<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
-----------------------
GRACE SPECIALTY CHEMICALS, INC.
(TO BE RENAMED W. R. GRACE & CO.)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 65-0773649
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
ONE TOWN CENTER ROAD
BOCA RATON, FLORIDA 33486
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (561)362-2000
--------------------
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
------------------- ------------------------------
<S> <C>
COMMON STOCK, PAR VALUE $0.01 PER SHARE NEW YORK STOCK EXCHANGE
PREFERRED SHARE PURCHASE RIGHTS NEW YORK STOCK EXCHANGE
</TABLE>
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
<PAGE> 2
GRACE SPECIALTY CHEMICALS, INC.
I. INFORMATION INCLUDED IN INFORMATION STATEMENT AND INCORPORATED IN FORM 10 BY
REFERENCE
CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT AND ITEMS OF FORM 10
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ITEM
NO. ITEM CAPTION LOCATION IN PROXY STATEMENT
- ---- ------------ ---------------------------
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1. Business............................ "SUMMARY"; "THE SPIN-OFF -- Manner of Effecting the
Spin-off"; "BUSINESS OF NEW GRACE AND GRACE SPECIALTY
CHEMICALS"; and "Management's Discussion and Analysis of
Results of Operations and Financial Condition (included
in Annexes F and G)."
2. Financial Information............... "GRACE SUMMARY SELECTED FINANCIAL DATA"; "NEW GRACE PRO
FORMA FINANCIAL INFORMATION"; "Management's Discussion
and Analysis of Results of Operations and Financial
Condition (included in Annexes F and G)"; "Annex F"; and
"Annex G."
3. Properties.......................... "BUSINESS OF NEW GRACE AND GRACE SPECIALTY CHEMICALS."
4. Security Ownership of Certain
Owners and Management........... "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS"; and
"SECURITY OWNERSHIP OF MANAGEMENT."
5. Directors and Executive Officers.... "MANAGEMENT"; and "LIABILITY AND INDEMNIFICATION OF DIRECTORS
AND OFFICERS."
6. Executive Compensation.............. "Annex E."
7 Certain Relationships and Related
Transactions.................... "CERTAIN RISK FACTORS"; "THE SPIN-OFF -- Relationships after
the Spin-off"; "MANAGEMENT"; "BUSINESS OF NEW GRACE AND
GRACE SPECIALTY CHEMICALS -- Legal Proceedings and
Regulatory Matters"; and "Annex E."
8. Legal Proceedings................... "BUSINESS OF NEW GRACE AND GRACE SPECIALTY CHEMICALS -- Legal
Proceedings and Regulatory Matters."
9. Market Price of and Dividends on
the Registrant's Common Equity
and Related Stockholder
Matters......................... "SUMMARY"; "CERTAIN RISK FACTORS"; and "THE SPIN-OFF --
Listing and Trading of New Grace Common Stock."
11. Description of Registrant's
Securities to be Registered..... "DESCRIPTION OF NEW GRACE CAPITAL STOCK"; and "CERTAIN
ANTI-TAKEOVER PROVISIONS."
</TABLE>
<PAGE> 3
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<CAPTION>
ITEM
NO. ITEM CAPTION LOCATION IN PROXY STATEMENT
- ---- ------------ ---------------------------
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12. Indemnification of Directors and
Officers........................ "LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS."
13. Financial Statements and
Supplementary Data.............. "GRACE SUMMARY SELECTED FINANCIAL DATA"; "NEW GRACE PRO FORMA
FINANCIAL INFORMATION"; "Management's Discussion and Analysis
of Results of Operations and Financial Condition (included in
Annexes F and G)"; "Annex F"; and "Annex G."
15. Financial Statements and Exhibits.
(a) Financial Statements and
Schedules....................... "GRACE SUMMARY SELECTED FINANCIAL DATA"; "NEW GRACE PRO FORMA
FINANCIAL INFORMATION"; "Annex F"; and "Annex G."
</TABLE>
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<PAGE> 4
II. INFORMATION NOT INCLUDED IN INFORMATION STATEMENT
Item 10. Recent Sales of Unregistered Securities
On August 12, 1997, Grace Specialty Chemicals, Inc. ("New Grace")
issued 1,000 shares of its common stock to W. R. Grace & Co. ("Grace"),
its direct parent, for consideration of $1,000. In the opinion of New
Grace, this transaction is exempt from registration under the
Securities Act of 1933, as amended, by virtue of Section 4(2) thereof
in that such transaction did not involve any public offering.
Item 14. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
Item 15. Financial Statements and Exhibits.
(a) Financial Statements:
The following financial statements are filed as part of this
Registration Statement:
(1) CAPITALIZATION
(2) GRACE SUMMARY SELECTED FINANCIAL DATA
(3) NEW GRACE PRO FORMA SUMMARY FINANCIAL INFORMATION
(4) PRO FORMA FINANCIAL INFORMATION
(A) Unaudited Pro Forma Condensed Consolidated Balance
Sheet
(B) Unaudited Pro Forma Condensed Consolidated Statement
of Operations
(C) Notes to Unaudited Pro Forma Condensed Consolidated
Balance Sheet and Statement of Operations
(5) ANNEX F (W. R. Grace & Co. Financial Information for the
Year Ended December 31, 1996)
(6) ANNEX G (W. R. Grace & Co. Financial Information for the
Quarter Ended September 30, 1997)
Financial Statement Schedules:
Supplemental schedules are omitted because of the absence of the
conditions under which they are required.
(b) Exhibits:
2.1 Form of Distribution Agreement, by and among Grace, W. R.
Grace & Co.-Conn. ("Grace-Conn.") and New Grace (attached
as Annex B to the Joint Proxy Statement/Prospectus, dated
February 13, 1998, of Grace and Sealed Air Corporation (the
"Joint Proxy Statement/ Prospectus"))
3.1 Form of Amended and Restated Certificate of Incorporation
of New Grace (attached as Annex A to New Grace's
Information Statement, dated February 13, 1998 (the
"Information Statement"))
3.2 Form of Amended and Restated By-Laws of New Grace (attached
as Annex B to the Information Statement)
*4.1 Form of Rights Agreement, by and between New Grace and The
Chase Manhattan Bank, as Rights Agent
-3-
<PAGE> 5
4.2 Indenture, dated as of September 29, 1992, among
Grace-Conn., Grace and Bankers Trust Company (incorporated
by reference to Exhibit 4.2 to Grace's Annual Report on
Form 10-K for the year ended December 31, 1992)
4.3 Supplemental Indenture, dated as of September 24, 1996,
among Grace-Conn., Grace, Grace Holding, Inc. and Bankers
Trust Company, to Indenture, dated as of September 29, 1992
(incorporated by reference to Exhibit 4.4 to Grace's Form
8-K filed October 10, 1996)
4.4 Indenture, dated as of January 28, 1993, among Grace-Conn.,
Grace and The Bank of New York (successor to NationsBank of
Georgia, N.A.) (incorporated by reference to Exhibit 4.4 to
Grace's Annual Report on Form 10-K for the year ended
December 31, 1992)
4.5 Supplemental Indenture, dated as of September 24, 1996,
among Grace-Conn., Grace, Grace Holding, Inc. and The Bank
of New York, to Indenture, dated as of January 28, 1993
(incorporated by reference to Exhibit 4.5 to Grace's Form
8-K filed October 10, 1996)
*10.1 Form of Employee Benefits Allocation Agreement, by and
among Grace, Grace-Conn. and New Grace
*10.2 Form of Tax Sharing Agreement, by and among Grace,
Grace-Conn. and Sealed Air Corporation
10.3 Form of New Grace 1998 Stock Incentive Plan (attached as
Annex C to the Information Statement) 10.4 Form of New
Grace 1998 Stock Plan for Nonemployee Directors (attached
as Annex D to the Information Statement)
10.5 Grace 1996 Stock Incentive Plan, as amended (incorporated
by reference to Exhibit 10.1 to Grace's Form 10-Q for the
period ended March 31, 1997)
10.6 Grace 1996 Stock Retainer Plan for Nonemployee Directors
(incorporated by reference to Exhibit 10.2 to Grace's Form
8-K filed October 10, 1996)
10.7 Grace Supplemental Executive Retirement Plan, as amended
(incorporated by reference to Exhibit 10.03 to Grace's
Annual Report on Form 10-K for the year ended December 31,
1996)
10.8 Grace Executive Salary Protection Plan, as amended
(incorporated by reference to Exhibit 10.04 to Grace's
Annual Report on Form 10-K for the year ended December 31,
1996)
10.9 Grace 1981 Stock Incentive Plan, as amended (incorporated
by reference to Exhibit 10.3 to Grace's Form 8-K filed
October 10, 1996)
10.10 Grace 1986 Stock Incentive Plan, as amended (incorporated
by reference to Exhibit 10.4 to Grace's Form 8-K filed
October 10, 1996)
10.11 Grace 1989 Stock Incentive Plan, as amended (incorporated
by reference to Exhibit 10.5 to Grace's Form 8-K filed
October 10, 1996)
10.12 Grace 1994 Stock Incentive Plan, as amended (incorporated
by reference to Exhibit 10.6 to Grace's Form 8-K filed
October 10, 1996)
-4-
<PAGE> 6
10.13 Forms of Stock Option Agreements (incorporated by reference
to Exhibit 10(h) to Grace's Annual Report on Form 10-K for
the year December 31, 1991)
10.14 Information concerning Grace Incentive Compensation
Program, Deferred Compensation Program and Long-Term
Incentive Program (incorporated by reference to pages 7-12
and 26-36 to Grace's Proxy Statement filed April 7, 1997)
10.15 Form of Long-Term Incentive Program Award (incorporated by
reference to Exhibit 10.13 to Grace's Form S-1 filed August
2, 1996)
10.16 Form of Stock Option Agreements (incorporated by reference
to Exhibit 10.14 to Grace's Form S-1 filed August 2, 1996)
10.17 Grace Retirement Plan for Outside Directors, as amended
(incorporated by reference to Exhibit 10.13 to Grace's
Annual Report on Form 10-K for the year ended December 31,
1996)
10.18 Form of Executive Severance Agreement between Grace and
officers elected prior to May 1996 (incorporated by
reference to Exhibit 10.22 to Grace's Form S-1 filed August
2, 1996)
10.19 Form of Executive Severance Agreement between Grace and
officers elected in or after May 1996 (incorporated by
reference to Exhibit 10.23 to Grace's Form S-1 filed August
2, 1996)
*10.20 Form of Executive Severance Agreement between Grace and
officers
10.21 Employment Agreement, dated as of May 1, 1995, between
Grace and Albert J. Costello (incorporated by reference to
Exhibit 10.1 to Grace's Form 10-Q for the period ended June
30, 1995)
10.22 Amendment dated August 9, 1996 to Employment Agreement,
dated as of May 1, 1995, between Grace and Albert J.
Costello (incorporated by reference to Exhibit 10.7 to
Grace's Form 8-K filed October 10, 1996)
10.23 Option Agreement between Grace and Albert J. Costello,
dated May 1, 1995, as amended (incorporated by reference to
Exhibit 10.8 to Grace's Form 8-K filed October 10, 1996)
10.24 Option Agreement between Grace and Albert J. Costello,
dated March 6, 1996 (incorporated by reference to Exhibit
10.37 to Grace's Form S-1 filed August 2, 1996)
*10.25 Option Agreement between Grace and Albert J. Costello,
dated March 5, 1997
10.26 Employment Agreement, dated as of May 15, 1995, between
Grace and Larry Ellberger (incorporated by reference to
Exhibit 10.28 to Grace's Annual Report on Form 10-K for the
year ended December 31, 1996)
10.27 Restricted Stock Award Agreement, dated June 6, 1995,
between Grace and Larry Ellberger, as amended by letter
agreement, dated August 26, 1996, between Larry Ellberger
and Grace (incorporated by reference to Exhibit 10.29 to
Grace's Annual Report on Form 10-K for the year ended
December 31, 1996)
10.28 Letter Agreement, dated December 10, 1996, between Grace
and Larry Ellberger (incorporated by reference to Exhibit
10.30 to Grace's Annual Report on Form 10-K for the year
ended December 31, 1996)
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<PAGE> 7
10.29 Distribution Agreement by and among Grace, a New York
corporation subsequently renamed Fresinius National Medical
Care Holdings, Inc., Grace-Conn. and Fresinius AG, dated
February 4, 1996 (incorporated by reference to Exhibit 2 to
Grace's Form 8-K filed February 6, 1996)
10.30 Form of Indemnification Agreement between Grace and certain
directors (incorporated by reference to Exhibit 10.39 to
Grace's Form S-1 filed August 2, 1996)
10.31 Form of Indemnification Agreement between Grace and certain
directors (incorporated by reference to Exhibit 10.37 to
Grace's Annual Report on Form 10-K for the year ended
December 31, 1996)
10.32 364-Day Credit Agreement, dated as of May 16, 1997, among
Grace-Conn., Grace, the several banks parties thereto,
NationsBank, N.A. (South), as documentation agent, and The
Chase Manhattan Bank, as administrative agent for such
banks (incorporated by reference to Exhibit 10.1 to Grace's
Form 10-Q for the period ended June 30, 1997)
10.33 Credit Agreement, dated as of May 16, 1997, among
Grace-Conn., Grace, the several banks parties thereto, and
The Chase Manhattan Bank, as administrative agent for such
banks (incorporated by reference to Exhibit 10.2 to Grace's
Form 10-Q for the period ended June 30, 1997)
*21 Subsidiaries of New Grace
- ------------------
* Filed herewith
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<PAGE> 8
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
GRACE SPECIALTY CHEMICALS, INC.
By:/s/ Albert J. Costello
---------------------------------
Name: Albert J. Costello
Title: President
March 13, 1998
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<PAGE> 9
INFORMATION STATEMENT
GRACE SPECIALTY CHEMICALS, INC.
(TO BE RENAMED W. R. GRACE & CO.)
COMMON STOCK
W. R. Grace & Co. (Grace) is sending you this Information Statement,
together with a Joint Proxy Statement/ Prospectus that describes the proposed
combination of Grace's packaging business with the business of Sealed Air
Corporation (Sealed Air). Grace intends to combine these businesses by first
transferring all of its specialty chemicals businesses to a new company, Grace
Specialty Chemicals, Inc. (New Grace), spinning off New Grace to Grace
stockholders (the Spin-off), and then combining with Sealed Air (the Merger). We
refer to Grace after the Spin-off and the Merger as "New Sealed Air."
This Information Statement relates to the shares of New Grace that will be
issued to you in the Spin-off. It provides important information about New
Grace. You should read the entire document carefully. For information about New
Grace's businesses, earnings and financial position, please review "Business of
New Grace and Grace Specialty Chemicals" beginning on page 23 and the pro forma
financial information beginning on page 16. You should also pay particular
attention to the information set forth in "Certain Risk Factors" beginning on
page 11. For more detailed information on the transactions, including the
proposals relating to the Spin-off and the Merger that will be considered at
Grace's special meeting of stockholders, see the Joint Proxy
Statement/Prospectus.
If completed, the Spin-off and Merger will result in the following changes:
GRACE STOCKHOLDERS WILL OWN:
- 100% of New Grace; and
- a 63% equity interest in New Sealed Air, through ownership of New Sealed
Air common and convertible preferred stock.
NEW GRACE WILL:
- own and operate Grace's specialty chemicals businesses;
- retain Grace's asbestos, environmental and certain other liabilities;
- receive approximately $1.2 billion from Grace (the Cash Transfer) prior
to the Spin-off; and
- be renamed "W. R. Grace & Co."
NEW SEALED AIR WILL:
- own and operate Grace's packaging business and the business of Sealed
Air;
- be recapitalized so that Grace stockholders will own shares of common
stock of New Sealed Air and shares of a new series of voting convertible
preferred stock of New Sealed Air (with stockholders of Sealed Air also
receiving shares of New Sealed Air common stock in the Merger);
- retain the obligation to repay the approximately $1.2 billion of debt
used to finance the Cash Transfer; and
- be renamed "Sealed Air Corporation."
The diagrams on the following pages show the effects of these transactions.
These transactions will occur only if they are approved by the stockholders
of Grace and Sealed Air and the parties either satisfy or waive the other
conditions described in the Joint Proxy Statement/Prospectus. The Spin-off and
Merger are expected to be tax-free to Grace and its stockholders for U.S.
federal income tax purposes.
We expect New Grace's stock to be listed on the New York Stock Exchange
under the symbol "GRA."
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS DETERMINED IF THIS DOCUMENT IS ACCURATE OR ADEQUATE OR APPROVED
THE NEW GRACE COMMON STOCK TO BE ISSUED. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
THIS INFORMATION STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES.
The date of this Information Statement is February 13, 1998.
<PAGE> 10
The following diagrams illustrate the proposed transactions in general
terms and are not comprehensive. For a more complete description of the proposed
transactions, see "The Spin-off" on page 14 of this Information Statement and
"The Distribution and Merger Agreements" on page 65 of the Joint Proxy
Statement/Prospectus.
[CURRENT STRUCTURE FLOW CHART]
<PAGE> 11
[CASH TRANSFER FLOW CHART AND SPINOFF FLOW CHART]
- ---------------
* Grace and a packaging subsidiary will borrow a total of approximately $1.2
billion and transfer the borrowed funds to New Grace or a subsidiary of New
Grace.
<PAGE> 12
[RECAPITALIZATION FLOW CHART AND MERGER FLOW CHART]
<PAGE> 13
[POST-TRANSACTION STRUCTURE FLOW CHART]
<PAGE> 14
NEW GRACE INFORMATION STATEMENT
TABLE OF CONTENTS
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PAGE
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QUESTIONS AND ANSWERS ABOUT THE TRANSACTIONS................ 4
SUMMARY..................................................... 5
New Grace................................................. 5
The Spin-off and the Merger............................... 5
Tax Consequences of the Spin-off.......................... 6
Certain Risk Factors...................................... 6
CAPITALIZATION.............................................. 7
GRACE SUMMARY SELECTED FINANCIAL DATA....................... 8
NEW GRACE PRO FORMA SUMMARY FINANCIAL INFORMATION........... 10
CERTAIN RISK FACTORS........................................ 11
No Operating History as an Independent Company............ 11
Asbestos-Related Matters.................................. 11
No Prior Market for New Grace Common Stock................ 11
Dividend Policy and Share Repurchases..................... 12
Restrictions on New Grace to Protect Tax-Free Treatment... 12
Certain Anti-Takeover Provisions.......................... 13
Environmental Matters..................................... 13
Competition............................................... 13
THE SPIN-OFF................................................ 14
Manner of Effecting the Spin-off.......................... 14
Certain Federal Income Tax Consequences................... 14
Conditions; Termination................................... 14
Relationships after the Spin-off.......................... 15
Listing and Trading of New Grace Common Stock............. 15
REGULATORY MATTERS.......................................... 15
PRO FORMA FINANCIAL INFORMATION............................. 16
Unaudited Pro Forma Condensed Consolidated Balance
Sheet.................................................. 16
Unaudited Pro Forma Condensed Consolidated Statement of
Operations............................................. 17
Notes to Unaudited Pro Forma Condensed Consolidated
Balance Sheet and Statement of Operations.............. 21
BUSINESS OF NEW GRACE AND GRACE SPECIALTY CHEMICALS......... 23
Overview and Strategy..................................... 23
Specialty Chemicals Industry Overview..................... 23
Products and Markets...................................... 24
Research Activities....................................... 27
Patents and Other Intellectual Property Matters........... 27
Environmental, Health and Safety Matters.................. 27
Legal Proceedings and Regulatory Matters.................. 28
Properties................................................ 33
</TABLE>
1
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PAGE
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MANAGEMENT.................................................. 35
Board of Directors........................................ 35
Committees of the Board of Directors...................... 37
Compensation of Directors................................. 37
Executive Officers........................................ 38
Executive Compensation and Employee Benefits prior to the
Spin-off............................................... 38
Executive Compensation and Employee Benefits following the
Spin-off............................................... 38
Compensation Committee Interlocks and Insider
Participation.......................................... 39
CERTAIN AGREEMENTS BETWEEN NEW SEALED AIR AND NEW GRACE..... 40
CERTAIN RELATIONSHIPS AND TRANSACTIONS...................... 40
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS............. 41
BENEFICIAL OWNERSHIP OF MANAGEMENT.......................... 41
DESCRIPTION OF NEW GRACE CAPITAL STOCK...................... 42
Authorized Capital Stock.................................. 42
New Grace Common Stock.................................... 42
New Grace Preferred Stock................................. 42
New Grace Rights.......................................... 42
Preemptive Rights......................................... 44
CERTAIN ANTI-TAKEOVER PROVISIONS............................ 45
Classified Board of Directors............................. 45
Number of Directors; Removal; Filling Vacancies........... 46
No Stockholder Action by Written Consent; Special
Meetings............................................... 46
Advance Notice Provisions for Stockholder Nominations and
Stockholder Proposals.................................. 46
New Grace Preferred Stock................................. 47
Rights to Purchase Securities and Other Property.......... 48
Amendment of Certain Provisions of the New Grace
Certificate of Incorporation and the New Grace
By-laws................................................ 49
New Grace Rights.......................................... 49
Certain Anti-Takeover Features............................ 49
Anti-Takeover Statute..................................... 49
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS..... 51
Limitation of Liability of Directors...................... 51
Indemnification of Directors and Officers................. 51
Certain Other Information................................. 52
WHERE STOCKHOLDERS CAN FIND MORE INFORMATION................ 53
STOCKHOLDER PROPOSALS....................................... 53
INDEX OF DEFINED TERMS...................................... 54
</TABLE>
2
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ANNEXES
A -- Form of Amended and Restated Certificate of Incorporation of
New Grace................................................. A-1
B -- Form of Amended and Restated By-laws of New Grace........... B-1
C -- Form of New Grace 1998 Stock Incentive Plan................. C-1
D -- Form of New Grace 1998 Stock Plan for Nonemployee
Directors................................................. D-1
E -- Grace 1997 Proxy Excerpt.................................... E-1
F -- Grace Financial Information for the Year Ended December 31,
1996 (including the Consolidated Financial Statements,
Financial Summary and Management's Discussion and Analysis
of Results of Operations and Financial Condition)......... F-1
G -- Grace Financial Information for the Quarter Ended September
30, 1997 (including the Third Quarter Financial Statements
and Management's Discussion and Analysis of Results of
Operations and Financial Condition)....................... G-1
</TABLE>
3
<PAGE> 17
QUESTIONS AND ANSWERS ABOUT THE TRANSACTIONS
Q. WHEN WILL THE SPIN-OFF OF NEW GRACE OCCUR?
A. We expect to complete the Spin-off shortly after the Grace and Sealed Air
stockholder meetings, late in the 1998 first quarter, so long as Grace
stockholders approve the Spin-off and Merger, and other conditions
(including approval of the Merger by Sealed Air stockholders) are satisfied
or waived.
Q. WHAT WILL BE NEW GRACE'S BUSINESSES?
A. After the Spin-off, New Grace will operate the specialty chemicals
businesses currently owned by Grace: Grace Davison, Grace Construction
Products and Darex Container Products. Please read the information on New
Grace's business and the associated risks beginning on pages 11 and 23.
Q. WHAT WILL I RECEIVE IN THE PROPOSED TRANSACTIONS?
A. As a result of the Spin-off, for every share of Grace common stock you own,
you will receive one share of New Grace common stock, together with an
associated preferred share purchase right similar to the rights you have
with your existing Grace shares. Just before the Merger, your Grace common
stock will be recapitalized (the Recapitalization). As a result of the
Recapitalization, Grace stockholders will also receive shares of New Sealed
Air common and convertible preferred stock representing, in total, 63% of
New Sealed Air. Within a few weeks after the transactions are completed, you
will receive your New Grace common stock and written instructions for
exchanging your existing Grace common stock for shares of New Sealed Air
common and convertible preferred stock.
Q. DO I HAVE TO PAY TAXES ON THE RECEIPT OF NEW GRACE COMMON STOCK?
A. The Spin-off is expected to be tax-free to Grace stockholders for U.S.
federal income tax purposes. After the transactions are completed, you will
receive information on the allocation of your tax basis among your shares of
New Grace and New Sealed Air. To review the tax consequences of the Spin-off
and Merger in greater detail, see the Joint Proxy Statement/Prospectus.
Q. WILL NEW GRACE PAY DIVIDENDS?
A. New Grace is not currently expected to pay dividends.
Q. WILL MY NEW GRACE STOCK BE LISTED ON THE NEW YORK STOCK EXCHANGE?
A. Yes, we anticipate that New Grace common stock will be listed for trading
under the symbol "GRA."
Q. WHAT DO I NEED TO DO NOW?
A. Complete, sign and mail your proxy card in the enclosed return envelope as
soon as possible, so that your shares will be represented at the Grace
stockholder meeting. YOU SHOULD NOT SEND IN YOUR STOCK CERTIFICATES AT THIS
TIME. If you continue to hold your Grace shares at the time of the Spin-off,
you will automatically receive New Grace shares. After the Merger, you will
receive instructions for exchanging your Grace stock for New Sealed Air
common and convertible preferred stock, as well as cash instead of
fractional shares, as described in the Joint Proxy Statement/Prospectus.
4
<PAGE> 18
SUMMARY
This summary highlights selected information from this document. It may not
contain all of the information that is important to you. To better understand
the transactions, and for a more complete description of the Spin-off and the
Merger, you should carefully read this entire document, the Joint Proxy
Statement/Prospectus and the other documents we refer to. See "Where
Stockholders Can Find More Information."
If you have questions about Grace or New Grace or your holdings in either
company, please contact:
W. R. Grace & Co.
One Town Center Road
Boca Raton, FL 33486
(800) 354-8917
NEW GRACE (SEE PAGE 23)
New Grace will be the parent company of W. R. Grace & Co.-Conn. (Grace
Specialty Chemicals*), which is primarily engaged in specialty chemicals
businesses on a worldwide basis. Grace Specialty Chemicals primarily operates
through the following three units:
- Grace Davison manufactures catalysts, including fluid cracking catalysts
that "crack" crude oil into transportation fuels and other
petroleum-based products, as well as polyolefin catalysts that are
critical in the manufacture of polyethylene resins for plastic film,
high-performance pipe and household containers. Grace Davison also
manufactures silica and zeolite adsorbents, which are used in a wide
variety of products, such as plastics, toothpastes, paints and insulated
glass, as well as in the refining of edible oils. Grace Davison accounted
for approximately 43% of Grace Specialty Chemicals' 1996 sales and
revenues from continuing operations.
- Grace Construction Products produces construction chemicals, including
performance-enhancing concrete admixtures, cement additives and masonry
products; and specialty building materials, including fireproofing and
waterproofing materials. Grace Construction Products accounted for
approximately 25% of Grace Specialty Chemicals' 1996 sales and revenues
from continuing operations.
- Darex Container Products produces container and closure sealants that
protect food and beverages from bacteria and other contaminants, extend
shelf life and preserve flavor, and coatings used in the manufacture of
cans and closures. Darex Container Products accounted for approximately
16% of Grace Specialty Chemicals' 1996 sales and revenues from continuing
operations.
Grace Specialty Chemicals' strategy has been and, following the Spin-off,
will be to enhance stockholder value by profitably growing its specialty
chemical businesses on a global basis and achieving high levels of financial
performance. To achieve these objectives, Grace Specialty Chemicals plans to (i)
use the funds to be received in the Cash Transfer to repay borrowings and to
invest in its businesses; (ii) invest in research and development activities,
with the goals of introducing new value-added products and services and
enhancing manufacturing processes; (iii) make selected strategic acquisitions;
and (iv) continue to implement process improvements and cost-management
initiatives, including rigorous controls on working capital and capital
spending. These plans are designed to make Grace Specialty Chemicals a
high-performance company focused on the strengths of its global specialty
chemicals businesses.
THE SPIN-OFF AND THE MERGER (SEE PAGE 14)
Grace and Sealed Air have agreed to combine Sealed Air with Grace's
packaging business, which we refer to as the "Packaging Business." In order to
separate the Packaging Business from Grace's other
- ---------------
* Information concerning Grace Specialty Chemicals in this Information Statement
is given on a pro forma basis, excluding Grace's packaging business (but
including specialty chemicals businesses sold in 1996 and 1997).
5
<PAGE> 19
businesses (which we refer to as the "Specialty Chemicals Businesses") and to
complete the Spin-off and the Merger, we will take the following steps:
- Grace will separate the Packaging Business and the Specialty Chemicals
Businesses into separate groups of subsidiaries.
- Grace and a Packaging Business subsidiary will then make the Cash
Transfer ($1.2 billion, subject to adjustment) to Grace Specialty
Chemicals, funded by new debt incurred by Grace and a Packaging Business
subsidiary.
