried Plan, (B) any period that an Eligible Person
declined to contribute to the Grace Salaried Plan (while
eligible to do so), (C) any period that an Eligible
Person waived participation in the Grace Salaried Plan,
or (D) any period that service was interrupted in the
case of authorized leave of absence for a reason other
than for disability). Subject to the foregoing, an
Eligible
<PAGE> 10
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Person will be credited with a month of credited service
for any calendar month during any part of which he was
employed or disabled as described above; provided,
however, that in the event that an Eligible Person
terminates service with the Company and all Affiliates
during or after such period of employment and is
subsequently re-employed by the Company or an Affiliate,
any period of such employment or disability prior to
such re-employment shall be restored as credited service
hereunder, but if an Eligible Person so terminates
service (whether or not prior to January l, l976) and is
not vested to any extent in an employer-derived accrued
benefit under the Grace Salaried Plan at the time of
such termination and his number of one-year breaks in
service (as defined in section l.22 of the Grace
Salaried Plan) following such termination equal or
exceed his years of vesting service (as defined in
section l.38 of the Grace Salaried Plan) rendered prior
to re-employment, such period shall not be restored as
credited service hereunder, and provided further that
any credited service hereunder in respect of a period of
employment during which the Grace Salaried Plan was
contributory shall be reduced by 30% thereof;
(ii) compensation (as defined in section l.07 of the Grace
Salaried Plan) shall include any amount of (A) incentive
compensation (not otherwise included thereunder) which an
Eligible Person elected to defer (and hence did not
receive on a current basis) at any time after the
effective date of the
<PAGE> 11
-8-
Grace Salaried Plan, (B) "regular" or base salary (not
otherwise included thereunder) which an Eligible Person
elected to defer (and hence did not receive on a current
basis) with respect to periods after December 3l, l987
and (C) annual compensation in excess of $200,000 that
would otherwise be recognized under the Grace Salaried
Plan but for the limitations of Section 40l(a)(l7) of the
Code with respect to periods after December 3l, l988;
provided, however, that in the event that an Eligible
Person terminates service with the Company and all
Affiliates and is subsequently re-employed by the Company
or an Affiliate, any such incentive compensation and
"regular" or base salary which an Eligible Person
elected, prior to such re-employment, to defer and any
such annual compensation in excess of $200,000 shall be
credited hereunder only to the extent that the month in
which such incentive compensation and "regular" or base
salary would otherwise have been paid and the month in
which such excess compensation was paid would be restored
as credited service under the re-employment rules set
forth in Section 3.0l(a)(i);
(iii) in the case of an Eligible Person described in Section
2.03, the provisions of Section 3.0l(a) shall be applied
as if a monthly benefit were payable to the Eligible
Person under the Grace Salaried Plan (even though he was
never employed by the Company or an Employing Unit) and
as if such Eligible Person were required to satisfy the
eligibility provisions of the Grace Salaried Plan.
<PAGE> 12
-9-
over
(b) (i) in the case of an Eligible Person described in
Section 2.0l or 2.02, the amount of the monthly
benefit actually payable to such Eligible
Person under the Grace Salaried Plan (including
any increase provided for in section 5.03(6) of
the Grace Salaried Plan), and
(ii) in the case of an Eligible Person described in
Section 2.0l, 2.02, or 2.03, the amount deemed
payable for purposes of the Plan under any
other defined benefit plan (as defined in
section 3(35) of ERISA) or defined contribution
plan (as defined in section 3(34) of ERISA)
maintained by the Company or an Affiliate
(except the W. R. Grace & Co. Salaried
Employees Savings and Investment Plan and the
Dearborn Chemical Company Salaried Employees
Savings and Investment Plan), or any deferred
compensation agreement or arrangement entered
into by such Eligible Person and the Company or
an Affiliate, or maintained by the Company or
an Affiliate (other than (A) the deferral of
incentive compensation referred to in Section
3.0l(a)(ii), (B) the Incentive Compensation
Plan for Key Employees of El Torito-La Fiesta
Restaurants, Inc., (C) the Natural Resources
Group Long Term Incentive Plan, (D) the W. R.
Grace & Co. Performance Incentive Plan, (E) the
Teal Incentive Compensation Plan, (F) any other
plan, program, arrangement or contract which by
its terms provides that compensation thereunder
should not be an offset under the
<PAGE> 13
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Plan, and (G) any other agreement or arrangement which
the Board of Directors or the Committee determines should
not be an offset under the Plan in whole or in part).
3.02 In the case of an Eligible Person described in Section 2.0l or
2.02, the calculation of the monthly benefit described in Section
3.0l(a) above shall be based upon the same form of benefit, benefit
commencement date, and other factors and assumptions actually used
to calculate the monthly benefit described in Section 3.0l(b)(i)
above. If the benefit payable under any other defined benefit plan
is aggregated with the benefit payable under the Grace Salaried
Plan for purposes of applying the limitations of section 4l5 of the
Code, then the benefit payable under any such defined benefit plan
shall be aggregated with the benefit payable under the Grace
Salaried Plan in the calculation of Section 3.0l(a) and Section
3.0l(b)(i) above.
3.03 In the case of an Eligible Person described in Section 2.0l, 2.02,
or 2.03, the amount deemed payable for purposes of the Plan under
any defined benefit plan described in Section 3.0l(b)(ii) shall be
the amount that would be payable thereunder in respect of years of
credited service taken into account under Section 3.0l(a) in the
form of benefit applicable to the Eligible Person under Section
3.0l(a) commencing at the age that the benefit under Section
3.0l(a) commences. The amount deemed payable under any defined
contribution plan described in Section 3.0l(b)(ii) shall be the
amount that would be payable thereunder at the date that the
benefit under Section 3.0l(a) commences, multiplied by a fraction
whose numerator is the number of years that the Eligible Person
participated in such defined contribution plan and that are
credited under Section 3.01 (a) concurrently, and whose
denominator is the number of years that the Eligible Person
participated in such defined
<PAGE> 14
-11-
contribution plan, converted to the form of benefit applicable to
the Eligible Person under Section 3.0l(a) commencing at the age
that the benefit under Section 3.0l(a) commences using the UP-84
mortality table and an interest rate equal to the rate, as of the
first day of the calendar quarter in which the benefit under
Section 3.0l(a) commences, used by the Pension Benefit Guaranty
Corporation to value immediate annuities under trusteed pension
plans which terminate as of such date. The amount deemed payable
under any deferred compensation agreement or arrangement described
in Section 3.0l(b)(ii) shall be the amount that would be payable
thereunder at the date that the benefit under Section 3.0l(a)
commences, converted to the form of benefit applicable to the
Eligible Person under Section 3.0l(a) commencing at the age that
the benefit under Section 3.0l(a) commences using the actuarial
assumptions set forth in section 5.06(a) and (b) of the Grace
Salaried Plan if the amount payable under such agreement or
arrangement is in the form of periodic payments or using the
actuarial assumptions applicable in the case of a defined
contribution plan if the amount payable under such agreement or
arrangement is in the form of a lump sum.
3.04 In the case of an Eligible Person described in Section 2.0l or
2.02, the monthly benefit under the Plan shall be payable
coincident with the payment of a monthly benefit under the Grace
Salaried Plan, provided that no monthly benefit under the Plan
shall be payable in respect of any period prior to the Effective
Date of the Plan.
3.05 In the case of an Eligible Person described in Section 2.0l or
2.02, such Eligible Person's joint annuitant, beneficiary, or
surviving spouse referred to in section 7.02 of the Grace Salaried
Plan shall become entitled to benefits as provided under Section 3
if such joint annuitant, beneficiary, or surviving
<PAGE> 15
-12-
spouse shall become entitled to benefits (in such capacity) under
the Grace Salaried Plan. Notwithstanding any provision of the
Plan, in the event that an Eligible Person's joint annuitant,
beneficiary, or surviving spouse referred to above shall become
entitled to benefits (in such capacity) under the Grace Salaried
Plan, and the provisions of the Grace Salaried Plan do not preclude
such joint annuitant, beneficiary, or surviving spouse from
receiving all or part of the benefit provided thereunder for such
person, then the Grace Salaried Plan shall pay such benefit to the
extent permitted under the Grace Salaried Plan (and no amount
duplicating such benefit shall be payable under the Plan).
3.06 In the case of an Eligible Person described in Section 2.0l or
2.02, in the event that such an Eligible Person (or his joint
annuitant, beneficiary, or surviving spouse referred to in section
7.02 of the Grace Salaried Plan) ceases to receive benefits under
the Grace Salaried Plan for any reason, he (or she) shall cease to
be eligible to receive benefits under the Plan.
3.07 In the case of an Eligible Person described in Section 2.03, the
monthly benefit under the Plan shall be based upon the form of
benefit, benefit commencement date, and other factors and
assumptions which would have been applicable to him under the Grace
Salaried Plan if he were a participant in the Grace Salaried Plan
(as defined in section l.24 of the Grace Salaried Plan).
3.08 In the case of an Eligible Person described in Section 2.03, the
monthly benefit under the Plan shall be payable coincident with the
payment of a monthly benefit which would have been made under the
Grace Salaried Plan
<PAGE> 16
-13-
if he were a participant in the Grace Salaried Plan (as defined in
section l.24 of the Grace Salaried Plan).
3.09 In the case of an Eligible Person described in Section 2.03, such
Eligible Person's joint annuitant, beneficiary, or surviving spouse
referred to in section 7.02 of the Grace Salaried Plan shall become
entitled to benefits as provided under Section 3 if such joint
annuitant, beneficiary, or surviving spouse would have become
entitled to benefits (in such capacity) under the Grace Salaried
Plan if such Eligible Person had been a participant in the Grace
Salaried Plan (as defined in section l.24 of the Grace Salaried
Plan).
3.10 In the case of an Eligible Person described in Section 2.03, in the
event that such an Eligible Person (or his joint annuitant,
beneficiary, or surviving spouse referred to in section 7.02 of the
Grace Salaried Plan) would cease to receive benefits under the
Grace Salaried Plan if he were a participant in the Grace Salaried
Plan (as defined in section l.24 of the Grace Salaried Plan), he
(or she) shall cease to be eligible to receive benefits under the
Plan.
3.11 The monthly benefits described in Sections 3.01(a) and 3.01(b)(i)
are payable in the form of a straight life annuity commencing as of
or after the first day of the month after an Eligible Person
attains age 65 (except to the extent that a different form of
benefit, or benefit commencement date, or both, is applicable, or
would be applicable, to the Eligible Person under the Grace
Salaried Plan).
3.12 The benefits payable under the Plan shall be paid by the Company or
a subsidiary of the Company, as the case may be, out of its general
assets and shall not be funded in any manner.
<PAGE> 17
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3.13 In the event that an Eligible Person who has terminated service
with the Company and its Affiliates elects to defer the
commencement of his benefits under the Grace Salaried Plan, he may
apply to the Committee for a deferral of his benefits under the
Plan in order to prevent constructive receipt of such benefits,
provided that the Committee shall in its sole discretion decide
whether to grant such application. The grant or denial of any such
application shall not alter or limit the provisions of Sections
3.04 and 3.08 of the Plan.
3.l4 Notwithstanding any other provision of the Plan, in the event that
the service of a "participant" in the Grace Salaried Plan (or an
employee described in section 2.0l(2) of the Grace Salaried Plan
who has not yet completed a "year of service" under the Grace
Salaried Plan) is terminated at Company request on account of
layoff during the period from October 3l, l986 to January 3l, l987
(or up to April 30, l987 in case of business necessity), and, as of
the date of his Termination of Service, such participant (or such
employee) (i) has attained age 50, (ii) earns a base salary of
$75,000 or more, and (iii) is employed on the corporate staff at
the main office of W. R. Grace & Co., each such participant or
employee shall receive the following monthly benefits, commencing
as of the date that his benefits under the Grace Salaried Plan
commence (or would commence, if no such benefit is payable, or if
section 5.l4 of the Grace Salaried Plan applied to him),
(A) a benefit determined with respect to the participant
(or employee) under section 5.02(l)(a) of the Grace Salaried Plan
based on five years of "credited service" under the Grace Salaried
Plan (or the period until his attainment of age 70, if less)
payable in the form applicable to such participant or employee in
accordance with the terms of the Grace Salaried Plan (without
reduction for early commencement);
<PAGE> 18
-15-
(B) in the case of such a participant in the Grace
Salaried Plan who has attained age 50 (but not age 55) and has less
than l0 years of "vesting service" under the Grace Salaried Plan, a
benefit equal to the benefit accrued by such participant under
section 5.02 of the Grace Salaried Plan which was forfeited by him
upon termination of service payable in the form which would have
been applicable to such participant in accordance with the terms of
the Grace Salaried Plan (without reduction for early commencement);
and
(C) a benefit equal to the amount, if any, by which the
benefit payable to such participant under the Grace Salaried Plan
(without reduction for early commencement) exceeds the benefit
actually payable to such participant under the Grace Salaried Plan.
Section 4
Administration
4.01 The Plan shall be administered by the Committee (or its designee)
in accordance with its terms and purposes. The Committee (or its
designee) shall determine the amount and manner of payment of the
benefits under the Plan.
4.02 The decisions made and the actions taken by the Committee (and its
designee) in the administration of the Plan shall be final and
conclusive on all persons, and the Committee, its members, and its
designees shall not be subject to liability with respect to the
Plan.
4.03 The Committee shall have the sole responsibility for the
administration of the Plan and shall have the exclusive right to
interpret the provisions of the Plan
<PAGE> 19
-16-
and to determine any question arising thereunder or in connection
with the administration of the Plan, including the remedying of any
omissions, inconsistency, or ambiguity, and its decision or action
in respect thereof shall be conclusive and binding on all persons.
Section 5
Amendment and Termination
5.01 The Board of Directors may amend or terminate the Plan with respect
to future periods at any time for whatever reason it may deem
appropriate. In the event of termination of the Plan, no person
shall be entitled to accrue additional benefits under the Plan with
respect to any period after the effective date of termination
determined by the Board of Directors; provided, however, that any
benefits under the Plan accrued prior to the effective date of the
termination determined by the Board of Directors shall not be
reduced on account of such termination. Notwithstanding the
foregoing, the provisions of Section 2.04 shall continue to be
applicable to an Eligible Person, unless the Board of Directors
elects to waive such provisions in order to vest all Eligible
Persons in any such benefits provided under the Plan even if such
an Eligible Person terminates service with the Company and its
Affiliates prior to the date he attains age 55 or, effective
January l, l988, prior to the date he completes at least ten (l0)
years of vesting service (effective January l, l989, prior to the
date he completes at least five (5) years of vesting service) (as
defined in Section l.38 of the Grace Salaried Plan).
<PAGE> 20
-17-
Section 6
Miscellaneous
6.01 Nothing contained in the Plan shall be construed as a contract of
employment between the Company and an Eligible Person, or as a
right of any Eligible Person to continue in the employ of the
Company or as a limitation of the right of the Company to discharge
any Eligible Person, with or without cause.
6.02 The benefits payable under the Plan may not be assigned or
alienated.
6.03 The Plan shall be governed, to the extent provided thereunder, by
the Employee Retirement Income Security Act of l974 and to the
extent not preempted, by the laws of the State of New York.