- Grace will transfer the stock of Grace Specialty Chemicals to New Grace,
so that Grace Specialty Chemicals becomes a wholly owned subsidiary of
New Grace.
- Grace will distribute the shares of New Grace common stock to Grace's
stockholders, completing the Spin-off.
- Grace (then consisting only of the Packaging Business and the debt used
to finance the Cash Transfer) will be recapitalized, so that each share
of Grace common stock will be exchanged for a fraction of a share of New
Sealed Air common stock and a fraction of a share of New Sealed Air
convertible preferred stock. The actual amount of New Sealed Air common
and convertible preferred stock that you will receive will be calculated
shortly after the Recapitalization, using the formulas described under
"The Distribution and Merger Agreements -- Reorganization of Grace" on
page 65 of the Joint Proxy Statement/Prospectus.
Immediately after the Recapitalization, a wholly owned subsidiary of Grace
will be merged into Sealed Air in the Merger, so that Grace will become the
parent company of both Sealed Air and the Packaging Business. We refer to the
Spin-off, the Cash Transfer, the Recapitalization, the Merger and related
transactions as the "Transactions."
As a result of the Transactions, former stockholders of Grace will own (i)
100% of the Specialty Chemicals Businesses, through their ownership of New Grace
common stock, and (ii) a 63% interest (on an as-converted basis) in the
Packaging Business and the businesses of Sealed Air, through their ownership of
New Sealed Air common and convertible preferred stock.
Immediately after the Transactions, New Grace will change its name to "W.
R. Grace & Co." and Grace will change its name to "Sealed Air Corporation."
TAX CONSEQUENCES OF THE SPIN-OFF
For U.S. federal income tax purposes, the Spin-off is expected to be
tax-free to Grace and its stockholders. For a description of the material U.S.
federal income tax consequences of the Transactions to Grace and its
stockholders, please refer to "The Reorganization and Merger -- Certain United
States Federal Income Tax Consequences" on page 32 of the Joint Proxy
Statement/Prospectus.
CERTAIN RISK FACTORS (SEE PAGE 11)
Stockholders should carefully review the matters discussed under "Certain
Risk Factors."
6
<PAGE> 20
CAPITALIZATION
The table below shows the capitalization of Grace at September 30, 1997 and
the pro forma capitalization of New Grace at that date, giving effect to the
Transactions and other related transactions described in the notes to the
unaudited pro forma condensed consolidated balance sheet and statement of
operations. You should read this table along with those notes, our consolidated
financial statements for the year ended December 31, 1996 (the Consolidated
Financial Statements) and our unaudited consolidated financial statements for
the quarter ended September 30, 1997 (the Third Quarter Financial Statements),
included in Annexes F and G, respectively, to this Information Statement.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-----------------------
GRACE NEW GRACE
HISTORICAL PRO FORMA
---------- ---------
(DOLLARS IN MILLIONS,
EXCEPT PAR VALUE)
<S> <C> <C>
Debt, including short-term debt............................. $1,104.2 $ --
Shareholders' equity:
Grace common stock:
Common stock, $.01 par value: 300,000,000 shares
authorized; 80,316,000 issued; 74,092,000
outstanding............................................ $ .8 --
New Grace common stock:
Common stock, $.01 par value: 300,000,000 shares
authorized; 74,092,000 outstanding..................... -- $ .7
Paid in capital........................................... 593.1 258.7
Retained earnings......................................... 377.0 --
Cumulative translation adjustments........................ (154.0) (67.0)
Deferred compensation trust............................... (5.2) (5.2)
Treasury stock, at cost................................... (331.7) --
-------- ------
Total shareholders' equity............................. 480.0 187.2
-------- ------
Total capitalization................................... $1,584.2 $187.2
======== ======
</TABLE>
7
<PAGE> 21
GRACE SUMMARY SELECTED FINANCIAL DATA
The tables below show summary selected financial data of Grace. The
information for the years ended December 31, 1992 through 1996 is based on the
Consolidated Financial Statements, which have been audited by Price Waterhouse
LLP, independent certified public accountants. The information for the
nine-month periods ended September 30, 1997 and 1996 is based on the unaudited
Third Quarter Financial Statements, which, in the opinion of management, include
all adjustments necessary for a fair presentation. Certain amounts in prior
periods have been restated to conform to the current period's basis of
presentation. Operating results for the nine months ended September 30, 1997 are
not necessarily indicative of the results for the year ended December 31, 1997.
It is important that you read this selected consolidated financial
information together with "Management's Discussion and Analysis of Results of
Operations and Financial Condition," the Consolidated Financial Statements and
the Third Quarter Financial Statements included elsewhere in this Information
Statement.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------- -------------------
1996 1995 1994 1993 1992 1997 1996
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales and revenues........... $3,454.1 $3,552.6 $3,128.5 $2,824.7 $2,985.2 $2,460.7 $2,603.2
Income/(loss) from continuing
operations................. 213.8 (179.6) (35.1) 28.1 7.7 222.5 333.0
Earnings/(loss) per share
from continuing
operations................. 2.32 (1.87) (.38) .30 .08 2.92 3.42
Dividends declared per common
share...................... .50 1.175 1.40 1.40 1.40 .415 .375
BALANCE SHEET DATA (AT END OF
PERIOD):
Total assets................. $4,945.8 $6,360.6 $6,230.6 $6,108.6 $5,598.6 $4,200.0 $5,346.8
Long-term debt............... 1,073.0 1,295.5 1,098.8 1,173.5 1,354.5 1,062.7 741.6
Total liabilities............ 4,313.4 5,128.8 4,726.1 4,591.0 4,053.6 3,720.0 4,076.4
Total equity................. 632.4 1,231.8 1,504.5 1,517.6 1,545.0 480.0 1,270.4
</TABLE>
RECENT RESULTS
On February 3, 1998, Grace reported income from continuing operations for
the fourth quarter of 1997 of $26.1 million, or $.35 per share, compared to a
loss of $1.44 per share in the prior-year quarter. Included in the results for
the 1997 quarter were special charges that reduced earnings by $.58 per share.
Results for the 1997 quarter also reflected a $.06 per share negative impact on
earnings due to foreign currency translation and a nonrecurring charge of $.05
per share reflecting an adjustment to the carrying values of certain capitalized
assets.
The special charges in the 1997 quarter included an asset impairment charge
of $34.4 million ($24.5 million after-tax), primarily comprised of the write-off
of capitalized software projects no longer needed in Grace's operations, the
write-down of certain production equipment of the Packaging Business, and the
write-off of certain corporate research facilities; and restructuring charges of
$15.1 million ($9.2 million after-tax), consisting of costs for corporate and
international staff reductions relating to the Spin-off and Merger. Also
included in the 1997 quarter was an unbudgeted charge of $13 million ($8 million
after-tax) for long-term incentive compensation plans, resulting from the
continued above-market performance of Grace common stock in the quarter. Other
costs related to the Spin-off and Merger were $1.7 million ($1.1 million
after-tax).
Sales (excluding divested businesses) were $852 million in the 1997
quarter, up 2% from the prior-year level of $832 million. Excluding the effect
of currency translation, sales were up 8% compared to the 1996 quarter.
8
<PAGE> 22
Full-year 1997 income from continuing operations was $249 million, or $3.36
per share, compared to $214 million, or $2.32 per share, in 1996. In addition to
the fourth quarter special charges, full-year 1997 earnings included an
after-tax gain of $63 million ($.85 per share) from the second quarter sale of
Grace's specialty polymers business and an after-tax restructuring charge of $8
million ($.11 per share) associated with the second quarter reorganization of
the Packaging Business. Currency translation had a $.20 per share negative
impact on full-year results. Income from continuing operations for the full-year
1996 included after-tax charges of $70 million ($.76 per share) for
restructuring and $149 million ($1.62 per share) for asbestos and after-tax
gains of $210 million ($2.28 per share) on sales of businesses.
Full-year 1997 net income was $261 million, including $12 million from
discontinued operations, primarily relating to Grace's divested cocoa business
unit, as well as the gains and charges discussed above. Net income of $2.9
billion in 1996 included a $2.5 billion gain from the disposition of Grace's
former health care unit.
Sales for 1997 (excluding divested units) increased 3% over 1996, or 8%
before currency translation.
9
<PAGE> 23
NEW GRACE PRO FORMA SUMMARY FINANCIAL INFORMATION
The tables below show pro forma summary financial information for New
Grace. It is important that you read this pro forma summary financial
information together with the unaudited pro forma financial information included
elsewhere in this Information Statement. The pro forma financial information in
these tables may not be indicative of the future financial position or results
of operations of New Grace as a separate, stand-alone company. Operating results
for the nine months ended September 30, 1997 are not necessarily indicative of
the results for the year ended December 31, 1997. See "Grace Summary Selected
Financial Data -- Recent Results."
<TABLE>
<CAPTION>
Nine Months Ended
Years Ended December 31, September 30,
------------------------------ -------------------
1996(a) 1995(b) 1994(b) 1997(a) 1996(b)
-------- -------- -------- -------- --------
(Dollars in millions, except per share data)
<S> <C> <C> <C> <C> <C>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS DATA:
Sales and revenues........................ $1,718.7 $1,860.5 $1,711.0 $1,114.1 $1,336.2
Income/(loss) from continuing
operations.............................. 145.2 (299.6) (167.6) 135.4 267.2
Primary earnings per share from continuing
operations.............................. 1.54 (3.07) (1.78) 1.78 2.75
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------
<S> <C>
UNAUDITED PRO FORMA BALANCE SHEET DATA (AT END OF PERIOD):
Total assets................................................ $2,516.7
Long-term debt.............................................. --
Total liabilities........................................... 2,329.5
Total equity................................................ 187.2
</TABLE>
- ---------------
(a) The unaudited pro forma summary financial information for New Grace has been
derived from the historical consolidated statement of operations of Grace,
adjusted to reflect the separation of the Packaging Business and the
reduction in interest expense expected to result from the use of the funds
received in the Cash Transfer to repay borrowings. This pro forma summary
financial information has been prepared on the assumption that the
Transactions occurred on January 1, 1996.
(b) The unaudited pro forma summary financial information for New Grace has been
derived from the historical consolidated statement of operations of Grace,
adjusted to reflect the separation of the Packaging Business and an
allocation of interest expense to the Packaging Business based on the ratio
of the net assets of the Packaging Business to Grace's total capital. This
pro forma summary financial information also differs from the unaudited pro
forma summary financial information for New Grace for the year ended
December 31, 1996 and the nine months ended September 30, 1997 in that it
does not give effect to the Cash Transfer or the resultant repayment of
Grace Specialty Chemicals borrowings using funds received in the Cash
Transfer.
10
<PAGE> 24
CERTAIN RISK FACTORS
In evaluating New Grace and the Specialty Chemicals Businesses, you should
carefully review the following risk factors, together with the other information
in this Information Statement. You should also carefully review "Certain Risk
Factors" in the Joint Proxy Statement/Prospectus.
We also caution you that this Information Statement contains
forward-looking statements, which include all statements regarding New Grace's
expected financial position, results of operations, cash flows, dividends,
financing plans, business strategy, budgets, capital and other expenditures,
competitive positions, growth opportunities for existing products, benefits from
new technology, plans and objectives of management, and markets for stock.
Although we believe that our expectations reflected in such forward-looking
statements are based on reasonable assumptions, such expectations may not prove
to be correct. Important factors that could cause actual results to differ
materially from the expectations reflected in our forward-looking statements
include those set forth below as well as general economic, business and market
conditions, customer acceptance of new products, efficacy of new technology,
changes in U.S. and non-U.S. laws and regulations, costs or difficulties
relating to the establishment of New Grace as an independent entity and
increased competitive and/or customer pressures.
NO OPERATING HISTORY AS AN INDEPENDENT COMPANY
New Grace was formed in August 1997 to facilitate the Transactions. New
Grace, in the form in which it will exist after the Transactions, does not have
an independent history as a stand-alone public company. For many years, the
Packaging Business has generated funds from operations that have been used in
the Specialty Chemicals Businesses and for Grace's general corporate purposes,
such as dividends and share repurchases. Following the Spin-off, New Grace will
not have access to the cash flow of the Packaging Business.
ASBESTOS-RELATED MATTERS
Grace Specialty Chemicals is a defendant in property damage and personal
injury lawsuits relating to previously sold asbestos-containing products and
anticipates that it and/or New Grace will be named as a defendant in additional
asbestos-related lawsuits in the future. We cannot predict whether and to what
extent asbestos-related property damage lawsuits and claims will be brought
against us in the future, or the expenses involved in defending against and
disposing of such lawsuits and claims. At September 30, 1997, the liability
recorded on Grace's books with respect to the defense and disposition of
asbestos-related lawsuits and claims was $910.5 million, including a current
liability of $135.0 million. In addition, at September 30, 1997, Grace had
recorded a receivable of $295.4 million, reflecting amounts that Grace believes
will ultimately be recovered from insurance carriers with respect to its
asbestos-related lawsuits and claims. For information regarding noncash charges
previously recorded by Grace in respect of its asbestos-related lawsuits and
claims, see "Asbestos-Related Liability" in Note 2 to the Consolidated Financial
Statements included in Annex F to this Information Statement. We believe that we
do have adequate experience to reasonably estimate the number of
asbestos-related personal injury claims that will be brought against us through
2001 and have recorded non-cash charges for those claims. New Grace's ultimate
exposure with respect to its asbestos-related lawsuits and claims will depend on
the number and nature of claims filed and the extent to which insurance will
cover damages for which it may be held liable, amounts paid in settlement and
litigation costs. See "Business of New Grace and Grace Specialty
Chemicals -- Legal Proceedings and Regulatory Matters" for further information.
NO PRIOR MARKET FOR NEW GRACE COMMON STOCK
There is no current public trading market for New Grace common stock. New
Grace will apply to list its common stock on the New York Stock Exchange, Inc.
(the "NYSE") under the symbol "GRA." New Grace expects approximately 75,000,000
million shares to initially be issued and outstanding, approximately 4,000,000
million shares to be subject to outstanding options and approximately 16,000
holders of record.
We expect "when-issued" trading in New Grace common stock to develop before
the time when the Spin-off occurs (the "Time of Spin-off"); this means that
shares may be traded before the Time of Spin-off
11
<PAGE> 25
and before New Grace stock certificates are issued. We cannot predict the prices
at which New Grace common stock may trade, either before the Spin-off on a
"when-issued" basis or after the Spin-off. Until an orderly market develops, the
trading prices of such stock may fluctuate significantly. The trading prices of
New Grace common stock will be determined by the marketplace and may be
influenced by many factors, including the depth and liquidity of the market for
such shares, investor perceptions of New Grace and the industries in which it
participates, New Grace's dividend policy and general economic and market
conditions. Such prices may also be affected by certain anti-takeover provisions
of the Amended and Restated Certificate of Incorporation of New Grace (the "New
Grace Certificate"), the Amended and Restated By-laws of New Grace (the "New
Grace By-laws") and the New Grace Rights (as defined below), in each case as in
effect following the Spin-off. See "-- Restrictions on Grace to Protect Tax-Free
Treatment" and "Certain Anti-Takeover Provisions."
The New Grace common stock will be freely transferable, except for shares
of New Grace common stock received by "affiliates" of New Grace under the
Securities Act. Persons who may be deemed affiliates of New Grace after the
Spin-off generally include its directors and executive officers, as well as any
principal stockholders of New Grace. See "Security Ownership of Certain
Beneficial Owners" and "Beneficial Ownership of Management." Affiliates of New
Grace will be permitted to sell their shares of New Grace common stock only
pursuant to an effective registration statement under the Securities Act or an
exemption from the registration requirements of the Securities Act, such as the
exemption afforded by Rule 144 under the Securities Act. New Grace does not
currently intend to file any such registration statement under the Securities
Act. Based on the number of shares of New Grace common stock expected to be held
by directors and executive officers of New Grace following the Spin-off,
approximately 74,900,000 shares of New Grace common stock will be available for
sale pursuant to such exemptions.
DIVIDEND POLICY AND SHARE REPURCHASES
New Grace does not intend to pay dividends on the New Grace common stock
following the Spin-off. In addition, although New Grace may repurchase shares of
its common stock from time to time as circumstances allow, the declaration and
payment of cash dividends and the repurchase of shares will be at the sole
discretion of the New Grace Board of Directors (the "New Grace Board") and will
depend on New Grace's ability to declare and pay dividends and to repurchase
shares under its credit and financing agreements, as well as on the future
operating results and financial condition of New Grace, its capital requirements
and future prospects, general business conditions and other factors. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition -- Financial Condition -- Liquidity and Capital Resources" included in
Annexes F and G and "-- Restrictions on Grace to Protect Tax-Free Treatment" and
"Certain Anti-Takeover Provisions."
RESTRICTIONS ON NEW GRACE TO PROTECT TAX-FREE TREATMENT
To protect the tax-free treatment of the Transactions under U.S. federal
income tax laws, Grace and Sealed Air have agreed that, for two years after the
Merger, subject to certain exceptions:
- New Grace and its affiliates may not repurchase 20% or more of New
Grace's equity securities (subject to certain additional limitations).
- New Grace and its affiliates may not issue or sell New Grace equity
securities, and they may not solicit, support or participate in any
tender offer for New Grace equity securities, or approve or permit any
business combination or other transaction, that (alone or together with
the Merger) will result in one or more persons obtaining a 50% or greater
interest in New Grace.
- New Grace must continue to operate the Specialty Chemicals Businesses and
may not sell or otherwise dispose of more than 60% of the Specialty
Chemicals Businesses' assets except in the ordinary course of business.
- The subsidiaries engaged in the Specialty Chemicals Businesses may not
voluntarily dissolve, liquidate, merge, consolidate or reorganize.
12
<PAGE> 26
These restrictions may limit the ability of New Grace to engage in certain
business transactions that otherwise might be advantageous for New Grace and its
stockholders, and could deter potential acquisitions of control of New Grace.
The restrictions are designed to protect the tax-free treatment of the
Transactions for U.S. federal income tax purposes. Accordingly, New Grace may
engage in a restricted transaction so long as it (i) obtains a ruling from the
Internal Revenue Service ("IRS") or an opinion of tax counsel that the
transaction will not adversely affect the tax-free treatment of the Transactions
and (ii) indemnifies New Sealed Air against adverse tax consequences arising
from the transaction. See "The Reorganization and Merger -- Certain United
States Federal Income Tax Consequences" in the Joint Proxy Statement/
Prospectus.
CERTAIN ANTI-TAKEOVER PROVISIONS
The New Grace Certificate, the New Grace By-laws, the New Grace Rights and
the Delaware General Corporation Law (the "Delaware Law") contain provisions
that could delay or prevent a change in control of New Grace in a transaction
not approved by the New Grace Board. In addition, the New Grace Board has
adopted certain other programs, plans and agreements with its management and/or
employees which may make such a change of control more expensive. See
"-- Certain Federal Income Tax Consequences" and "Certain Anti-Takeover
Provisions."
ENVIRONMENTAL MATTERS
Like others in similar businesses, Grace is, and New Grace will be, subject
to extensive U.S. federal, state and local and foreign environmental laws and
regulations. Although New Grace's environmental policies and practices are
designed to ensure compliance with these laws and regulations, future
developments (including increasingly stringent regulation) could require New
Grace to make unforeseen expenditures relating to environmental matters.
Although the amount of future expenditures for such matters cannot be determined
with any degree of certainty, based on the facts presently known to us, we do
not believe that such costs will have a material effect on New Grace's financial
position, results of operations, or liquidity. See "Management's Discussion and
Analysis of Results of Operations and Financial Condition -- Environmental
Matters," included in Annexes F and G, and "Business of New Grace and Grace
Specialty Chemicals -- Environmental, Health and Safety Matters" and "-- Legal
Proceedings and Regulatory Matters -- Environmental Proceedings."
COMPETITION
New Grace's Specialty Chemicals Businesses are in highly competitive
industries. The Specialty Chemicals Businesses are market leaders in most of
their product lines and are subject to significant competition from other
manufacturers worldwide. Competition is based on, among other things,
technological capability, product performance, customer service and price.
13
<PAGE> 27
THE SPIN-OFF
In the Spin-off, holders of Grace common stock will receive a dividend of
one share of New Grace common stock for each share of Grace common stock held of
record at the Time of Spin-off. The terms and conditions of the Spin-off are set
forth in the Distribution Agreement by and among Grace, Grace Specialty
Chemicals and New Grace (the "Distribution Agreement"), and the Agreement and
Plan of Merger, dated as of August 14, 1997, by and among Grace, a Packaging
Business subsidiary and Sealed Air (the "Merger Agreement," and, together with
the Distribution Agreement and related agreements, the "Transaction
Agreements"). See "Certain Agreements between Grace and New Grace." Following
the Spin-off, New Grace will be the parent company of Grace Specialty Chemicals
(which, in turn, will continue to own and operate the Specialty Chemicals
Businesses), and New Sealed Air's operations will consist of the Packaging
Business, which will be combined with Sealed Air in the Merger.
Holders of record of Grace common stock with inquiries relating to the
Spin-off should contact ChaseMellon Shareholder Services, L.L.C. (the
"Distribution Agent") by telephone at (800) 648-8392 or should contact W. R.
Grace & Co. in writing at One Town Center Road, Boca Raton, Florida 33486-1010
or by telephone at (800) 354-8917.
MANNER OF EFFECTING THE SPIN-OFF
At the Time of Spin-off, Grace will effect the Spin-off by delivering
certificates representing all of the issued and outstanding shares of New Grace
common stock to the Distribution Agent, which, in turn, will distribute such
shares on the basis of one share of New Grace common stock for each share of
Grace common stock held of record at the Time of Spin-off. No holder of Grace
common stock will be required to pay any cash or other consideration for the
shares of New Grace common stock, or to surrender or exchange shares of Grace
common stock, in order to receive shares of New Grace common stock. It is
expected that certificates representing shares of New Grace common stock will be
mailed by the Distribution Agent to holders of Grace common stock as promptly as
practicable after the Time of Spin-off, and that such mailing will occur at
approximately the same time as the mailing of the instructions for exchanging
Grace stock certificates for New Sealed Air common and convertible preferred
stock.
Shares Outstanding following the Spin-off. The actual number of shares of
New Grace common stock to be distributed in the Spin-off will equal the number
of shares of Grace common stock outstanding at the Time of Spin-off. Based upon
the shares of Grace common stock outstanding on February 11, 1998, approximately
75,000,000 shares of New Grace common stock will be distributed in the Spin-off.
Following the Spin-off, approximately 225,000,000 shares of New Grace common
stock will remain authorized but unissued, of which approximately 21,000,000
will be reserved for issuance pursuant to employee and director stock plans. In
the Spin-off and the Merger, employee stock options to purchase Grace common
stock that are held by persons employed in the Packaging Business will be
converted into options to purchase New Sealed Air common stock, and all other
employee stock options to purchase Grace common stock will be converted into
options to purchase New Grace common stock; in either case, options remaining
outstanding following the Spin-off and the Merger will be adjusted to preserve
their economic value. See "Management -- Executive Compensation and Employee
Benefits following the Spin-off."
Intercompany Transactions. Prior to the Spin-off, Grace and a Packaging
Business subsidiary will effect the Cash Transfer to the Specialty Chemicals
Businesses by borrowing approximately $1.2 billion and transferring cash to the
Specialty Chemicals Businesses in that amount, subject to certain adjustments as
described in the Distribution Agreement. See "Certain Agreements between Grace
and New Grace."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
For a description of the material U.S. federal income tax consequences of
the Transactions to Grace and Grace's stockholders, please refer to "The
Reorganization and Merger -- Certain United States Federal Income Tax
Consequences" in the Joint Proxy Statement/Prospectus.
CONDITIONS; TERMINATION
The Spin-off is conditioned upon, among other things, (i) the approval of
the Transactions by Grace stockholders, (ii) the satisfaction or waiver of all
conditions to the Transactions set forth in the Merger
14
<PAGE> 28
Agreement and the Distribution Agreement, and (iii) the compliance of the
Transactions with applicable U.S. federal and state securities laws.
The Spin-off will be consummated immediately prior to the Recapitalization,
and the Recapitalization will be consummated immediately prior to the Merger.
The Spin-off and the Recapitalization will each be consummated only after the
satisfaction or waiver of all conditions to the Merger. In addition,
consummation of the Spin-off is a condition to the consummation of the Merger.
The Distribution Agreement may be terminated, and the Spin-off may be abandoned,
only following termination of the Merger Agreement, by and in the sole
discretion of the Board of Directors of Grace (the "Grace Board"), without the
approval of Grace's stockholders or any other party. See "The Reorganization and
Merger -- Conditions; Termination" in the Joint Proxy Statement/Prospectus. In
the event of such termination or abandonment, Grace will have no liability to
any person under the Distribution Agreement or any obligation to effect the
Spin-off.
RELATIONSHIPS AFTER THE SPIN-OFF
As a result of the Spin-off, New Sealed Air will cease to be affiliated
with New Grace and Grace Specialty Chemicals, and New Grace will operate as a
separate publicly held company. After the Spin-off, shares of New Grace common
stock will trade independently from shares of New Sealed Air common and
convertible preferred stock. See "Certain Agreements between New Sealed Air and
New Grace" and "Certain Relationships and Transactions."
LISTING AND TRADING OF NEW GRACE COMMON STOCK
The New Grace common stock is expected to be listed on the NYSE, under the
symbol "GRA." There is currently no public trading market for New Grace common
stock. The prices at which New Grace common stock may trade prior to or
following the Spin-off cannot be predicted. See "Certain Risk Factors -- No
Prior Market for New Grace Common Stock." A when-issued trading market is
expected to develop prior to the Time of Spin-off. The term "when-issued" means
that shares can be traded before the Spin-off occurs and New Grace stock
certificates are actually available or issued. The prices at which the shares of
New Grace common stock may trade on a when-issued basis or after the Spin-off
cannot be predicted.
At the Time of Spin-off, New Grace expects to have approximately 16,000
stockholders of record, based upon the number of holders of record of Grace
common stock as of February 11, 1998. The transfer agent and registrar for the
New Grace common stock will be ChaseMellon Shareholder Services, L.L.C. The
number of shares covered by options to acquire Grace common stock and their
exercise prices will be adjusted following the Spin-off to preserve the economic
value that they had prior to the Spin-off.
New Grace common stock will be freely transferable, except for shares
received by "affiliates" of New Grace under the Securities Act of 1933, as
amended (the "Securities Act"). Persons who may be deemed to be affiliates of
New Grace generally include its directors and executive officers, as well as any
principal stockholders of New Grace. Affiliates of New Grace may sell their
shares of New Grace common stock only pursuant to an effective registration
statement under the Securities Act or an exemption from the registration
requirements of the Securities Act, such as the exemptions afforded by Section
4(2) of the Securities Act and Rule 144 under the Securities Act. New Grace does
not currently intend to file any such registration statement under the
Securities Act.
REGULATORY MATTERS
Other than as described in the Joint Proxy Statement/Prospectus, all
material U.S. federal or state and foreign regulatory approvals required in
connection with the Spin-off have been obtained. For a discussion of U.S. and
foreign regulatory approvals with respect to the Transactions, please refer to
"The Reorganization and Merger -- Regulatory Matters" in the Joint Proxy
Statement/Prospectus.
The Merger Agreement requires Grace and Sealed Air to use reasonable
efforts to promptly make any filings or take other actions necessary to obtain
required governmental approvals. In addition, the Distribution Agreement
provides that Grace, Grace Specialty Chemicals and New Grace will cooperate to
obtain all necessary consents and approvals, and to make all necessary filings
and applications, that may be required for the consummation of the transactions
contemplated by the Distribution Agreement.
15
<PAGE> 29
PRO FORMA FINANCIAL INFORMATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
The table below shows the unaudited pro forma condensed consolidated
balance sheet of New Grace. This balance sheet is based on the historical
consolidated balance sheet of Grace at September 30, 1997 and assumes that the
Transactions had occurred on that date. It is intended to give you an idea of
what New Grace's business would have looked like had the Transactions already
occurred.