<PAGE> 1
EXHIBIT 10.04
W. R. GRACE & CO.
EXECUTIVE SALARY PROTECTION PLAN
AS AMENDED
THROUGH
SEPTEMBER 28, 1996
---------------------------
AS ADOPTED AND CONTINUED BY
W. R. GRACE & CO.
A DELAWARE CORPORATION,
EFFECTIVE SEPTEMBER 28,1996
<PAGE> 2
W. R. GRACE & CO.
EXECUTIVE SALARY PROTECTION PLAN
INTRODUCTION
Effective December 2, 1976, W. R. Grace & Co., a Connecticut corporation
("Grace Connecticut"), adopted the W. R. Grace & Co. Executive Salary
Protection Plan (the "Plan") for the purpose of providing salary continuation
benefits in the event of the death or disability of an Eligible Executive (as
described in the Plan) of Grace Connecticut or its subsidiaries.
As a result of a corporate reorganization whereby Grace Connecticut became
a subsidiary of W. R. Grace & Co., a New York corporation ("Grace New York")
(and was renamed "W. R. Grace & Co.-Conn."), Grace Connecticut amended the
Plan, effective May 25, 1988, and Grace New York adopted and assumed the
sponsorship of the Plan, as amended, as of such date, for the benefit of all
persons who, on the immediately preceding date, were Eligible Executives under
the Plan (as maintained by Grace Connecticut) and all other employees of Grace
New York or its subsidiaries who on or after May 25, 1988, become Eligible
Executives under the terms of the Plan.
As a result of a transaction occurring in September 1996, Grace
Connecticut became a subsidiary of W. R. Grace & Co., a Delaware corporation
("Grace Delaware"). Effective September 28, 1996, Grace Delaware adopted and
assumed the sponsorship of the Plan and amended the Plan as set forth herein.
-2-
<PAGE> 3
W. R. GRACE & CO.
EXECUTIVE SALARY PROTECTION PLAN
Section 1. Purpose of the Plan
To induce the employment or continued employment of Key Employees and to
enable the Company to compete with other corporations offering benefits in
obtaining and retaining the services of competent executives, in order that the
interests of the Company may be advanced.
Section 2. Definitions
Unless otherwise required by the context, the following terms when used in
this Plan shall have the meanings set forth in this section.
(a) "Board of Directors": The Board of Directors of the Company.
(b) "Committee": The Committee designated to administer the ESP Plan
pursuant to the provision of Section 3.
(c) "Company": W. R. Grace & Co., a Delaware corporation. After May 25,
1988 and prior to September 28, 1996, the term "Company" meant W. R. Grace &
Co., a New York corporation. Prior to May 25, 1988, the term "Company" meant
W. R. Grace & Co., a Connecticut corporation, which is referred to herein as
"Grace Connecticut".
(d) "Eligible Executive": A Key Employee under the age of 70 who is
eligible to participate in the ESP Plan in accordance with standards
established by the Committee pursuant to Section 4(a).
(e) "ESP Agreement": An Agreement entered into between the Company and an
Eligible Executive pursuant to the provision of Section 4(b), providing for the
continuance of the Eligible Executive's Recognized Compensation in the event of
death or disability (as determined in accordance with Section 4(b)).
(f) "ESP Plan" or "Plan": The Executive Salary Protection Plan of the
Company herein set forth as the same may from time to time be amended.
(g) "Key Employee": An employee of the Company or of a Subsidiary,
including an officer or director who is an employee, who in the opinion of the
Committee can contribute significantly to the growth and successful operations
of the Company or a Subsidiary.
-3-
<PAGE> 4
(h) "Officers": The chairman, vice chairmen, president, secretary,
treasurer and all executive vice presidents, senior vice presidents, and vice
presidents of the Company.
(i) "Recognized Compensation": The base monthly salary of the Eligible
Executive as of the time of death or disability (as determined in accordance
with Section 4(b)), or at such other time as shall be specified by the
Committee; provided that the Committee may specify a fixed amount which may be
higher or lower than the Eligible Executive's base monthly salary, and provided
further that Recognized Compensation shall not exceed the highest base salary
earned by the Eligible Executive during the five years preceding his death or
disability (as determined in accordance with Section 4(b)) in any event.
(j) "Subsidiary": A corporation or other form of business association of
which shares (or other ownership interests) having 50% or more of the voting
power are owned or controlled, directly or indirectly, by the Company.
Section 3. Administration
(a) The ESP Plan shall be administered by the Compensation, Employee
Benefits and Stock Incentive Committee of the Board of Directors; provided that
such Committee shall consist of no less than five (5) directors of the Company,
and provided further, that no member of the Committee shall be eligible to
participate in the Plan while serving on the Committee.
(b) The Committee may establish such rules and regulations, not
inconsistent with the provisions of the ESP Plan, as it deems necessary to
determine eligibility to participate in the Plan and for the proper
administration of the 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 the Plan as it deems necessary or advisable. All
such rules, regulations, determinations and interpretations, subject to the
provisions of Section 3.1 of the By-Laws of the Company, shall be binding and
conclusive upon the Company, its Subsidiaries, its shareholders and all
employees, and upon their respective legal representatives, beneficiaries,
successors and assigns and upon all other persons claiming under or through any
of them.
(c) Any action required or permitted to be taken by the Committee under
this Plan may be taken in accordance with Article III of the By-Laws of the
Company even though, because of a vacancy or vacancies as a result of
resignations or otherwise, the total number of directors who are then members
of the Committee shall be less than five.
(d) Members of the Board of Directors and members of the Committee acting
under the ESP Plan shall be fully protected in relying in good faith upon the
advice of counsel and shall incur no liability except for gross negligence or
willful misconduct in the performance of their duties.
-4-
<PAGE> 5
Section 4. Executive Salary Protection Agreements
(a) Officers, and such other Key Employees as the Committee shall from
time to time select, shall be eligible to participate in the ESP Plan. The
Committee may require participants in the Plan to meet such standards of health
as the Committee may from time to time establish, and, for this purpose, the
Committee may require the employee to furnish information as to his physical
condition and medical history and to submit to one or more physical
examinations.
(b) Upon a Key Employee's qualification as an Eligible Executive, the
Company may enter into an agreement with such employee providing for the
continued payment of his Recognized Compensation in the event he should die or
become disabled before reaching age 70 and while an active employee of the
Company or a Subsidiary. An Eligible Executive shall be determined to be
disabled for purposes of the ESP Plan if and when he is determined to be
disabled pursuant to the W. R. Grace & Co. Long Term Disability Income Plan.
(i) The agreement shall provide for the continuation, in the event of such
employee's death (except as otherwise provided in subparagraph (iii) of this
paragraph (b)), of his Recognized Compensation for such periods as the
Committee may determine, provided that the amounts and the periods do not
exceed the following:
(A) 100% of his Recognized Compensation for the first
twelve (12) months following death;
(B) 50% of his Recognized Compensation for the next
one hundred eight (108) months; provided that, in the event
the employee dies at age 56 or thereafter, the payments
referred to in this clause (B) shall not be continued for more
than the following periods:
<TABLE>
<CAPTION>
Maximum
Age at Death Number of Monthly Payments
- ------------ ---------------------------
<S> <C>
56 96
57 84
58 72
59 60
60 54
61 48
62 48
63 48
64 48
65 42
</TABLE>
-5-
<PAGE> 6
<TABLE>
<S> <C>
66 36
67 30
68 24
69 18
</TABLE>
(ii) The agreement shall also provide for the continuation, in the event
that an Eligible Executive shall become disabled, of his Recognized
Compensation for such periods as the Committee may determine, provided that the
amounts and the periods do not exceed the following:
(A) 100% of his Recognized Compensation for the first twelve (12)
months after he has become disabled;
(B) 60% of his Recognized Compensation until he attains age 65,
provided that in the event he becomes disabled at age 60 or
thereafter, the payments referred to in this clause (B) shall
not be continued for more than the following periods:
<TABLE>
<CAPTION>
Age at Date Number of Months of Compensation
of Disability After 12 Months at 100%
------------- ------------------------------------
<S> <C>
60 48
61 36
62 30
63 24
64 18
65 12
66 9
67 6
68 3
69 0
</TABLE>
The agreement shall further provide that no Eligible Executive shall be
entitled to any continuation of Recognized Compensation in accordance with this
subparagraph (ii) unless he is a participant in the W. R. Grace & Co. Long Term
Disability Income Plan, and that any amounts which may be payable to him in
accordance with this subparagraph (ii) shall be reduced by (x) the amount of
any benefits payable to him under the W. R. Grace & Co. Long Term Disability
Income Plan and under any other disability payment arrangement between him and
the Company or a Subsidiary, and any social security benefits payable to him,
for any reason, or to any members of his family by reason of his disability,
and (y) from and after the date he reaches age 62, any retirement benefits to
which he may be entitled under any retirement plan of the Company or a
Subsidiary.
-6-
<PAGE> 7
(iii) The agreement shall also provide for the continuation, in the event
of an Eligible Executive's death while he is receiving payments provided for in
subparagraph (ii) of this paragraph (b), of his Recognized Compensation for
such periods as the Committee may determine, provided that the amounts and the
periods do not exceed the amounts and periods specified in clauses (A) and (B)
of subparagraph (i) of this paragraph (b).
(c) The payments provided for in an ESP Agreement (other than payments
provided for in accordance with subparagraph (ii) of paragraph (b) of this
Section 4) shall be made to the beneficiary or beneficiaries (which may include
one or more trusts or other entities) of the employee designated by him in
accordance with the provisions of the ESP Agreement, or, if no such designation
was effectively made, such payments shall be made to the employee's estate or
other person or persons entitled to receive the same under the laws of testate
or intestate succession, as the case may be.
(d) All rights of an employee under an ESP Agreement shall terminate (i)
upon his reaching age 70, (ii) thirty (30) days following the date upon which
he retires or otherwise (except by reason of death or disability) ceases to be
an active employee of the Company or a Subsidiary, or (iii) thirty (30) days
following the date upon which written notice is given to him that the Committee
has determined that he is no longer a Key Employee, whichever is earlier. A
leave of absence, if approved by the Committee, shall not be deemed a cessation
of employment or a loss of Key Employee status within the meaning of this
paragraph.
(e) Subject to compliance with the provisions of this Plan, each ESP
Agreement shall contain such other terms and conditions and shall be in such
form as the Committee may determine. Without limiting the foregoing, the ESP
Agreement may, if so prescribed by the Committee, include a requirement that
the employee contribute towards the cost of the benefits provided thereunder.
Section 5. Insurance
Upon the determination of the Committee, the Company may procure one or
more life insurance policies, including group policies, on the lives of
Eligible Executives covered by the ESP Plan or may by other appropriate means
provide for the payment of all or part of its obligations under the ESP Plan.
All rights and incidents of ownership in any such insurance policies or in any
other assets of the Company shall belong to the Company (or, with respect to
any such insurance policies procured by Grace Connecticut prior to May 25,
1988, to Grace Connecticut); and no employee (individually or as a member of
the group), and no beneficiary or other person claiming under or through him,
shall have any right, title or interest in or to any such insurance policies or
assets.
-7-
<PAGE> 8
Section 6. General Provisions
(a) Nothing in the ESP Plan nor in any ESP Agreement or instrument
executed pursuant hereto shall confer upon any employee any right to continue
in the employ of the Company or a Subsidiary, or shall affect the right of the
Company or of a Subsidiary to terminate the employment of any employee with or
without cause.
(b) No ESP Agreement shall become effective unless and until all
legal requirements applicable thereto have, in the opinion of counsel to the
Company, been complied with.
(c) 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 ESP
Agreement, or any contribution or payment thereunder.
(d) Nothing in the ESP 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 fringe benefits to
employees generally, or to any class or group of employees, which the Company
or any Subsidiary now has or may hereafter lawfully put into effect, including,
without limitation, any retirement, pension, group insurance, stock purchase,
stock bonus or stock option plan.
(e) The ESP Plan may be amended or terminated by the Board of
Directors at any time provided, however, that no such amendment or termination
shall adversely affect the rights of an employee under an ESP Agreement unless
thirty (30) days' prior written notice thereof is given to the employee, and,
provided further, that no such amendment or termination shall adversely affect
the rights of a deceased employee under an ESP Agreement except as otherwise
provided therein.
-8-
<PAGE> 1
EXHIBIT 10.13
W. R. GRACE & CO.
RETIREMENT PLAN FOR OUTSIDE DIRECTORS
AS AMENDED
THROUGH
SEPTEMBER 28, 1996
________________________________________________
AS ADOPTED AND CONTINUED BY
W. R. GRACE & CO.,
A DELAWARE CORPORATION,
EFFECTIVE SEPTEMBER 28, l996
<PAGE> 2
W. R. GRACE & CO. RETIREMENT PLAN FOR OUTSIDE DIRECTORS
Introduction
W. R. Grace & Co., a Connecticut corporation ("Grace Connecticut"),
originally adopted the W. R. Grace & Co. Retirement Plan for Outside Directors
(the "Plan"), effective July l, l985. The Plan constitutes an unfunded
deferred compensation arrangement for the Eligible Persons described in the
Plan.
As a result of a corporate reorganization whereby Grace Connecticut
became a subsidiary of W. R. Grace & Co., a New York corporation ("Grace New
York") (and was renamed "W. R. Grace & Co.-Conn."), Grace Connecticut amended
the Plan, effective May 25, l988, and Grace New York adopted and assumed the
sponsorship of the Plan, as amended, as of such date, for the benefit of all
Eligible Persons and Outside Directors described in the Plan who, on the
immediately preceding date, were participants in the Plan (as maintained by
Grace Connecticut) and all Outside Directors of Grace New York who on or after
May 25, l988 become Eligible Persons under the terms of the Plan.
Grace New York further amended the Plan effective as of January l,
l992.
As a result of a transaction occurring in September 1996, Grace
Connecticut became a subsidiary of W. R. Grace & Co., a Delaware corporation
("Grace Delaware"). Effective September 28, 1996, Grace Delaware adopted and
assumed the sponsorship of the Plan and amended the Plan as set forth herein.
<PAGE> 3
Section l
Definitions
When used herein, the words and phrases defined hereinafter shall have the
following meanings unless a different meaning is clearly required by the
context of the Plan.
1.01 Board of Directors:
The Board of Directors of the Company.
1.02 Committee:
The Compensation, Employee Benefits and Stock Incentive
Committee of the Board of Directors.
1.03 Company:
W. R. Grace & Co., a Delaware corporation. After May 25,
1988 and prior to September 28, 1996, the term "Company"
meant W. R. Grace & Co., a New York corporation. Prior
to May 25, l988, the term "Company" meant W. R. Grace &
Co., a Connecticut corporation.
1.04 Director Emeritus:
A former Outside Director designated as such by the Board
of Directors.
<PAGE> 4
- 2 -
1.05 Effective Date:
July l, 1985.
1.06 Eligible Person:
A person who is described in Section 2 as eligible to
receive benefits under the Plan.
1.07 Outside Director:
A member of the Board of Directors who is neither an
employee nor an officer of the Company or of any
subsidiary or affiliate of the Company.