It is important that you read this pro forma condensed consolidated balance
sheet together with the Consolidated Financial Statements included in Annex F,
and the Third Quarter Financial Statements included in Annex G, to this
Information Statement. You should not rely on this balance sheet as being
indicative of the financial position of New Grace that would have resulted if
the Transactions had occurred on September 30, 1997.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
--------------------------------------------------------------
PRO FORMA
ADJUSTMENTS
GRACE PACKAGING -------------------- NEW GRACE
HISTORICAL BUSINESS(A) DEBIT CREDIT PRO FORMA
---------- ----------- -------- -------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents......................... $ 66.2 $1,240.8(b) $1,104.2(b)
155.8(b) $ 47.0
Notes and accounts receivable, net................ 616.0 $ 272.8 343.2
Other current assets.............................. 539.3 256.6 1.8(c) 284.5
-------- --------
Total Current Assets.......................... 1,221.5 674.7
Properties and equipment, net....................... 1,771.5 1,082.3 689.2
Other assets........................................ 1,207.0 71.7 17.5(b) 1,152.8
-------- --------
Total Assets.................................. $4,200.0 $2,516.7
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term debt................................... $ 41.5 41.5(b) $ --
Other current liabilities......................... 1,008.0 205.9 4.8(c) 806.9
-------- --------
Total Current Liabilities..................... 1,049.5 806.9
Long-term debt...................................... 1,062.7 1,062.7(b) --
Other liabilities................................... 832.3 95.7 30.3(c) 40.8(c) 747.1
Noncurrent liabilities for asbestos-related
litigation........................................ 775.5 775.5
-------- --------
Total Liabilities............................. 3,720.0 2,329.5
-------- --------
Commitments and Contingencies
Shareholders' Equity
Common stock...................................... 0.8 0.1(d) 0.7
Paid in capital................................... 593.1 33.6(d)
300.8(e) 258.7
Retained earnings................................. 377.0 1,468.8 138.3(b) 1,240.8(b)
13.5(c) 300.8(e)
298.0(d) --
Cumulative translation adjustments................ (154.0) (87.0) (67.0)
Deferred compensation trust....................... (5.2) (5.2)
Treasury stock, at cost........................... (331.7) 331.7(d) --
-------- --------
Total Shareholders' Equity.................... 480.0 187.2
-------- --------
Total Liabilities and Shareholders' Equity.... $4,200.0 $2,516.7
======== ========
</TABLE>
THE NOTES TO THIS UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
ARE AN INTEGRAL PART OF THE PRO FORMA FINANCIAL INFORMATION PRESENTED.
16
<PAGE> 30
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
The table below shows the unaudited pro forma condensed consolidated
statement of operations of New Grace. This statement of operations is based on
the historical consolidated statement of operations of Grace and assumes that
the Transactions occurred on January 1, 1996. It is intended to give you an idea
of what New Grace's business would have looked like had the Transactions already
occurred.
It is important that you read this pro forma condensed consolidated
statement of operations together with the Consolidated Financial Statements
included in Annex F, and the Third Quarter Financial Statements included in
Annex G, to this Information Statement. You should not rely on this statement of
operations as being indicative of the historical results that New Grace would
have had if the Transactions had already occurred, or the results that New Grace
will experience after the Transactions.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------------
PRO FORMA
ADJUSTMENTS
GRACE PACKAGING --------------- NEW GRACE
HISTORICAL BUSINESS(F) DEBIT CREDIT PRO FORMA
---------- ----------- ----- ------ ----------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Sales and revenues........................... $3,454.1 $1,735.4 $1,718.7
Other income................................. 38.9 8.0 30.9
-------- -------- --------
Total................................... 3,493.0 1,743.4 1,749.6
-------- -------- --------
Cost of goods sold and operating expenses.... 2,071.0 1,079.5 991.5
Selling, general and administrative
expenses................................... 713.3 281.7 431.6
Depreciation and amortization................ 184.4 92.0 92.4
Interest expense and related financing
costs...................................... 71.6 2.0 $54.2(g) 15.4
Research and development expenses............ 93.9 43.5 50.4
Restructuring costs and asset impairments.... 107.5 74.9 32.6
Provision relating to asbestos-related
liabilities and insurance coverage......... 229.1 -- 229.1
Gain on sales of businesses.................. (326.4) -- (326.4)
-------- -------- --------
Total................................... 3,144.4 1,573.6 1,516.6
-------- -------- --------
Income from continuing operations before
income taxes............................... 348.6 169.8 233.0
Provision for income taxes................... 134.8 66.0 $19.0(h) 87.8
-------- -------- --------
Income from continuing operations............ $ 213.8 $ 103.8 $ 145.2
======== ======== ========
Earnings per share:
Primary................................. $ 2.27 $ 1.54
Fully diluted........................... $ 2.26 $ 1.53
Weighted average shares of common stock
outstanding (in thousands):
Primary................................. 94,085 94,085
Fully diluted........................... 94,480 94,480
(CONT.)
</TABLE>
17
<PAGE> 31
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997
--------------------------------------------------------
PRO FORMA
ADJUSTMENTS
GRACE PACKAGING --------------- NEW GRACE
HISTORICAL BUSINESS(F) DEBIT CREDIT PRO FORMA
---------- ----------- ----- ------ ----------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Sales and revenues........................... $2,460.7 $1,346.6 $1,114.1
Other income................................. 36.5 3.4 33.1
-------- -------- --------
Total................................... 2,497.2 1,350.0 1,147.2
-------- -------- --------
Cost of goods sold and operating expenses.... 1,492.4 813.3 679.1
Selling, general and administrative
expenses................................... 467.9 226.7 241.2
Depreciation and amortization................ 145.5 78.8 66.7
Interest expense and related financing
costs...................................... 58.6 -- $51.7(g) 6.9
Research and development expenses............ 66.9 33.1 33.8
Restructuring costs.......................... 12.4 8.4 4.0
Gain on sales of businesses.................. (103.1) -- (103.1)
-------- -------- --------
Total................................... 2,140.6 1,160.3 928.6
-------- -------- --------
Income from continuing operations before
income taxes............................... 356.6 189.7 218.6
Provision for income taxes................... 134.1 69.0 $18.1(h) 83.2
-------- -------- --------
Income from continuing operations............ $ 222.5 $ 120.7 $ 135.4
======== ======== ========
Earnings per share:
Primary................................. $ 2.92 $ 1.78
Fully diluted........................... $ 2.91 $ 1.77
Weighted average shares of common stock
outstanding (in thousands):
Primary................................. 76,180 76,180
Fully diluted........................... 76,572 76,572
</TABLE>
THE NOTES TO THIS UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS ARE AN INTEGRAL PART OF THE PRO FORMA FINANCIAL INFORMATION
PRESENTED.
18
<PAGE> 32
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
The table below shows the unaudited pro forma condensed consolidated
statement of operations of New Grace for the years ended December 31, 1994 and
1995 and the nine months ended September 30, 1996. This statement of operations
is based on the historical consolidated statement of operations of Grace,
adjusted to reflect the separation of the Packaging Business and an allocation
of interest expense to the Packaging Business based on the ratio of the net
assets of the Packaging Business to Grace's total capital. This unaudited pro
forma condensed consolidated statement of operations also differs from the
unaudited pro forma condensed consolidated statement of operations on the
preceding page in that it does not give effect to the Cash Transfer or the
resultant repayment of Grace Specialty Chemicals borrowings using funds received
in the Cash Transfer.
It is important that you read this pro forma condensed consolidated
statement of operations together with the Consolidated Financial Statements
included in Annex F, and the Third Quarter Financial Statements included in
Annex G, to this Information Statement. You should not rely on this statement of
operations as being indicative of the historical results that would actually
have resulted for New Grace had the Packaging Business been separated from Grace
on January 1, 1994.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
--------------------------------------------------------
PRO FORMA
ADJUSTMENTS
GRACE PACKAGING --------------- NEW GRACE
HISTORICAL BUSINESS(F) DEBIT CREDIT PRO FORMA
---------- ----------- ----- ------ ----------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Sales and revenues................................ $3,128.5 $1,417.5 $1,711.0
Other income...................................... 42.0 3.0 39.0
-------- -------- --------
Total........................................ 3,170.5 1,420.5 1,750.0
-------- -------- --------
Cost of goods sold and operating expenses......... 1,832.6 844.6 988.0
Selling, general and administrative expenses...... 785.9 248.2 537.7
Depreciation and amortization..................... 164.6 59.9 104.7
Interest expense and related financing costs...... 49.5 2.3 26.6(i) 20.6
Research and development expenses................. 99.6 37.7 61.9
Provision relating to asbestos-related liabilities
and insurance coverage.......................... 316.0 -- 316.0
-------- -------- --------
Total........................................ 3,248.2 1,192.7 2,028.9
-------- -------- --------
(Loss)/income from continuing operations before
income taxes.................................... (77.7) 227.8 (278.9)
(Benefit from)/provision for income taxes......... (42.6) 78.0 9.3(h) (111.3)
-------- -------- --------
(Loss)/income from continuing operations.......... $ (35.1) $ 149.8 $ (167.6)
======== ======== ========
Loss per share:
Primary...................................... $ (.38) $ (1.78)
Fully diluted................................ --(1) --(1)
Weighted average shares of common stock
outstanding (in thousands):
Primary...................................... 94,561 94,561
Fully diluted................................ 94,595 94,595
</TABLE>
- ------------------------
(1) Not presented as the effect is anti-dilutive.
19
<PAGE> 33
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
--------------------------------------------------------
PRO FORMA
ADJUSTMENTS
GRACE PACKAGING --------------- NEW GRACE
HISTORICAL BUSINESS(F) DEBIT CREDIT PRO FORMA
---------- ----------- ----- ------ ----------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Sales and revenues................................ $3,552.6 $1,692.1 $1,860.5
Other income...................................... 41.2 4.3 36.9
-------- -------- --------
Total........................................ 3,593.8 1,696.4 1,897.4
-------- -------- --------
Cost of goods sold and operating expenses......... 2,151.2 1,023.8 1,127.4
Selling, general and administrative expenses...... 913.7 297.0 616.7
Depreciation and amortization..................... 186.1 76.6 109.5
Interest expense and related financing costs...... 71.3 3.0 41.4(i) 26.9
Research and development expenses................. 111.6 42.8 68.8
Restructuring costs and asset impairments......... 169.0 17.7 151.3
Provision relating to asbestos-related liabilities
and insurance coverage.......................... 275.0 -- 275.0
-------- -------- --------
Total........................................ 3,877.9 1,460.9 2,375.6
-------- -------- --------
(Loss)/income from continuing operations before
income taxes.................................... (284.1) 235.5 (478.2)
(Benefit from)/provision for income taxes......... (104.5) 88.6 14.5(h) (178.6)
-------- -------- --------
(Loss)/income from continuing operations.......... $ (179.6) $ 146.9 $ (299.6)
======== ======== ========
Loss per share:
Primary...................................... $ (1.84) $ (3.07)
Fully diluted................................ --(1) --(1)
Weighted average shares of common stock
outstanding (in thousands):
Primary...................................... 97,669 97,669
Fully diluted................................ 98,011 98,011
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1996
--------------------------------------------------------
PRO FORMA
ADJUSTMENTS
GRACE PACKAGING --------------- NEW GRACE
HISTORICAL BUSINESS(F) DEBIT CREDIT PRO FORMA
---------- ----------- ----- ------ ----------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Sales and revenues................................ $2,603.2 $1,267.0 $1,336.2
Other income...................................... 6.3 4.6 21.7
-------- -------- --------
Total........................................ 2,629.5 1,271.6 1,357.9
-------- -------- --------
Cost of goods sold and operating expenses......... 1,565.7 785.9 779.8
Selling, general and administrative expenses...... 546.5 210.7 335.8
Depreciation and amortization..................... 134.2 69.2 65.0
Interest expense and related financing costs...... 54.9 1.5 37.5(i) 15.9
Research and development expenses................. 75.0 33.2 41.8
Restructuring costs............................... 53.7 37.0 16.7
Gain on sales of businesses....................... (326.4) -- (326.4)
-------- -------- --------
Total........................................ 2,103.6 1,137.5 928.6
-------- -------- --------
Income from continuing operations before income
taxes........................................... 525.9 134.1 429.3
Provision for income taxes........................ 192.9 43.9 13.1(h) 162.1
-------- -------- --------
Income from continuing operations................. $ 333.0 $ 90.2 $ 267.2
======== ======== ========
Earnings per share:
Primary...................................... $ 3.42 $ 2.75
Fully diluted................................ $ 3.40 $ 2.72
Weighted average shares of common stock
outstanding (in thousands):
Primary...................................... 97,166 97,166
Fully diluted................................ 98,015 98,015
</TABLE>
- ---------------
(1) Not presented as the effect is anti-dilutive.
THE NOTES TO THIS UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS ARE AN INTEGRAL PART OF THE PRO FORMA FINANCIAL INFORMATION
PRESENTED.
20
<PAGE> 34
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE
SHEET AND STATEMENT OF OPERATIONS
(DOLLARS IN MILLIONS, EXCEPT PAR VALUE)
------------------------
For accounting purposes, New Grace will receive the Cash Transfer and will
be deemed to receive a 63.0% equity interest in New Sealed Air and to
immediately distribute such interest to the holders of Grace common stock;
however, the receipt and distribution of the interest in New Sealed Air are not
reflected in the pro forma condensed consolidated balance sheet and statement of
operations.
------------------------
(a) Reflects the separation of $1,381.8 (the net assets of the
Packaging Business). The separation of the assets and liabilities of the
Packaging Business has been accounted for as a dividend to Grace
stockholders and, therefore, is not reflected in the pro forma condensed
consolidated statement of operations.
(b) The Distribution Agreement provides that, prior to the
Transactions, Grace and a Packaging Business subsidiary will borrow funds
and will transfer the net cash proceeds of such borrowings (estimated at
$1,240.8, subject to adjustment as provided in the Distribution Agreement)
to Grace Specialty Chemicals; included in the Cash Transfer is
approximately $40.8, which represents costs to be borne by the Packaging
Business in connection with the Transactions. A substantial portion of
these proceeds is expected to be used to repay all of Grace Specialty
Chemicals borrowings, resulting in an aggregate reduction of $1,104.2 in
its debt (consisting of $1,062.7 in long-term debt and $41.5 in short-term
debt). In the event that all Grace Specialty Chemicals borrowings are not
repaid, the pro forma condensed consolidated balance sheet would reflect an
increase in cash and cash equivalents and debt, and the pro forma condensed
consolidated statement of operations would reflect an increase in interest
expense and related financing costs. The net cash proceeds remaining after
the repayment of borrowings are expected to be used for general corporate
purposes of New Grace. It is expected that New Grace will incur expenses
totaling approximately $138.3 (net of $17.5 in tax benefits) in connection
with the Transactions, comprised primarily of debt retirement costs,
non-U.S. taxes, and investment banking, legal and accounting fees.
(c) As provided in the Merger Agreement, New Grace will retain certain
assets and liabilities of the Packaging Business subsequent to the
Transactions. These retained assets and liabilities (including the related
deferred tax assets and liabilities) are primarily comprised of U.S.
pension plan assets and accruals related to other postretirement health
care and life insurance benefits, long-term incentive compensation,
environmental remediation and certain tax benefits.
(d) In connection with the Spin-off, holders of Grace Common Stock
will receive one share of New Grace common stock for each share of Grace
common stock held of record at the Time of Spin-off. The treasury stock
held by Grace at September 30, 1997 is to be retired prior to December 31,
1997 and therefore will not be transferred to New Grace and is eliminated
in the pro forma adjustments. As a result of the retirement of the treasury
stock, (i) the $331.7 of treasury stock will be eliminated, (ii) retained
earnings will decrease by $298.0, (iii) paid in capital will decrease by
$33.6 and (iv) common stock will decrease by $0.1.
(e) Represents an adjustment to eliminate a retained deficit resulting
from the Transactions and the retirement of Grace's treasury stock
(discussed in note (d) above) against paid in capital.
(f) Represents the results of operations of the Packaging Business for
the periods presented. Amounts have been derived from the Grace Packaging
Special-Purpose Combined Financial Statements included in the Joint Proxy
Statement/Prospectus and have been adjusted to conform to Grace's
historical classifications.
(g) For the year ended December 31, 1996, the assumed reduction in
debt as of January 1, 1996 would have the pro forma effect of reducing
total interest expense and related financing costs by $54.2. For the nine
months ended September 30, 1997, the assumed reduction in debt as of
January 1, 1996
21
<PAGE> 35
would have the pro forma effect of reducing total interest expense and
related financing costs by $51.7. The pro forma condensed consolidated
statement of operations reflects interest expense and related financing
costs incurred on borrowings outstanding during the respective periods in
excess of the Cash Transfer.
(h) Based on the U.S. federal statutory corporate tax rate of 35%.
(i) In the Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the years ended December 31, 1994 and 1995 and the nine
months ended September 30, 1996, interest expense has been allocated to the
Packaging Business based on the ratio of the net assets of the Packaging
Business as compared to Grace's total capital, resulting in interest
expense of $26.6 for 1994, $41.4 for 1995 and $37.5 for the nine months
ended September 30, 1996.
------------------------
For historical financial information for Grace (including the Consolidated
Financial Statements, the Third Quarter Financial Statements and Management's
Discussion and Analysis of Results of Operations and Financial Condition), see
Annexes F and G to this Information Statement.
22
<PAGE> 36
BUSINESS OF NEW GRACE AND GRACE SPECIALTY CHEMICALS
New Grace was incorporated in August 1997 as a wholly owned subsidiary of
Grace and currently has no assets. Prior to the Spin-off, Grace Specialty
Chemicals will transfer the Packaging Business to a Packaging Business
subsidiary and will distribute the stock of that subsidiary to Grace. Grace will
then contribute to New Grace all of the capital stock of Grace Specialty
Chemicals and effect the Spin-off. Immediately following the Spin-off, the name
of New Grace will be changed to "W. R. Grace & Co." New Grace's principal
executive offices are located at One Town Center Road, Boca Raton, Florida
33486-1010, and its telephone number is (561) 362-2000.
OVERVIEW AND STRATEGY
Grace Specialty Chemicals is one of the world's leading specialty chemicals
companies. It began operating the Specialty Chemicals Businesses in 1954, when
it acquired both the Dewey and Almy Chemical Company and the Davison Chemical
Company.
Grace Specialty Chemicals' businesses are catalysts and silica-based
products; construction chemicals and specialty building materials; and container
sealants and coatings. Grace Specialty Chemicals believes that each of these
businesses is an industry leader, offers high-value-added products, employs
leading technology and has a global presence. Grace Specialty Chemicals'
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. Grace Specialty
Chemicals believes that it provides highly differentiated, superior products and
services through investments in research and development, manufacturing and
technical facilities that enable Grace Specialty Chemicals to take advantage of
expanding global opportunities, and technology platforms capable of providing
multiple products to satisfy customers' specific needs.
Grace Specialty Chemicals' strategy has been and, following the Spin-off,
will be to enhance stockholder value by profitably growing the Specialty
Chemicals Businesses on a global basis and achieving high levels of financial
performance. To achieve these objectives, Grace Specialty Chemicals plans to (i)
use the funds received in the Cash Transfer to repay borrowings and to invest in
its businesses; (ii) invest in research and development activities, with the
goals of introducing new value-added products and services and enhancing
manufacturing processes; (iii) make selected strategic acquisitions; and (iv)
continue to implement process improvements and cost-management initiatives,
including rigorous controls on working capital and capital spending. These plans
are designed to make Grace Specialty Chemicals a high-performance company
focused on the strengths of its global specialty chemicals businesses.
From 1994 through 1996, Grace Specialty Chemicals' capital expenditures
totaled $561.7 million (including $178.3 million in 1996). These expenditures
were primarily directed towards the expansion of existing facilities and the
construction of new facilities. Grace Specialty Chemicals anticipates that its
capital expenditures for 1997 will approximate $120 million.
In the future, Grace Specialty Chemicals intends to continue its emphasis
on internal growth. In addition, it may effect acquisitions, joint ventures and
strategic alliances that afford synergies or other benefits necessary to fulfill
strategic objectives of a business (such as a key technology or opportunities
for geographic expansion) or that provide a combination of a close fit with an
existing business with the potential for exceptional returns.
At year-end 1996, Grace Specialty Chemicals had approximately 6,000
full-time employees worldwide in its continuing operations.
SPECIALTY CHEMICALS INDUSTRY OVERVIEW
Specialty chemicals, such as those produced by Grace Specialty Chemicals,
are high-value-added products used as intermediates in a wide variety of
products and processes; 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 and processes in
which they are used; consequently, they are tailored to customer needs, which
generally results in a close relationship between the specialty chemicals
23
<PAGE> 37
producer and the customer. Rapid response to changing customer needs and
reliability of product and supply are important competitive factors in specialty
chemicals businesses.
The management of Grace Specialty Chemicals believes that, in specialty
chemicals businesses, technological leadership (resulting from continuous
innovation through research and development), combined with product
differentiation and superior customer service, lead to high operating margins.
Grace Specialty Chemicals believes that its businesses are characterized by
market features that reward the higher research and development and customer
service costs associated with its strategy.
PRODUCTS AND MARKETS
Catalysts and Silica-Based Products. Grace Specialty Chemicals' Davison
unit ("Grace Davison"), founded in 1832, is composed of two primary product
groups: (i) catalysts and (ii) 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 previous five years.
Grace Davison produces refinery catalysts, including (i) fluid cracking
catalysts used by petroleum refiners to convert crude oil into more valuable
transportation fuels (such as gasoline and jet and diesel fuels) and other
petroleum-based products, and (ii) hydroprocessing catalysts that remove certain
impurities (such as nitrogen, sulfur and heavy metals) from crude oil prior to
the use of fluid cracking catalysts. Grace Davison also develops and
manufactures fluid cracking catalyst additives used to reduce emissions and for
combustion and octane enhancement. Oil refining is a highly specialized
discipline, demanding that products be tailored to meet local variations in
crude oil and the refinery's product output mix. 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 refiners' use of
heavier crude oils, and could be adversely affected by an increase in the
availability of lighter crude oil, which generally requires less fluid cracking
catalysts to refine. Grace Davison's business is also affected by the capacity
utilization of refiners' cracking units, as disproportionately greater amounts
of fluid cracking catalysts are used at higher levels of capacity utilization.
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 is a major producer of polyolefin catalysts and catalyst
supports, essential components in the manufacture of high density and linear low
density polyethylene resins used in products such as plastic film,
high-performance plastic pipe and plastic household containers. Grace Davison
catalysts are used in manufacturing nearly half of all such resins produced
worldwide. The polyolefin catalyst business is technology-intensive and focused
on providing products formulated to meet customer specifications. Manufacturers
generally compete on a worldwide basis, and competition has recently intensified
due to evolving technologies, particularly the use of metallocenes. Grace
Davison 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 to 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 chemical components
from mixtures. Competition is based on product performance, customer service and
price.
24
<PAGE> 38
Grace Davison's sales and revenues were $732 million in 1996, $700 million
in 1995 and $615 million in 1994; approximately 51% of Grace Davison's 1996
sales and revenues were generated in North America, 35% in Europe, 12% in Asia
Pacific and 2% in Latin America. Sales of catalysts accounted for 26% of the
total sales and revenues of Grace Specialty Chemicals' continuing operations in
1996, 23% in 1995 and 22% in 1994. Sales of silica products and zeolite
adsorbents accounted for 17% of the total sales and revenues of Grace Specialty
Chemicals' continuing operations in 1996, 14% in 1995 and 13% in 1994. At
year-end 1996, Davison employed approximately 2,700 people worldwide in 10
facilities (six in the U.S. and one each in Canada, Germany, Brazil and
Malaysia). Grace Davison's principal U.S. manufacturing facilities are located
in Baltimore, Maryland and Lake Charles, Louisiana. 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 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 Specialty Chemicals' construction products
business ("Grace Construction Products") is a leading supplier of specialty
chemicals and building materials to the nonresidential (commercial and
government) construction industry, and to a lesser extent, the residential
construction industry. Its products fall into two main groups: (i) specialty
construction chemicals (principally concrete admixtures, cement additives and
masonry products) that add strength, control corrosion, and enhance the handling
and application of concrete; and (ii) specialty building materials that prevent
water damage to structures (such as water- and ice-proofing products for
residential use and waterproofing systems for commercial structures) and protect
structural steel against collapse due to fire. In North America, Grace
Construction Products also manufactures and distributes vermiculite products
used in construction and other industrial applications.
Grace Construction Products has introduced a number of new products and
product enhancements in recent years. These new products and enhancements
include an admixture that reduces concrete shrinkage and helps prevent 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 Products' fireproofing systems more price-competitive for
smaller jobs. In addition to customer acceptance of these and other product
introductions, Grace Construction Products' growth is dependent on the
advancement of less developed economies (since, as economies develop, they
typically increase their usage of ready-mix concrete, which allows for the
application of more concrete admixtures).
The materials produced by Grace Construction 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 Products' business requires intensive
sales and customer service efforts, Grace Construction Products maintains a
separate sales and technical support team for each of its product groups. This
sales and support team sells products under global contracts, under U.S. or
regional contracts and on a job-by-job basis. Consequently, Grace Construction
Products 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.
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Grace Construction Products' 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. Sales of
specialty construction chemicals accounted for 15% of the total sales and
revenues of Grace Specialty Chemicals' continuing operations in 1996, 12% in
1995 and 11% in 1994. In addition, sales of specialty building materials
accounted for 11% of the total sales and revenues of Grace Specialty Chemicals'
continuing operations in 1996, 9% in 1995 and 11% in 1994. At year-end 1996,
Grace Construction Products employed approximately 1,900 people at 56 production
facilities (26 in North America, 11 in Southeast Asia, seven in each of
Australia/New Zealand and Europe, four in Latin America and one in Japan) and 76
sales offices worldwide. Grace Construction Products' capital expenditures tend
to be relatively lower, and sales and marketing expenditures tend to be
relatively higher, than those of Grace Specialty Chemicals' other businesses.
The construction business is cyclical, in response to economic conditions
and construction demand. The construction market experienced slow but steady
growth through 1996 and into 1997 from a cyclical low in 1991. During this time,
management of Grace Construction Products has focused its efforts on
streamlining its range of products by introducing new higher-value products,
eliminating lower-growth and lower-margin products and reducing costs. For
example, during this period, Grace Construction Products restructured its global
research activities and implemented a lower cost structure by consolidating
manufacturing operations and streamlining its management structure. The
construction business is also seasonal due to weather conditions. Grace
Construction Products seeks to increase profitability and minimize the impact of
cyclical and seasonal downturns in regional economies by introducing technically
advanced value-added products, expanding geographically, and developing business
opportunities in renovation construction markets. However, there can be no
assurance that Grace Construction Products' attempts to minimize the impact of
the cyclicality and seasonality of the construction business will succeed, and
such cyclicality and seasonality could adversely affect Grace Construction
Products' business and results of operations.
The raw materials used by Grace Construction Products 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
Products. 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.
Container Sealants and Coatings. Grace Specialty Chemicals' container
sealants and coatings business ("Darex Container Products") 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 the metal against
corrosion, to protect the contents against the influences of metal, to ensure
proper adhesion of sealing compounds to metal surfaces, and to provide base
coats for inks and for decorative purposes. These products are principally sold
to third parties that manufacture containers or perform canning and bottling for
food and beverage companies. Darex Container Products is expanding its product
offering and is seeking to improve sales growth through new technologies, such
as its oxygen-scavenging compounds. These new compounds are combined with
closure sealants to eliminate oxygen in capped beer and beverage bottles, which
management believes significantly extends shelf life of the product. Darex
Container Products is commercially producing oxygen-scavenging compounds for
several breweries and is testing such compounds with other breweries. Darex
Container Products is also expanding in developing regions. However, future
sales growth will likely be impacted by the trend toward can systems requiring
fewer seams, as well as the increasing use of plastic and glass containers.
Competition is based on providing high-quality customer service at customer
sites, as well as on price, quality and reliability. In addition, because of the
relative concentration of the canning and bottling market, maintaining
relationships with leading container manufacturers, canners and
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bottlers, and assisting them as they install new production equipment and
reengineer processes, are key elements for success.
Darex Container Products' sales and revenues were $275 million in 1996,
$280 million in 1995 and $253 million in 1994. Its products are marketed
internationally, with 37% of 1996 sales and revenues in Europe, 24% in North
America, 23% in Asia Pacific and 16% in Latin America. At year-end 1996, Darex
Container Products employed approximately 1,400 people at 21 production
facilities (seven in each of Latin America and Asia Pacific, four in North
America and three in Europe) and 37 sales offices worldwide. Although the raw
materials used in Darex Container Products' operations, including resins, rubber
and latices, are generally available from multiple sources, the prices of
certain raw materials experienced upward pressure during most of 1996 and, to a
lesser extent, 1997. Darex Container Products is seeking to establish global
supply arrangements that would tend to alleviate this pressure; however, no
assurance can be given that such arrangements can be entered into on acceptable
terms. Although demand for container packaging and sealant products tends to
increase slightly during the second and third quarters, the impact of such
seasonality is not significant to Darex Container Products.
Grace Specialty Chemicals is considering strategic alternatives for Darex
Container Products. These alternatives include acquiring one or more
complementary businesses; entering into joint ventures or other combinations
with such businesses; or selling Darex Container Products. However, there is no
assurance as to whether or when any of these strategic alternatives will be
accomplished.
RESEARCH ACTIVITIES
Grace Specialty Chemicals engages in research and development programs
directed toward the development of new products and processes, and the
improvement of, and development of new uses for, existing products and
processes. Research is carried out by product line laboratories in North
America, Europe, Asia and Latin America and includes research in catalysts and
construction materials. Grace Specialty Chemicals' research and development
strategy will be 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 $50 million in 1996, $66 million in 1995 and $62 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 Specialty
Chemicals) was not material.
PATENTS AND OTHER INTELLECTUAL PROPERTY MATTERS
Grace Specialty Chemicals relies on numerous patents and patent
applications, as well as know-how and other proprietary information. As
competition in the markets in which Grace Specialty Chemicals does business is
often based on technological superiority and innovation, with new products being
introduced frequently, the ability to achieve technological innovations and to
obtain patent or other intellectual property protection is important. There can
be no assurance that Grace Specialty Chemicals' patents, patent applications or
other intellectual property will provide sufficient proprietary protection. In
addition, other companies may independently develop similar systems or processes
that circumvent patents issued to Grace Specialty Chemicals, or may acquire
patent rights within the fields of Grace Specialty Chemicals' businesses.
ENVIRONMENTAL, HEALTH AND SAFETY MATTERS
Manufacturers of specialty chemical products, including Grace Specialty
Chemicals, are subject to stringent regulations under numerous U.S. federal,
state and local and foreign environmental, health and safety laws and
regulations relating to the generation, storage, handling, discharge and
disposition of hazardous wastes and other materials. Grace Specialty Chemicals
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 Specialty Chemicals' expenditures in the past three years, and its
estimated expenditures in 1997 and 1998, for (i) the operation and maintenance
of environmental facilities and the disposal of wastes with respect
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<PAGE> 41
to continuing operations; (ii) capital expenditures for environmental control
facilities relating to continuing operations; and (iii) site remediation:
<TABLE>
<CAPTION>
(I)
OPERATION OF (II) (III)
FACILITIES AND CAPITAL SITE
WASTE DISPOSAL EXPENDITURES REMEDIATION
-------------- ------------ -----------
($ IN MILLIONS)
<S> <C> <C> <C>
1994................................. $28 $16 $31
1995................................. 34 12 31
1996................................. 33 10 20
1997 (est.).......................... 33 7 34
1998 (est.).......................... 35 9 39
</TABLE>
Additional material environmental costs may arise as a result of future
legislation or other developments. Grace Specialty Chemicals' 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 "Management's Discussion and Analysis of Results of Operations
and Financial Condition," included in Annexes F and G.
With the goal of continuously improving Grace Specialty Chemicals'
environmental, 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 Specialty Chemicals' EHS activities are to be implemented. To the extent
applicable, Commitment to Care extends the basic elements of Responsible Care to
all Grace Specialty Chemicals locations worldwide, embracing specific
performance objectives in the key areas of product stewardship, employee health
and safety, community awareness and emergency response, distribution, process
safety and pollution prevention.
See "-- Legal Proceedings and Regulatory Matters" for information
concerning environmental proceedings to which Grace Specialty Chemicals is a
party and "Management's Discussion and Analysis of Results of Operations and
Financial Condition," included in Annexes F and G, for additional information
concerning environmental matters.
LEGAL PROCEEDINGS AND REGULATORY MATTERS
Asbestos Litigation. Grace Specialty Chemicals is a defendant in property
damage and personal injury lawsuits relating to previously sold
asbestos-containing products and anticipates that it will be named as a
defendant in additional asbestos-related lawsuits in the future. Grace Specialty
Chemicals was a defendant in approximately 43,700 asbestos-related lawsuits at
September 30, 1997 (17 involving claims for property damage and the remainder
involving approximately 105,800 claims for personal injury), as compared to
approximately 41,500 lawsuits at year-end 1996 (31 involving claims for property
damage and the remainder involving approximately 91,500 claims for personal
injury). In most of these lawsuits, Grace Specialty Chemicals 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 September 30,
1997, 139 asbestos property damage cases were dismissed without payment of any
damages or settlement amounts; judgments were entered in favor of Grace
Specialty Chemicals in nine cases (excluding cases settled following appeals of
judgments in favor of Grace Specialty Chemicals); judgments were entered in
favor of the plaintiffs in seven cases for a total of $60.3 million (none of
which is on appeal); and 195 property damage cases were settled for a total of
$476.6 million.
Included in the asbestos property damage cases pending against Grace
Specialty Chemicals and others at September 30, 1997 were the following class
actions: (i) 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 (ii) a purported class
action (Anderson
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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 Specialty Chemicals 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.
Through September 30, 1997, approximately 12,600 personal injury lawsuits
involving 29,100 claims were dismissed without payment of any damages or
settlement amounts (primarily on the basis that Grace Specialty Chemicals
products were not involved), and approximately 34,100 such suits involving
approximately 71,300 claims were disposed of for a total of $212.1 million. See
"-- Insurance Litigation."
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 Specialty
Chemicals; 3,600 new cases involving 7,200 claims against Grace Specialty
Chemicals have subsequently been added to the consolidated cases. To date, no
action has been taken by the court handling the consolidated cases that would
indicate whether the consolidation will affect Grace Specialty Chemicals' cost
of disposing of these cases or its defense costs.
Grace Specialty Chemicals previously purchased insurance policies with
respect to its asbestos-related lawsuits and claims. Grace Specialty Chemicals
has settled with and been paid by its primary insurance carriers with respect to
both property damage and personal injury cases and claims. Grace Specialty
Chemicals also has 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 Specialty Chemicals. In addition, Grace Specialty
Chemicals has settled with many excess insurance carriers that wrote policies
available for personal injury claims. Grace Specialty Chemicals is currently in
litigation with certain remaining excess insurance carriers whose policies
generally represent layers of coverage Grace Specialty Chemicals has not yet
reached. Such policies are believed by Grace Specialty Chemicals to be available
for asbestos-related personal injury lawsuits. Insurance coverage for
asbestos-related liabilities has not been commercially available since 1985.
Grace Specialty Chemicals' aggregate accrual for asbestos liabilities at
September 30, 1997, was $910.5 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 Specialty Chemicals 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 Specialty Chemicals'
ultimate exposure with respect to its asbestos-related cases and claims will
depend on the number and nature of claims filed and the extent to which
insurance will cover damages for which it may be liable, amounts paid in
settlement and litigation costs. At September 30, 1997, Grace Specialty
Chemicals had recorded a receivable of $328.4 million, the amount Grace
Specialty Chemicals 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 Specialty Chemicals with respect
to property damage cases. Because Grace Specialty Chemicals' 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 Specialty Chemicals' asbestos personal injury claims. However,
in Grace Specialty Chemicals' opinion (which is not based on a formal opinion of
counsel), it is probable that recoveries from its insurance carriers, along with
other funds, will be available to satisfy the property damage and personal
injury cases and claims pending at September 30, 1997, as well as personal
injury claims expected to be filed in the foreseeable future. Consequently,
Grace Specialty Chemicals believes that the resolution of its asbestos-related
litigation will not have a material adverse effect on its consolidated financial
position.
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See "-- Insurance Litigation" and Note 2 to the Consolidated Financial
Statements and Note 2 to the Third Quarter Financial Statements, included in
Annexes F and G, respectively, to this Information Statement, for additional
information.
Environmental Proceedings. The following is a description of the material
environmental proceedings in which Grace Specialty Chemicals is involved:
Grace Specialty Chemicals (together with certain other companies) has been
designated a "potentially responsible party" ("PRP") by the U.S. Environmental
Protection Agency ("EPA") with respect to absorbing the costs of investigating
and remediating pollution at various sites. At year-end 1996, proceedings were
pending with respect to approximately 30 sites as to which Grace has been
designated a PRP. U.S. federal law provides that all PRPs may be held jointly
and severally liable for the costs of investigating and remediating a site.
Grace Specialty Chemicals is also conducting investigatory and remediation
activities at sites under the jurisdiction of state and/or local authorities.
In November 1995, Grace Specialty Chemicals received a letter from the U.S.
Department of Energy ("DOE") inquiring as to Grace Specialty Chemicals'
willingness to contribute to the continued cleanup of a former Grace Specialty
Chemicals property located in Wayne, New Jersey. The letter asserted that Grace
Specialty Chemicals has a legal duty to pay for the cleanup and that the total
cost of cleanup may exceed $100 million. The operations conducted by Grace
Specialty Chemicals 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 Specialty
Chemicals transferred the Wayne property to the DOE and made a cash payment as a
contribution towards the DOE's cleanup efforts at the site, which was
acknowledged by the DOE as fulfilling any obligation Grace Specialty Chemicals
had to contribute to the DOE's cleanup effort while preserving the rights and
liabilities of the parties under other existing applicable laws. Grace Specialty
Chemicals believes that the resolution of the DOE's claim will not have a
material adverse effect on its consolidated financial position.
Grace Specialty Chemicals is a party to additional proceedings involving
U.S. federal, state and/or local government agencies and private parties
regarding Grace Specialty Chemicals' compliance with environmental laws and
regulations. These proceedings are not expected to result in significant
sanctions or in any material liability. However, Grace Specialty Chemicals may
incur material liability in connection with future actions of governmental
agencies or private parties relating to past or future practices of Grace
Specialty Chemicals with respect to the generation, storage, handling, discharge
or disposition of hazardous wastes and other materials.
Grace Specialty Chemicals believes that the liabilities for environmental
remediation costs, including costs relating to environmental proceedings, that
have been recorded in Grace's historical financial statements are adequate. In
addition, Grace Specialty Chemicals is presently involved in litigation with its
insurance carriers seeking to hold them responsible for certain amounts for
which Grace Specialty Chemicals may be held liable with respect to such costs.
The outcome of such litigation, as well as the amounts of any recoveries that
Grace Specialty Chemicals may receive in connection therewith, is presently
uncertain. However, Grace Specialty Chemicals believes that the resolution of
pending environmental proceedings will not have a material adverse effect on the
consolidated financial position or liquidity of New Grace. For further
information, see "Management's Discussion and Analysis of Results of Operations
and Financial Condition," included in Annexes F and G.
Insurance Litigation. Grace Specialty Chemicals 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
Specialty Chemicals in these actions would provide insurance that would
partially offset Grace Specialty Chemicals' estimated exposure with respect to
amounts previously expended, and that may be expended in the future, by Grace
Specialty Chemicals to defend claims, satisfy judgments and fund settlements.
Grace Specialty Chemicals 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.
The District Court has not yet addressed Grace Specialty Chemicals' claims for
insurance coverage for its asbestos-related personal injury liabilities.
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Prior to 1993, Grace Specialty Chemicals received from insurance carriers
payments totaling $97.7 million, the majority of which represented the aggregate
remaining obligations owed to Grace Specialty Chemicals by those carriers for
primary-level insurance coverage written for the period from June 30, 1962
through June 30, 1987. In 1993 and 1994, Grace Specialty Chemicals settled with
insurance carriers for a total of $300.2 million (portions of which were paid or
will be paid in subsequent years), in reimbursement for amounts expended by
Grace Specialty Chemicals in connection with asbestos-related litigation. In
1995, Grace Specialty Chemicals settled with a primary-level insurer for $100
million, and with other insurers for a total of $200.3 million, including future
payments of approximately $70 million. In 1996, Grace Specialty Chemicals
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 product liability and other coverage. As a result of these settlements,
Grace Specialty Chemicals' asbestos-related insurance claims have been dismissed
as to the primary-level product liability insurance coverage previously sold by
the relevant insurers to Grace Specialty Chemicals, as well as to many of Grace
Specialty Chemicals' excess-level liability insurers.
Grace's only two environmental insurance coverage actions are pending in
the U.S. District Court for the Southern District of New York. The first is
styled Maryland Casualty Co. v. W. R. Grace & Co. Litigation continues in this
case as to certain primary-level and excess-level carriers that have not settled
with respect to claims for environmental property damage. The second case,
entitled Uniguard v. W. R. Grace, was filed on December 17, 1997. This
declaratory judgment action seeks a determination concerning the liability of
one excess carrier for bodily injury claims as a result of environmental
contamination.
See "Management's Discussion and Analysis of Results of Operations and
Financial Condition," included in Annexes F and G, for additional information.
Fumed Silica Plant Litigation. In 1993, Grace Specialty Chemicals and
certain of its subsidiaries initiated legal action in the Belgian courts against
the Flemish government to recover losses resulting from the closing of one
subsidiary's fumed silica plant in Puurs, Belgium. The action seeks 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. The trial court
also determined that a subsidiary should repay 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.
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 and Baker & Taylor, Inc. (the
entity that currently operates Baker & Taylor Books) 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.
Stockholder Litigation. W. R. Grace & Co., a New York corporation
subsequently renamed Fresenius Medical Care Holdings, Inc. ("Grace New York"),
and former 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 (i) by providing J. Peter Grace, Jr. (the
chairman and a director of Grace New York until his death in April 1995) with
certain compensation arrangements upon his voluntary retirement as Grace New
York's chief executive officer in 1992 and (ii) by approving Mr. Bolduc's
severance arrangements, and that Messrs. Grace and Bolduc breached their
fiduciary duties by accepting such benefits and payments. The lawsuit seeks
unspecified
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damages, the cancellation of all allegedly improper agreements, the cancellation
of a retirement plan for nonemployee directors (which was terminated by Grace in
1997), 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. Grace has
appointed a special committee of independent directors to investigate the
allegations made in the Weiser action and determine whether they should be
dismissed, pursued or compromised. In January 1998, the special committee
resolved to seek the dismissal of the Weiser action. Any such dismissal is
subject to court approval.
Under the terms of the Distribution Agreement ("NMC Distribution
Agreement") entered into in connection with the reorganization of Grace New York
in September 1996 (the "NMC Transaction") described in Note 1 to the
Consolidated Financial Statements, Grace Specialty Chemicals remains financially
responsible for any liabilities incurred by Grace New York and others as a
result of this lawsuit, including the fees and disbursements of counsel for
Grace Specialty Chemicals and, subject to certain conditions, counsel for the
individual defendants (including certain current and former directors of Grace).
The discussions of the NMC 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 NMC Distribution Agreement, which was filed as an
exhibit to the Joint Proxy Statement-Prospectus of Grace New York dated August
2, 1996.
Securities and Exchange Commission Investigations. In 1995, the Securities
and Exchange Commission ("SEC") began a formal 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. On September 30, 1997, Grace
consented to the entry of a cease-and-desist order in settlement of this
investigation. Under the order, Grace (without admitting or denying the matters
set forth therein) agreed to cease and desist from further violations of
Sections 13(a) and 14(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules thereunder. No penalties or fines were assessed
under the order, and Grace has been advised that the investigation has been
closed.
In April 1996, Grace New York received a formal order of investigation
issued by the SEC directing an investigation into, among other things, whether
Grace New York violated the U.S. federal securities laws by filing periodic
reports with the SEC that contained false and misleading financial information.
Pursuant to this formal order of investigation, Grace New York has provided
information to the SEC relating to reserves (net of applicable taxes)
established by Grace New York and its subsidiary, National Medical Care, Inc.
("NMC"), during the period from January 1, 1990 to 1996 (the "Covered Period").
All financial statements filed by Grace New York with the SEC during the Covered
Period (other than unaudited quarterly financial statements), the financial
statements of NMC included in the NMC Form 10 filed with the SEC in September
1995, and the Consolidated Financial Statements were covered by unqualified
opinions issued by Price Waterhouse LLP, independent certified public
accountants. In connection with the preparation of the September 1995 Form 10,
NMC reversed the unallocated reserves established 1990, 1991, 1992 and 1993 that
are a subject of this investigation and established reserves in an approximately
equal amount with respect to NMC's investment in Cross Country Healthcare
Personnel, Inc. and in its German renal products manufacturing facilities for
fiscal years 1992 and 1994.
Under the terms of the NMC Distribution Agreement, Grace Specialty
Chemicals remains financially responsible for any liabilities incurred by Grace
New York and others as a result of the investigation described above, including
the fees and disbursements of counsel for Grace Specialty Chemicals and, subject
to certain conditions, counsel for certain former directors and officers of
Grace.
Claims Relating to NMC. Grace New York and certain of its 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 (the "Class Period"), generally alleges
that
32
<PAGE> 46
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 (the "OIG"), in violation of U.S. 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 and certain of its former officers and directors are also
defendants in a purported derivative action 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. A third derivative action relating to NMC
entitled Bauer v. Bolduc, et al. was filed in October 1995 in the Supreme Court
of the State of New York for the County of New York. The Bauer action has been
stayed in favor of the Bennett action.
Grace and other defendants in the Murphy, Bennett and Bauer actions have
agreed with the plaintiffs to settle those actions. The agreement provides for
the establishment of a fund of approximately $32 million (less plaintiffs'
attorneys' fees) to compensate a class of stockholders consisting of purchasers
of Grace New York stock during the Class Period. As part of the settlements, the
insurance carrier for the directors and officers will cause $10 million to be
paid to Grace Specialty Chemicals on behalf of the individual defendants named
in the Murphy, Bennett and Bauer actions. The settlements are contingent upon
court approval. The net payment to be made by Grace Specialty Chemicals in
connection with these settlements will be charged against previously established
reserves.
Under the terms of the NMC Distribution Agreement, Grace Specialty
Chemicals 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 Specialty Chemicals and, subject to
certain conditions, counsel for the individual defendants (including certain
former directors and officers of Grace). The NMC Distribution Agreement also
provides generally for certain cross-indemnities designed to place with Grace
New York (which has become a subsidiary of Fresenius AG, a German corporation
not affiliated with Grace) financial responsibility for the liabilities of the
health care businesses formerly owned by Grace New York (including, without
limitation, all liabilities relating to compliance or noncompliance with U.S.
food and drug law, medical and Medicare billing and reimbursement law and other
health care matters) and to place with Grace Specialty Chemicals financial
responsibility for the other liabilities of Grace New York and its other
subsidiaries (including, without limitation, liabilities relating to the
manufacture or sale of asbestos-containing materials by the Specialty Chemicals
Businesses). Grace Specialty Chemicals and Grace New York have asserted claims
against each other for indemnity with respect to claims asserted by third
parties pursuant to the terms of these provisions.
See Note 6 to the Consolidated Financial Statements and "Management's
Discussion and Analysis of Results of Operations and Financial Condition,"
included in Annexes F and G, for additional information concerning certain
litigation and proceedings involving NMC.
PROPERTIES
Grace Specialty Chemicals operates manufacturing and other types of plants
and facilities (including office and other service facilities) throughout the
world, some of which are shared by two or more of Grace Specialty Chemicals'
product lines or will be shared by Grace Specialty Chemicals and New Sealed Air
following the Transactions. Grace Specialty Chemicals considers its major
operating properties to be in good operating condition and suitable for their
current use. Although Grace Specialty Chemicals believes that, after taking
planned expansion into account, the productive capacity of its plants and other
facilities is generally adequate for current operations and foreseeable growth,
it conducts ongoing, long-range forecasting of its capital requirements to
assure that additional capacity will be available when and as needed.
Accordingly, Grace Specialty Chemicals does not anticipate that its operations
or income will be materially affected by the absence of available capacity. See
"Management's Discussion and Analysis of Results of Operations and
33
<PAGE> 47
Financial Condition," included in Annexes F and G, for information regarding
Grace Specialty Chemicals' capital expenditures.
The following table describes Grace Specialty Chemicals' principal
properties, all of which are owned.
<TABLE>
<CAPTION>
IMPROVED LAND AREA PRIMARY
(APPROXIMATE PRODUCT
LOCATION SQUARE FEET) LINES
- -------- ------------------ ---------------------------
<S> <C> <C>
5500 Chemical Road............................. 1,800,000 Grace Davison
Baltimore, MD
P.O. Box 3247, Hwy. #27........................ 1,500,000 Grace Davison
Lake Charles, LA
In der Hollerhecke............................. 1,200,000 Grace Davison
67547 Worms, Germany
Rue St. Denis,................................. 490,000 Darex Container Products
Epernon, France and Grace Construction
Products
Ajax Avenue(a)................................. 270,000 Grace Construction Products
Slough, England(a)
</TABLE>
- ---------------
(a) Leased site.
Additional information regarding Grace Specialty Chemicals' properties is
set forth in Notes 1, 8 and 11 to the Consolidated Financial Statements.
34
<PAGE> 48
MANAGEMENT
BOARD OF DIRECTORS
The New Grace Board is currently composed of certain executive officers of
Grace. Set forth below is information with respect to the individuals who are
expected to serve as the directors of New Grace following the Spin-off, all of
whom are currently directors of Grace and will resign from the Grace Board
contemporaneously with the Transactions. Under the classified board provisions
of the New Grace Certificate and the New Grace By-laws, these individuals will
not be required to stand for re-election to the New Grace Board until the year
in which their respective terms expire. See "Certain Anti-Takeover
Provisions -- Classified Board of Directors."
CLASS I DIRECTORS -- TERMS EXPIRING IN 1999
ALBERT J. COSTELLO
Director of Grace since 1995
Age: 62
Mr. Costello is the chairman, president and chief executive officer of
Grace, positions he has held since May 1995. Before joining Grace, Mr. Costello
served as president of American Cyanamid Company from 1991 to March 1993 and as
its chairman of the board and chief executive officer from April 1993 to
December 1994; he joined American Cyanamid Company in 1957. Mr. Costello
received a B.S. in chemistry from Fordham University and an M.S. in chemistry
from New York University. Mr. Costello is a director of Becton, Dickinson and
Company and FMC Corporation and a trustee of Fordham University and the American
Enterprise Institute for Public Policy Research.
MARYE ANNE FOX
Director of Grace since 1996
Age: 50
Dr. Fox is vice president for research and the Waggoner Regents chair in
chemistry of the University of Texas, positions she has held since 1994 and
1992, respectively; she has been on the faculty of the University of Texas since
1976. Dr. Fox received a B.S. in chemistry from Notre Dame College, an M.S. in
organic chemistry from Cleveland State University and a Ph.D. in organic
chemistry from Dartmouth College; she also holds an honorary doctoral degree
from Notre Dame College. Dr. Fox has served as vice chair of the National
Science Board and has received numerous honors and awards from a wide variety of
educational and professional organizations. She currently serves on the Texas
Governor's Science and Technology Council; she has also served on several
editorial boards and has authored approximately 300 publications, including
three books and more than 20 book chapters.
THOMAS A. VANDERSLICE
Director of Grace since 1996
Age: 66
Mr. Vanderslice began his career with General Electric Company, where he
spent 23 years in various technical, management and executive positions,
including executive vice president and sector executive of General Electric's
power systems business. He subsequently served as president and chief operating
officer of GTE Corporation, as chairman and chief executive officer of Apollo
Computer, Inc., and, from 1989 to June 1995, as chairman and chief executive
officer of M/A-COM, Inc., a designer and manufacturer of radio frequency and
microwave components, devices and subsystems for commercial and defense
applications. Mr. Vanderslice received a B.S. in chemistry and philosophy from
Boston College and a Ph.D. in chemistry and physics from Catholic University; he
holds several patents and has written numerous technical articles. He is a
director of Texaco Inc., a trustee of Boston College, and chairman of the
Massachusetts High Technology
35
<PAGE> 49
Council. He is also a member of the National Academy of Engineering, the
American Chemical Society and the American Institute of Physics.
CLASS II DIRECTORS -- TERMS EXPIRING IN 2000
JOHN F. AKERS
Director of Grace since January 1997
Age: 63
Mr. Akers served as chairman of the board and chief executive officer of
International Business Machines Corporation from 1985 until his retirement in
1993, completing a 33-year career with IBM. He is a director of Hallmark Cards,
Inc., Lehman Brothers Holdings, Inc., The New York Times Company, PepsiCo, Inc.
and Springs Industries, Inc. He also serves on the U.S. advisory board of Zurich
Insurance Company and on the advisory board of Directorship. A graduate of Yale
University with a B.S. in industrial administration, Mr. Akers formerly served
on the boards of trustees of the California Institute of Technology and the
Metropolitan Museum of Art, as chairman of the board of governors of United Way
of America, and as a member of President Bush's Education Policy Advisory
Committee.
JOHN J. MURPHY
Director of Grace since March 1997
Age: 66
Mr. Murphy retired in 1996 as chairman of the board of Dresser Industries,
Inc., a supplier of products and technical services to the energy industry. He
joined Dresser as an engineer in 1952 and spent his entire career with Dresser,
serving as its chief executive officer from 1983 to 1995. Mr. Murphy is a
director of CARBO Ceramics, Inc., Kerr-McGee Corporation and PepsiCo, Inc.; a
former trustee of Southern Methodist University and St. Bonaventure University;
a former member of the board of the U.S.-Russia Business Council; and a member
of The Business Council. He received a bachelor's in mechanical engineering from
Rochester Institute of Technology, a masters of business administration from
Southern Methodist University and an honorary doctorate of commercial science
from St. Bonaventure University.
CLASS III DIRECTORS -- TERMS EXPIRING IN 2001
HAROLD A. ECKMANN
Director of Grace since 1976
Age: 75
Mr. Eckmann retired in 1985 as chairman and chief executive officer of
Atlantic Mutual Insurance Company and Centennial Insurance Company -- The
Atlantic Companies. He was educated at the U.S. Merchant Marine Academy and the
University of California. Mr. Eckmann joined The Atlantic Companies in 1949 and
became president in 1970 and chairman and chief executive officer in 1976.
JAMES W. FRICK
Director of Grace since 1984
Age: 73
Dr. Frick is president of James W. Frick Associates, a consulting firm to
private colleges and universities. He is also vice president emeritus of the
University of Notre Dame, having served the University in various capacities
from 1951 to 1987, including as a member of its board of trustees. Dr. Frick
holds three degrees from the University of Notre Dame. He is president emeritus
of the Community Foundation of St. Joseph County, Indiana, a former director of
Society Bank of South Bend and Society National Bank, Indiana, and a former
member of the board of trustees of Converse College. He also served a term as a
member of the board of the Department of Financial Institutions of the State of
Indiana.
36
<PAGE> 50
THOMAS A. HOLMES
Director of Grace since 1989
Age: 74
Mr. Holmes served as acting president and chief executive officer of Grace
from March to May 1995. He was chairman, president and chief executive officer
of Ingersoll-Rand Company until his retirement in 1988, having spent his entire
business career with Ingersoll-Rand Company. He is a graduate of the University
of Missouri -- Rolla. Mr. Holmes is a director of Newmont Gold Co. and Newmont
Mining Corp.
Messrs. Eckmann and Holmes and Dr. Frick have agreed to resign from the New
Grace Board effective May 8, 1998, the date on which their terms as directors of
Grace would expire but for the Transactions. It is anticipated that, following
completion of the Transactions, the New Grace Board (on the recommendation of
its Nominating Committee) will elect one or more individuals to serve as Class
III Directors of New Grace, with a term expiring at the Annual Meeting of
Stockholders of New Grace to be held in 2001.
COMMITTEES OF THE BOARD OF DIRECTORS
There are currently no committees of the New Grace Board. However, the
following committees of the New Grace Board will be established upon completion
of the Spin-off:
Audit Committee. The Audit Committee of the New Grace Board will be
responsible for reviewing the financial information New Grace provides to
stockholders and others, New Grace's systems of internal controls, and its
auditing, accounting and financial reporting processes generally. The Audit
Committee's specific responsibilities will include recommending to the New Grace
Board the selection of independent certified public accountants to audit the
annual financial statements of New Grace and its consolidated subsidiaries;
reviewing the annual financial statements; and meeting with New Grace's senior
financial officers, internal auditors and independent certified public
accountants to review the scope and results of the audit and other matters
regarding New Grace's accounting, financial reporting and internal control
systems. The members of the Audit Committee are expected to be Messrs. Akers and
Eckmann, Drs. Fox and Frick and Messrs. Murphy (Chair) and Vanderslice.
Compensation Committee. The Compensation Committee of the New Grace Board
will make recommendations to the New Grace Board with respect to the salary and
annual and long-term incentive compensation of certain officers and other
high-level employees, as well as with respect to New Grace's benefit plans,
programs and arrangements generally. The Compensation Committee will also
administer New Grace's stock incentive plans and determine the recipients and
terms of stock incentives granted under those plans. The members of the
Compensation Committee are expected to be Messrs. Akers (Chair) and Eckmann, Dr.