1.08 Plan:
W. R. Grace & Co. Retirement Plan for Outside Directors.
1.09 Retirement Date:
With respect to any Eligible Person on or after the
Effective Date, the later of the following dates:
(i) the date of his attainment of age 65; or
(ii) the date of his termination of service as an
Outside Director, which shall not be later than
the annual meeting date of the Board of
Directors coincident with or next following
<PAGE> 5
- 3 -
the date of his attainment of age 72, unless
otherwise permitted by the Board of Directors.
1.10 Year of Board Service:
Each twelve (l2)-month period during which a person
serves as an Outside Director (other than as a Director
Emeritus), regardless of the number of Board of Directors
meetings attended by such person in any such period. A
Year of Board Service shall commence on the date on which
an Outside Director is appointed or elected to the Board
of Directors and shall thereafter commence on each
successive anniversary of such date. For purposes of
this Section l.l0, each such twelve (l2)-month period
shall hereinafter be referred to as the "computation
period." In the event that an Outside Director
terminates his service on the Board of Directors and
subsequently resumes such service pursuant to Section
2.03 or Section 3.03 after the expiration of the
computation period in which his termination of service
occurred, then the computation period for purposes of
determining his Years of Board Service subsequent to such
termination shall commence on the date on which he is
re-appointed or re-elected to the Board of Directors and
shall thereafter commence on each successive anniversary
of such date.
Notwithstanding the foregoing, an Outside Director whose
Years of Board Service as of his termination of service
includes a period of service which is
<PAGE> 6
- 4 -
less than twelve (l2) months in duration, shall receive credit
for a full Year of Board Service in respect of such period.
1.11 Masculine pronouns used herein shall refer to men or women or both
and nouns and pronouns when stated in the singular shall include
the plural and when stated in the plural shall include the
singular, wherever appropriate.
1.12 Any reference in the Plan to a "Section" shall refer to a Section
of the Plan unless otherwise specified.
Section 2
Eligibility and Vesting
2.01 Any person who (i) is an Outside Director on the Effective Date, or
becomes an Outside Director after such date and (ii) completes at
least five (5) Years of Board Service, shall be eligible to receive
benefits under the Plan in accordance with Section 3 of the Plan.
2.02 An Outside Director must terminate his service on the Board of
Directors after the completion of at least five (5) Years of Board
Service in order to be eligible to receive benefits, if any, under
the Plan. For purposes of this Section 2.02 and Section 3, an
Outside Director shall not be considered to have terminated his
service on the Board of Directors (i) for any period during which
he serves as a Director Emeritus, (ii) as a result of his
<PAGE> 7
- 5 -
resignation as a director of W. R. Grace & Co., a Connecticut
corporation, on May 25, l988, if he is then a member of the Board
of Directors, or (iii) as a result of his resignation as a director
of W. R. Grace & Co., a New York corporation, in September l996, if
he is then a member of the Board of Directors.
2.03 In the event that an Outside Director shall terminate his service
on the Board of Directors prior to satisfying the five (5) year
service requirement set forth above and shall subsequently resume
active service as an Outside Director, his prior Years of Board
Service shall be aggregated on the date of such resumption of
active service for purposes of Section 2.01 and Section 3 of the
Plan.
2.04 Notwithstanding anything herein to the contrary, an Outside
Director who becomes employed by the Company or any subsidiary or
affiliate of the Company at any time shall thereupon be considered
as permanently ineligible to receive any benefits under this Plan.
Section 3
Benefits
3.01 Subject to the provisions of this Section 3, and effective with
respect to retirements or other terminations of service on the
Board of Directors that occur on or after January l, l992, the
quarterly retirement benefit payable
<PAGE> 8
- 6 -
to an Eligible Person under the Plan shall be equal to $6,000.
3.02 Subject to the provisions of this Section 3, and effective with
respect to retirements or other terminations of service on the
Board of Directors that occur on or after January l, l992, the
benefit described in Section 3.01 shall commence to be paid to an
Eligible Person as of the first day of the calendar quarter
coincident with or next following his Retirement Date (with actual
payment to be made as soon as practicable thereafter), and shall
continue to be paid in each successive calendar quarter until such
Eligible Person has received the lesser of: (i) sixty (60) such
quarterly payments; or (ii) a number of quarterly payments equal to
the number of his Years of Board Service, multiplied by four (4).
For purposes of this Section 3, the period during which an Eligible
Person is entitled to receive the applicable number of quarterly
benefit payments, as determined in accordance with the preceding
sentence, shall hereinafter be referred to as the "term of
payment."
3.03 Subject to the provisions of this Section 3, in the event that an
Eligible Person who has terminated his service as an Outside
Director shall become a Director Emeritus (i) prior to the date on
which his benefits are to commence or (ii) while receiving benefits
hereunder, the payment of his benefits shall be deferred or
suspended, as the case may be, for the period during which he
retains such status and shall commence or resume, as the case may
be, as soon as practicable following his termination of service as
a
<PAGE> 9
- 7 -
Director Emeritus. Upon such termination of service, such Eligible
Person's term of payment shall be reduced by the period
corresponding to the quarterly benefits previously paid to him, if
any.
3.04 Subject to the provisions of this Section 3, in the event that an
Eligible Person who has terminated his service as an Outside
Director shall again become an Outside Director (i) prior to the
date on which his benefits are to commence, or (ii) while receiving
benefits hereunder, the payment of his benefits shall be deferred
or suspended, as the case may be, for the period during which he
continues to serve as an Outside Director, and shall commence or
resume, as the case may be, as soon as practicable following his
subsequent termination of service as an Outside Director. Upon
such termination of service, such Eligible Person's term of payment
shall be based on the aggregate of his Years of Board Service
completed before and after his initial termination of service, and
reduced by the period corresponding to the quarterly benefits
previously paid to him, if any.
3.05 The continuation of benefit payments to an Eligible Person
subsequent to his Retirement Date is expressly contingent upon his
continued availability for consultation on Board of Directors
matters when so requested by any member of such Board. The Board
of Directors hereby reserves the right to suspend or permanently
discontinue the payment of benefits to an Eligible Person otherwise
entitled to receive quarterly benefit payments hereunder for any
period during which such Board, in its discretion,
<PAGE> 10
- 8 -
determines that any such Eligible Person's failure to render
consulting services to the Board is not reasonable or justifiable
under the facts and circumstances then prevailing. Any quarterly
benefits which are not paid to an Eligible Person under the
foregoing provisions of this Section 3.05 shall be forfeited and
such Eligible Person's term of payment shall be reduced by the
period corresponding to the quarterly benefits so forfeited.
3.06 In the event that an Eligible Person receiving benefits hereunder
(including an Eligible Person whose benefit payments have been
suspended pursuant to Section 3.03 or 3.04) shall die prior to the
expiration of the term of payment described in Section 3.02 and
such Eligible Person is survived by his spouse, then benefit
payments shall continue to be paid to such spouse for the remainder
of the term of payment. In the event that an Eligible Person shall
die prior to his receipt of any benefit payments hereunder
(including an Eligible Person whose benefit payments have been
deferred pursuant to Section 3.03 or 3.04) and such Eligible Person
is survived by his spouse, then benefit payments shall commence and
shall continue to be paid to such spouse for the term of payment
under the same terms and conditions as such payments would have
been made had such Eligible Person terminated his service other
than by reason of death. No benefits shall be payable under this
Plan in the event of the death of an Outside Director who is not an
Eligible Person, or in the event of the death of an Outside
Director who is an Eligible Person but who is not survived by a
spouse.
<PAGE> 11
- 9 -
3.07 Notwithstanding anything herein to the contrary, in the event
that an Eligible Person has terminated his service on the Board of
Directors as a result of a physical or mental disability which, in
the opinion of the Board of Directors, has rendered such Eligible
Person unable to perform his duties as an Outside Director, such
Eligible Person shall commence receiving the quarterly benefit
described in Section 3.0l as of the first day of the calendar
quarter coincident with or next following his termination of
service (with actual payment to be made as soon as practicable
thereafter), and shall continue to receive such quarterly benefit
payments until the earlier of: (i) the expiration of the term of
payment; or (ii) the cessation of his disability and resumption of
active service on the Board of Directors. In the event of such
resumption of active service by such Eligible Person, upon his
later termination of service, his term of payment shall be reduced
by the period corresponding to quarterly benefits previously paid
to him.
3.08 The benefits payable under the Plan shall be paid by the
Company out of its general assets and shall not be funded in any
manner.
Section 4
Administration
4.01 The Plan shall be administered by the Committee (or its designee)
in accordance with its terms and purposes. The
<PAGE> 12
- 10 -
Committee (or its designee) shall determine the amount and manner
of payment of the benefits under the Plan.
4.02 The decisions made and the actions taken by the Committee (and its
designee) in the administration of the Plan shall be final and
conclusive on all persons, and the Committee, its members, and its
designees shall not be subject to liability with respect to the
Plan.
4.03 The Committee shall have the sole responsibility for the
administration of the Plan and shall have the exclusive right to
interpret the provisions of the Plan and to determine any question
arising thereunder or in connection with the administration of the
Plan, including the remedying of any omissions, inconsistency, or
ambiguity, and its decision or action in respect thereof shall be
conclusive and binding on all persons.
Section 5
Amendment and Termination
5.01 The Board of Directors may amend or terminate the Plan with respect
to future periods at any time for whatever reason it may deem
appropriate. In the event of termination of the Plan, no person
shall be entitled to accrue additional benefits under the Plan with
respect to any period after the effective date of termination
determined by the Board of Directors; provided, however, that any
benefits under the Plan accrued prior to the
<PAGE> 13
- 11 -
effective date of the termination determined by the Board of
Directors shall not be reduced on account of such termination.
Notwithstanding the foregoing, the provisions of Section 2.01 shall
continue to be applicable (and satisfaction of the requirement of
at least five (5) Years of Board Service shall be determined as of
such effective date of termination of the Plan), unless the Board
of Directors elects to waive such provisions in order to vest all
Outside Directors in any such benefits provided under the Plan even
if any such Outside Director has not completed at least five (5)
Years of Board Service as of the effective date of Plan
termination.
Section 6
Miscellaneous
6.01 Nothing contained in the Plan shall be construed as conferring upon
any Eligible Person the right to continue to serve as an Outside
Director on the Board of Directors or as imposing a limitation of
the right of the Company to terminate any Eligible Person's service
on the Board of Directors at any time.
6.02 The Plan shall be governed by the laws of the State of New York.
<PAGE> 1
EXHIBIT 10.28
[GRACE LETTERHEAD]
May 15, 1995
Mr. Larry Ellberger
91 N. Ashby Avenue
Livingston, NJ 07039
Dear Larry,
This letter confirms the terms of your employment with W. R.
Grace & Co. (the "Company") as Senior Vice President, Strategic Planning and
Development, which are subject to approval by the Company's Board of Directors
(the "Board") and/or the Compensation, Employee Benefits and Stock Incentive
Committee ("Compensation Committee") of the Board. As you know, I believe you
will make a valuable contribution to the Company's strategic planning and
corporate development efforts.
Responsibilities
Your employment with the Company will begin on May 15, 1995. Your title will
be Senior Vice President, Strategic Planning and Development, and you will
report to me. Your office will be located at the Company's Headquarters in
Boca Raton, Florida. Your principal responsibilities will consist of
coordinating the development of a corporate strategic plan, and leading the
Company's efforts on major business development initiatives, including mergers,
acquisitions, spinoffs and divestments of businesses, as well as focusing all
related commercial development projects.
Term of Agreement
The term of this Agreement shall be for a period of three years, commencing on
May 15, 1995, and ending on May 14, 1998 (your "Initial Employment Term").
After your Initial Employment Term expires, the severance pay provisions of
this Agreement (described below under the heading "Severance Pay Commitments")
will no longer be applicable to you and your continued employment with the
Company shall be as an employee "at will." (Of course, the provisions
regarding your special retirement arrangement, described below under the
heading "Special Retirement Plan Arrangement," will continue to apply after
your Initial Employment Term.)
<PAGE> 2
-2-
Compensation
1. Your base salary will be at the monthly rate of $22,916.67, which is
$275,000.04 per annum.
2. You will be eligible to participate in the Company's Annual Incentive
Compensation Program. Cash awards under this program are contingent upon
individual performance, and will be determined by the financial results
of the Company as a whole. As a Senior Vice President of the Company,
you will be eligible for a targeted award in the range of 45% of your
base salary; provided, however, your award for 1995 will not be less than
$125,000. All annual incentive compensation awards are subject to
approval by the Compensation Committee and the Board, and will be
contingent upon your remaining with the Company through the date of
payment; provided, however, the payment for 1995 will be made in March
1996 (reduced, if applicable, on a prorata basis to exclude any duplicate
payments that may be payable under your severance arrangement) in the
event your employment is terminated by the Company without cause before
the date of payment, including termination of employment without cause
following a change in control of the Company.
3. Management will recommend that the Compensation Committee of the Board of
Directors approve your participation in the Company's Long-Term Incentive
Plan for its corporate executives covering 5,250 Performance Units for
the 1995-1997 Performance Period, 3,250 performance units for the
1994-1996 Performance Period and 1,250 for the 1993-1995 Performance
Period. Such recommended Units represent prorated Targeted Awards based
on 6,000 Performance Units for each full three-year cycle. You will be
eligible to be recommended for participation in future Performance
Periods on a similar basis commensurate with the recommended Performance
Unit awards for similarly situated executives.
4. Management will recommend you for a non-statutory stock option grant
covering 24,000 shares of Grace Common Stock on May 16, 1995, all of
which will be immediately exerciseable consistent with companion stock
option shares granted at a 4:1 ratio with respect to your Long-Term
Incentive Plan Performance Unit Awards at a rate of 6,000 Units for a
full three-year cycle. In addition, management will recommend that you
be granted an additional stock option on May 16, 1995, covering 48,000
shares of Grace Common Stock that will vest in three equal 16,000 share
installments on May 17, 1996, 1997, and 1998, respectively; provided,
however, all such installments would vest immediately upon a termination
of employment by the Company without cause including termination of
employment without cause following a change in control of the Company.
5. Management will recommend that you be granted a one-time restricted stock
award covering 1,500 shares of Grace common stock on May 16, 1995, with
the provision that you would vest in such shares and the restrictions
would lapse at
<PAGE> 3
- 3 -
the expiration of your employment agreement on May 14, 1998, or upon the
earlier termination of employment by the Company not for cause (including
termination not for cause following a "change in control" of the
Company), or upon your death or disability as defined under the Company
Long-Term Disability Income Plan). You would be eligible to vote such
shares during the period of restriction and receive applicable dividends
on such shares.
6. Consistent with your election as an officer of the Company, the Board
will be requested to authorize the Company to enter into an Executive
Severance Agreement or a so-called "golden parachute" with you. The
agreement would provide a severance arrangement in the event your
employment terminates under certain conditions following a "change in
control" of the Company. In general, this agreement would provide for a
severance payment of 2.99 times average annual Form W-2 compensation from
the Company for the five (5) calendar years preceding the change in
control.
Severance Pay Commitments
If your employment is terminated by the Company, without cause, during your
Initial Employment Term, you will be paid "Severance Payments" (as defined
below) for a period of one year or for the remainder of your Initial Employment
Term, if longer. For the purpose of this arrangement, Severance Payments means
145% of your base salary at the time your employment is terminated. Severance
Payments will be made to you at the same times and in the same manner as salary
continuation payments but would be payable, at your option, in a lump sum as
soon as practical after your termination. Such payments would not be made,
however, in the event severance payments otherwise become payable under your
Executive Severance Agreement (i.e., "golden parachute" agreement).