Fox, and Messrs. Holmes, Murphy and Vanderslice.
Nominating Committee. The Nominating Committee of the New Grace Board will
recommend to the New Grace Board candidates for nomination as directors of New
Grace. The members of the Nominating Committee are expected to be Mr. Akers,
Drs. Fox and Frick and Messrs. Holmes and Murphy (Chair).
Corporate Responsibility Committee. The Corporate Responsibility Committee
of the New Grace Board will advise management on New Grace's role in the public
sector and its responsibility with respect to matters of public policy. The
members of the Corporate Responsibility Committee are expected to be Messrs.
Akers and Eckmann, Drs. Fox (Chair) and Frick and Mr. Murphy.
COMPENSATION OF DIRECTORS
Under the New Grace compensation program for nonemployee directors, each
nonemployee director will receive an annual retainer of $50,000, of which
$35,000 will be in the form of shares of New Grace common stock and the balance
will be in cash or shares of New Grace common stock, at the election of the
director; each committee chair will receive an additional annual retainer of
$2,000, in cash or shares of New Grace common stock, at the election of the
director; and each nonemployee director will receive $2,000 for each New Grace
Board meeting and $1,000 for each committee meeting attended (except that
committee chairs
37
<PAGE> 51
will receive $1,200 per committee meeting), in cash or shares of New Grace
common stock, at the election of the director.
Nonemployee directors will be reimbursed for expenses they incur in
attending New Grace Board and committee meetings, and New Grace is expected to
maintain business travel accident insurance coverage for the nonemployee
directors. In addition, nonemployee directors will receive a fee of $1,000 per
day for work performed at New Grace's request.
A director will be able to defer payment of all or part of the fees
received for attending New Grace Board and committee meetings and/or the cash
retainers (or cash portions of the retainers) referred to above. The deferred
cash (plus an interest equivalent) will be payable to the director or his or her
heirs or beneficiaries in a lump sum or in quarterly installments over two to 20
years following a date specified by the director (but in no event earlier than
the director's termination from service). The interest equivalent on deferred
cash will be computed at the higher of (i) the prime rate plus two percentage
points or (ii) 120% of the prime rate, in either case, compounded semiannually.
This program will provide for the payment of additional survivors' benefits in
certain circumstances. The New Grace common stock portion of the annual retainer
may be deferred and held, and the balance of the annual retainer or other
retainers and/or fees a director elects to receive in the form of New Grace
common stock will be deferred and held, in a trust to be established by New
Grace. Dividends paid on the New Grace common stock held in such trust will be
reinvested in New Grace common stock; however, such New Grace common stock will
not be delivered to a director until his or her termination from service (or a
subsequent date specified by the director).
EXECUTIVE OFFICERS
Set forth below is information with respect to the individuals expected to
serve as executive officers of New Grace following the Spin-off. All of the
individuals have been actively engaged in Grace's business for the past five
years, other than Mr. Costello (see page 34) and Mr. Ellberger, who was a
Corporate Vice President and Director of Corporate Development and Planning of
American Cyanamid Company from October 1991 until 1995. Mr. Ellberger served as
Grace's acting chief executive officer from October 11, 1997, when Mr. Costello
suffered a heart attack, until January 5, 1998.
<TABLE>
<CAPTION>
NAME AND AGE OFFICE
- --------------------------------------------- ---------------------------------------------
<S> <C>
Robert H. Beber (64)......................... Executive Vice President and General Counsel
Robert J. Bettacchi (55)..................... Senior Vice President
Albert J. Costello (62)...................... Chairman, President and Chief Executive
Officer
Larry Ellberger (49)......................... Senior Vice President and Chief Financial
Officer
James R. Hyde (59)........................... Senior Vice President
</TABLE>
EXECUTIVE COMPENSATION AND EMPLOYEE BENEFITS PRIOR TO THE SPIN-OFF
For information with respect to the compensation of executive officers of
Grace prior to the Spin-off, see the excerpt from the Proxy Statement, dated
April 7, 1997, for the 1997 Grace Annual Meeting of Stockholders, attached as
Annex E to this Information Statement ("Grace 1997 Proxy Excerpt"); such
information is incorporated herein by reference.
EXECUTIVE COMPENSATION AND EMPLOYEE BENEFITS FOLLOWING THE SPIN-OFF
Upon completion of the Spin-off, New Grace will assume substantially all of
the obligations of Grace under its executive and other compensation plans,
programs and arrangements. Consequently, the compensation and benefits to be
provided to employees of New Grace and its subsidiaries will be similar to those
they currently receive as employees of Grace and its subsidiaries. In addition,
Grace, as sole stockholder of New Grace, has approved New Grace's 1998 Stock
Incentive Plan and 1998 Stock Plan for Nonemployee Directors, which are set
forth in Annexes C and D, respectively, to this Information Statement.
Grace has had agreements with its executive and other officers regarding
severance arrangements in the event of a change in control of Grace (see
"Compensation -- Severance Agreements" in the Grace 1997
38
<PAGE> 52
Proxy Excerpt). Effective January 1, 1998, the agreements were replaced by new
agreements providing for substantially the same payments and benefits, except
that (1) the new agreements do not provide for a "gross-up" payment to cover
excise taxes that may result from severance payments and provide for reduced
severance for officers who are within 36 months of normal retirement age (65)
and (2) Mr. Costello's severance benefits continue to be governed by his
employment agreement. In addition, under the new agreements, a "change in
control" does not include the acquisition of 20% or more of the Grace common
stock as a result of a sale of stock by Grace and includes a transaction in
which Grace's stockholders do not own 50% or more of the voting power of the
corporation resulting from such transaction (as compared to more than 60% under
the prior agreements). The Transactions will not constitute a change in control
under the above agreements. These agreements will be assumed by New Grace upon
completion of the Transactions (except for the agreement with J. Gary Kaenzig
Jr., a Grace officer who will become an employee of New Sealed Air, whose
agreement will terminate prior to completion of the Transactions).
Grace's Long-Term Incentive Program ("LTIP") provides for the grant of
contingent "Performance Units" that may be earned over three-year "Performance
Periods" (see "Compensation -- LTIP" in the Grace 1997 Proxy Excerpt).
Performance Units previously granted for the 1996-1998 and 1997-1999 Performance
Periods under the LTIP will be vested on a pro rata basis upon completion of the
Transactions and will be calculated and paid in cash as promptly as practicable
thereafter, based on results achieved through completion of the Transactions.
The value of the unvested portion of such Performance Units will be calculated
and fixed based on the price of Grace common stock prior to completion of the
Transactions and will be paid by New Grace following the end of the respective
Performance Periods (subject to continued service).
For more information on employee benefits following the Transactions, see
"The Distribution and Merger Agreements -- Reorganization of Grace -- Conversion
of Grace Stock Options" and "Relationship between New Sealed Air and New Grace
after the Merger -- Employee Benefits Agreement and Other Employee Matters" in
the Joint Proxy Statement/Prospectus.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are expected to be Messrs. Akers
and Eckmann, Dr. Fox, and Messrs. Holmes, Murphy and Vanderslice, each of whom
is an independent director.
39
<PAGE> 53
CERTAIN AGREEMENTS BETWEEN NEW SEALED AIR
AND NEW GRACE
After the Transactions, New Grace and New Sealed Air will be separate
companies. Prior to the Transactions, Grace (which will become New Sealed Air)
and New Grace will enter into agreements dealing with many operational issues,
including:
- the separation of the Packaging Business from the Specialty Chemicals
Businesses;
- transitional services to be provided by New Grace and New Sealed Air for
up to two years following the Transactions and the fees to be paid for
those services; and
- the allocation of certain tax, employee benefits and other liabilities
between New Grace and New Sealed Air.
Under these agreements, New Grace and New Sealed Air will be required to
compensate each other after the Transactions for losses, damages, claims and
liabilities resulting from the business of the other and from certain tax
liabilities. Detailed information about these agreements can be found in "The
Distribution and Merger Agreements" and "Relationship Between New Sealed Air and
New Grace after the Reorganization and Merger" in the Joint Proxy
Statement/Prospectus.
CERTAIN RELATIONSHIPS AND TRANSACTIONS
The individuals who will serve as directors and executive officers of New
Grace after the Spin-off currently serve as directors and executive officers of
Grace. For information with respect to certain relationships and transactions
prior to the Spin-off, see the Grace 1997 Proxy Excerpt.
40
<PAGE> 54
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Grace currently owns all of the outstanding shares of New Grace common
stock. The following table sets forth certain information with respect to all
stockholders anticipated to be the beneficial owners (as discussed below) of
more than 5% of the New Grace common stock outstanding immediately following the
Spin-off, based upon a review of statements filed with the SEC pursuant to
Sections 13(d), 13(g) and 16(a) of the Exchange Act with respect to Grace common
stock prior to February 11, 1998.
<TABLE>
<CAPTION>
AMOUNT
AND NATURE OF
NAME AND ADDRESS BENEFICIAL PERCENT OF
OF BENEFICIAL OWNER OWNERSHIP(A) CLASS (B)
- ------------------- ---------------- ----------
<S> <C> <C>
FMR Corp. (c)............................................... 7,379,887 shares 9.87%
82 Devonshire Street
Boston, Massachusetts 02109
Lincoln Capital Management Company(d)....................... 7,332,200 shares 9.80%
200 South Wacker Drive
Suite 2100
Chicago, Illinois 60606
</TABLE>
- ---------------
(a) Under the rules of the SEC, a person is deemed to be the "beneficial owner"
of a security if such person has or shares the power to vote or direct the
voting of such security or the power to dispose or direct the disposition of
such security. A person is also deemed to be a beneficial owner of any
securities if that person has the right to acquire beneficial ownership
within 60 days. Accordingly, more than one person may be deemed to be a
beneficial owner of the same security. Unless otherwise indicated by
footnote, the named person is expected to have sole voting and dispositive
power with respect to the shares to be held.
(b) Based on 74,796,863 shares of Grace common stock outstanding as of February
11, 1998.
(c) The ownership information set forth herein is based in its entirety on
material contained in a Schedule 13G, dated August 8, 1997, filed with the
SEC by FMR Corp., which certified that the securities were not acquired for
the purpose of changing or influencing the control of Grace. With respect to
the shares held, such stockholder stated in such Schedule 13G that it has
sole voting power as to 64,107 shares and sole dispositive power as to
7,379,887 shares.
(d) The ownership information set forth herein is based in its entirety on
material contained in a Schedule 13G, dated April 28, 1997, filed with the
SEC by Lincoln Capital Management Company, which certified that the
securities were not acquired for the purpose of changing or influencing the
control of Grace. With respect to the shares held, such stockholder stated
in such Schedule 13G that it has sole voting power as to 3,583,300 shares
and sole dispositive power as to 7,332,200 shares.
BENEFICIAL OWNERSHIP OF MANAGEMENT
Grace currently owns all of the outstanding shares of New Grace common
stock. For information with respect to the number of shares of New Grace common
stock expected to be beneficially owned immediately following the Spin-off by
(i) the current Grace directors, including the individuals expected to be New
Grace directors and (ii) certain executive officers of Grace, see the table set
forth under "Security Ownership of Certain Beneficial Owners -- Security
Ownership of Grace" in the Joint Proxy Statement/Prospectus.
41
<PAGE> 55
DESCRIPTION OF NEW GRACE CAPITAL STOCK
The following description of New Grace capital stock is a summary of the
material terms thereof and is qualified in its entirety by reference to the
provisions of the New Grace Certificate and the New Grace By-laws, copies of
which are attached to this Information Statement as Annex A and Annex B,
respectively.
AUTHORIZED CAPITAL STOCK
Under the New Grace Certificate, the total number of shares of all classes
of stock that New Grace has authority to issue is 353 million, consisting of 53
million shares of New Grace preferred stock, and 300 million shares of New Grace
common stock. No shares of New Grace preferred stock are being issued in
connection with the Spin-off. An aggregate of up to approximately 75,000,000
shares of New Grace common stock is expected to be distributed in the Spinoff,
based on the number of shares of Grace common stock outstanding on February 11,
1998. All shares of New Grace common stock received in the Spin-off will be
fully paid and nonassessable.
NEW GRACE COMMON STOCK
The holders of New Grace common stock are entitled to one vote per share on
all matters voted on by stockholders, including elections of directors, and,
except as otherwise required by law or provided in any resolution adopted by the
New Grace Board with respect to any series of New Grace preferred stock, the
holders of the New Grace common stock exclusively possess all voting power. The
New Grace Certificate does not provide for cumulative voting in the election of
directors. Subject to any preferential rights of any outstanding series of New
Grace preferred stock, the holders of New Grace common stock are entitled to
such dividends as may be declared from time to time by the New Grace Board from
funds available therefor, and, upon liquidation, are entitled to receive pro
rata all assets of New Grace available for distribution to such holders.
The transfer agent and registrar for the New Grace common stock will be
ChaseMellon Shareholder Services, L.L.C.
NEW GRACE PREFERRED STOCK
The New Grace Board is authorized to provide for the issuance of shares of
New Grace preferred stock in one or more series, to establish the number of
shares in each series, and to fix the designation, powers, preferences and
rights of each such series and the qualifications, limitations or restrictions
thereof. The New Grace Board will authorize and reserve for issuance 3 million
shares of Junior Participating Preferred Stock, par value $.01 per share, of New
Grace ("New Grace Junior Preferred Stock") for issuance upon exercise of the
preferred share purchase rights of New Grace (the "New Grace Rights"). See
"-- New Grace Rights."
NEW GRACE RIGHTS
The New Grace Board has determined that a dividend of one New Grace Right
will be paid in respect of each share of New Grace common stock to the holder of
record thereof at the Time of Spin-off. Pursuant to the Rights Agreement
relating thereto (the "Rights Agreement"), each New Grace Right entitles the
registered holder to purchase from New Grace one hundredth of one share of New
Grace Junior Preferred Stock at a price of $100 per share (the "Purchase
Price"), subject to adjustment.
Until the earlier to occur of (i) 10 days following a public announcement
that a person or group of affiliated or associated persons (an "Acquiring
Person") has acquired beneficial ownership of 20% or more of the then
outstanding shares of New Grace common stock or (ii) 10 business days (or such
later date as may be determined by action of the New Grace Board prior to such
time as any person or group becomes an Acquiring Person) following the
commencement of, or announcement of an intention to make, a tender offer or
exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 20% or more of the outstanding shares of New
Grace common stock (the earlier of such dates being called the "Rights
Distribution Date"), the New Grace Rights will be evidenced by the certificates
representing shares
42
<PAGE> 56
of New Grace common stock. The Rights Agreement provides that, until the Rights
Distribution Date (or the earlier redemption or expiration of the New Grace
Rights), (i) the New Grace Rights will be transferred with and only with the
shares of New Grace common stock, (ii) certificates representing shares of New
Grace common stock will contain a notation incorporating the terms of the New
Grace Rights by reference, and (iii) the surrender for transfer of any
certificates representing shares of New Grace common stock will also constitute
the transfer of the New Grace Rights associated with the shares of New Grace
common stock represented by such certificate. As soon as practicable following
the Rights Distribution Date, separate certificates evidencing the New Grace
Rights ("Rights Certificates") will be mailed to holders of record of the shares
of New Grace common stock as of the close of business on the Rights Distribution
Date and such separate Rights Certificates alone will evidence the New Grace
Rights.
The Purchase Price payable, and the number of shares of New Grace Junior
Preferred Stock or other securities or property issuable, upon exercise of the
New Grace Rights are subject to adjustment from time to time to prevent dilution
(i) in the event of a stock dividend on, or a subdivision, combination or
reclassification of, the shares of New Grace Junior Preferred Stock, (ii) upon
the grant to holders of the shares of New Grace Junior Preferred Stock of
certain rights or warrants to subscribe for or purchase shares of New Grace
Junior Preferred Stock at a price, or securities convertible into shares of New
Grace Junior Preferred Stock with a conversion price, less than the then-current
market price of the shares of New Grace Junior Preferred Stock or (iii) upon the
distribution to holders of the shares of New Grace Junior Preferred Stock of
evidences of indebtedness or assets (excluding regular periodic cash dividends
paid out of earnings or retained earnings or dividends payable in shares of New
Grace Junior Preferred Stock) or of subscription rights or warrants (other than
those referred to above). The number of outstanding New Grace Rights and the
number of hundredths of a share of New Grace Junior Preferred Stock issuable
upon exercise of each New Grace Right are also subject to adjustment in the
event of a split of the New Grace common stock or a dividend on the New Grace
common stock payable in New Grace common stock, or subdivisions, consolidations
or combinations of the New Grace common stock occurring, in any such case, prior
to the Rights Distribution Date.
Shares of New Grace Junior Preferred Stock that may be purchased upon
exercise of the New Grace Rights will not be redeemable. Each share of New Grace
Junior Preferred Stock will be entitled to a minimum preferential quarterly
dividend payment of one dollar per share but will be entitled to an aggregate
dividend equal to 100 times the dividend declared per share of New Grace common
stock whenever such dividend is declared. In the event of liquidation, the
holders of the New Grace Junior Preferred Stock will be entitled to a minimum
preferential liquidation payment of $100 per share but will be entitled to an
aggregate payment equal to 100 times the payment made per share of New Grace
common stock. Each share of New Grace Junior Preferred Stock will have 100
votes, voting together with the New Grace common stock. Finally, in the event of
any merger, consolidation or other transaction in which New Grace common stock
is exchanged, each share of New Grace Junior Preferred Stock will be entitled to
receive an amount equal to 100 times the amount received per share of New Grace
common stock. These rights are protected by customary antidilution provisions.
Because of the nature of the dividend, liquidation and voting rights of New
Grace Junior Preferred Stock, the value of the one hundredth interest in a share
of New Grace Junior Preferred Stock that may be purchased upon exercise of each
New Grace Right should approximate the value of one share of New Grace common
stock.
In the event that any person or group of affiliated or associated persons
becomes an Acquiring Person, proper provision will be made so that each holder
of a New Grace Right, other than New Grace Rights beneficially owned by the
Acquiring Person (which will become void after such person becomes an Acquiring
Person), will, after such person becomes an Acquiring Person, have the right to
receive upon exercise, in lieu of shares of New Grace Junior Preferred Stock,
that number of shares of New Grace common stock having a market value of two
times the exercise price of the New Grace Right (such right being referred to as
a "Flip-in Right"). In the event that, at any time on or after the date that any
person has become an Acquiring Person, New Grace is acquired in a merger or
other business combination transaction or 50% or more of its consolidated assets
or earning power is sold, proper provision will be made so that each holder of a
New Grace Right will thereafter have the right to receive, upon the exercise
thereof at the then-current exercise price of
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the New Grace Right, that number of shares of common stock of the acquiring
company which at the time of such transaction will have a market value of two
times the exercise price of the New Grace Right.
At any time after any person or group of affiliated or associated persons
becomes an Acquiring Person, and prior to the acquisition by such person or
group of 50% or more of the outstanding shares of New Grace common stock, the
New Grace Board may exchange the New Grace Rights for New Grace common stock or
New Grace Junior Preferred Stock (other than New Grace Rights owned by such
person or group, which will have become void after such person became an
Acquiring Person), in whole or in part, at an exchange ratio of one share of New
Grace common stock, or one hundredth of a share of New Grace Junior Preferred
Stock (or of a share of another series of New Grace Preferred Stock having
equivalent rights, preferences and privileges), per New Grace Right (subject to
adjustment).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1%. No
fractional shares of New Grace Junior Preferred Stock will be issued (other than
fractions which are integral multiples of one hundredth of a share of New Grace
Junior Preferred Stock, which may, at the election of New Grace, be evidenced by
depositary receipts) and, in lieu thereof, an adjustment in cash will be made
based on the market price of the shares of New Grace Junior Preferred Stock on
the last trading day prior to the date of exercise.
At any time prior to the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 20% or more of the outstanding
shares of New Grace common stock, the New Grace Board may redeem the New Grace
Rights in whole, but not in part, at a price of $.01 per New Grace Right (the
"Redemption Price"). The redemption of the New Grace Rights may be made
effective at such time, on such basis and with such conditions as the New Grace
Board may determine, in its sole discretion. Immediately upon any redemption of
the New Grace Rights, the right to exercise the New Grace Rights will terminate
and the only right of the holders of New Grace Rights will be to receive the
Redemption Price.
The terms of the New Grace Rights may be amended by the New Grace Board
without the consent of the holders of the New Grace Rights, including an
amendment to lower (i) the threshold at which a person becomes an Acquiring
Person and (ii) the percentage of New Grace common stock proposed to be acquired
in a tender or exchange offer that would cause the Rights Distribution Date to
occur, to not less than the greater of (a) the sum of .001% and the largest
percentage of the outstanding New Grace common stock then known to New Grace to
be beneficially owned by any person or group of affiliated or associated persons
and (b) 10%, except that, from and after such time as any person or group of
affiliated or associated persons becomes an Acquiring Person, no such amendment
may adversely affect the interests of the holders of the New Grace Rights.
The New Grace Rights will not be exercisable until the Rights Distribution
Date. The New Grace Rights will expire on the close of business on the 10th
anniversary of the Time of Spin-off (the "Final Expiration Date"), unless the
Final Expiration Date is extended or unless the New Grace Rights are earlier
redeemed or exchanged by New Grace.
Until a New Grace Right is exercised, the holder thereof, as such, will
have no rights as a stockholder of New Grace, including, without limitation, the
right to vote or to receive dividends.
The foregoing summary of certain terms of the New Grace Rights does not
purport to be complete and is qualified in its entirety by reference to the form
of the Rights Agreement, which has been filed as an exhibit to the New Grace
Registration Statement defined and described in "Where Stockholders Can Find
More Information."
The distribution of the New Grace Rights should not be taxable under the
Code to New Grace, New Sealed Air or their respective stockholders. However,
depending upon the circumstances, stockholders of New Grace may recognize
taxable income under the Code in the event that the New Grace Rights become
exercisable.
PREEMPTIVE RIGHTS
No holder of any stock of New Grace of any class authorized at the Time of
Spin-off will then have any preemptive right to subscribe to any securities of
New Grace of any kind or class.
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CERTAIN ANTI-TAKEOVER PROVISIONS
The New Grace Certificate and the New Grace By-laws contain certain
provisions that could delay or make more difficult the acquisition of New Grace
by means of a tender offer, a proxy contest or otherwise. Such provisions have
been implemented to enable New Grace, particularly (but not exclusively) in the
years immediately following the Spin-off, to develop its business in a manner
which will foster its long-term growth without disruption caused by the threat
of a takeover not deemed by the New Grace Board to be in the best interests of
New Grace and its stockholders. The description of certain aspects of the New
Grace Certificate and the New Grace By-laws set forth below does not purport to
be complete and is qualified in its entirety by reference to the New Grace
Certificate and the New Grace By-laws, which are attached as Annex A and Annex
B, respectively, to this Information Statement.
CLASSIFIED BOARD OF DIRECTORS
The New Grace Certificate and the New Grace By-laws provide that the New
Grace Board will be divided into three classes of directors, with the classes to
be as equal in number as possible. The New Grace Board is expected to consist of
the individuals referred to in "MANAGEMENT -- Board of Directors." The New Grace
Certificate and the New Grace By-laws provide that, of the initial directors of
New Grace, approximately one-third will continue to serve until the 1999 Annual
Meeting of Stockholders, approximately one-third will continue to serve until
the 2000 Annual Meeting of Stockholders and approximately one-third will
continue until the 2001 Annual Meeting of Stockholders. Of the initial
directors, Mr. Costello, Dr. Fox and Mr. Vanderslice will serve until the 1999
Annual Meeting of Stockholders, and Messrs. Akers and Murphy will serve until
the 2000 Annual Meeting of Stockholders. The term of Messrs. Eckmann and Holmes
and Dr. Frick expires at the 2001 Annual Meeting of Stockholders; however,
Messrs. Eckmann and Holmes and Dr. Frick have agreed to resign from the New
Grace Board effective May 8, 1998, the date on which their terms as directors of
Grace would expire but for the Transactions. It is anticipated that, following
completion of the Transactions, the New Grace Board (on the recommendation of
its Nominating Committee) will elect one or more individuals to serve as Class
III Directors of New Grace, with a term expiring at the 2001 Annual Meeting of
Stockholders. Starting with the 1999 Annual Meeting of Stockholders, one class
of directors will be elected each year for a three-year term.
The classification of directors will have the effect of making it more
difficult for stockholders to change the composition of the New Grace Board. At
least two annual meetings of stockholders, instead of one, will generally be
required to effect a change in a majority of the New Grace Board. Such a delay
may help ensure that New Grace's directors, if confronted by a holder attempting
to force a proxy contest, a tender or exchange offer, or an extraordinary
corporate transaction, would have sufficient time to review the proposal as well
as any available alternatives to the proposal and to act in what they believe to
be the best interest of the stockholders. However, the classification provisions
will apply to every election of directors and will increase the likelihood that
incumbent directors will retain their positions, regardless of whether a change
in the composition of the New Grace Board would be beneficial to New Grace and
its stockholders and whether or not a majority of New Grace's stockholders
believe that such a change would be desirable.
The classification provisions could also have the effect of discouraging a
third party from initiating a proxy contest, making a tender offer or otherwise
attempting to obtain control of New Grace, even though such an attempt might be
beneficial to New Grace and its stockholders. In addition, because the
classification provisions may discourage accumulations of large blocks of New
Grace common stock by purchasers whose objective is to take control of New Grace
and remove a majority of the New Grace Board, the classification of the New
Grace Board could tend to reduce the likelihood of fluctuations in the market
price of the New Grace common stock that might result from accumulations of
large blocks. Accordingly, stockholders could be deprived of certain
opportunities to sell their shares of New Grace common stock at a higher market
price than might otherwise be the case.
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NUMBER OF DIRECTORS; REMOVAL; FILLING VACANCIES
The New Grace By-laws provide that, subject to any rights of holders of New
Grace preferred stock to elect directors under specified circumstances, the
number of directors will be fixed from time to time exclusively pursuant to a
resolution adopted by directors constituting a majority of the total number of
directors that New Grace would have if there were no vacancies on the New Grace
Board (the "Whole Board"). In addition, the New Grace By-laws provide that,
subject to applicable law and any rights of holders of New Grace preferred
stock, and unless the New Grace Board otherwise determines, any vacancies will
be filled only by the affirmative vote of a majority of the remaining directors,
though less than a quorum. Accordingly, absent an amendment to the New Grace
By-laws, the New Grace Board could prevent any stockholder from enlarging the
New Grace Board and filling the new directorships with such stockholder's own
nominees.
Under the Delaware Law, unless otherwise provided in a corporation's
certificate of incorporation, directors serving on a classified board may only
be removed by the stockholders for cause. The New Grace Certificate does not
otherwise provide.
NO STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS
The New Grace Certificate and the New Grace By-laws provide that, subject
to the rights of any holders of New Grace preferred stock to elect additional
directors under specified circumstances, stockholder action can be taken only at
an annual or special meeting of stockholders and may not be taken by written
consent in lieu of a meeting. The New Grace By-laws provide that, subject to the
rights of holders of any series of New Grace preferred stock to elect additional
directors under specified circumstances, special meetings of stockholders can be
called only by the Chairman or the President or by the New Grace Board pursuant
to a resolution adopted by a majority of the Whole Board. Stockholders are not
permitted to call, or to require that the Chairman, the President or the New
Grace Board call, a special meeting of stockholders. Moreover, the business
permitted to be conducted at any special meeting of stockholders is limited to
the business brought before the meeting pursuant to the notice of meeting given
by New Grace.
The provisions of the New Grace Certificate and the New Grace By-laws
prohibiting stockholder action by written consent may have the effect of
delaying consideration of a stockholder proposal until the next annual meeting.
These provisions would also prevent the holders of a majority of the voting
power of the voting stock from unilaterally using the written consent procedure
to take stockholder action. Moreover, a stockholder could not force stockholder
consideration of a proposal over the opposition of the Chairman and the New
Grace Board by calling a special meeting of stockholders prior to the time the
Chairman or a majority of the Whole Board believes such consideration to be
appropriate.
ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER NOMINATIONS AND STOCKHOLDER PROPOSALS
The New Grace By-laws establish an advance notice procedure for
stockholders to nominate candidates for election as directors or to bring other
business before meetings of stockholders of New Grace (the "Stockholder Notice
Procedure").
A stockholder nominee will be eligible for election as a director of New
Grace only if nominated in accordance with the Stockholder Notice Procedure.