Special Retirement Plan Arrangement
Management will recommend that the Board approve a special retirement
arrangement to recognize your service with American Cyanamid in determining
your total retirement benefit payable under the W. R. Grace & Co. Retirement
Plan for Salaried Employees and the Supplemental Executive Retirement Plan
formula (as described in items 2 and 3 below) as if such service had been
continuous service with the Company (except that the first year of service with
the Company would be excluded). The supplemental pension based on American
Cyanamid service would be fully offset by any benefits payable to you from any
American Cyanamid (or, as applicable, any American Home Products) pension plan
and would be payable from the general assets of the Company -- it would not be
pre-funded in any manner. This supplemental pension arrangement would apply
only if your employment with the Company ceases after your Initial Employment
Term, or if you are terminated during that Term without cause, including
termination without cause following a "change in control" of the Company.
(This arrangement will not apply if you voluntarily terminate your employment
before your Initial Employment Term expires, or if you are terminated for cause
prior to the expiration of that Term.) For purposes of determining
<PAGE> 4
-4-
any supplemental pension that may be payable to you if you voluntarily leave the
Company after the expiration of your Initial Employment Term but prior
to receiving sixty consecutive months of compensation from the Company, your
final average compensation would utilize compensation paid to you by American
Cyanamid and/or American Home Products, as applicable, to the extent necessary
to complete 60 months of compensation.
Relocation Assistance
The Company will provide relocation assistance to you under the Headquarters
Office Relocation Policy for current employees (copy attached). In addition,
the Company will provide you with a mortgage interest rate differential
allowance to be calculated by applying the percent differential between your
old and new mortgages to the lower of the old or new mortgage balances and
multiplying the resulting differential by a term of four (4) years. The total
four year differential allowance will then be paid to you in three annual
installments, i.e., in 1995, 1996, and 1997, respectively. Since home mortgage
interest is tax deductible, these differential installment payments would not
be "grossed up."
Other Benefit Programs
As a key executive of the Company, you also will be eligible to participate in
the following benefit plans (subject to their respective provisions and as they
may be amended from time to time):
1. The Grace Deferred Compensation Program, which provides that you may
elect to defer a portion of your base salary (from a minimum of $200 per
month to a maximum of 25% of base salary) and all or a portion of your
annual incentive compensation. Deferred amounts are credited with
interest equal to the greater of (i) the prime rate plus two (2)
percentage points, or (ii) 120% of the prime rate. The program also
provides pre-retirement death (survivor) benefits in a multiple of the
amount you elect to defer based on your age at the time the deferral
commitment is made. Deferred commitments of base salary can be made
annually or up to five (5) years in advance. The longer the commitment,
the greater the death benefits coverage.
2. The W. R. Grace & Co. Retirement Plan for Salaried Employees ("Grace
Salaried Retirement Plan"), which provides a pension at retirement equal
to 1.50% of final average compensation (as defined by the Plan, but
generally representing average compensation in the sixty (60) highest-pay
months in your last 180 months of employment), less 1.25% of the primary
Social Security benefit, multiplied by years of credited service. Your
participation in this Plan is effective at the beginning of the month
following one year of employment.
<PAGE> 5
-5-
3. The Grace Supplemental Executive Retirement Plan ("SERP"), which pays
retirement benefits that would otherwise be paid under the terms of the
Grace Salaried Retirement Plan, but for certain exclusions imposed by tax
law. For example, pension benefits related to base salary or incentive
compensation awards that an executive elects to defer would be paid under
the provisions of the SERP, since tax law does not allow payment from the
Grace Salaried Retirement Plan. The SERP also pays any pension benefits
that an executive accrues in excess of the Internal Revenue Code
qualified plan payment limits. Participation and vesting in the SERP
follow the same rules as the basic pension plan.
4. The W. R. Grace & Co. Salaried Employee Savings & Investment Plan, under
which you (as of the beginning of the month following one (1) year of
employment) may save a portion of your compensation up to a maximum
permitted by law. With respect to the first 6% you contribute, the
Company will match $1 for each $2 contributed by you. Your contributions
are then invested in one or more of seven funds at your option. Grace's
Savings and Investment Plan is a so-called 401(k) plan and, therefore, a
portion of your contribution can, at your election, be treated as
deferred income for tax purposes. Amounts of allowable savings are
subject to certain Internal Revenue Code requirements, one of which
presently limits annual before-tax savings amounts to $9,240 for 1995.
The Plan currently permits a 7% maximum savings rate for before-tax
amounts. More detailed information will be provided to you shortly
before you become eligible to participate.
5. The W. R. Grace & Co. Long-Term Disability Income Plan, for which you
will become eligible on a voluntary and contributory basis on the first
of the month following six (6) months of employment. The Plan provides
for a monthly income of 60% of base monthly earnings (not in excess of
$7,000) after six (6) months of continuous total disability. The maximum
monthly benefit (including primary social security and certain other
benefit payment(s) is therefore $4,200.
6. Executive Salary Protection Plan, management will recommend to the
Compensation Committee that, beginning with the first date of your
employment with the Company, it approve your participation in the Plan,
under which, in the event of your death while employed and prior to age
70, the Company will continue to pay a portion of your base salary to
your beneficiary(ies) for a period of time depending upon your age at
death. This Plan also provides certain disability benefits which are
supplemental to the Company's Long-Term Disability Plan.
7. The W. R. Grace & Co. Voluntary Group Accident Insurance Plan, for which
you will become eligible thirty (30) days after the first day of
employment. Participation is voluntary. Under the terms of the Plan,
you may elect coverage of $10,000 through $500,000. Coverage is
available on an individual basis or under a family plan.
<PAGE> 6
-6-
8. The W. R. Grace & Co. Business Travel Accident Insurance Plan, which is
effective on the first date of your employment with the Company. The
Plan provides protection against death, permanent total disability or
dismemberment. The principal sum is five (5) times your base salary. In
your case, as in the case of other executives, the usual requirement that
you be away from home or normal place of work and that you be on Company
business do not apply in order to be eligible for coverage.
9. The W. R. Grace & Co. Split-Dollar Life Insurance Program, under
which you (on or after August 1, 1995) will be considered forlife
insurance coverae equal to 3 1/2 times your annual base salary rate.
This Plan provides for split premiums between you and the Company with
life insurance coverae continuation into retirement and significant
accumulation of cash value at age 65. Prior to the date you begin to
participate in the Progam, you will participate in the Company's basic
group term life insurance plan under which coverage is 2 times your
annual base salary. Supplemental life insurance, which is voluntary, is
available at moderate rates based on your age, up to additional 3 times
your base salary. Dependent life insurance is also available toyour
spouse and unmarried dependent children to age 19 (or to age 25 if the
child regularly attends school full-time).
10. The W. R. Grace & Co. Group Medical Plan is effective on the first day of
employment and offers protection to you, your spouse and unmarried
children to age 19 (age 23 if the child regularly attends school
full-time). The Headquarters network medical plan utilizes an
established network of doctors and hospitals in the south Florida area.
Employees in the network have a choice of two options: a
Point-of-Service (POS) option allows them the choice of a network
provider or the freedom to go outside the network for medical care; an
HMO-like option locks them into using network providers. The network has
been assembled by Metropolitan Life and includes Board Certified or Board
Eligible physicians and quality area hospitals. Employees and their
family get to choose a primary care physician who oversees all of their
medical needs. The Plan includes flexible spending accounts up to $5,000
per year. Your cost for participation in 1995 and thereafter will be 40%
of the monthly premium.
An employee hired after January 1, 1993, qualifies for post-retirement
medical coverage if he or she has at least 10 years of service at
retirement (age 55 or later). Qualification for this coverage gives the
retiree access to medical coverage in the Grace plan, but the retiree is
expected to pay 100% of the premium cost of this coverage. Premium cost
is determined annually based on experience. Actual claims dollars are
paid by the Company.
11. The W. R. Grace & Co. Dental Assistance Plan, which is paid for by the
Company and which pays certain benefits in full and other benefits
according to a fixed schedule. Your participation will begin the first
day of your employment.
<PAGE> 7
-7-
12. Executive Registry Program, under which you would have access to a
network of medical services offered by leading hospitals and medical
centers in large cities throughout the U.S. and abroad. These hospitals
and medical centers serve as sources where members can obtain
high-quality emergency medical care while traveling or temporarily living
away from home either in the U.S. or abroad.
Larry, this letter briefly outlines some of the provisions of the Company
benefit plans and programs, as they apply to you. It does not provide a full
description of those rules. Please refer to the Summary Plan Descriptions and
other written documents that describe those benefit plans and programs for
further details.
Financial Counseling
As an officer of the Company, you will be eligible to participate in the
Company's Financial Counseling Program. This arrangement provides you with
financial and estate planning assistance and income tax preparation services.
The Company will pay up to $4,000 per year for reasonable supportable expenses,
except that the maximum amount for the first year of your participation (1995)
will be $9,000.
Company Car
The Company will arrange for you to lease at the Company's expense an
automobile for use on Company business and for your personal use. The terms of
the coverage shall be the same as those provided for other senior vice
presidents of the Company including a purchase price cap of $30,000.
Vacation
As an officer of Grace, you will be entitled to four weeks paid vacation per
calendar year.
Miscellaneous
This Agreement may be amended, superseded or canceled only by
a written instrument specifically stating that it amends, supersedes or cancels
this Agreement, executed by you and the Company.
Please acknowledge your acceptance of the terms of this letter
by signing where indicated below, and returning one fully executed copy to me.
An additional copy of this letter is also enclosed for your records.
If you have any questions regarding any expectations of your
new position, please call me; or if you have any questions regarding the
compensation and Company benefits plans, please feel free to call Bill Monroe,
Vice President, Global Compensation, Benefits and Administration, at (407)
362-2221.
<PAGE> 8
-8-
Larry, we are very excited about your joining the Grace
organization in Boca Raton, and I look forward to continuing our productive and
mutually rewarding relationship.
Sincerely,
/s/ Albert J. Costello
Albert J. Costello
President and Chief Executive Officer
Attachment
cc: W. L. Monroe
AGREED AND ACCEPTED:
/s/ Larry Ellberger
- ------------------------
Larry Ellberger
<PAGE> 1
EXHIBIT 10.29
[GRACE LETTERHEAD]
June 6, 1995
Mr. Larry Ellberger
W. R. Grace & Co.
One Town Center Road
Boca Raton, FL 33486
Dear Larry:
I am pleased to inform you that the Compensation, Employee
Benefits and Stock Incentive Committee (the "Committee") of the Board of
Directors of W. R. Grace & Co. (herein sometimes called the "Company"), at its
meeting on May 16, 1995, granted you an award of 1,500 shares of the Company's
Common Stock ("Common Stock"), par value $1.00 per share, under the W. R. Grace
& Co. 1994 Stock Incentive Plan (the "Plan"). This letter sets forth the terms
on which such shares (herein sometimes called the "Restricted Shares") are
being issued to you.
1. The Restricted Shares are issued to you subject to the following
restrictions:
(a) As long as you are employed by the Company or a Subsidiary (as
defined in paragraph 10 below), you will not, except as otherwise specifically
required or permitted by this Agreement, sell, exchange, transfer, pledge,
hypothecate or otherwise dispose of any of the Restricted Shares, or any
interest therein, with respect to which the restrictions on transfer herein
imposed have not lapsed in accordance with paragraph 5 ("Non-vested Shares").
(b) In any of the following events, you shall return all Non-vested
Shares to the Company promptly upon the Company's written request:
THIS DOCUMENT CONSTITUTES PART OF A
PROSPECTUS COVERING SECURITIES THAT
HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1993.
<PAGE> 2
(2)
(i) You shall at any time have disclosed to unauthorized
persons trade secrets, confidential information or data relative to the
business of the Company or Subsidiary.
(ii) You shall at any time have engaged in any activities,
whether as owner, stockholder, partner, officer or employee of a business, or
otherwise, that constitute competition with the Company or a Subsidiary, and
you shall continue such activities at any time after the expiration of a period
of thirty (30) days from the receipt by you of written notice from the Company
to refrain from doing so; provided, however, that competition shall not include
your ownership of less than 2% of any outstanding class of security listed on a
national securities exchange or traded over- the-counter.
(iii) You shall at any time have engaged in misconduct
(A) in the performance of your duties or
(B) in other activities relating to the business of
the Company or a Subsidiary.
(iv) You shall at any time have attempted to sell, exchange,
transfer, pledge, hypothecate or otherwise dispose of any Non-vested Shares, or
any interest herein, in violation of the terms of this Agreement.
(c) (i) The determination as to whether an event has occurred
requiring the return of any Non-vested Shares to the Company in accordance with
this paragraph 1 shall be made by the Committee in the reasonable exercise of
its discretion, and such determination of the Committee with respect thereto
shall in all respects be conclusive.
(ii) If you shall at any time be required to return any
Non-vested Shares to the Company pursuant to this paragraph 1 or any other
provision of this Agreement, you shall, from and after the effective date of
such return, no longer have any rights as a stockholder with respect to the
Non-vested Shares so required to be returned, or any interest therein, and,
without limitation, you shall, commencing with the next following record date,
no longer be entitled to receive dividends upon such Non-vested Shares and in
the event that for any reason you shall have received such dividends upon such
Non-Vested Shares, you shall repay an amount equal to such dividends to the
Company.
<PAGE> 3
(3)
2. Upon the issuance to you of the Restricted Shares, you shall for
all purposes be a stockholder of record of the Company with respect to the
Restricted Shares and shall have all rights of a holder of Common Stock with
respect to such shares (including the right to vote such shares at any meeting
of holders of Common Stock and the right to receive all dividends paid with
respect to such shares), subject only to the restrictions imposed by paragraph
1 of this Agreement. To evidence such restrictions, until such restrictions
shall have lapsed, the certificates for the Restricted Shares shall bear a
legend, in form and substance satisfactory to the Company's counsel, to the
effect that they were issued subject to, and may be sold or otherwise disposed
of only in accordance with, the terms of this Agreement.
3. Under Section 83(b) of the Internal Revenue Code, you may, within
30 days from the effective date of grant of the Restricted Shares, make an
election that would cause you to be taxed on an amount equal to the Fair Market
Value (as defined in the Plan) of such shares on the effective date of grant;
otherwise, in the absence of such an election, you will be taxed, at the times
of the lapse of the restrictions on the Restricted Shares, on an amount equal
to their Fair Market Value at the times of the lapse.
4. In the event that, as the result of a stock dividend, stock split,
recapitalization, merger, consolidation, reorganization, or other similar
event, you shall, as the owner of Restricted Shares, be entitled, under the
provisions of Section 8 of the Plan or otherwise, to new or additional or
different shares or securities, (a) such new or additional or different shares
or securities shall be deemed "Restricted Shares," (b) all the provisions of
this Agreement relating to restrictions and lapse of restrictions shall be
applicable thereto, and (c) the certificates or other instruments evidencing
such new or additional or different shares or securities shall bear the legend
referred to in the third sentence of paragraph 2. The foregoing restrictions
shall apply to any fractional shares resulting from any such event, or to any
preemptive or other rights to purchase securities to which you, as a holder of
Restricted Shares, may become entitled in connection with a public offering of
Common Stock.