Under the Stockholder Notice Procedure, notice of stockholder nominations to be
made at an annual meeting (or of any other business to be brought before such
meeting) must be received by New Grace not less than 60 days nor more than 90
days prior to the first anniversary of the previous year's annual meeting (or,
if the date of the annual meeting is more than 30 days before or more than 60
days after such anniversary date, not earlier than the 90th day prior to such
meeting and not later than the later of (i) the 60th day prior to such meeting
or (ii) the 10th day after public announcement of the date of such meeting is
first made). Notwithstanding the foregoing, in the event that the number of
directors to be elected is increased and there is no public announcement naming
all of the nominees for director or specifying the size of the increased New
Grace Board made by New Grace at least 70 days prior to the first anniversary of
the preceding year's annual meeting, a stockholder's notice will be timely, but
only
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with respect to nominees for any new positions created by such increase, if it
is received by New Grace not later than the 10th day after such public
announcement is first made by New Grace.
The New Grace By-laws provide that only such business may be conducted at a
special meeting as is specified in the notice of meeting. Nominations for
election to the New Grace Board may be made at a special meeting at which
directors are to be elected only by or at the New Grace Board's direction or by
a stockholder who has given timely notice of nomination. Under the Stockholder
Notice Procedure, such notice must be received by New Grace not earlier than the
90th day before such meeting and not later than the later of (i) the 60th day
prior to such meeting or (ii) the 10th day after public announcement of the date
of such meeting is first made. Stockholders will not be able to bring other
business before special meetings of stockholders.
The Stockholder Notice Procedure provides that at an annual meeting only
such business may be conducted as has been brought before the meeting by, or at
the direction of, the Chairman, the President or the New Grace Board or by a
stockholder who has given timely written notice (as set forth above) to the
Secretary of New Grace of such stockholder's intention to bring such business
before such meeting.
Under the Stockholder Notice Procedure, a stockholder's notice to New Grace
proposing to nominate an individual for election as a director must contain
certain information, including, without limitation, the identity and address of
the nominating stockholder, the class and number of shares of stock of New Grace
owned by such stockholder, and all information regarding the proposed nominee
that would be required to be included in a proxy statement soliciting proxies
for the proposed nominee. Under the Stockholder Notice Procedure, a
stockholder's notice relating to the conduct of business other than the
nomination of directors must contain certain information about such business and
about the proposing stockholder, including, without limitation, a brief
description of the business the stockholder proposes to bring before the
meeting, the reasons for conducting such business at such meeting, the name and
address of such stockholder, the class and number of shares of stock of New
Grace beneficially owned by such stockholder, and any material interest of such
stockholder in the business so proposed. If the Chairman or other officer
presiding at a meeting determines that an individual was not nominated, or other
business was not brought before the meeting, in accordance with the Stockholder
Notice Procedure, such individual will not be eligible for election as a
director, or such business will not be conducted at such meeting, as the case
may be.
By requiring advance notice of nominations by stockholders, the Stockholder
Notice Procedure will afford the New Grace Board an opportunity to consider the
qualifications of the proposed nominees and, to the extent deemed necessary or
desirable by the New Grace Board, to inform stockholders about such
qualifications. By requiring advance notice of other proposed business, the
Stockholder Notice Procedure will provide a more orderly procedure for
conducting annual meetings of stockholders and, to the extent deemed necessary
or desirable by the New Grace Board, will provide the New Grace Board with an
opportunity to inform stockholders, prior to such meetings, of any business
proposed to be conducted at such meetings, together with the New Grace Board's
position regarding action to be taken with respect to such business, so that
stockholders can better decide whether to attend such a meeting or to grant a
proxy regarding the disposition of any such business.
Although the New Grace By-laws do not give the New Grace Board any power to
approve or disapprove stockholder nominations for the election of directors or
proposals for action, they may have the effect of precluding a contest for the
election of directors or the consideration of stockholder proposals if the
proper procedures are not followed, and of discouraging or deterring a third
party from conducting a solicitation of proxies to elect its own slate of
directors or to approve its own proposal, without regard to whether
consideration of such nominees or proposals might be harmful or beneficial to
New Grace and its stockholders.
NEW GRACE PREFERRED STOCK
The New Grace Certificate authorizes the New Grace Board to establish one
or more series of New Grace preferred stock, and to determine, with respect to
any series of New Grace preferred stock, the terms and rights of such series,
including (i) the designation of the series; (ii) the number of shares of the
series,
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which number the New Grace Board may thereafter (except where otherwise provided
in the New Grace preferred stock designation) increase or decrease (but not
below the number of shares thereof then outstanding); (iii) whether dividends,
if any, will be cumulative or noncumulative and the dividend rate of the series;
(iv) the dates on which dividends, if any, will be payable; (v) the redemption
rights and price or prices, if any, for shares of the series; (vi) the terms and
amounts of any sinking fund provided for the purchase or redemption of shares of
the series; (vii) the amounts payable on shares of the series in the event of
any voluntary or involuntary liquidation, dissolution or winding up of the
affairs of New Grace; (viii) whether the shares of the series will be
convertible into shares of any other class or series, or any other security, of
New Grace or any other corporation, and, if so, the specification of such other
class or series or such other security, the conversion price or prices or rate
or rates, any adjustments thereof, the date or dates as of which such shares
shall be convertible and all other terms and conditions upon which such
conversion may be made; (ix) restrictions on the issuance of shares of the same
series or of any other class or series; and (x) the voting rights, if any, of
the holders of such series.
The authorized shares of New Grace preferred stock, as well as shares of
New Grace common stock, will be available for issuance without further action by
New Grace's stockholders, unless such action is required by applicable law or
the rules of any stock exchange or automated quotation system on which New
Grace's securities may be listed or traded. If the approval of New Grace's
stockholders is not so required, the New Grace Board does not intend to seek
stockholder approval.
Although the New Grace Board has no intention at the present time of doing
so, it could issue a series of New Grace preferred stock that could, depending
on the terms of such series, impede the completion of a merger, tender offer or
other takeover attempt. The New Grace Board will make any determination to issue
such shares based on its judgment as to the best interests of New Grace and its
stockholders. The New Grace Board, in so acting, could issue New Grace preferred
stock having terms that could discourage an acquisition attempt or other
transaction that some, or a majority, of New Grace's stockholders might believe
to be in their best interests or in which stockholders might receive a premium
for their stock over the then-current market price of such stock.
RIGHTS TO PURCHASE SECURITIES AND OTHER PROPERTY
The New Grace Certificate authorizes the New Grace Board to create and
issue rights entitling the holders thereof to purchase from New Grace shares of
capital stock or other securities or property. The times at which and terms upon
which such rights are to be issued would be determined by the New Grace Board
and set forth in the contracts or instruments that evidence such rights. The
authority of the New Grace Board with respect to such rights includes, but is
not limited to, determining (i) the purchase price of the capital stock or other
securities or property to be purchased upon exercise of such rights; (ii)
provisions relating to the times at which and the circumstances under which such
rights may be exercised or sold or otherwise transferred, either together with
or separately from any other stock or other securities of New Grace; (iii)
provisions which adjust the number or exercise price of such rights or the
amount or nature of the stock, other securities or other property receivable
upon exercise of such rights in the event of a combination, split or
recapitalization of any stock of New Grace, a change in ownership of New Grace's
stock or other securities or a reorganization, merger, consolidation, sale of
assets or other occurrence relating to New Grace or any stock of New Grace, and
provisions restricting the ability of New Grace to enter into any such
transaction absent an assumption by the other party or parties thereto of the
obligations of New Grace under such rights; (iv) provisions which deny the
holder of a specified percentage of the outstanding securities of New Grace the
right to exercise such rights and/or cause such rights held by such holder to
become void; (v) provisions which permit New Grace to redeem or exchange such
rights; and (vi) the appointment of the rights agent with respect to such
rights. This provision is intended to confirm the New Grace Board's authority to
issue share purchase rights or other rights to purchase stock or securities of
New Grace or any other corporation. See "-- Preferred Stock Purchase Rights."
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AMENDMENT OF CERTAIN PROVISIONS OF THE NEW GRACE CERTIFICATE OF INCORPORATION
AND THE NEW GRACE BY-LAWS
Under the Delaware Law, stockholders have the right to adopt, amend or
repeal the certificate of incorporation and by-laws of a corporation. In
addition, if the certificate of incorporation so provides, the by-laws may be
amended by the board of directors. The New Grace Certificate provides that the
affirmative vote of the holders of at least 80% of the voting power of the
outstanding shares of capital stock of New Grace eligible to vote generally in
the election of directors ("Voting Stock"), voting together as a single class,
is required to amend provisions of the New Grace Certificate relating to the
prohibition of stockholder action without a meeting; the number, election and
term of New Grace's directors; the removal of directors; and the amendment of
the New Grace By-laws. The New Grace Certificate further provides that the New
Grace By-laws may be amended by the New Grace Board or by the affirmative vote
of the holders of at least 80% of the outstanding shares of Voting Stock, voting
together as a single class. These voting requirements will have the effect of
making it more difficult for stockholders to amend the provisions of the New
Grace Certificate stated above or the New Grace By-laws, even if a majority of
New Grace stockholders believe that such amendment would be in their best
interests.
NEW GRACE RIGHTS
The Rights Agreement to be adopted by the New Grace Board, as described
above, will permit disinterested stockholders to acquire shares of New Grace
common stock or common stock of an Acquiring Person at a substantial discount in
the event of certain described changes in control. See "Description of New Grace
Capital Stock -- New Grace Rights."
The New Grace Rights will have certain anti-takeover effects. The New Grace
Rights will cause substantial dilution to a person or group that attempts to
acquire New Grace on terms not approved by the New Grace Board, except pursuant
to an offer conditioned on a substantial number of New Grace Rights being
acquired. The New Grace Rights should not interfere with any merger or business
combination approved by the New Grace Board, since the New Grace Rights may be
redeemed by New Grace at the Redemption Price prior to the time that a person or
group has become an Acquiring Person.
CERTAIN ANTI-TAKEOVER FEATURES
The New Grace Certificate, the New Grace By-laws and the New Grace Rights
contain several provisions that may make the acquisition of control of New Grace
difficult or expensive, increase the likelihood that incumbent management will
retain its positions, and deprive stockholders of opportunities to receive
premiums over the market value for their shares. In addition, in certain of the
agreements entered into in connection with the Transactions, each of Grace, New
Grace and Sealed Air has undertaken to indemnify one another against certain tax
liabilities that could arise were the Spin-off to be taxable, which indemnity
could diminish the willingness of a third party to acquire New Grace in a
taxable transaction for some period following the Spin-off. See "Certain
Agreements between Grace and New Grace."
ANTI-TAKEOVER STATUTE
Section 203 of the Delaware Law provides that, subject to certain
exceptions specified therein, a corporation shall not engage in any business
combination with any "interested stockholder" for a three-year period following
the date on which such stockholder becomes an interested stockholder unless (i)
prior to such date, the board of directors of the corporation approves either
the business combination or the transaction which resulted in the stockholder
becoming an interested stockholder, (ii) upon consummation of the transaction
which results in the stockholder becoming an interested stockholder, the
interested stockholder owns at least 85% of the voting stock (as defined in
Section 203 of the Delaware Law) of the corporation outstanding at the time the
transaction commenced (excluding certain shares), or (iii) on or subsequent to
such date, the business combination is approved by the board of directors of the
corporation and by the affirmative vote of at least 66 2/3% of the outstanding
voting stock not owned by the interested stockholder. Except as specified in
Section 203 of the Delaware Law, an "interested stockholder" is defined to
include (i) any person that is the owner of 15% or more of the outstanding
voting stock of the corporation, or is an
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affiliate or associate of the corporation and was the owner of 15% or more of
the outstanding voting stock of the corporation, at any time within three years
immediately prior to the relevant date and (ii) the affiliates and associates of
any such person.
Under certain circumstances, Section 203 of the Delaware Law makes it more
difficult for an interested stockholder to effect various business combinations
with a corporation for a three-year period, although the stockholders may elect
to exclude a corporation from the restrictions imposed thereunder; the New Grace
Certificate does not exclude New Grace from such restrictions. It is anticipated
that the provisions of Section 203 of the Delaware Law may encourage companies
interested in acquiring New Grace to negotiate in advance with the New Grace
Board, since the stockholder approval requirement would be avoided if a majority
of the directors then in office approve either the business combination or the
transaction that results in the stockholder becoming an interested stockholder.
Section 203 of the Delaware Law should encourage persons interested in acquiring
New Grace to negotiate in advance with the New Grace Board, since the higher
stockholder voting requirements would not be invoked if such person, prior to
acquiring 15% of New Grace's Voting Stock, obtains the approval of the New Grace
Board for such acquisition or for the proposed business combination transaction
(unless such person acquires 85% or more of New Grace's voting stock in such
transaction, excluding certain shares as described above). In the event of a
proposed acquisition of New Grace, it is believed that the interests of New
Grace stockholders will best be served by a transaction that results from
negotiations based upon careful consideration of the proposed terms, such as the
price to be paid to minority stockholders, the form of consideration paid and
tax effects of the transaction.
Section 203 of the Delaware Law will not prevent a hostile takeover of New
Grace. It may, however, make more difficult or discourage a takeover of New
Grace or the acquisition of control of New Grace by a significant stockholder
and thus the removal of incumbent management. Any such effect will be enhanced
by the issuance of the New Grace Rights. Some stockholders may find this
disadvantageous in that they may not be afforded the opportunity to participate
in takeovers that are not approved as required by Section 203 of the Delaware
Law but in which stockholders might receive, for at least some of their shares,
a substantial premium above the market price at the time of a tender offer or
other acquisition transaction.
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LIABILITY AND INDEMNIFICATION
OF DIRECTORS AND OFFICERS
LIMITATION OF LIABILITY OF DIRECTORS
The New Grace Certificate provides that a director will not be personally
liable for monetary damages to New Grace or its stockholders for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to New Grace or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) for paying a dividend or approving a stock repurchase in
violation of Section 174 of the Delaware Law, or (iv) for any transaction from
which the director derived an improper personal benefit.
While the New Grace Certificate provides directors with protection against
awards for monetary damages for breaches of their duty of care, it does not
eliminate such duty. Accordingly, the New Grace Certificate will have no effect
on the availability of equitable remedies such as an injunction or rescission
based on a director's breach of his or her duty of care. The provisions of the
New Grace Certificate described above apply to an officer of New Grace only if
he or she is a director of New Grace and is acting in his or her capacity as
director, and do not apply to officers of New Grace who are not directors.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The New Grace Certificate provides that each individual who is or was or
had agreed to become a director or officer of New Grace, or each such person who
is or was serving or who had agreed to serve at the request of the New Grace
Board as an employee or agent of New Grace or as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans (also
including the heirs, executors, administrators or estate of such person), will
be indemnified by New Grace, in accordance with the New Grace By-laws, to the
fullest extent permitted by the Delaware Law, as the same exists or may in the
future be amended (but, in the case of any such amendment, only to the extent
that such amendment permits New Grace to provide broader indemnification rights
than said law permitted prior to such amendment). The New Grace Certificate also
specifically authorizes New Grace to enter into agreements with any person
providing for indemnification greater than or different from that provided by
the New Grace Certificate.
The New Grace By-laws provide that each person who was or is made a party
or is threatened to be made a party to or is involved in any action, suit, or
proceeding, whether civil, criminal, administrative or investigative (a
"Proceeding"), by reason of the fact that he or she or a person of whom he or
she is the legal representative is or was a director, officer or employee of New
Grace or is or was serving at the request of New Grace as a director, officer,
employee or agent of another corporation or of a partnership, joint venture,
trust or other enterprise, including service with respect to employee benefit
plans, whether the basis of such Proceeding is alleged action in an official
capacity as a director, officer, employee or agent or in any other capacity
while serving as a director, officer, employee or agent, will be indemnified and
held harmless by New Grace to the fullest extent authorized by the Delaware Law
as the same exists or may in the future be amended (but, in the case of any such
amendment, only to the extent that such amendment permits New Grace to provide
broader indemnification rights than said law permitted prior to such amendment),
against all expense, liability and loss (including, without limitation,
attorneys' fees, judgments, fines, excise taxes or penalties and amounts paid or
to be paid in settlement) reasonably incurred or suffered by such person in
connection therewith, and such indemnification will continue as to a person who
has ceased to be a director, officer, employee or agent and will inure to the
benefit of his or her heirs, executors and administrators; however, except as
described in the next paragraph with respect to Proceedings seeking to enforce
rights to indemnification, New Grace will indemnify any such person seeking
indemnification in connection with a Proceeding (or part thereof) initiated by
such person only if such Proceeding (or part thereof) was authorized by the New
Grace Board.
Pursuant to the New Grace By-laws, if a claim for indemnification as
described in the preceding paragraph is not paid in full by New Grace within 30
days after a written claim has been received by New Grace, the claimant may, at
any time thereafter, bring suit against New Grace to recover the unpaid amount
of the claim and, if successful, in whole or in part, the claimant will be
entitled to also be paid the expense of
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<PAGE> 65
prosecuting such claim. The New Grace By-laws provide that it will be a defense
to any such action (other than an action brought to enforce a claim for expenses
incurred in defending any Proceeding in advance of its final disposition where
the required undertaking, if any, has been tendered to New Grace, as discussed
below) that the claimant has not met the standards of conduct which make it
permissible under the Delaware Law for New Grace to indemnify the claimant for
the amount claimed, but the burden of proving such defense will be on New Grace.
Neither the failure of New Grace (including the New Grace Board, independent
legal counsel or stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he or she has met the applicable standard of conduct
set forth in the Delaware Law, nor an actual determination by New Grace
(including the New Grace Board, independent legal counsel or stockholders) that
the claimant has not met such applicable standard of conduct, will be a defense
to the action or create a presumption that the claimant has not met the
applicable standard of conduct.
The New Grace By-laws provide that the right conferred in the New Grace
By-laws to indemnification and the payment of expenses incurred in defending a
Proceeding in advance of its final disposition will not be exclusive of any
other right which any person may have or may in the future acquire under any
statute, provision of the New Grace Certificate or the New Grace By-laws,
agreement, vote of stockholders or disinterested directors or otherwise. The New
Grace By-laws permit New Grace to maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of New Grace or another
corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss, whether or not New Grace would have the power to
indemnify such person against such expense, liability or loss under the Delaware
Law. New Grace intends to obtain directors and officers liability insurance
providing coverage to its directors and officers. In addition, the New Grace
By-laws authorize New Grace, to the extent authorized from time to time by the
New Grace Board, to grant rights to indemnification, and rights to be paid by
New Grace the expenses incurred in defending any Proceeding in advance of its
final disposition, to any agent of New Grace to the fullest extent of the
provisions of the New Grace By-laws with respect to the indemnification and
advancement of expenses of directors, officers and employees of New Grace.
The New Grace By-laws provide that the right to indemnification conferred
therein will be a contract right and will include the right to be paid by New
Grace the expenses incurred in defending any such Proceeding in advance of its
final disposition, except that if the Delaware Law requires, the payment of such
expenses incurred by a director or officer in his or her capacity as a director
or officer (and not in any other capacity in which service was or is rendered by
such person while a director or officer, including, without limitation, service
to an employee benefit plan) in advance of the final disposition of a Proceeding
will be made only upon delivery to New Grace of an undertaking by or on behalf
of such director or officer to repay all amounts so advanced if it is ultimately
determined that such director or officer is not entitled to be indemnified under
the New Grace By-laws or otherwise.
Grace is currently advancing the defense costs being incurred by certain
current and former directors (including the estate of a deceased director) in
certain of the litigations discussed in the Grace 1997 Proxy Excerpt and in the
Joint Proxy Statement/Prospectus. As contemplated by Delaware law, such
individuals (and the estate) are entering into agreements in which they
undertake to reimburse Grace for such advances in the event it is determined
that they were not entitled thereto.
CERTAIN OTHER INFORMATION
There has not been in the past and there is not presently pending any
litigation or proceeding involving a director, officer, employee or agent of New
Grace, acting in such capacity, in which indemnification would be required or
permitted by the New Grace By-laws. In addition, the New Grace Board is not
aware of any threatened litigation or proceeding which may result in a claim for
indemnification under the New Grace By-laws. However, certain litigation and
proceedings involving such persons in their respective capacities with Grace or
Grace New York are pending. Under the Distribution Agreement, Grace Specialty
Chemicals has agreed to indemnify Grace and a Packaging Business subsidiary with
respect to such pending litigations and proceedings. For information with
respect to the above, see "Business of New Grace and Grace Specialty
Chemicals -- Legal Proceedings and Regulatory Matters."
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<PAGE> 66
WHERE STOCKHOLDERS CAN FIND MORE INFORMATION
Grace files (and New Grace will file) annual, quarterly and current
reports, proxy statements and other information with the SEC. You may read and
copy any reports, statements or other information that Grace or New Grace files
at the SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Grace's and New Grace's SEC filings are also
available to the public from commercial document retrieval services and at the
world wide web site maintained by the SEC at "http://www.sec.gov".
New Grace has filed with the SEC a Registration Statement on Form 10 (as
amended, the "New Grace Registration Statement") under the Exchange Act,
relating to the shares of New Grace common stock to be issued in the Spin-off.
This Information Statement, which forms a part of the New Grace Registration
Statement, does not contain all of the information in the New Grace Registration
Statement and the related exhibits and schedules. Statements in this Information
Statement as to the contents of any contract, agreement or other document are
summaries only and are not necessarily complete. For complete information as to
these matters, refer to the applicable exhibit or schedule to the New Grace
Registration Statement. The New Grace Registration Statement and the related
exhibits filed by New Grace may be inspected at the public reference facilities
of the SEC listed above.
The principal office of New Grace is located at One Town Center Road, Boca
Raton, FL 33486 (telephone: (561) 362-2000).
Questions concerning Grace, New Grace, the Spin-off or the Merger should be
directed to One Town Center Road, Boca Raton, FL 33486 (telephone: (800)
354-8917).
STOCKHOLDER PROPOSALS
Article II of the New Grace By-laws, included as Annex B to this
Information Statement, sets forth advance notice requirements applicable to
stockholders desiring to nominate candidates for election as directors or to
present a proposal or bring other business before an annual meeting of
stockholders of New Grace. See "Certain Anti-Takeover Provisions -- Advance
Notice Provisions for Stockholder Nominations and Stockholder Proposals." In
each case, the notice must be given to the Secretary of New Grace, whose address
is One Town Center Road, Boca Raton, FL 33486. New Grace will not hold an Annual
Meeting of Stockholders in 1998. The New Grace 1999 Annual Meeting of
Stockholders is expected to be held in May 1999. Notice of any such nomination
or proposal must be received by December 8, 1998 to be considered at that
meeting. In addition, to be included in New Grace's proxy statement and form of
proxy for that meeting, any such nomination or proposal must also comply in all
respects with the rules and regulations of the SEC and must be received by the
Secretary of New Grace within the time period specified therein.
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<PAGE> 67
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Acquiring Person.................... 42
beneficial owner.................... 41
Class Period........................ 32
Consolidated Financial Statements... 7
Covered Period...................... 32
Darex Container Products............ 26
Delaware Law........................ 13
Distribution Agent.................. 14
Distribution Agreement.............. 14
DOE................................. 30
EHS................................. 28
EPA................................. 30
Exchange Act........................ 32
Final Expiration Date............... 44
Flip-in Right....................... 43
Grace............................... C
Grace 1997 Proxy Excerpt............ 38
Grace Board......................... 15
Grace Construction Products......... 25
Grace Davison....................... 24
Grace New York...................... 31
Grace Specialty Chemicals........... 5
IRS................................. 13
LTIP................................ 39
Merger.............................. C
Merger Agreement.................... 14
New Grace........................... C
New Grace Board..................... 12
New Grace By-laws................... 12
New Grace Certificate............... 12
</TABLE>
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
New Grace Junior Preferred Stock.... 42
New Grace Registration Statement.... 53
New Grace Rights.................... 42
New Sealed Air...................... C
NMC................................. 32
NMC Distribution Agreement.......... 32
NMC Transaction..................... 32
NYSE................................ 11
OIG................................. 33
Packaging Business.................. 5
Proceeding.......................... 51
PRP................................. 30
Purchase Price...................... 42
Recapitalization.................... 4
Redemption Price.................... 43
Rights Agreement.................... 42
Rights Certificates................. 43
Rights Distribution Date............ 42
Sealed Air.......................... C
SEC................................. 32
Securities Act...................... 15
Spin-off............................ C
Stockholder Notice Procedure........ 46
Specialty Chemicals Businesses...... 6
Third Quarter Financial
Statements........................ 7
Time of Spin-off.................... 12
Transactions........................ 6
Transaction Agreements.............. 14
Voting Stock........................ 49
Whole Board......................... 46
</TABLE>
54
<PAGE> 68
ANNEX A
FORM OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
W. R. GRACE & CO.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
* * * * * * *
1. The name of the corporation (the "Corporation") is "Grace Specialty
Chemicals, Inc."
2. The original Certificate of Incorporation was filed with the Secretary
of State of the State of Delaware on August 6, 1997, under the name Grace
Specialty Chemicals, Inc.
3. This Amended and Restated Certificate of Incorporation has been duly
proposed by resolutions adopted and declared advisable by the Board of Directors
of the Corporation, duly adopted by written consent of the sole stockholder of
the Corporation in lieu of a meeting and vote and duly executed and acknowledged
by the officers of the Corporation in accordance with the provisions of Sections
103, 228, 242 and 245 of the General Corporation Law of the State of Delaware
and, upon filing with the Secretary of State in accordance with Section 103,
shall supercede the original Certificate of Incorporation and shall, as it may
thereafter be amended in accordance with its terms and applicable law, be the
Certificate of Incorporation of the Corporation.
4. The text of the Certificate of Incorporation of the Corporation is
hereby amended and restated to read in its entirety as follows:
ARTICLE I
The name of the corporation (the "Corporation") is:
W. R. Grace & Co.
ARTICLE II
The address of the Corporation's registered office in the State of Delaware
is The Prentice-Hall Corporation System, Inc., 1013 Centre Road, Wilmington,
Delaware, County of New Castle. The name of the Corporation's registered agent
at such address is The Prentice-Hall Corporation System, Inc.
ARTICLE III
The purpose of the Corporation shall be to engage in any lawful act or
activity for which corporations may be organized and incorporated under the
General Corporation Law of the State of Delaware (the "GCL").
ARTICLE IV
(a) The total number of shares of stock which the Corporation shall have
authority to issue is Three Hundred and Fifty-Three Million (353,000,000),
consisting of Fifty-Three Million (53,000,000) shares of Preferred Stock, par
value $.01 per share (the "Preferred Stock"), and Three Hundred Million
(300,000,000) shares of Common Stock, par value $.01 per share (the "Common
Stock").
(b) The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized to provide for the issuance
of shares of Preferred Stock in series and, by filing a certificate pursuant to
the applicable law of the State of Delaware ("Preferred Stock Designation"), to
establish from time to time the number of shares to be included in each such
series, and to fix the designation, powers,
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preferences and rights of the shares of each such series and the qualifications,
limitations and restrictions thereof. The authority of the Board of Directors
with respect to each series shall include, but not be limited to, determination
of the following:
(1) The designation of the series, which may be by distinguishing
number, letter or title.
(2) The number of shares of the series, which number the Board of
Directors may thereafter (except where otherwise provided in the Preferred
Stock Designation) increase or decrease (but not below the number of shares
thereof then outstanding).
(3) Whether dividends, if any, shall be cumulative or noncumulative
and the dividend rate of the series.
(4) The dates on which dividends, if any, shall be payable.
(5) The redemption rights and price or prices, if any, for shares of
the series.
(6) The terms and amount of any sinking fund provided for the purchase
or redemption of shares of the series.
(7) The amounts payable on, and the preferences, if any, of, shares of
the series in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation.
(8) Whether the shares of the series shall be convertible into shares
of any other class or series, or any other security, of the Corporation or
any other corporation, and, if so, the specification of such other class or
series of such other security, the conversion price or prices or rate or
rates, any adjustments thereof, the date or dates at which such shares
shall be convertible and all other terms and conditions upon which such
conversion may be made.
(9) Restrictions on the issuance of shares of the same series or of
any other class or series.
(10) The voting rights, if any, of the holders of shares of the
series.
(c) The Common Stock shall be subject to the express terms of the Preferred
Stock and any series thereof. Each share of Common Stock shall be equal to each
other share of Common Stock. The holders of shares of Common Stock shall be
entitled to one vote for each such share upon all questions presented to the
stockholders.
Except as may be provided in this Amended and Restated Certificate of
Incorporation or in a Preferred Stock Designation, or as may be required by law,
the Common Stock shall have the exclusive right to vote for the election of
directors and for all other purposes, and holders of Preferred Stock shall not
be entitled to receive notice of any meeting of stockholders at which they are
not entitled to vote.
(d) The Corporation shall be entitled to treat the person in whose name any
share of its stock is registered as the owner thereof for all purposes and shall
not be bound to recognize any equitable or other claim to, or interest in, such
share on the part of any other person, whether or not the Corporation shall have
notice thereof, except as expressly provided by applicable law.
(e) There shall be designated a series of the Corporation's Preferred
Stock, as follows:
(1) Designation and Amount. The shares of such series shall be
designated as "Series A Junior Participating Preferred Stock" (the "Series
A Preferred Stock") and the number of shares constituting the Series A
Preferred Stock shall be 3,000,000. Such number of shares may be increased
or decreased by resolution of the Board of Directors; provided, that no
decrease shall reduce the number of shares of Series A Preferred Stock to a
number less than the number of shares then outstanding plus the number of
shares reserved for issuance upon the exercise of outstanding options,
rights or warrants or upon the conversion of any outstanding securities
issued by the Corporation convertible into Series A Preferred Stock.
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(2) Dividends and Distributions.
(a) Subject to the rights of the holders of any shares of any series
of Preferred Stock (or any similar stock) ranking prior and superior to the
Series A Preferred Stock with respect to dividends, the holders of shares
of Series A Preferred Stock, in preference to the holders of Common Stock,
and of any other junior stock, shall be entitled to receive, when, as and
if declared by the Board of Directors out of funds legally available for
the purpose, quarterly dividends payable in cash on the first day of March,
June, September and December in each year (each such date being referred to
herein as a "Quarterly Dividend Payment Date"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of Series A Preferred Stock, in an amount per share
(rounded to the nearest cent) equal to the greater of (a) $1 or (b) subject
to the provision for adjustment hereinafter set forth, 100 times the
aggregate per share amount of all cash dividends, and 100 times the
aggregate per share amount (payable in kind) of all non-cash dividends or
other distributions, other than a dividend payable in shares of Common
Stock or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date or, with respect to
the first Quarterly Dividend Payment Date, since the first issuance of any
share of a fraction of a share of Series A Preferred Stock. In the event
the Corporation shall at any time declare or pay any dividend on the Common
Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of
Common Stock) into a greater or lesser number of shares of Common Stock,
then in each such case the amount to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event under clause
(b) of the preceding sentence shall be adjusted by multiplying such amount
by a fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which
is the number of shares of Common Stock that were outstanding immediately
prior to such event.
(b) The Corporation shall declare a dividend or distribution on the
Series A Preferred Stock as provided in subparagraph (a) of this paragraph
(2) immediately after it declares a dividend or distribution on the Common
Stock (other than a dividend payable in shares of Common Stock); provided
that, in the event no dividend or distribution shall have been declared on
the Common Stock during the period between any Quarterly Dividend Payment
Date and the next subsequent Quarterly Dividend Payment Date, a dividend of
$1 per share on the Series A Preferred Stock shall nevertheless be payable
on such subsequent Quarterly Dividend Payment Date.
(c) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred Stock from the Quarterly Dividend Payment Date
next preceding the date of issue of such shares, unless the date of issue
of such shares is prior to the record date for the first Quarterly Dividend
Payment Date, in which case dividends on such shares shall begin to accrue
from the date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Series A Preferred Stock entitled to
receive a quarterly dividend and before such Quarterly Dividend Payment
Date, in either of which events such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the shares of Series A
Preferred Stock in an amount less than the total amount of such dividends
at the time accrued and payable on such shares shall be allocated pro rata
on a share-by-share basis among all such shares at the time outstanding.
The Board of Directors may fix a record date for the determination of
holders of shares of Series A Preferred Stock entitled to receive payment
of a dividend or distribution declared thereon, which record date shall be
not more than 60 days prior to the date fixed for the payment thereof.
(3) Voting Rights. The holders of shares of Series A Preferred Stock
shall have the following voting rights:
(a) Subject to the provision for adjustment hereinafter set forth,
each share of Series A Preferred Stock shall entitle the holder thereof to
100 votes on all matters submitted to a vote of the stockholders of
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the Corporation. In the event the Corporation shall at any time declare or
pay any dividend on the Common Stock payable in shares of Common Stock, or
effect a subdivision or combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise than by payment of
a dividend in shares of Common Stock) into a greater or lesser number of
shares of Common Stock, then in each such case the number of votes per
share to which holders of shares of Series A Preferred Stock were entitled
immediately prior to such event shall be adjusted by multiplying such
number by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator
of which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(b) Except as otherwise provided herein, in any other certificate of
designations creating a series of Preferred Stock or any similar stock, or
by law, the holders of shares of Series A Preferred Stock and the holders
of shares of Common Stock and any other capital stock of the Corporation
having general voting rights shall vote together as one class on all
matters submitted to a vote of stockholders of the Corporation.
(c) Except as set forth herein, or as otherwise provided by law,
holders of Series A Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent they are entitled
to vote with holders of Common Stock as set forth herein) for taking any
corporate action.
(4) Certain Restrictions.
(a) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in paragraph (2) are in
arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Preferred
Stock outstanding shall have been paid in full, the Corporation shall not:
(i) declare or pay dividends, or make any other distributions, on
any shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred Stock;
(ii) declare or pay dividends, or make any other distributions, on
any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred
Stock, except dividends paid ratably on the Series A Preferred Stock,
and all such parity stock on which dividends are payable or in arrears
in proportion to the total amounts to which the holders of all such
shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred Stock,
provided that the Corporation may at any time redeem, purchase or
otherwise acquire shares of any such junior stock in exchange for shares
of any stock of the Corporation ranking junior (either as to dividends
or upon dissolution, liquidation or winding up) to the Series A
Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for consideration any
shares of Series A Preferred Stock, or any shares of stock ranking on a
parity with the Series A Preferred Stock, except in accordance with a
purchase offer made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such terms as the
Board of Directors, after consideration of the respective annual
dividend rates and other relative rights and preferences of the
respective series and classes, shall determine in good faith will result
in fair and equitable treatment among the respective series of classes.
(b) The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock of
the Corporation unless the Corporation could, under subparagraph (a) of
this paragraph (4), purchase or otherwise acquire such shares at such time
and in such manner.
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(5) Reacquired Shares. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All
such shares shall upon their cancellation become authorized but unissued
shares of Preferred Stock and may be reissued as part of a new series of
Preferred Stock subject to the conditions and restrictions on issuance set
forth herein, or in any other certificate of designations creating a series
of Preferred Stock or any similar stock or as otherwise required by law.
(6) Liquidation, Dissolution or Winding Up. Upon any liquidation,
dissolution or winding up of the Corporation, no distribution shall be made
(1) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series A
Preferred Stock unless, prior thereto, the holders of shares of Series A
Preferred Stock shall have received $100 per share, plus an amount equal to
all accrued and unpaid dividends and distributions thereon, whether or not
declared, to the date of such payment, provided that the holders of shares
of Series A Preferred Stock shall also be entitled to receive an aggregate
amount per share, subject to the provision for adjustment hereinafter set
forth, equal to 100 times the aggregate amount to be distributed per share
to holders of shares of Common Stock, or (2) to the holders of shares of
stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Preferred Stock, except
distributions made ratably on the Series A Preferred Stock and all such
parity stock in proportion to the total amounts to which the holders of all
such shares are entitled upon such liquidation, dissolution or winding up.
In the event the Corporation shall at any time declare or pay any dividend
on the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of
Common Stock (by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) into a greater or lesser number of
shares of Common Stock, then in each such case the aggregate amount to
which holders of shares of Series A Preferred Stock were entitled
immediately prior to such event under the proviso in clause (1) of the
preceding sentence shall be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately
prior to such event.
(7) Consolidation, Merger, etc. In case the Corporation shall enter
into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case each
share of Series A Preferred Stock shall at the same time be similarly
exchanged or changed into an amount per share, subject to the provision for
adjustment hereinafter set forth, equal to 100 times the aggregate amount
of stock, securities, cash and/or any other property (payable in kind), as
the case may be, into which or for which each share of Common Stock is
changed or exchanged. In the event the Corporation shall at any time
declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by re-classification or otherwise than
by payment of a dividend in shares of Common Stock) into a greater or
lesser number of shares of Common Stock, then in each such case the amount
set forth in the preceding sentence with respect to the exchange or change
of shares of Series A Preferred Stock shall be adjusted by multiplying such
amount by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator
of which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(8) No Redemption. The shares of Series A Preferred Stock shall not
be redeemable.
(9) Rank. The Series A Preferred Stock shall rank, with respect to
the payment of dividends and the distribution of assets, junior to all
series of any other class of the Corporation's Preferred Stock.
(10) Amendment. This Amended and Restated Certificate of
Incorporation of the Corporation shall not be amended in any manner which
would materially alter or change the powers, preferences or special rights
of the Series A Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of at least two-thirds of the outstanding
shares of Series A Preferred Stock, voting together as a single class.
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ARTICLE V
The Board of Directors is hereby authorized to create and issue, whether or
not in connection with the issuance and sale of any of its stock or other
securities or property, rights entitling the holders thereof to purchase from
the Corporation shares of stock or other securities of the Corporation or any
other corporation. The times at which and the terms upon which such rights are
to be issued will be determined by the Board of Directors and set forth in the
contracts or instruments that evidence such rights. The authority of the Board
of Directors with respect to such rights shall include, but not be limited to,
determination of the following:
(1) The initial purchase price per share or other unit of the stock or
other securities or property to be purchased upon exercise of such rights.
(2) Provisions relating to the times at which and the circumstances
under which such rights may be exercised or sold or otherwise transferred,
either together with or separately from, any other stock or other
securities of the Corporation.
(3) Provisions which adjust the number or exercise price of such
rights or amount or nature of the stock or other securities or property
receivable upon exercise of such rights in the event of a combination,
split or recapitalization of any stock of the Corporation, a change in
ownership of the Corporation's stock or other securities or a
reorganization, merger, consolidation, sale of assets or other occurrence
relating to the Corporation or any stock of the Corporation, and provisions
restricting the ability of the Corporation to enter into any such
transaction absent an assumption by the other party or parties thereto of
the obligations of the Corporation under such rights.
(4) Provisions which deny the holder of a specified percentage of the
outstanding stock or other securities of the Corporation the right to
exercise such rights and/or cause the rights held by such holder to become
void.
(5) Provisions which permit the Corporation to redeem or exchange such
rights.
(6) The appointment of a rights agent with respect to such rights.
ARTICLE VI
In furtherance of, and not in limitation of, the powers conferred by law,
the Board of Directors is expressly authorized and empowered:
(1) to adopt, amend or repeal the By-laws of the Corporation;
provided, however, that the By-laws adopted by the Board of Directors under
the powers hereby conferred may be amended or repealed by the Board of
Directors or by the stockholders having voting power with respect thereto,
provided further that in the case of amendments by stockholders, the
affirmative vote of the holders of at least 80 percent of the voting power
of the then outstanding Voting Stock (as defined below), voting together as
a single class, shall be required to alter, amend or repeal any provision
of the By-laws; and
(2) from time to time to determine whether and to what extent, and at
what times and places, and under what conditions and regulations, the
accounts and books of the Corporation, or any of them, shall be open to
inspection of stockholders; and, except as so determined or as expressly
provided in this Amended and Restated Certificate of Incorporation or in
any Preferred Stock Designation, no stockholder shall have any right to
inspect any account, book or document of the Corporation other than such
rights as may be conferred by applicable law.
The Corporation may in its By-laws confer powers upon the Board of
Directors in addition to the foregoing and in addition to the powers and
authorities expressly conferred upon the Board of Directors by applicable law.
Notwithstanding anything contained in this Amended and Restated Certificate of
Incorporation to the contrary, the affirmative vote of the holders of at least
80 percent of the voting power of the then outstanding Voting Stock, voting
together as a single class, shall be required to amend, repeal or adopt any
provision inconsistent with paragraph (1) of this Article VI. For the purposes
of this Amended and Restated
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Certificate of Incorporation, "Voting Stock" shall mean the outstanding shares
of capital stock of the Corporation entitled to vote generally in the election
of directors.
ARTICLE VII
Subject to the rights of the holders of any series of Preferred Stock or
any other series or class of stock as set forth in this Amended and Restated
Certificate of Incorporation to elect additional directors under specific
circumstances, any action required or permitted to be taken by the stockholders
of the Corporation must be effected at a duly called annual or special meeting
of stockholders of the Corporation and may not be effected by any consent in
writing in lieu of a meeting of such stockholders. Notwithstanding anything
contained in this Amended and Restated Certificate of Incorporation to the
contrary, the affirmative vote of at least 80 percent of the voting power of the
then outstanding Voting Stock, voting together as a single class, shall be
required to amend, repeal or adopt any provision inconsistent with this Article
VII.
ARTICLE VIII
Subject to the rights of the holders of any series of Preferred Stock or
any other series or class of stock as set forth in this Amended and Restated
Certificate of Incorporation to elect additional directors under specified
circumstances, the number of directors of the Corporation shall be fixed, and
may be increased or decreased from time to time, in such manner as may be
prescribed by the By-laws of the Corporation.
Unless and except to the extent that the By-laws of the Corporation shall
so require, the election of directors of the Corporation need not be by written
ballot.
The directors, other than those who may be elected by the holders of any
series of Preferred Stock or any other series or class of stock as set forth in
this Amended and Restated Certificate of Incorporation, shall be divided into
three classes, as nearly equal in number as possible. One class of directors
shall be initially elected for a term expiring at the annual meeting of
stockholders to be held in 1999, another class shall be initially elected for a
term expiring at the annual meeting of stockholders to be held in 2000, and
another class shall be initially elected for a term expiring at the annual
meeting of stockholders to be held in 2001. Members of each class shall hold
office until their successors are elected and qualified. At each succeeding
annual meeting of the stockholders of the Corporation, the successors of the
class of directors whose term expires at that meeting shall be elected by a
plurality vote of all votes cast at such meeting to hold office for a term
expiring at the annual meeting of stockholders held in the third year following
the year of their election.
Subject to the rights of the holders of any series of Preferred Stock or
any other series or class of stock as set forth in this Amended and Restated
Certificate of Incorporation to elect additional directors under specified
circumstances, any director may be removed from office at any time by the
stockholders, but only for cause.
Notwithstanding anything contained in this Amended and Restated Certificate
of Incorporation to the contrary, the affirmative vote of the holders of at
least 80 percent of the voting power of the then outstanding Voting Stock,
voting together as a single class, shall be required to amend, repeal or adopt
any provision inconsistent with this Article VIII.
ARTICLE IX
Each person who is or was or has agreed to become a director or officer of
the Corporation, or each such person who is or was serving or who has agreed to
serve at the request of the Board of Directors or an officer of the Corporation
as an employee or agent of the Corporation or as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans (including
the heirs, executors, administrators or estate of such person), shall be
indemnified by the Corporation, in accordance with the By-laws of the
Corporation, to the fullest extent permitted from time to time by the GCL as the
same exists or may hereafter be amended (but, in the case of any such amendment,
only to the extent that such amendment permits the Corporation to provide
broader
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indemnification rights than said law permitted prior to such amendment) or any
other applicable laws as presently or hereafter in effect. Without limiting the
generality or the effect of the foregoing, the Corporation may enter into one or
more agreements with any person which provide for indemnification greater than
or different from that provided in this Article IX. Any amendment or repeal of
this Article IX shall not adversely affect any right or protection existing
hereunder in respect of any act or omission occurring prior to such amendment or
repeal.
ARTICLE X
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (1) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (2) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (3) under Section 174 of the GCL, or (4) for any transaction
from which the director derived an improper personal benefit. Any amendment or
repeal of this Article X shall not adversely affect any right or protection of a
director of the Corporation existing hereunder in respect of any act or omission
occurring prior to such amendment or repeal.
ARTICLE XI
Except as may be expressly provided in this Amended and Restated
Certificate of Incorporation, the Corporation reserves the right at any time and
from time to time to amend, alter, change or repeal any provision contained in
this Amended and Restated Certificate of Incorporation or a Preferred Stock
Designation, and any other provisions authorized by the laws of the State of
Delaware at the time in force may be added or inserted, in the manner now or
hereafter prescribed herein or by applicable law, and all rights, preferences
and privileges of whatsoever nature conferred upon stockholders, directors or
any other persons whomsoever by and pursuant to this Amended and Restated
Certificate of Incorporation in its present form or as hereafter amended are
granted subject to the right reserved in this Article XI; provided, however,
that any amendment or repeal of Article IX or Article X of this Amended and
Restated Certificate of Incorporation shall not adversely affect any right or
protection existing hereunder in respect of any act or omission occurring prior
to such amendment or repeal; and provided further that no Preferred Stock
Designation shall be amended after the issuance of any shares of the series of
Preferred Stock created thereby, except in accordance with the terms of such
Preferred Stock Designation and the requirements of applicable law.
IN WITNESS WHEREOF, Grace Specialty Chemicals, Inc. has caused this Amended
and Restated Certificate of Incorporation to be signed by its President and
attested by its Secretary and has caused its corporate seal to be hereunto
affixed, this day of , 1998.
GRACE SPECIALTY CHEMICALS, INC.
By:
--------------------------------------
President
Attest:
- --------------------------------------
Secretary
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ANNEX B
FORM OF
AMENDED AND RESTATED
BY-LAWS
OF
W. R. GRACE & CO.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
ARTICLE I
OFFICES AND RECORDS
Section 1.1. Delaware Office. The principal office of the Corporation in
the State of Delaware shall be located in Wilmington, Delaware, and the name and
address of its registered agent is The Prentice-Hall Corporation System, Inc.,
1013 Centre Road, Wilmington, Delaware.
Section 1.2. Other Offices. The Corporation may have such other offices,
either within or without the State of Delaware, as the Board of Directors may
designate or as the business of the Corporation may from time to time require.
Section 1.3. Books and Records. The books and records of the Corporation
may be kept outside the State of Delaware at such place or places as may from
time to time be designated by the Board of Directors.
ARTICLE II
STOCKHOLDERS
Section 2.1. Annual Meeting. The annual meeting of the stockholders of
the Corporation shall be held annually (a) on the tenth day of May, or (b) if
such day be a Saturday, Sunday or a holiday at the place where the meeting is to
be held, on the last business day preceding or on the first business day after
such tenth day of May, as may be fixed by the Board of Directors, or (c) on such
other date as may be fixed by the Board of Directors.
Section 2.2. Special Meeting. Subject to the rights of the holders of any
series of stock having a preference over the Common Stock of the Corporation as
to dividends or upon liquidation ("Preferred Stock") with respect to such series
of Preferred Stock, special meetings of the stockholders may be called only by
the Chairman, by the President or by the Board of Directors pursuant to a
resolution adopted by a majority of the total number of directors which the
Corporation would have if there were no vacancies (the "Whole Board").
Section 2.3. Place of Meeting. The Chairman, the President or the Board
of Directors, as the case may be, may designate the place of meeting for any
annual meeting or for any special meeting of the stockholders called by the
Chairman, the President or the Board of Directors. If no designation is so made,
the place of meeting shall be the principal office of the Corporation.
Section 2.4. Notice of Meeting. Written or printed notice, stating the
place, date and time of the meeting and the purpose or purposes for which the
meeting is called, shall be delivered by the Corporation not less than ten (10)
days nor more than sixty (60) days before the date of the meeting, either
personally or by mail, to each stockholder of record entitled to vote at such
meeting. If mailed, such notice shall be deemed to be delivered when deposited
in the U.S. mail with postage thereon prepaid, addressed to the stockholder at
his address as it appears on the stock transfer books of the Corporation. Such
further notice shall be given as may be required by law. Only such business
shall be conducted at a special meeting of stockholders as shall have been
brought before the meeting pursuant to the Corporation's notice of meeting.
Meetings may be held without notice if all stockholders entitled to vote are
present, or if notice is waived by those not present in accordance with Section
6.4 of these By-laws. Any previously scheduled meeting of the stockholders may
be
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postponed, and (unless the Certificate of Incorporation otherwise provides) any
special meeting of the stockholders may be cancelled, by resolution of the Board
of Directors upon public notice given prior to the date previously scheduled for
such meeting of stockholders.
Section 2.5. Quorum and Adjournment. Except as otherwise provided by law
or by the Certificate of Incorporation, the holders of a majority of the
outstanding shares of the Corporation entitled to vote generally in the election
of directors (the "Voting Stock"), represented in person or by proxy, shall
constitute a quorum at a meeting of stockholders, except that when specified
business is to be voted on by a class or series of stock voting as a class, the
holders of a majority of the voting power of the shares of such class or series
shall constitute a quorum of such class or series for the transaction of such
business. The chairman of the meeting or a majority of the shares so represented
may adjourn the meeting from time to time, whether or not there is a quorum. No
notice of the time and place of adjourned meetings need be given except as
required by law. The stockholders present at a duly called meeting at which a
quorum is present may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum.
Section 2.6. Proxies. At all meetings of stockholders, a stockholder may
vote by proxy executed in writing (or in any other manner permitted by law) by
the stockholder, or by his duly authorized attorney-in-fact.
Section 2.7. Notice of Stockholder Business and Nominations. (A) Annual
Meetings of Stockholders. (1) Nominations of persons for election to the Board
of Directors of the Corporation and the proposal of business to be considered by
the stockholders may be made at an annual meeting of stockholders (a) pursuant
to the Corporation's notice of meeting, (b) by or at the direction of the Board
of Directors or (c) by any stockholder of the Corporation who was a stockholder
of record at the time of giving of the notice provided for in this Section 2.7,
who is entitled to vote at the meeting and who complies with the notice
procedures set forth in this Section 2.7.
(2) For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (c) of paragraph (A)(1) of
this Section 2.7, the stockholder must have given timely notice thereof in
writing to the Secretary of the Corporation, and such other business must
otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice shall be delivered to the Secretary at the principal
executive offices of the Corporation not later than the close of business on the
60th day nor earlier than the close of business on the 90th day prior to the
first anniversary of the preceding year's annual meeting; provided, however,
that in the event that the date of the annual meeting is more than 30 days
before or more than 60 days after such anniversary date, notice by the
stockholder to be timely must be so delivered not earlier than the close of
business on the 90th day prior to such annual meeting and not later than the
close of business on the later of the 60th day prior to such annual meeting or
the 10th day following the day on which public announcement of the date of such
meeting is first made by the Corporation. In no event shall the public
announcement of an adjournment of an annual meeting commence a new time period
for the giving of a stockholder's notice as described above. Such stockholder's
notice shall set forth (a) as to each person whom the stockholder proposes to
nominate for election or re-election as a director all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors in an election contest, or is otherwise required, in each
case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and Rule 14a-11 thereunder (including such
person's written consent to being named in the proxy statement as a nominee and
to serving as a director if elected); (b) as to any other business that the
stockholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (c) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the nomination or proposal is made (i) the name and
address of such stockholder, as they appear on the Corporation's books, and of
such beneficial owner and (ii) the class and number of shares of the Corporation
which are owned beneficially and of record by such stockholder and such
beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph (A)(2) of
this Section 2.7 to the contrary, in the event that the number of directors to
be elected to the Board of Directors of the Corporation is
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increased and there is no public announcement by the Corporation naming all of
the nominees for election as director or specifying the size of the increased
Board of Directors at least 70 days prior to the first anniversary of the
preceding year's annual meeting, a stockholder's notice required by this Section
2.7 shall also be considered timely, but only with respect to nominees for any
new positions created by such increase, if it shall be delivered to the
Secretary at the principal executive offices of the Corporation not later than
the close of business on the 10th day following the day on which such public
announcement is first made by the Corporation.
(B) Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Corporation's notice of meeting. Nominations of
persons for election to the Board of Directors may be made at a special meeting
of stockholders at which directors are to be elected pursuant to the
Corporation's notice of meeting (a) by or at the direction of the Board of
Directors or (b) provided that the Board of Directors has determined that
directors shall be elected at such meeting, by any stockholder of the
Corporation who is a stockholder of record at the time of giving of notice
provided for in this Section 2.7, who shall be entitled to vote at the meeting
and who complies with the notice procedures set forth in this Section 2.7. In
the event the Corporation calls a special meeting of stockholders for the
purpose of electing one or more directors to the Board of Directors, any such
stockholder may nominate a person or persons (as the case may be), for election
to such position(s) as specified in the Corporation's notice of meeting, if the
stockholder's notice required by paragraph (A)(2) of this Section 2.7 shall be
delivered to the Secretary at the principal executive offices of the Corporation
not earlier than the close of business on the 90th day prior to such special
meeting and not later than the close of business on the later of the 60th day
prior to such special meeting or the 10th day following the day on which public
announcement is first made of the date of the special meeting and of the
nominees proposed by the Board of Directors to be elected at such meeting. In no
event shall the public announcement of an adjournment of a special meeting
commence a new time period for the giving of a stockholder's notice as described
above.
(C) General. (1) Only such persons who are nominated in accordance with
the procedures set forth in this Section 2.7 shall be eligible to serve as
directors and only such business shall be conducted at a meeting of stockholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this Section 2.7. Except as otherwise provided by law, the
Certificate of Incorporation or these By-laws, the chairman of the meeting shall
have the power and duty to determine whether a nomination or any business
proposed to be brought before the meeting was made or proposed, as the case may
be, in accordance with the procedures set forth in this Section 2.7 and, if any
proposed nomination or business is not in compliance with this Section 2.7, to
declare that such defective proposal or nomination shall be disregarded.
(2) For purposes of this Section 2.7, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or a comparable national news service or in a document publicly filed by
the Corporation with the Securities and Exchange Commission pursuant to Section
13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Section 2.7, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this by-law. Nothing in this Section 2.7 shall be deemed to affect any
rights (i) of stockholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or
(ii) of the holders of any series of Preferred Stock to elect directors under
specified circumstances.
Section 2.8. Procedure for Election of Directors; Required Vote. Election
of directors at all meetings of the stockholders at which directors are to be
elected shall be by ballot, and, subject to the rights of the holders of any
series of Preferred Stock to elect directors under specified circumstances, a
plurality of the votes cast thereat shall elect directors. Except as otherwise
provided by law, the Certificate of Incorporation, or these By-laws, in all
matters other than the election of directors, the affirmative vote of a majority
of the shares present in person or represented by proxy at the meeting and
entitled to vote on the matter shall be the act of the stockholders.
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Section 2.9. Inspectors of Elections; Opening and Closing the Polls. The
Board of Directors by resolution shall appoint one or more inspectors, which
inspector or inspectors may include individuals who serve the Corporation in
other capacities, including, without limitation, as officers, employees, agents
or representatives, to act at meetings of stockholders and make written reports
thereof. One or more persons may be designated as alternate inspectors to
replace any inspector who fails to act. If no inspector or alternate has been
appointed to act or is able to act at a meeting of stockholders, the chairman of
the meeting shall appoint one or more inspectors to act at the meeting. Each
inspector, before discharging his or her duties, shall take and sign an oath
faithfully to execute the duties of inspector with strict impartiality and
according to the best of his or her ability. The inspectors shall have the
duties prescribed by law.
The chairman of the meeting shall fix and announce at the meeting the date
and time of the opening and the closing of the polls for each matter upon which
the stockholders will vote at a meeting.
ARTICLE III
BOARD OF DIRECTORS
Section 3.1. General Powers. The business and affairs of the Corporation
shall be managed under the direction of the Board of Directors. In addition to
the powers and authorities by these By-laws expressly conferred upon them, the
Board of Directors may exercise all such powers of the Corporation and do all
such lawful acts and things as are not by statute or by the Certificate of
Incorporation or by these By-laws required to be exercised or done by the
stockholders.
Section 3.2. Number, Tenure and Qualifications. Subject to the rights of
the holders of any series of Preferred Stock to elect directors under specified
circumstances, the number of directors shall be fixed from time to time
exclusively pursuant to a resolution adopted by a majority of the Whole Board.
The directors, other than those who may be elected by the holders of any series
of Preferred Stock under specified circumstances, shall be divided, with respect
to the time for which they severally hold office, into three classes, as nearly
equal in number as is reasonably possible, designated Class I, Class II and
Class III, with the initial term of office of the Class I directors to expire at
the 1999 annual meeting of stockholders, the initial term of office of the Class
II directors to expire at the 2000 annual meeting of stockholders and the
initial term of office of the Class III directors to expire at the 2001 annual
meeting of stockholders, with each director to hold office until his or her
successor shall have been duly elected and qualified. No person shall be
nominated for election as a director if such person will have attained the age
of 70 prior to the expiration of his or her term of office, except for any
person whose election as a director of the Corporation is effective upon the
distribution of shares of the Corporation's common stock by a Delaware
corporation formerly named "W. R. Grace & Co." and whose initial term of office
is scheduled to expire at the 2001 annual meeting of stockholders. At each
annual meeting of stockholders, commencing with the 1999 annual meeting,
directors elected to succeed those directors whose terms then expire shall be
elected for a term of office to expire at the third succeeding annual meeting of
stockholders after their election, with each director to hold office until his
or her successor shall have been duly elected and qualified.