5. (a) The restrictions set forth in paragraph 1 above on the
transfer of the Restricted Shares shall lapse at the expiration of your
employment agreement on May 14, 1998, subject to all provisions of this
Agreement then applicable.
<PAGE> 4
(4)
(b) If your employment with the Company or a Subsidiary shall,
while you hold any Non-vested Shares, terminate for any reason other than
death, disability, or termination by the Company or a Subsidiary not for cause
(including termination not for cause following a change in control of the
Company) such Non-vested Shares shall be forfeited by you. If your employment
with the Company or a Subsidiary shall, while you hold any Non-vested Shares,
terminate by reason of death, disability, or termination by the Company or a
Subsidiary not for cause (including termination not for cause following a
change in control of the Company), the restrictions on transfer applicable to
such Non-vested Shares shall lapse in their entirety as of the effective date
of such termination of employment.
(c) If, as and when the restrictions lapse with respect to any
Restricted Shares pursuant to this paragraph 5, there will be delivered to you,
promptly upon your request, one or more certificates free of any legend for a
like number of shares in exchange for the certificate or certificates for such
Restricted Shares bearing the legend referred to in paragraph 2 of this
Agreement, subject to your payment of any tax required to be withheld in
connection with such lapse.
6. Except as otherwise expressly required or permitted by this
Agreement, no right, benefit or interest in the Restricted Shares or under this
Agreement shall be subject to anticipation, alienation, sale, assignment,
encumbrance, charge, pledge or hypothecation.
7. (a) Nothing in paragraph 1 or elsewhere in this Agreement shall
preclude a transfer to your legal representatives following your death or a
distribution to the persons provided for in paragraph 7(b) (iii) or shall
preclude you, upon not less than thirty (30) days' advance written notice to
the Company, from transferring any Restricted Shares, or any interest therein,
(i) to one or more of your Immediate Family Members,
(ii) to a trust of which the beneficiary or beneficiaries of
the corpus or of the income, or both, is either yourself or one or more of your
Immediate Family Members, or both, or
<PAGE> 5
(5)
(iii) to a corporation all of the stock of which is owned by you
or one or more of your Immediate Family Members, or both.
For the purpose of this provision, an "Immediate Family Member" shall be deemed
to be a spouse, child, stepchild, grandchild, parent, brother or sister or a
child of a brother or sister of yours, whether of the whole or half blood, and
whether or not the relationship arose by adoption.
(b) The term "Donee," as used in this Agreement, shall be deemed to mean
(i) the person, or collectively, all the persons (including a
trust or corporation), to whom a transfer or distribution permitted by
paragraph 7(a) has been made by you,
(ii) your legal representatives following your death, and
(iii) the persons to whom Restricted Shares shall be distributed
by your legal representatives as the persons to whom they believe to be
entitled thereto under your will, or, in case of intestacy, under the laws
relating to intestacy.
(c) In case of any transfer or distribution to a Donee,
(i) the Restricted Shares so transferred or distributed shall
continue to be subject to all the restrictions and other provisions of this
Agreement,
(ii) the certificates for the Restricted Shares so transferred
or distributed shall bear the legend referred to in paragraph 2 of this
Agreement, and
(iii) the Donee shall, with respect to the Restricted Shares so
transferred or distributed, have all the powers and shall be required to comply
with all the restrictions and other provisions of this Agreement requiring the
taking, or refraining from taking, of action to the same extent as you were
immediately prior to such transfer or distribution, except that the Donee need
not comply with the provisions of clauses (i), (ii), and (iii) of
<PAGE> 6
(6)
subparagraph (b) of paragraph 1 (which shall, however, continue to apply to
your conduct).
8. The Company may take such steps as it believes necessary or
desirable to obtain sufficient funds from you to pay all taxes, if any,
required by law to be withheld in respect of the Restricted Shares, including,
but not limited to, requiring payments to the Company by you or on your behalf
and/or taking deductions from amounts payable by the Company to you or on your
behalf.
9. Nothing in this Agreement shall be construed to affect in any way
the power of the Company to terminate your employment at any time for any
reason, with or without cause.
10. As used in this Agreement, the term "Company or a Subsidiary" shall
mean the Company, its divisions and units, and all corporations or other forms
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) or regularly entitled to receive 50% or more of the
dividends (or their equivalents) paid on the Common Stock (or its equivalent)
are owned or controlled, directly or indirectly, by the Company.
11. "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, as
amended (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% of or more of the outstanding common stock
of the Company; or (ii) individuals who are Continuing Directors cease to
constitute a majority of any class of directors of the Board.
12. Each of the parties hereto agrees to execute and deliver all
consents and other instruments and to take all other actions deemed necessary
or desirable by counsel for the Company to carry out each term
of this Agreement. Without limiting the
<PAGE> 7
(7)
generality of the foregoing, you shall, if and when requested by the Company,
deposit any or all certificates for the Restricted Shares, together with a
stock power or other appropriate instrument of transfer executed in blank, with
a bank and under a deposit agreement approved by the Company and, following
such deposit, certificates for the Restricted Shares shall no longer carry the
legend referred to in paragraph 2 of this Agreement, and new certificates shall
be issued in place thereof, in which event, each of the parties agrees to give
such instructions and to deliver or refrain from delivering such notices to the
bank acting under such deposit agreement as may be necessary to carry out each
term of this Agreement, to the end that all property deposited under such
deposit agreement shall be paid, transferred, released or otherwise disposed of
in accordance with the terms of this Agreement and each obligation thereunder.
Each party recognizes that the other party has no adequate remedy at law for
breach of this Agreement and recognizes, consents and agrees that the other
party shall be entitled to an injunction or decree of specific performance
directed to the other party and to the bank acting under any such deposit
agreement requiring that the provisions of this Agreement be carried out.
13. (a) Any notice to the Company under or pursuant to this
Agreement shall be deemed to have been given if and when delivered in person to
the Secretary of the Company or if and when mailed by certified or registered
mail to the Secretary of the Company at the Company's offices at One Town
Center Road, Boca Raton, Florida, 33486, or such other address as the Company
may from time to time designate in writing by notice to you given pursuant to
paragraph 13(b) hereof.
(b) Any notice to you under or pursuant to this Agreement shall
be deemed to have been given if and when delivered to you in person or if and
when mailed by certified or registered mail to you at your address hereinabove
given or such other address as you may from time to time designate in writing
by notice to the Company given pursuant to paragraph 13(a) above.
14. Notwithstanding any remedy provided for in this Agreement, nothing
in this Agreement shall preclude the Company from taking any other action or
enforcing any other remedy available to the Company.
<PAGE> 8
(8)
15. This Agreement has been executed pursuant to the Plan and is
subject in all respects to the Plan, and the Plan is hereby incorporated herein
by reference.
16. This Agreement shall be binding upon and inure to the benefit of
(a) the Company, its successors and assigns, and
(b) you, and to the extent applicable, each Donee.
17. This Agreement has been executed, and it and the Restricted Shares
have been or are to be delivered, in accordance with the laws of the State of
New York, the state in which the Company is incorporated, and the validity,
interpretation, performance and enforcement of this Agreement shall be governed
by the laws of the State of New York applicable to contracts made and performed
in such State.
Sincerely,
W. R. GRACE & CO.
/s/ Donald H. Kohnken
Executive Vice President
Executed and agreed to as of:
/s/ Larry Ellberger
- ----------------------------
Larry Ellberger
Date: 6/19/95
-----------------------
<PAGE> 9
[GRACE LETTERHEAD]
August 26, 1996
Mr. Larry Ellberger
W. R. Grace & Co.
One Town Center Road
Boca Raton, FL 33486
Dear Larry:
The purpose of this letter is to amend your restricted stock award
agreement with the Company, dated June 6, 1995. Specifically, Section 11 of such
agreement is hereby amended to read in its entirety as follows:
"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.
<PAGE> 10
-2-
Notwithstanding any other provision hereof, the "NMC Disposition" (as
defined below) shall not be deemed a "Change in Control of the
Company" for purposes hereof. "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 or series of transactions whereby
control of the business presently conducted by the Company's National
Medical Care, Inc. subsidiary 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.
The foregoing definition is substantially identical to the definition
set forth in your Executive Severance Agreement.
Except as expressly set forth herein, the restricted stock award
agreement between you and the Company, dated June 6, 1995, remains in full force
and effect.
Please confirm your agreement with the foregoing by signing a copy of
this letter where indicated and returning it to me.
/s/ W. F. Monroe
Accepted and agreed to
this 29th day of August, 1996
/s/ Larry Ellberger
- ------------------------------
Larry Ellberger
<PAGE> 1
EXHIBIT 10.30
[GRACE LETTERHEAD]
December 10, 1996
Mr. Larry Ellberger
W. R. Grace & Co.
One Town Center Road
Boca Raton, FL 33486
Dear Larry:
This letter amends the employment agreement, dated May 15, 1995
("Employment Agreement"), and the restricted stock award agreement, dated June
6, 1995 ("Restricted Stock Agreement"), between you and W. R. Grace & Co., a New
York corporation renamed Fresenius National Medical Care Holdings, Inc. ("Grace
New York"), to reflect the transactions related to the September 1996 separation
of National Medical Care, Inc. ("NMC"), a subsidiary of Grace New York, from
Grace Holding, Inc., a Delaware corporation renamed W. R. Grace & Co. ("Grace
Delaware").
As you know, in conjunction with the separation of NMC from Grace
Delaware, the contracts and obligations of Grace New York that related to the
non-NMC businesses of Grace New York were assigned to, and assumed by, Grace
Delaware. This letter confirms that the Employment Agreement and the Restricted
Stock Agreement were assigned to, and assumed by, Grace Delaware, effective upon
consummation of such separation, on the following terms:
1. All references to "W. R. Grace & Co.", "Company" or "Grace" in the
Employment Agreement and the Restricted Stock Agreement refer to Grace
Delaware and any successor thereto.
<PAGE> 2
-2-
2. Except as expressly set forth above (or by any other applicable
amendments), the Employment Agreement and the Restricted Stock
Agreement remain in full force and effect.
Please confirm your agreement with the foregoing by signing the
accompanying copy of this letter and returning it to Bob Lamm.
Sincerely,
/s/ William F. Monroe
Accepted and agreed to:
/s/ Larry Ellberger
- ------------------------------
Larry Ellberger
Date: 12/12/96
-------------------------
<PAGE> 1
EXHIBIT 10.31
BRIDGE LOAN
PROMISSORY NOTE
$350,000.00 July 31, 1992
FOR VALUE RECEIVED, the undersigned, FRED LEMPEREUR and JACQUELINE
LEMPEREUR ("Makers"), hereby jointly and severally promise to pay, on the
earlier to occur of (i) the date on which a certificate of occupancy is issued
by the City of Boca Raton for the residence which Makers are causing to be built
at 2569 NW 59th Street, Boca Raton, Florida, 33496 or (ii) the date of Mr.
Lempereur's termination of employment with W.R. Grace & Co.-Conn. or one of its
affiliates ("Grace"); or (iii) June 30, 1993, at such place as shall be
designated by Grace, the sum of three hundred fifty thousand, dollars and 00/100
cents ($350,000.00) in lawful money of the United States of America.
Except as provided in the next following paragraph of this Promissory
Note, the principal amount payable hereunder shall not bear interest. This
Promissory Note may be prepaid, in whole or in part, at any time, without
penalty.
If payment of any principal balance outstanding under this Promissory
Note shall remain unpaid for thirty (30) days after it is due or after earlier
demand therefor as provided herein, Makers shall pay, in addition to any other
amounts due hereunder, interest on such outstanding balance at a variable rate,
per annum, which is one Percent (1%) above the rate of interest
<PAGE> 2
being charged from time to time by the Chase Manhattan Bank N.A. as its "prime
rate", such interest to accrue from the date that is thirty (30) days after the
date this Promissory Note is due or the date of such earlier demand therefor as
provided herein until such balance and the accrued interest thereon are paid in
full. Makers further agree to pay all costs of collection, including reasonable
attorney's fees, in the event of any failure of the Makers to pay when due any
sum payable under this Promissory Note.
This Promissory Note is made incident to the transfer of said Fred
Lempereur from the headquarters of the European Technical Products Division for
Grace Industrial Chemicals, Inc. in Suresnes, France to the headquarters of W.R.
Grace & Co.-Conn. in Boca Raton, Florida and the proceeds are being used to
purchase a new principal residence for the Makers in connection with such
transfer. This Promissory Note is entitled to all of the benefits of the
Employee Relocation Loan Agreement of even date herewith (the "Loan Agreement").
If for any reason said Fred Lempereur shall cease to be an employee of
Grace or any parent or affiliate thereof, or if while he continues to remain as
such employee his place of employment changes so that it requires relocation
outside of Boca Raton, Florida or if the Makers shall be in default of any
provision of the Loan Agreement, this Promissory Note shall become immediately
due and payable in its entirety.
-2-
<PAGE> 3
Makers waive presentment for payment, protest and demand, and notice of
protest, demand and/or dishonor and nonpayment of this Promissory Note, notice
of any event of default under the Loan Agreement and all other notices or
demands otherwise required by law that the Makers may lawfully waive. The Makers
expressly agree that this Note, or any payment hereunder, may be extended from
time to time, without in any way affecting the liability of the Makers. No
unilateral consent or waiver by Grace with respect to any action or failure to
act which, without consent, would constitute a breach of any provision of this
Promissory Note shall be valid and binding unless in writing and signed by
Grace.
The rights and obligations of the Makers and all provisions hereof
shall be governed by and construed as a sealed instrument in accordance with the
laws of the State of Florida.
The Makers shall remain primarily liable on this Promissory Note until
full payment, and shall not be affected by any forbearance or extension of time,
guaranty or assumption by others, or by any other matter, as to all of which
notice is hereby waived by the Makers.
IN WITNESS WHEREOF, the Makers have caused this Promissory Note to be
executed as a sealed instrument as of the day and Year first above written.
/s/ Fred Lempereur (Seal)
-----------------------------
Fred Lempereur
/s/ Jacqueline Lempereur (Seal)
-----------------------------
Jacqueline Lempereur
-3-
<PAGE> 1
EXHIBIT 10.32
EMPLOYEE RELOCATION LOAN AGREEMENT
This is a LOAN AGREEMENT (the "Agreement") dated as of the (31) day of
July, 1992 between FRED LEMPEREUR and JACQUELINE LEMPEREUR residing at 10, rue
Joseph Bara, F-75006, Paris, France (collectively the "Borrower") and W.R. Grace
& Co.-Conn. ("Grace"), a Connecticut corporation having an office at One Town
Center Road, Boca Raton, Florida 33486-1010.
1. DEFINITIONS
For the purposes of this Agreement the following defined Terms
shall have the meanings set forth in this Paragraph.
"BRIDGE NOTE" - Refers to the instrument which the Borrower signed this
day and which evidences a bridge loan in the amount of $350,000 made
this day to the Borrower by Grace (the "Bridge Loan").
"I, MINE, ME, MY MYSELF" - refer to the Borrower.
"PROPERTY" - refers to the real property including the land and the
buildings and fixtures to be constructed thereon at 2569 NW 59th
Street, Boca Raton, Florida 33496.
2. LOAN
I agree to repay the bridge loan as required by the terms of the Bridge
Note and by this Agreement.
<PAGE> 2
3. WRITTEN STATEMENT OF AMOUNT DUE
If Grace requests, in writing, a confirmation of the amount owed by me
under the Bridge Note and this Agreement, within ten (10) days after such
request, I will give Grace a signed statement confirming the amount so owed.
4. REIMBURSEMENT
If Grace has to defend its rights under the Bridge Note, or this
Agreement, then any money which Grace has to pay (including attorneys' fees and
disbursements) shall be added to the amount I owe Grace and paid by me promptly
at Grace's request with interest at a variable rate per annum which is one
percent (1%) above the rate of interest being charged from time to time by the
Chase Manhattan Bank, N.A. as its "prime rate".
5. USE OF PROCEEDS
I certify that the proceeds of the Bridge Loan shall be used only to
purchase the land and finance construction of the buildings and improvements on
the Property and that upon completion, the Property shall be my new principal
residence.
6. FILING OF TAX RETURNS
I certify that I reasonably expect to be entitled to, and will itemize
deductions on, my U.S. Federal Income Tax Return for the years in which the
bridge loan is outstanding.
7. DEFAULT
The happening of any of the following events means that I will be in
default. Grace will then have the right to require that all amounts that I owe
to Grace under the Bridge Note and this Agreement be paid in full to Grace, with
interest at a variable rate per annum which is one percent (1%)
-2-
<PAGE> 3
above the rate of interest being charged from time to time by the Chase
Manhattan Bank N.A., as its "prime rate". I will be in default:
(a) if any payment required by the Bridge Note is not made within thirty
(30) days after it is due; or
(b) if I do not comply with any term, condition or provision of this
Agreement; or
(c) if any statement or representation made by me under this Agreement is
not true or correct.
8. USURY
No matter what else is set forth in this Agreement or the Bridge Note,
if any payment by me or act by me would result in the payment of interest in
excess of the maximum amount of interest legally permissible, then my obligation
to make such payment or do such an act shall be deemed automatically reduced to
such maximum rate, so that in no event will I be obligated to make any payment,
perform any act, or promise to do (or not do) any act which would result in
payment of interest in excess of such maximum rate. Any such excess payment
shall be applied as partial prepayments of my debt.
9. SUCCESSORS AND ASSIGNS
All of my rights and obligations under this Agreement, and all of
Grace's rights and obligations under this Agreement, shall bind and benefit our
respective distributees, legal representatives, successors, heirs and assigns.
Grace retains any rights it may otherwise have that are not set forth in this
Agreement. Grace may assign this Agreement without my consent.
-3-
<PAGE> 4
10. LEGAL SERVICES
If any legal proceeding is commenced in which Grace is made a party and
which relates to this Agreement or the Bridge Note, or if an attorney, on
Grace's behalf, seeks to assert or defend Grace's rights under this Loan
Agreement, I will repay on Grace's demand all of its legal fees, costs,
expenses, disbursements and allowances. Any amounts payable to Grace under this
paragraph shall be payable with interest from the date Grace requires payment,
at a variable rate per annum which is one percent (1%) above the rate of
interest in effect from time to time by the Chase Manhattan Bank N.A. as its
"prime rate".
11. USE OF CAPTIONS
Captions are used in this Agreement only as a matter of convenience and
do not define or describe the intent of any provision.
12. FLORIDA LAW
This Agreement and all provisions hereof shall be governed by and
construed as a sealed instrument in accordance with the laws of the State of
Florida. If any terms, covenants, conditions or provisions of this Agreement or
the Bridge Note or the applicability thereof to any person or circumstance
shall, at any time or to any extent, be invalid or unenforceable, the remainder
of this instrument or the application of such term or provision to persons or
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby, and each term, covenant, condition and provision
of this Agreement or the Bridge Note shall be valid and enforceable to the
fullest extent permitted by law.
-4-
<PAGE> 5
13. MODIFICATION OF AGREEMENT
This Agreement cannot be modified without the mutual agreement in
writing of Grace and myself.
14. NOTICE
All notices and demands are to be sent by certified or registered mail,
postage prepaid, return receipt requested (i) to me at the address of the
Property set forth above, and (ii) to Grace at the address set forth above,
Attention: General Counsel. All notices shall be deemed to have been received
three (3) business days after mailing. Each party may change the address to
which communications are to be directed by giving notice to the other party in
the manner provided in this paragraph.
15. RESPONSIBLE PARTIES
If more than one person signs this Agreement, each will be fully
responsible, jointly and severally, for complying with its terms.
16. ENTIRE AGREEMENT
This Agreement and the documents referred to herein contain the entire
agreement of the parties in respect of the subject matter hereof. No
representation, promise, inducement or statement of intention has been made by
Grace which is not embodied in this Agreement or in the documents referred to
herein, and Grace shall not be bound by or liable for any alleged
representation, promise, inducement or statement of intention not set forth.
I have signed this Agreement on the date shown at the beginning of this
document.
/s/ Fred Lempereur
- ------------------------------------ ----------------------------------------
Witness Fred Lempereur
/s/ Jacqueline Lempereur
- ------------------------------------ ----------------------------------------
Witness Jacqueline Lempereur
-5-
<PAGE> 1
EXHIBIT 10.33
CONFIDENTIAL
August 17, 1992
Mr. F. Lempereur
Grace Industrial Chemicals, Inc.
40, blvd Henri Sellier
F-92156
Suresnes Cedex, France
Dear Mr. Lempereur:
We are pleased to offer you the position of Executive Vice President,
Grace Specialty Chemicals Co. reporting to D. H. Kohnken, President, Grace
Specialty Chemicals Co. with effect from May 1, 1992 at the W.R. Grace
Headquarters based in Boca Raton, Florida.
I. EMPLOYMENT CONDITIONS
As of May 1, 1992, your gross annual salary will be $265,000. This
salary will be payable semi-monthly. You will continue, as at present,
to be eligible for payments under the Headquarters Incentive
Compensation Plan and will continue to benefit from the Grace Stock
Option Plan. While no guarantees can be made with respect to incentive
compensation, we would expect that in the present environment, your
1992 incentive compensation would be $85,000.
You will become an employee of Grace Specialty Chemicals Co.
Headquarters and your employment conditions, except those which apply
to your expatriate status, will conform to the practices prevailing in
Boca Raton. Where such conditions are service-related with the
organization, January 1, 1962, will be the operative date.
Other conditions related to your transfer are detailed below:
a. SOCIAL SECURITY - You will be exempt from contributions to French
Social Security, but you will be required to make legally required
employee contributions to U.S. Social Security.
<PAGE> 2
CONFIDENTIAL Page 2
b. OTHER EMPLOYEE BENEFITS - Your participation in the French Repartition
System and other benefit programs provided by GICI, Suresnes will be
discontinued. Effective on your transfer date, you will be offered
coverage under all the benefit plans available to GSC Headquarters
employees. These benefits include Basic and Supplemental life
insurance, Voluntary Group Accident and Business Travel Accident
insurance, Comprehensive Medical, Dental Assistance, short and long
term disability benefits, Grace Salaried Retirement Plan and the
Savings and Investment Plan. Descriptions of these benefit plans are
included in the Headquarters Benefits Handbook.
In addition, you will participate in the Executive Salary Protection
Plan, Deferred Compensation Program, S&I Plan Replacement Payment
Program and Supplemental Executive Retirement Plan (SERP). This latter
plan replaces benefits lost under the Grace Salaried Retirement Plan
due to government imposed limits. You will be granted credited service
under the SERP back to January 1, 1962 with the past service benefits
reduced by the retirement benefits payable under other plans
contributed to by Grace. As your participation in the SERP renders the
International Benefits Protection Plan redundant, your participation
in the latter will cease and SERP benefits will be paid in lieu of
those under the International Benefits Protection Plan. This
arrangement relates to your employment in the United States and,
should your place of employment change, the situation will be reviewed
and appropriate alternative arrangements established.
c. TAXATION - You will be subject to U.S. tax on your earned income. The
Company will provide you with the assistance of Ernst & Young in the
preparation of your U.S. tax returns. If you are required to pay
income tax on your company source income to the French authorities
over and above that which you are required to pay to the U.S. tax
authorities on the same income, the Company will reimburse you for the
French tax differential.
d. ANNUAL VACATION - You will be entitled to 25 days vacation per annum.
Public holidays are in addition to the above. The date for determining
seniority is your date of start with the Grace organization, namely
January 1, 1962. A copy of the Vacation Policy is included in the
Benefits Handbook.
e. HOME LEAVE - You and your wife will be reimbursed for the cost of
round trip First Class flights between Boca Raton and Paris once every
twelve months starting from the date of the relocation of your family
to Boca Raton. Wherever possible, this should be coordinated with a
business trip to France. This leave should be taken as part of the
annual vacation period referred to above. Also, the Company will
reimburse you for the incurred cost of up to three additional round
trip First Class flights between Boca Raton and Paris for your wife.
<PAGE> 3
CONFIDENTIAL Page 3
f. EMERGENCY LEAVE - If an emergency occurs such as the death or critical
illness of a member of your family or your wife's, including children,
your parents, brothers, or sisters, you will be allowed compassionate
leave in addition to the vacation mentioned above. In such a case, the
Company will reimburse you for the travel costs incurred.
g. CONFIDENTIALITY AND NON-COMPETITION - We wish to tell you in advance
that you may be requested to sign restrictive covenants designed to
preserve the confidentiality of any information which may come into
your possession during your work in Boca Raton, designed to protect
the interests of the Company, but at the same time respect the rights
of the individual in a fair manner.
II. RELOCATION
It is the aim of the Company to see that you are reimbursed for all
costs that you incur as a consequence of your relocation. However, as
a general condition, it is essential that all expenditure is supported
by invoices or records of payment.
a. COST OF MOVE - The Company will reimburse you for the cost of travel
for yourself and your wife to your accommodation in Florida, i.e.
First Class air fares from Paris to Miami, Palm Beach or Ft.
Lauderdale, together with incidental expenses related to
transportation between the airports and your accommodation in the U.S.
and France.
The Company will pay for the packing, transport, unpacking and
insurance of all your household effects from Paris to Boca Raton. You
should obtain at least two quotations from reputable moving companies
for the move of your household goods. Before committing the company to
this expenditure, approval should be obtained from the Human Resources
Department in Boca Raton. Where the payment of tax and customs duties
is involved, this should be first discussed with the Headquarters
Human Resources Department as well.
b. TEMPORARY ACCOMMODATION - Should you have been unsuccessful in finding
suitable accommodation during your advance trip to Boca Raton, the
Company will pay for the cost of temporary storage of your household
effects while your permanent residence is being established and will
bear the cost of temporary accommodation for you and your family
either in a suitable hotel, or if you prefer in a furnished apartment
for a period not exceeding two months between the date of arrival of
your family in Florida and your move to your permanent residence.
c. PERMANENT ACCOMMODATION - You will be assisted by the Human Resources
Department in Boca Raton in your search for accommodation, and in the
provision of advice needed in respect of any statutory documentation.
<PAGE> 4
CONFIDENTIAL Page 4
d. PRIVATE CAR - The Company is prepared, in respect of one privately
owned car to reimburse you for the cost you incur by the forced sale
of your present car which represents the difference between the open
market value and the forced sale price you obtain in a good faith
effort. This, in line with all other relocation costs, should be
documented.
You will also be provided with a Company leased car in accordance with
the policy applicable to Headquarters executives. If there will be a
period when you are without transportation, the Company will reimburse
you for the rental of a car for a period of two months.
e. FINANCIAL ASSISTANCE - In the event you choose to purchase a
residence, the Company will provide to you an interest-free loan in
the amount of $350,000 which will be repayable upon your death,
termination of service, retirement, transfer from Boca Raton, or on
the schedule set forth below.. Such loan will be secured by a mortgage
on the property or other instrument acceptable to Grace.
Repayment Schedule
1993 $ 0
1994 0
1995 0
1996 50,000
1997 50,000
1998 50,000
1999 50,000
2000 50,000
2001 50,000
2002 50,000
f. RELOCATION ALLOWANCE - You will be entitled to one-twelfth of your
annual salary of $265,000 by way of a relocation allowance to
reimburse you for miscellaneous expenses you incur due to your
relocation (purchase or alteration of appliances, curtains, carpets,
purchase of transformers, fixtures, and other equipment).
g. REPATRIATION - At the end of your assignment the Company will incur
the expenses related to your move back to France. If for reasons
unforeseen at the moment, you find it necessary to relocate back to
France before the end of your assignment, the Company will undertake a
good faith search for an alternative position for you within its
operations and will incur the expenses related to your relocation,
except in the instance where you have at your own consent ceased your
employment with W.R. Grace & Co. It is, however, the Company's wish
that you and your family feel comfortable in your new home and the
Company will do its utmost to assist you in achieving this.
<PAGE> 5
CONFIDENTIAL Page 5
We are pleased you have accepted this offer and we take this
opportunity to wish you every success in your new assignment and home in Boca
Raton.
Please indicate your agreement to the above conditions by signing and
returning the duplicate letter which is enclosed.
Yours sincerely,
GRACE SPECIALTY CHEMICALS
/s/ Mr. R. A. Kulberg /s/ Mr. D. H. Kohnken
- ---------------------------------- ---------------------------------
Mr. R. A. Kulberg, Mr. D. H. Kohnken,
Vice President/Human Resources President
I agree with the above conditions:
/s/ Mr. F. Lempereur
- ----------------------------------
Mr. F. Lempereur
- ----------------------------------
Date
cc: J.G. Albert
Ref:737
<PAGE> 1
EXHIBIT 10.34
[GRACE LETTERHEAD]
January 10, 1997
Mr. Fred Lempereur
W. R. Grace & Co.
One Town Center Road
Boca Raton, FL 33486
Dear Fred:
This letter sets forth our agreement relating to your resignation as
Senior Vice President of W. R. Grace & Co. (the "Company") and your retirement
from the Company as follows:
1. You will resign your position as Senior Vice President of the Company
and all other offices and directorships you hold with the Company's
subsidiaries and affiliates, on June 30, 1997, but continue to receive
your regular base salary through November 30, 1997 at which time you
will retire effective that date.
2. Following your retirement on November 30, 1997, as set forth in
paragraph 1 above, you will be entitled to the compensation and
benefits set forth below in accordance with and subject to the
following terms:
A. You will receive severance pay, equal to $172,038 (seven
months severance pay; a total of 12 months less the five month
continuation during 1997) paid in the form of continued salary
payments (i.e., in installments twice a month), beginning in
December 1997, or in a lump sum at any time prior to July 1,
1998 (less any installments previously received) if you so
elect.
B. Incentive Compensation
You will be considered for an annual incentive compensation
award for 1996 based on the financial performance of Container
Products, TEC Systems and Packaging and your individual
performance. Your 1996 award, which is subject to Board
approval, will be paid to you in March 1997, less the amount
you deferred. You will not be eligible for 1997 Incentive
Compensation.
C. Executive Salary Protection Plan and Split-Dollar Life
Insurance Plan
Your death benefit coverage under the Executive Salary
Protection Plan shall cease on December 30, 1997, while your
disability coverage under that Plan will cease on November 30,
1997, in accordance with the terms of that Plan. Your
participation in the Split-Dollar Life Insurance Plan will
cease on January 29, 1998, although you may purchase the
policy by reimbursing the Company for the premiums paid by the
Company for that policy in your behalf through the date of
your retirement. Estimated premiums paid by the Company
through November 30, 1997 are expected to total approximately
$490,000 for six policy years. The current cash value in the
policy is approximately $462,000. Your death benefit coverage
is $1,015,000.
D. Long-Term Incentive Plan
Your participation in the Company's Long-Term Incentive Plan
for the 1994-1996, 1995-1997, and 1996-1998 Performance
Periods will vest and be paid to you at the same time as other
participants. While you will participate for the full
1994-1996 cycle, your awards for 1995-1997 and 1996-1998
Performance Periods will be prorated as of your November 30,
1997 retirement date. In the event of a "change in control" of
the Company, your entitlement, if any, to receive payments
under the LTIP will be the same as those of other persons
holding Contingent
<PAGE> 2
-2-
Performance Units granted under the LTIP, including any
proration of awards consistent with the length of the
Performance Periods applicable to all other participants in
the corresponding Performance Periods.
E. Stock Options
Your December 5, 1991, December 3, 1992, November 4, 1993,
April 7, 1994 and March 2, 1995 stock option grants are fully
vested. The second and third installments of your March 7,
1996 award will vest upon your retirement on November 30, 1997
(the first installment will vest on March 7, 1997). Subject to
SEC requirements and restrictions (as to which you should
consult Bob Lamm), you will be free to exercise your stock
options (to the extent then vested) and to sell the shares
acquired on exercise following your resignation as an officer
of the Company on June 30, 1997. After your retirement, you
will have a three-year grace period during which you may
exercise your options.
F. Deferred Compensation
Your deferred compensation balances, estimated at $179,759.75
as of November 30, 1996, will be paid to you in accordance
with the distribution elections you have previously made, i.e.
in a lump sum payable on January 31, 1998.
G. Savings and Investment Plan
Following your retirement, you may elect to take a lump sum
distribution under the Savings and Investment Plan, defer your
distribution until age 70 1/2, or elect to begin receiving
installment payments over a period of up to 10 years, in
accordance with the terms of the Plan. Your S&I balance as of
January 9, 1996 was $135,157. In March 1997, you will be
eligible to receive your Savings & Investment Replacement
payment for 1996 in an amount estimated to be $7,779. In March
1998, you will receive your replacement payment for 1997 based
on your S&I Plan compensation for 1997 and the tax law limit
in effect for 1997.
H. Benefits
Active benefit coverages will continue through June 30, 1998
for medical, dental and for applicable life coverages,
including Company-paid basic coverage of $590,000 if you do
not purchase your split dollar life insurance policy, unless
you elect to take your severance pay in a lump sum, in which
case all such coverages would cease at the end of the month as
of the date your lump sum severance payment is paid. Pension
Plan and Savings & Investment Plan participation will cease on
your November 30, 1997 retirement date. Long Term Disability
Plan and Business Travel Accident (BTA) Plan participation
will cease on June 30, 1997 provided, however, such BTA
coverage will be reinstated for the full period, as
applicable, during which your repatriation to France is taking
place. Of course, should the Company amend or terminate these
plans for all other employees, such amendment or termination
would apply to you.
Following June 30, 1998, your participation in all of Grace's
life, medical and dental plans will cease. As provided under
Federal COBRA legislation, you may continue coverage under
Grace's medical and dental plans for up to 18 months following
the date your group participation ends. Prior to June 30,
1998, you will receive the official Request for Continuation
of Group Coverage form, and confirmation of the COBRA medical
and dental rates that will apply to you. As a citizen and
resident of France, you would be eligible for medical coverage
under the French Social Insurance System.
I. Pensions
Under the Company's Retirement Plan for Salaried Employees and
the Supplemental Retirement Plan and assuming continuous
service through November 30, 1997, continuation of your base
salary through such date and a 1996 incentive award at your
target amount, your estimated annual benefit, on a straight
life basis, would be $204,039 beginning December 1, 1999 at
age 62 and $195,878 beginning December 1, 1997, at age 60. You
may, of course, elect any other payment option that is
available under the Plans. These gross benefit amounts,
indicated above, would be reduced by all benefits you are
eligible to receive under the French and Swiss retirement
plans.
<PAGE> 3
-3-
These offset amounts will be determined in November 1997 at
the time of your retirement. Of course, should the Company
amend or terminate any of the retirement plans for all other
similarly situated retirees, such amendment or termination
would apply to you.
J. Outplacement Assistance
The services of a specialized external company, nominated and
sponsored by the Company, will be provided to you for
executive-level assistance in job search and placement.
K. Perquisites
You may continue to use your company-provided leased car and
receive reimbursement for expenses incurred under the
Financial Counseling Program through December 1997. In the
event you wish to purchase your leased car, the Company will
arrange for you to do so on December 31, 1997, or on any
earlier date as you may select, at the then "fair market
value."
L. Tax Advice
The Company will continue to provide you with assistance of
Ernst & Young for the computation of your tax liabilities and
preparation of your U.S. tax returns for 1996, 1997 and 1998.
The Company will also provide for the services of Cabinet
Lefebrre to prepare your 1996, 1997 and 1998 French income tax
returns.
M. Unused Vacation Payment
You are entitled to paid vacation aggregating not less than
five weeks during 1997. You will be entitled to payment for
any unused vacation time in accordance with Company policy at
the time you retire on November 30, 1997, including any days
(up to ten) carried over from 1996 in accordance with vacation
policy.
N. Housing Loan
Your Company-provided housing loan in the amount of $350,000
will be repaid by you upon the sale of your home or by
December 31, 1997, if sooner.
O. Repatriation
The cost of your relocation to France and assistance with the
sale of your home in Florida will be provided as described in
the attached addendum to this letter.
This letter sets forth the entire agreement and understanding between
you and the Company concerning the compensation and benefit arrangements covered
by this letter, and it supersedes all prior agreements and understandings, if
any, concerning such subject matter between you and the Company. No
representation or promise concerning such subject matter has been made by the
Company that is not set forth in this letter.
Please confirm your agreement with the foregoing by signing a copy of
this letter where indicated below and returning it to me.
Sincerely,
/s/
Accepted and agreed to this 30 day of January 1997
/s/ Fred Lempereur
- -----------------------
Fred Lempereur
cc: P. J. Hamilton
J. G. Kaenzig
W. L. Monroe
<PAGE> 4
ADDENDUM
REPATRIATION
The Company will provide you with the following relocation assistance should you
and your family wish to be repatriated to France in 1997:
COST OF MOVE:
The Company will reimburse you for the cost of First Class air fare and
incidental expenses related to the relocation of you and your immediate family
back to France.
The Company will pay for the packing, transporting, unpacking and insurance of
all your household effects from Florida to France, provided that moving your
household effects is coordinated through the Grace International Human
Resources Department, using a moving company designated by the Department.
SALE OF RESIDENCE:
Grace will offer to purchase your Florida residence for its Fair Market Value
("FMV"), established as described in this paragraph. The FMV of your Florida
residence will be established by securing and averaging two appraisals made by
professional appraisers selected by the International Human Resources
Department. If the appraisals vary by five (5) percent or more, a third
appraisal will be obtained, and the average of the two closer appraisals will
be the FMV of your Florida residence.
From the date the Company notifies you in writing of the FMV of your Florida
residence, you will have sixty (60) days to accept, in writing, to the
International Human Resources Department, the Company's offer to purchase your
residence at the FMV. You may, instead, elect to reject that offer and sell
your residence without assistance from the Company, in which case the Company
will be under no obligation to reimburse you for a sale price below the FMV or
for maintenance or carrying expenses.
Failure to accept, in writing, the established FMV within the 60-day period
described above will be deemed a rejection of the Company's offer to purchase
the residence at FMV.
Should you sell your Florida residence without the assistance of the Company,
the Company will nevertheless reimburse you for reasonable and documented
expenses that are incidental to the sale, such as any real estate commission,
attorney's fees (or bank service fees if in lieu of attorney's fees),
penalties for mortgage, transfer taxes, title evidence based on local
practice, and advertising expenses if no real estate commission is involved.
<PAGE> 5
GRACE MEMO
Human Resources
Boca Raton, Florida
DATE: January 30, 1997
TO: F. Lempereur
FROM: P. J. Hamilton
SUBJECT: PARTICIPATION IN LTIPS - REVISED
cc: J. G. Kaenzig, Jr.
W. L. Monroe
Your financial and market achievement components are based on the following
product lines and Corporate for the following LTIPs:
<TABLE>
<CAPTION>
TARGETED PERFORMANCE UNITS
-------------------------------------
Financial Market
Component Component Total
--------- --------- -----
<S> <C> <C> <C>
1994 - 1996 Container (including
Sp. Polymers) 3,120.86 1,537.14 4,658
Corporate 2,329.00 2,329.00 4,658
-------- -------- -----
5,449.86 3,866.14 9,316
======== ======== =====
1995 -1997 Container (including
Sp. Polymers) 3,120.86 1,537.14 4,658
Corporate 2,329.00 2,329.00 4,658
-------- -------- -----
5,449.86 3,866.14 9,316
======== ======== =====
1996 - 1998 Container 936.66 461.34 1,398
Corporate 699.00 699.00 1,398
-------- -------- -----
1,635.66 1,160.34 2,796
======== ======== =====
</TABLE>
<PAGE> 1
Exhibit 10.37
[Date]
CONFIDENTIAL
- ------------
[Name]
[Address]
Dear _______________:
Re: INDEMNIFICATION
---------------
This will confirm that W. R. Grace & Co. ("Grace") will defend and indemnify
you in accordance with the provisions of Article VI of its by-laws in
connection with the pending Miami District Office of the SEC investigation.
Pursuant to this agreement, Grace will pay promptly upon request the reasonable
expenses, including attorneys' fees, incurred by you or on your behalf in the
defense of the investigation through its final conclusion. In the event that it
is finally, judicially determined pursuant to the provisions of the Delaware
General Corporation Law that you are not entitled to indemnification, you agree
to repay the amounts advanced by Grace on your behalf.
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 investigation. Grace, in turn, will fully cooperate with you.
This undertaking by Grace does not constitute an acknowledgment or agreement by
Grace that 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 Delaware. This agreement shall be in
addition to and shall not modify or supersede any arrangements or undertakings
that you may have with Grace relating to any other matter, including, without
limitation, any arrangements or understanding concerning any other lawsuit or
claim.
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 investigation. Please sign
and date the enclosed copy of this letter and have your signature witnessed as
provided below, 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.
Sincerely,
Enclosure
cc: R. B. Lamm
R. S. Strange
M. Wolinsky
AGREED AND ACCEPTED
- -------------------
Dated:
-------------
WITNESS:
- -------------------
Dated:
-------------
<PAGE> 1
Exhibit 21
W. R. GRACE & CO. SUBSIDIARY LIST
---------------------------------
Attached is a list of subsidiaries of W. R. Grace & Co. ("Grace") at
December 31, 1996.
U.S. Subsidiaries (including those in Puerto Rico and the Virgin
Islands) are listed alphabetically indicating the state of incorporation,
ownership (by whom) and any notes that may pertain to the subsidiary. W. R.
Grace & Co.-Conn. ("Grace-Conn") is the sole owner of the stock of each
subsidiary listed unless otherwise noted or indicated by an "A", which means
that the subsidiary is owned either (1) jointly by Grace-Conn. and one or more
of its U.S. or non-U.S. wholly owned subsidiaries or (2) solely by one or more
of those subsidiaries.
Non-U.S. Subsidiaries are listed by country and also indicate the
ownership (percentage and by whom) and any notes that may pertain to the
subsidiary.
Also attached is a list of partnerships in which Grace-Conn., or one
of its subsidiaries, is a partner and a list of investments (at least 20% but
not more than 50%) held by W. R. Grace & Co. or Grace-Conn. and/or one or more
of its subsidiaries.
<PAGE> 2
12/31/96
W. R. GRACE & CO., A DELAWARE CORPORATION
U.S. SUBSIDIARIES
<TABLE>
<CAPTION>
SUBSIDIARY NAME STATE OF OWNERSHIP NOTES
INCORPORATION
<S> <C> <C> <C>
A-1 Bit & Tool Co., Inc. DE A
Alewife Boston Ltd. MA A
Amicon, Inc. DE A
Auragen, Inc. DE A
CCHP, Inc. DE A
Circe Biomedical, Inc. DE A
Coalgrace, Inc. DE A
Coalgrace II, Inc. DE A
Construction Products Dubai, Inc. DE
Creative Food 'N Fun Company DE
Darex Puerto Rico, Inc DE
De Zaan, Incorporated NY 7
Del Taco Restaurants, Inc. DE
Dewey and Almy Company MA
Ecarg, Inc. NJ
Emerson & Cuming, Inc. DE
Five Alewife Boston Ltd. MA A
G/B Cocoa Holding Inc. DE 7
GC Holding Inc. DE
GEC Management Corporation DE A
GN Holdings, Inc. DE 18
GPC Thomasville Corp. DE A
Gloucester New Communities Company, Inc. NJ A
Grace A-B Inc. DE A
Grace A-B II Inc. DE A
Grace Asia Pacific, Inc. DE
</TABLE>
2
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
Grace Chemicals, Inc. DE
Grace Chemical Company of Cuba IL 6
Grace Cocoa, Inc. DE 7
Grace Cocoa Limited Partners I, Inc. DE
Grace Cocoa Limited Partners II, Inc. DE
Grace Cocoa Management, Inc. DE
Grace Collections, Inc. DE
Grace Communications, Inc. DE
Grace Culinary Systems, Inc. MD
Grace Drilling Company DE A
Grace Energy Corporation DE
Grace Environmental, Inc. DE
Grace Europe, Inc. DE
Grace H-G Inc. DE A
Grace H-G II Inc. DE A
Grace Hotel Services Corporation DE
Grace International Holdings, Inc. DE
Grace JVH, Inc. DE
Grace Logistics Services, Inc. DE
Grace Management Services, Inc. DE
Grace Offshore Company LA A
Grace PAR Corporation DE
Grace Petroleum Libya Incorporated DE
Grace Tarpon Investors, Inc. DE
Grace Ventures Corp. DE
Grace Washington, Inc. DE
W. R. Grace Capital Corporation NY A
W. R. Grace Land Corporation NY
W. R. Grace & Co.-Conn. CT 4
Gracoal, Inc. DE A
</TABLE>
3
<PAGE> 4
<TABLE>
<S> <C> <C>
Gracoal II, Inc. DE A
Guanica-Caribe Land Development Corporation DE
Hanover Square Corporation DE
Homco International, Inc. DE A
L B Realty, Inc. DE
Monolith Enterprises, Incorporated DC
Monroe Street, Inc. DE
Water Street Corporation DE
Woolwich Sewer Company, Inc. NJ A
Woolwich Water Co., Inc. NJ A
W. R. C. Technical Ventures, Inc. DE
</TABLE>
4
<PAGE> 5
NON-U.S. SUBSIDIARIES
<TABLE>
<CAPTION>
Country Subsidiary Name Ownership Notes
% / By Whom
<S> <C> <C> <C>
ARGENTINA WRG Argentina, S.A. 100 / A
Grace Argentina, S.A. 100 / A
AUSTRALIA W. R. Grace Australia Limited 100 / A
W. R. Grace Catalysts Pty. Limited 100 / A
Omicron Proprietary Limited 100 / A
Omipac Pty. Ltd. 51 / A 12
BELGIUM Finac N.V. 100 / A
Grace N.V. 100 / A
Grace Silica N.V. 100 / A
BRAZIL Grace Brasil S.A. 100 / A
PEADCO-Engenharia, Comercio Industria Ltda. 100 / A
International Holdings Ltda. 100 / A
CANADA Ambrosia Chocolate Ltd. 100 / A
Global Cocoa Holdings Ltd. 100 / A
H. Lawton Company Ltd. 100 / A
W. R. Grace & Co. of Canada Ltd. 100
W. R. Grace Finance (NRO) Ltd. 100
CAYMAN ISLANDS Grace Cocoa Hong Kong Ltd. 100 / A
Global Cocoa Holdings Ltd. 100 / A
Grace China Holdings I, Inc. 100
Grace Davison China, Inc. 100
CHILE Grace Quimica Compania Limitada 100 / A
COLOMBIA Grace Colombia, S.A. 100 / A
W R G Colombia S.A. 100 / A
CUBA Envases Industriales y Comerciales, S.A. 100 6
Papelera Camagueyana, S.A. 100 6
CZECH REPUBLIC Grace Spol. s r.o. 100
DENMARK W. R. Grace A/S 100
ECUADOR Grace Cocoa Ecuador S.A. 100 / A
FINLAND W. R. Grace Oy 100 / A
FRANCE Grace Cocoa France S.A. 100 / A 7
Grace S.A. 100
Soboca S.A. 100 / A
Societe Civile Immobiliere Les Rosiers 100 / A 1
</TABLE>
5
<PAGE> 6
<TABLE>
<CAPTION>
<S> <C> <C> <C>
GERMANY A-1 Bit & Tool Co. G.m.b.H. 100
Chomerics G.m.b.H. 100 / A
De Zaan B.V.m.b.H. 100 / A 7
EAP Akustic GmbH 100 / A 1
Emerson & Cuming G.m.b.H. 100 / A
Grace G.m.b.H. 100 / A
Grace Multiflex GmbH 100 / A
Kascho Kakao- und Schokoladenwerke, GmbH 100 7
Greece Grace Hellas E.P.E. 100
Guatemala Grace Central America, S.A. 100
Hong Kong W. R. Grace Southeast Asia Holdings Limited 100
W. R. Grace Far East Investment Company 100 1
Limited
W. R. Grace (Hong Kong) Limited 100 / A
Hungary Grace kft. 100 / A
India Dearborn I.E.I. Ltd. 51 / A 11
W. R. Grace & Co. (India) Private Limited 100
Indonesia P. T. Grace Specialty Chemicals Indonesia 100 / A
Ireland Amicon Ireland Limited 100 / A
W. R. Grace (Ireland) Ltd. 100 / A
Trans-Meridian Insurance (Dublin) Ltd. 100
Italy Grace Italiana S.p.A. 100 / A
Japan Grace Japan Kabushiki Kaisha 100
Korea Grace Korea Inc. 100
Malaysia W. R. Grace (Malaysia) Sendiran Berhad 100 / A
W. R. Grace Packaging (Malaysia) Sdn. Bhd. 100
W. R. Grace Specialty Chemicals (Malaysia) 100
Sdn. Bhd.
Mexico Invertol S. A. de C. V. 100 / A
Grace Container, S. A. de C. V. 100 / A
Grace Holdings, S. A. de C. V. 100
Grace Mexico, S. A. de C. V. 100 / A
Netherlands Amicon B.V. 100
Cacao de Zaan B.V. 100 7
Denac Nederland B.V. 100 / A
Grace B.V. 100
Grace Cocoa B.V. 100 7
J. G. van Bruinessen B.V. 100 / A 7
Storm van Bentem & Kluyver B.V. 100 / A 7
Targhee Holding B.V. 100 / A
Twincon B.V. 100 / A 7
Twincon International B.V. 100 / A 7
</TABLE>
6
<PAGE> 7
<TABLE>
<S> <C> <C> <C>
Netherlands Antilles W. R. Grace N.V. 100
New Zealand W. R. Grace (N.Z.) Limited 100 / A
Norway W. R. Grace A/S 100 / A
People's Republic of Global Huada (Guangzhou) Confectionery Ltd. 100 17
China Grace China Ltd. 100
Grace Packaging Gaoming Co. Ltd. 67.7 / A 16
Philippines W. R. Grace (Philippines) Inc. 100 / A
Poland W. R. Grace Sp. z.O.O. 100
Portgual Grace Portuguesa (Productos Quimicos e 100
Pl#sticos) Ltda.
Russia A/O Grace 100 / A
A/o Grace Kaustik 51 / A 10
A/o Grace Kriz 51 / A 15
Singapore A-1 Bit Tool Company Pte. Ltd. 100 / A
De Zaan Far East Pte. Ltd. 100 7
Grace Cocoa Singapore Pte. Ltd. 100 7
W. R. Grace (Singapore) Private Limited 100 / A
South Africa W. R. Grace Africa (Pty.) Limited 100
Spain Grace, S.A. 100
Teroson Espanola, S.L. 100 / A 3
Sweden Grace AB 100
Grace Sweden AB 100 / A
Grace Tec Systems AB 100 / A
Switzerland Grace A.G. 100 / A
Grace Cocoa Chocolate Mgt. S.A. 100 / A 7
Syncrete S.A. 100 3
Neue Transvac Maschinen A.G. 99.99%
Taiwan W. R. Grace Taiwan Inc. 100 / A
Thailand W. R. Grace (Thailand) Ltd. 100 / A 3
Turkey Grace TLS 100 / A
United Kingdom A.A. Consultancy & Cleaning Company Limited 100 / A
Cormix Limited 100 / A 1
Dearborn (U.K.) Limited 100 / A 3
Grace Construction Products Ltd. 100 / A 3
Servicised Ltd. 100 / A
W. R. Grace Limited 100 / A
Uruguay W. R. G. Uruguay, S.A. 100 / A
Grace Uruguay S.A. 100
Venezuela Grace Venezuela, S.A. 100 / A
Inversiones GSC, S.A. 100
</TABLE>
7
<PAGE> 8
U.S. AND NON-U.S. NOTES
1 In liquidation
2 Inactive
3 Dormant, assets sold
4 Owned by W. R. Grace & Co.
5 Intentionally deleted
6 Assets and business expropriated by Cuban Government
7 Owned by a Delaware general partnership, Grace Cocoa Associates, or a
subsidiary thereof
8 Intentionally deleted
9 Common stock owned 100% by Grace Cocoa Associates/Preferred stock owned
100% by W. R. Grace & Co. of Canada Ltd.
10 Joint stock company, 46% owned by Grace Italiana S.p.A., 5% owned by W.
R. Grace Ltd., 49% owned by A/O Kaustik
11 Joint Venture, 51% owned by W. R. Grace & Co.-Conn., 49% owned by Ion
Exchange India
12 Joint Venture, 51% owned by Omicron Proprietary Limited, 49% owned by
Parade Packaging Sdn Bhd
13 Intentionally deleted
14 Intentionally deleted
15 A Russia Joint Venture, owned 31% by Grace S.A., 20% by W. R. Grace
Limited and 49% by A/O Kriz
16 A China Joint Venture, owned 67.7% by Grace China Holdings I, Inc. and
32.3% by Sanzhou Economic Development General Company
17 A China Joint Venture, owned 70% by Grace Cocoa Hong Kong Ltd. and 30% by
Guangzhou Confectionery Factory
18 Owned 95% by W. R. Grace & Co.-Conn.
8
<PAGE> 9
PARTNERSHIPS
Axial Basin Ranch Company
a Delaware partnership, owned 50% by Grace A-B Inc., 50% Grace A-B II
Inc.
Carbon Dioxide Slurry Systems L.P.
a Delaware partnership, owned 50% by W. R. Grace & Co.-Conn.
Cormix Middle East LLC
a Dubai LLC, owned 49% by Construction Products Dubai, Inc., 51% Sheikh
Hasher Maktoum Juma Al Maktoum
Emirates Chemicals LLC
a Dubai LLC, owned 49% Construction Products Dubai, Inc., 51% Sheikh
Hasher Maktoum Juma Al Maktoum
Grace Cocoa Associates
a Delaware general partnership, the partners of which are W. R. Grace &
Co.-Conn., GC Holding, Inc., Grace Cocoa Management, Inc. and Grace Cocoa
Ventures.
Grace Cocoa Ventures
a Delaware general partnership, the partners of which are Grace Cocoa
Limited Partners I, Inc. and W. R. Grace & Co.-Conn.
Grace Offshore Turnkey
a Texas partnership, owned 50% by Grace Offshore Company
Hayden-Gulch West Coal Company
a Delaware partnership, owned 50% by Grace H-G Inc., 50% by Grace H-G II,
Inc.
H-G Coal Company
a Delaware partnership, owned 50% by Coalgrace, Inc., 50% by Coalgrace
II, Inc.
Metreon
an Ohio joint venture/partnership, owned 50% by Grace JVH, Inc., 50% by
Englehard MC, Inc.
Parade & Omicron Sdn Bhd
a Malaysia Joint Venture, owned 51% by Omipac Proprietary Ltd. and 49% by
Parade Industries Pte. Ltd.
Paramont Coal Company
a Virginia partnership, owned 50% by Grace PAR Corporation
9
<PAGE> 10
INVESTMENTS
(holdings of at least 20% but not more than 50%)
<TABLE>
<CAPTION>
Company Name Jurisdiction Ownership Percent Notes
<S> <C> <C> <C>
Arral & Partners British Virgin Islands 25.8%
Asian Food Investment Limited British Virgin Islands 40%
Caproa B.V. Netherlands 20% 10
Colowyo Coal Company L.P. Delaware 6
Denka Grace K.K. Japan 45%
General Cocoa Trading House Inc. British Virgin Islands 9
Geniva, Inc. Delaware 50% 8
GKA Company Limited Hong Kong 25%
Incacao Fabrica Nacional de Ecuador 20% 2
Elaboradoes de Cacao S.A.
Intercao, S.A. British Virgin Islands 20% 2
Noxso Corporation Virginia 23.1%
Productos Derivados de la Sal Colombia 30.1% 3
Productora de Papeles S.A. (PROPAL) Colombia 36.16%
Societe Nouvelle Sifca, S.A. Ivory Coast 30% 7
Tarpon Investors, L.P. Delaware 4
Unicao S.A. Ivory Coast 20% 5
NOTES:
1 Intentionally deleted
2 Owned by Grace Cocoa, Inc.
3 Owned by Productora de Papeles S.A.
4 Limited partnership interest owned by Grace Tarpon Investors, Inc.
5 Owned by Twincon B.V. plus approximately 14% through Sifca
6 Limited Partnership interests are owned by Gracoal, Inc. and Gracoal II,
Inc.
7 Owned by Targhee Holdings, B.V., a wholly owned subsidiary of Grace Cocoa
B.V., a Netherlands corporation
8 Owned by Grace International Holdings, Inc.
9 Wholly owned subsidiary of Incacao
10 Owned by Twincon B.V. plus approximately 12.5% through Sifca
</TABLE>
10
<PAGE> 1
Exhibit 24
----------
POWER OF ATTORNEY
-----------------
The undersigned director of W. R. GRACE & CO. ("Company") hereby appoints
KATHLEEN A. BROWNE, LARRY ELLBERGER and ROBERT B. LAMM as his/her true and
lawful attorneys-in-fact for the purpose of signing the Company's Annual Report
on Form 10-K for the year ended December 31, 1996, and all amendments thereto,
to be filed with the Securities and Exchange Commission. Each of such
attorneys-in-fact is appointed with full power to act without the other.
/s/ J. F. Akers /s/ T. A. Holmes
/s/ H. Brown /s/ V. A. Kamsky
/s/ C. Cheng /s/ J. J. Murphy
/s/ H. A. Eckmann /s/ J. E. Phipps
/s/ M. A. Fox /s/ T. A. Vanderslice
/s/ J. W. Frick
Dated: March 28, 1997
<PAGE> 2
POWER OF ATTORNEY
-----------------
The undersigned, Chairman, President and Chief Executive Officer (Principal
Executive Officer) and a director of W. R. GRACE & CO. ("Company"), hereby
appoints KATHLEEN A. BROWNE, LARRY ELLBERGER and ROBERT B. LAMM as his true and
lawful attorneys-in-fact for the purpose of signing the Company's Annual Report
on Form 10-K for the year ended December 31, 1996, and all amendments thereto,
to be filed with the Securities and Exchange Commission. Each of such
attorneys-in-fact is appointed with full power to act without the other.
/s/ A. J. Costello
Dated: March 28, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF W. R. GRACE & CO. FOR THE YEAR ENDED DECEMBER 31, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 68,300
<SECURITIES> 0
<RECEIVABLES> 842,900
<ALLOWANCES> 11,500
<INVENTORY> 376,100
<CURRENT-ASSETS> 1,774,900<F1>
<PP&E> 3,307,900
<DEPRECIATION> 1,436,600
<TOTAL-ASSETS> 4,945,800<F2>
<CURRENT-LIABILITIES> 1,487,100
<BONDS> 1,073,000
0
0
<COMMON> 800
<OTHER-SE> 631,600
<TOTAL-LIABILITY-AND-EQUITY> 4,945,800
<SALES> 3,454,100<F2>
<TOTAL-REVENUES> 3,493,000
<CGS> 2,071,000
<TOTAL-COSTS> 2,071,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 71,600
<INCOME-PRETAX> 348,600<F3>
<INCOME-TAX> 134,800
<INCOME-CONTINUING> 213,800<F3>
<DISCONTINUED> 2,643,900<F4><F5><F6>
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,857,700
<EPS-PRIMARY> 31.06
<EPS-DILUTED> 30.24
<FN>
<F1>Includes net assets of discontinued operations of $297,400.
<F2>Excludes 1996 sales from the discontinued health care and TEC Systems
businesses of $1,666,900 and $102,500, respectively.
<F3>Includes gain on sales of businesses of $326,400 ($210,100 after-tax),
offset by provisions of $229,100 ($148,900 after-tax) for asbestos-related
liabilities and insurance coverage and $107,500 ($69,900 after-tax) for
restructuring costs and asset impairments.
<F4>Includes TEC Systems' after tax operating losses of $11,300 and an after-tax
provision of $4,600 related to its anticipated operating losses and the loss
anticipated on its divestment.
<F5>Includes (i) after-tax income of $24,800 from health care operations, (ii)
and after-tax gain of $2,483,700 on the separation of National Medical Care,
Inc., (iii) an after-tax gain of $79,400 on the sale of the transgenic plant
business and (iv) an after-tax gain of $40,000 on the sale of Amicon.
<F6>Includes a $31,900 after tax reversal of previously recorded provisions for
Grace's cocoa business.
</FN>
</TABLE>