Section 3.3. Regular Meetings. A regular meeting of the Board of
Directors shall be held without other notice than this Section 3.3 immediately
after, and at the same place as, the Annual Meeting of Stockholders. The Board
of Directors may fix the time and place for the holding of additional regular
meetings without notice.
Section 3.4. Special Meetings. Special meetings of the Board of Directors
shall be called at the request of the Chairman, the President or a majority of
the directors then in office. The person or persons authorized to call special
meetings of the Board of Directors may fix the place and time of such meetings.
Section 3.5. Notice. Notice of any special meeting or notice of a change
in the time or place of any regular meeting of the Board of Directors shall be
given to each director at his or her business or residence in writing by hand
delivery, first-class or overnight mail or courier service, telegram or
facsimile transmission, or orally by telephone. If mailed by first-class mail,
such notice shall be deemed adequately delivered when deposited in the U.S.
mails so addressed, with postage thereon prepaid, at least five (5) days before
such
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meeting. If by telegram, overnight mail or courier service, such notice shall be
deemed adequately delivered when the telegram is delivered to the telegraph
company or the notice is delivered to the overnight mail or courier service
company at least twenty-four (24) hours before such meeting. If by facsimile
transmission, such notice shall be deemed adequately delivered when the notice
is transmitted at least twelve (12) hours before such meeting. If by telephone,
the notice shall be communicated to the director or his or her representative or
answering machine. If by telephone or by hand delivery, the notice shall be
given at least twenty-four (24) hours prior to the time set for the meeting.
Neither the business to be transacted at, nor the purpose of, any regular or
special meeting of the Board of Directors need be specified in the notice of
such meeting, except for amendments to these By-laws, as provided under Section
8.1. A meeting may be held at any time without notice if all the directors are
present or if those not present waive notice of the meeting in accordance with
Section 6.4 of these Bylaws.
Section 3.6. Action by Consent of Board of Directors. Any action required
or permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if all members of the Board of
Directors or committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Board of
Directors or committee.
Section 3.7. Conference Telephone Meetings. Members of the Board of
Directors, or any committee thereof, may participate in a meeting of the Board
of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at such meeting.
Section 3.8. Quorum. Subject to Section 3.9, a number of directors equal
to at least a majority of the Whole Board shall constitute a quorum for the
transaction of business. If at any meeting of the Board of Directors there shall
be less than a quorum present, a majority of the directors present may adjourn
the meeting from time to time without further notice. The act of the majority of
the directors present at a meeting at which a quorum is present shall be the act
of the Board of Directors. The directors present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough directors to leave less than a quorum.
Section 3.9. Vacancies. Subject to applicable law and the rights of the
holders of any series of Preferred Stock with respect to such series of
Preferred Stock, and unless the Board of Directors otherwise determines,
vacancies resulting from death, resignation, retirement, disqualification,
removal from office or other cause, and newly created directorships resulting
from any increase in the authorized number of directors, may be filled only by
the affirmative vote of a majority of the remaining directors, though less than
a quorum of the Board of Directors, and directors so chosen shall hold office
for a term expiring at the annual meeting of stockholders at which the term of
office of the class to which they have been elected expires and until such
director's successor shall have been duly elected and qualified. No decrease in
the number of authorized directors constituting the Whole Board shall shorten
the term of any incumbent director.
Section 3.10. Committees. The Board of Directors may establish one or
more committees. Each Committee shall consist of two or more directors of the
Corporation designated by the Board of Directors. The Board of Directors may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. Any
such committee may to the extent permitted by law exercise such powers and shall
have such responsibilities as shall be specified in the designating resolution.
In the absence or disqualification of any member of such committee or
committees, the member or members thereof present at any meeting and not
disqualified from voting, whether or not constituting a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in the
place of any such absent or disqualified member. Each committee shall keep
written minutes of its proceedings and shall report such proceedings to the
Board of Directors when requested.
A majority of any committee may determine its action and fix the time and
place of its meetings, unless the Board of Directors shall otherwise provide.
Notice of such meetings shall be given to each member of the committee in the
manner provided for in Section 3.5 of these By-laws. The Board of Directors
shall have the power at any time to fill vacancies in, to change the membership
of, or to dissolve any such committee. Nothing herein shall be deemed to prevent
the Board of Directors from appointing one or more committees
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consisting in whole or in part of persons who are not directors of the
Corporation; provided, however, that no such committee shall have or may
exercise any authority of the Board of Directors.
The term of office of a committee member shall be as provided in the
resolution of the Board designating him or her but shall not exceed his or her
term as a director. If prior to the end of his term, a committee member should
cease to be a director, he or she shall cease to be a committee member. Any
member of a committee may resign at any time by giving written notice to the
Board of Directors, the Chairman, the President or the Secretary. Such
resignation shall take effect as provided in Section 6.6 of these By-laws in the
case of resignations by directors. Any member of a committee may be removed from
such committee, either with or without cause, at any time, by resolution adopted
by a majority of the whole Board. Any vacancy in a committee shall be filled by
the Board of Directors in the manner prescribed by these By-laws for the
original designation of the members of such committee.
Section 3.11. Committee on Officers' Compensation. Pursuant to Section
3.10 of these By-laws, the Board of Directors shall designate a committee to
evaluate the performance of, and to recommend the appropriate level of
compensation for, officers of the Corporation. Such committee shall have access
to an advisor not otherwise serving the Corporation. Each member of such
committee shall be an "independent director," as that term is defined in the
following sentence. For purposes of this Section 3.11, an "independent director"
shall mean a person who (a) has not been employed by the Corporation within the
past five years; (b) is not, and is not affiliated with, a firm that is an
advisor or consultant to the Corporation; (c) is not affiliated with any
customer or supplier of the Corporation whose purchases from and/or sales to the
Corporation exceed 3% of the sales and revenues of such customer or supplier for
its most recently completed fiscal year; (d) has no personal services contract
with the Corporation; (e) is not affiliated with a tax-exempt entity, not
otherwise affiliated with the Corporation, that receives contributions from the
Corporation that exceed 3% of such entity's gross contributions for its most
recently completed fiscal year; and (f) is not a member of the "immediate
family" (as defined in Item 404(a) of Securities and Exchange Commission
Regulation S-K) of any person described in clauses (a) through (e).
Section 3.12. Removal. Subject to the rights of the holders of any series
of Preferred Stock with respect to such series of Preferred Stock, any director,
or the entire Board of Directors, may be removed from office at any time by the
stockholders, but only for cause.
Section 3.13. Records. The Board of Directors shall cause to be kept a
record containing the minutes of the proceedings of the meetings of the Board of
Directors and of the stockholders, appropriate stock books and registers and
such books of records and accounts as may be necessary for the proper conduct of
the business of the Corporation.
ARTICLE IV
OFFICERS
Section 4.1. Elected Officers. The elected officers of the Corporation
shall be a Chairman, a President, a Secretary, a Treasurer, and such other
officers (including, without limitation, a Chief Financial Officer) as the Board
of Directors may deem proper from time to time. The Chairman shall be chosen
from among the directors. Each officer elected by the Board of Directors shall
have such powers and duties as generally pertain to his or her respective
office, subject to the specific provisions of this ARTICLE IV. Such officers
shall also have such powers and duties as may be conferred from time to time by
the Board of Directors. The Board of Directors may from time to time elect, or
the Chairman or President may appoint, such assistant officers (including one or
more Assistant Vice Presidents, Assistant Secretaries, Assistant Treasurers and
Assistant Controllers) as may be necessary or desirable for the conduct of the
business of the Corporation. Such assistant officers shall have such duties and
shall hold their offices for such terms as shall be provided in these By-laws or
as may be prescribed by the Board of Directors or by the Chairman or President,
as the case may be.
Section 4.2. Election and Term of Office. The elected officers of the
Corporation shall be elected annually by the Board of Directors at the regular
meeting of the Board of Directors held after the annual meeting of the
stockholders or at any other time as the Board of Directors may deem proper.
Each officer shall
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hold office until his successor shall have been duly elected and shall have
qualified or until his death or until he shall resign, but any officer may be
removed from office at any time by the affirmative vote of a majority of the
Whole Board or, except in the case of an officer elected by the Board of
Directors, by the Chairman or President. Such removal shall be without prejudice
to the contractual rights, if any, of the person so removed.
Section 4.3. Chairman. The Chairman shall preside at all meetings of the
stockholders and of the Board of Directors and shall be the Chief Executive
Officer of the Company. The Chairman shall be responsible for the general
management of the affairs of the Corporation and shall perform all duties
incidental to his office which may be required by law and all such other duties
as are properly required of him by the Board of Directors. He shall make reports
to the Board of Directors and the stockholders, and shall see that all orders
and resolutions of the Board of Directors and of any committee thereof are
carried into effect. The Chairman may also serve as President, if so elected by
the Board of Directors.
Section 4.4. President. The President shall act in a general executive
capacity and shall assist the Chairman in the administration and operation of
the Corporation's business and the general supervision of its policies and
affairs. In the absence of or the inability to act of the Chairman, the
President shall perform all duties of the Chairman and preside at all meetings
of stockholders and of the Board of Directors.
Section 4.5. Vice Presidents. Each Vice President shall have such powers
and shall perform such duties as shall be assigned to him by the Board of
Directors.
Section 4.6. Chief Financial Officer. The Chief Financial Officer (if
any) shall be a Vice President and act in an executive financial capacity. He
shall assist the Chairman and the President in the general supervision of the
Corporation's financial policies and affairs.
Section 4.7. Treasurer. The Treasurer shall exercise general supervision
over the receipt, custody and disbursement of corporate funds. The Treasurer
shall cause the funds of the Corporation to be deposited in such banks as may be
authorized by the Board of Directors, or in such banks as may be designated as
depositaries in the manner provided by resolution of the Board of Directors. He
shall have such further powers and duties and shall be subject to such
directions as may be granted or imposed upon him from time to time by the Board
of Directors, the Chairman or the President.
Section 4.8. Secretary. The Secretary shall keep or cause to be kept in
one or more books provided for that purpose, the minutes of all meetings of the
Board of Directors, the committees of the Board of Directors and the
stockholders; he shall see that all notices are duly given in accordance with
the provisions of these By-laws and as required by law; he shall be custodian of
the records and the seal of the Corporation and affix and attest the seal to all
stock certificates of the Corporation (unless the seal of the Corporation on
such certificates shall be a facsimile, as hereinafter provided) and affix and
attest the seal to all other documents to be executed on behalf of the
Corporation under its seal; and he shall see that the books, reports,
statements, certificates and other documents and records required by law to be
kept and filed are properly kept and filed; and in general, he shall perform all
the duties incident to the office of Secretary and such other duties as from
time to time may be assigned to him by the Board of Directors, the Chairman or
the President.
Section 4.9. Controller. The Controller shall have general control,
charge and supervision of the accounts of the Corporation. He shall see that
proper accounts are maintained and that all accounts are properly credited from
time to time. He shall prepare or cause to be prepared the financial statements
of the Corporation.
Section 4.10. Removal. Any officer elected by the Board of Directors may
be removed by the affirmative vote of a majority of the Whole Board whenever, in
their judgment, the best interests of the Corporation would be served thereby.
Any assistant officer appointed by the Chairman or the President may be removed
by him whenever, in his judgment, the best interests of the Corporation would be
served thereby. No elected officer shall have any contractual rights against the
Corporation for compensation by virtue of such election beyond the date of the
election of his successor, his death, his resignation or his removal, whichever
event shall first occur, except as otherwise provided in an employment contract
or under an employee deferred compensation plan.
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Section 4.11. Vacancies. A newly created elected office and a vacancy in
any elected office because of death, resignation, or removal may be filled by
the Board of Directors for the unexpired portion of the term at any meeting of
the Board of Directors.
ARTICLE V
STOCK CERTIFICATES AND TRANSFERS
Section 5.1. Stock Certificates and Transfers. The interest of each
stockholder of the Corporation shall be evidenced by certificates for shares of
stock in such form as the appropriate officers of the Corporation may from time
to time prescribe. The shares of the stock of the Corporation shall be
transferred on the books of the Corporation by the holder thereof in person or
by his attorney, upon surrender for cancellation of certificates for at least
the same number of shares, with an assignment and power of transfer endorsed
thereon or attached thereto, duly executed, with such proof of the authenticity
of the signature as the Corporation or its agents may reasonably require.
The certificates of stock shall be signed, countersigned and registered in
such manner as the Board of Directors may by resolution prescribe, which
resolution may permit all or any of the signatures on such certificates to be in
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate has ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the Corporation with the same effect as if he were such
officer, transfer agent or registrar at the date of issue.
Section 5.2. Lost, Stolen or Destroyed Certificates. No certificate for
shares of stock in the Corporation shall be issued in place of any certificate
alleged to have been lost, destroyed or stolen, except on production of such
evidence of such loss, destruction or theft and on delivery to the Corporation
of a bond of indemnity in such amount, upon such terms and secured by such
surety, as the Board of Directors or any financial officer may in its or his
discretion require.
ARTICLE VI
MISCELLANEOUS PROVISIONS
Section 6.1. Fiscal Year. The fiscal year of the Corporation shall begin
on the first day of January and end on the thirty-first day of December of each
year.
Section 6.2. Dividends. The Board of Directors may from time to time
declare, and the Corporation may pay, dividends on its outstanding shares in the
manner and upon the terms and conditions provided by law and the Certificate of
Incorporation.
Section 6.3. Seal. The corporate seal shall have enscribed thereon the
words "Corporate Seal," the year of incorporation and around the margin thereof
the words "W. R. Grace & Co."
Section 6.4. Waiver of Notice. Whenever any notice is required to be
given to any stockholder or director of the Corporation under the provisions of
the General Corporation Law of the State of Delaware (the "GCL") or these
By-laws, a waiver thereof in writing, signed by the person or persons entitled
to such notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice. The attendance of any stockholder at a
meeting in person or by proxy, without protesting at the beginning of the
meeting the lack of notice of such meeting, shall constitute a waiver of notice
of such stockholder. Neither the business to be transacted at, nor the purpose
of, any annual or special meeting of the stockholders or the Board of Directors
or committee thereof need be specified in any waiver of notice of such meeting.
Section 6.5. Audits. The accounts, books and records of the Corporation
shall be audited upon the conclusion of each fiscal year by an independent
certified public accountant selected by the Board of Directors, and it shall be
the duty of the Board of Directors to cause such audit to be done annually.
Section 6.6. Resignations. Any director or any officer or assistant
officer, whether elected or appointed, may resign at any time by giving written
notice of such resignation to the Chairman, the President, or the Secretary, and
such resignation shall be deemed to be effective as of the close of business on
the date said notice is received by the Chairman, the President, or the
Secretary, or at such later time as is specified therein.
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No formal action shall be required of the Board of Directors or the stockholders
to make any such resignation effective.
Section 6.7. Indemnification and Insurance. (A) Each person who was or is
made a party or is threatened to be made a party to or is involved in any
action, suit, or proceeding, whether civil, criminal, administrative or
investigative (hereinafter, a "proceeding"), by reason of the fact that he or
she or a person of whom he or she is the legal representative is or was a
director or officer of the Corporation or is or was serving at the request of
the Corporation as a director, officer, employee or agent of another corporation
or of a partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans maintained or sponsored by the
Corporation, whether the basis of such proceeding is alleged action in an
official capacity as a director, officer, employee or agent or in any other
capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the GCL as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than said law
permitted the Corporation to provide prior to such amendment), against all
expense, liability and loss (including attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith, and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that except as provided in
paragraph (C) of this Section 6.7, the Corporation shall indemnify any such
person seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors. The right to indemnification conferred in
this Section 6.7 shall be a contract right and shall include the right to be
paid by the Corporation the expenses incurred in defending any such proceeding
in advance of its final disposition, such advances to be paid by the Corporation
within 20 days after the receipt by the Corporation of a statement or statements
from the claimant requesting such advance or advances from time to time;
provided, however, that if the GCL requires, the payment of such expenses
incurred by a director or officer in his or her capacity as a director or
officer (and not in any other capacity in which service was or is rendered by
such person while a director or officer, including, without limitation, service
to an employee benefit plan) in advance of the final disposition of a
proceeding, shall be made only upon delivery to the Corporation of an
undertaking by or on behalf of such director or officer, to repay all amounts so
advanced if it shall ultimately be determined that such director or officer is
not entitled to be indemnified under this Section 6.7 or otherwise.
(B) To obtain indemnification under this Section 6.7, a claimant shall
submit to the Corporation a written request, including therein or therewith such
documentation and information as is reasonably available to the claimant and is
reasonably necessary to determine whether and to what extent the claimant is
entitled to indemnification. Upon written request by a claimant for
indemnification pursuant to the first sentence of this paragraph (B), a
determination, if required by applicable law, with respect to the claimant's
entitlement thereto shall be made as follows: (1) if requested by the claimant,
by Independent Counsel (as hereinafter defined), or (2) if no request is made by
the claimant for a determination by Independent Counsel, (i) by the Board of
Directors by a majority vote of a quorum consisting of Disinterested Directors
(as hereinafter defined), or (ii) if a quorum of the Board of Directors
consisting of Disinterested Directors is not obtainable or, even if obtainable,
such quorum of Disinterested Directors so directs, by Independent Counsel in a
written opinion to the Board of Directors, a copy of which shall be delivered to
the claimant, or (iii) if a quorum of Disinterested Directors so directs, by the
stockholders of the Corporation. In the event the determination of entitlement
to indemnification is to be made by Independent Counsel at the request of the
claimant, the Independent Counsel shall be selected by the Board of Directors
unless there shall have occurred within two years prior to the date of the
commencement of the action, suit or proceeding for which indemnification is
claimed a "Change of Control" (as defined below), in which case the Independent
Counsel shall be selected by the claimant unless the claimant shall request that
such selection be made by the Board of Directors. If it is so determined that
the claimant is entitled to indemnification, payment to the claimant shall be
made within 10 days after such determination.
(C) If a claim under paragraph (A) of this Section 6.7 is not paid in full
by the Corporation within 30 days after a written claim pursuant to paragraph
(B) of this Section 6.7 has been received by the
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Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered to the Corporation) that the claimant has
not met the standard of conduct which makes it permissible under the GCL for the
Corporation to indemnify the claimant for the amount claimed, but the burden of
proving such defense shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors, Independent Counsel or
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
GCL, nor an actual determination by the Corporation (including its Board of
Directors, Independent Counsel or stockholders) that the claimant has not met
such applicable standard of conduct, shall be a defense to the action or create
a presumption that the claimant has not met the applicable standard of conduct.
(D) If a determination shall have been made pursuant to paragraph (B) of
this Section 6.7 that the claimant is entitled to indemnification, the
Corporation shall be bound by such determination in any judicial proceeding
commenced pursuant to paragraph (C) of this Section 6.7.
(E) The Corporation shall be precluded from asserting in any judicial
proceeding commenced pursuant to paragraph (C) of this Section 6.7 that the
procedures and presumptions of this Section 6.7 are not valid, binding and
enforceable and shall stipulate in such proceeding that the Corporation is bound
by all the provisions of this Section 6.7.
(F) The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
Section 6.7 shall not be exclusive of any other right which any person may have
or hereafter acquire under any statute, provision of the Certificate of
Incorporation, these By-laws, agreement, vote of stockholders or Disinterested
Directors or otherwise. No repeal or modification of this Section 6.7 shall in
any way diminish or adversely affect the rights of any director, officer,
employee or agent of the Corporation hereunder in respect of any occurrence or
matter arising prior to any such repeal or modification.
(G) The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the GCL. To the extent that the Corporation maintains any policy or
policies providing such insurance, each such director or officer, and each such
agent or employee to which rights to indemnification have been granted as
provided in paragraph (H) of this Section 6.7, shall be covered by such policy
or policies in accordance with its or their terms to the maximum extent of the
coverage thereunder for any such director, officer, employee or agent.
(H) The Corporation may, to the extent authorized from time to time by the
Board of Directors, grant rights to indemnification, and rights to be paid by
the Corporation the expenses incurred in defending any proceeding in advance of
its final disposition, to any employee or agent of the Corporation to the
fullest extent of the provisions of this Section 6.7 with respect to the
indemnification and advancement of expenses of directors and officers of the
Corporation.
(I) If any provision or provisions of this Section 6.7 shall be held to be
invalid, illegal or unenforceable for any reason whatsoever: (1) the validity,
legality and enforceability of the remaining provisions of this Section 6.7
(including, without limitation, each portion of any paragraph of this By-law
containing any such provision held to be invalid, illegal or unenforceable, that
is not itself held to be invalid, illegal or unenforceable) shall not in any way
be affected or impaired thereby; and (2) to the fullest extent possible, the
provisions of this Section 6.7 (including, without limitation, each such portion
of any paragraph of this By-law containing any such provision held to be
invalid, illegal or unenforceable) shall be construed so as to give effect to
the intent manifested by the provision held invalid, illegal or unenforceable.
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(J) For purposes of this Section 6.7:
(1) "Disinterested Director" means a director of the Corporation who
is not and was not a party to the matter in respect of which
indemnification is sought by the claimant.
(2) "Independent Counsel" means a law firm, a member of a law firm, or
an independent practitioner, that is experienced in matters of corporation
law and shall include any person who, under the applicable standards of
professional conduct then prevailing, would not have a conflict of interest
in representing either the Corporation or the claimant in an action to
determine the claimant's rights under this Section 6.7.
(3) "Change of Control" has the meaning given such term in the
Corporation's 1998 Stock Incentive Plan, as the same may be amended or
superseded from time to time.
(K) Any notice, request or other communication required or permitted to be
given to the Corporation under this Section 6.7 shall be in writing and either
delivered in person or sent by telecopy, telex, telegram, overnight mail or
courier service, or certified or registered mail, postage prepaid, return
receipt requested, to the Secretary of the Corporation and shall be effective
only upon receipt by the Secretary.
ARTICLE VII
CONTRACTS, PROXIES, ETC.
Section 7.1. Contracts. Except as otherwise required by law, the
Certificate of Incorporation or these By-laws, any contracts or other
instruments may be executed and delivered in the name and on the behalf of the
Corporation by such officer or officers of the Corporation as the Board of
Directors may from time to time direct. Such authority may be general or
confined to specific instances as the Board of Directors may determine. The
Chairman, the President or any Vice President may execute bonds, contracts,
deeds, leases and other instruments to be made or executed for or on behalf of
the Corporation. Subject to any restrictions imposed by the Board of Directors
or the Chairman, the President or any Vice President of the Corporation may
delegate contractual powers to others under his jurisdiction, it being
understood, however, that any such delegation of power shall not relieve such
officer of responsibility with respect to the exercise of such delegated power.
Section 7.2. Proxies. Unless otherwise provided by resolution adopted by
the Board of Directors, the Chairman, the President or any Vice President may
from time to time appoint an attorney or attorneys or agent or agents of the
Corporation, in the name and on behalf of the Corporation, to cast the votes
which the Corporation may be entitled to cast as the holder of stock or other
securities in any other corporation, any of whose stock or other securities may
be held by the Corporation, at meetings of the holders of the stock or other
securities of such other corporation, or to consent in writing, in the name of
the Corporation as such holder, to any action by such other corporation, and may
instruct the person or persons so appointed as to the manner of casting such
votes or giving such consent, and may execute or cause to be executed in the
name and on behalf of the Corporation and under its corporate seal or otherwise,
all such written proxies or other instruments as he may deem necessary or proper
in the premises.
ARTICLE VIII
AMENDMENTS
Section 8.1. Amendments. These By-laws may be altered, amended, or
repealed at any meeting of the Board of Directors or of the stockholders,
provided notice of the proposed change was given in the notice of the meeting
and, in the case of a meeting of the Board of Directors, in a notice given not
less than two days prior to the meeting; provided, however, that, in the case of
amendments by stockholders, notwithstanding any other provisions of these
By-laws or any provision of law which might otherwise permit a lesser vote or no
vote, but in addition to any affirmative vote of the holders of any particular
class or series of the capital stock of the Corporation required by law, the
Certificate of Incorporation or these By-laws, the affirmative vote of the
holders of at least 80 percent of the voting power of all the then outstanding
shares of the Voting Stock, voting together as a single class, shall be required
to alter, amend or repeal any provision of these By-laws.
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ANNEX C
W. R. GRACE & CO.
(FORMERLY NAMED GRACE SPECIALTY CHEMICALS, INC.)
1998 STOCK INCENTIVE PLAN
1. Purposes. The purposes of this Plan are (a) to enable Key Persons to
have incentives related to Common Stock, (b) to encourage Key Persons to
increase their interest in the growth and prosperity of the Company and to
stimulate and sustain constructive and imaginative thinking by Key Persons, (c)
to further the identity of interests of Key Persons with the interests of the
Company's stockholders, and (d) to induce the service or continued service of
Key Persons and to enable the Company to compete with other organizations
offering similar or other incentives in obtaining and retaining the services of
the most highly qualified individuals.
2. Definitions. When used in this Plan, the following terms shall have
the meanings set forth in this section 2.
Board of Directors: The Board of Directors of the Company.
cessation of service (or words of similar import): When a person ceases to
be an employee of the Company or a Subsidiary. For purposes of this definition,
if an entity that was a Subsidiary ceases to be a Subsidiary, persons who
immediately thereafter remain employees of that entity (and are not employees of
the Company or an entity that is a Subsidiary) shall be deemed to have ceased
service.
Change in Control: Shall be deemed to have occurred if (a) the Company
determines that any "person" (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act), other than a trustee or other fiduciary holding securities
under an employee benefit plan of the Company or a corporation owned, directly
or indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company, has become the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of 20% or more of the outstanding Common Stock of the Company
(provided, however, that a Change in Control shall not be deemed to have
occurred if such person has become the beneficial owner of 20% or more of the
outstanding Common Stock as the result of a sale of Common Stock by the Company
that has been approved by the Board of Directors); (b) individuals who are
"Continuing Directors" (as defined below) cease to constitute a majority of any
class of the Board of Directors; (c) there occurs a reorganization, merger,
consolidation or other corporate transaction involving the Company (a "Corporate
Transaction"), in each case, with respect to which the stockholders of the
Company immediately prior to such Corporate Transaction do not, immediately
after the Corporate Transaction, own 50% or more 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. "Continuing Director" means any member of the Board of Directors who
was such a member on the date on which this Plan was approved by the Board of
Directors 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 of Directors.
Change in Control Price: The higher of (a) the highest reported sales
price, regular way, as reported in The Wall Street Journal or another newspaper
of general circulation, of a share of Common Stock in any transaction reported
on the New York Stock Exchange Composite Tape or other national exchange on
which such shares are listed or on NASDAQ during the 60-day period prior to and
including the date of a Change in Control or (b) if the Change in Control is the
result of a tender or exchange offer or a Corporate Transaction, the highest
price per share of Common Stock paid in such tender or exchange offer or
Corporate Transaction; provided, however, that in the case of Incentive Stock
Options, the Change in Control Price shall be in all cases the Fair Market Value
of the Common Stock on the date such Incentive Stock Option is exercised. To the
extent that the consideration paid in any Corporate Transaction or other
transaction described above consists in whole or in part of securities or other
noncash consideration, the value of such securities or other noncash
consideration shall be determined in the sole discretion of the Board of
Directors.
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Code: The Internal Revenue Code of 1986, as amended.
Committee: The Compensation 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 formerly named Grace
Specialty Chemicals, Inc.
Continuing Director: The meaning set forth in the definition of "Change in
Control" above.
Corporate Transaction: The meaning set forth in the definition of "Change
in Control" above.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Exercise Period: The meaning set forth in section 14(b) of this Plan.
Fair Market Value: (a) The mean between the high and low sales prices of a
share of Common Stock in New York Stock Exchange composite transactions on the
applicable date, as reported in The Wall Street Journal or another newspaper of
general circulation, or, if no sales of shares of Common Stock were reported for
such date, for the next preceding date for which such sales were so reported, or
(b) the fair market value of a share of Common Stock determined in accordance
with any other reasonable method approved by the Committee.
Incentive Stock Option: A stock option that states that it is an incentive
stock option and that is intended to meet the requirements of Section 422 of the
Code and the regulations thereunder applicable to incentive stock options, as in
effect from time to time.
issuance (or words of similar import): The issuance of authorized but
unissued Common Stock or the transfer of issued Common Stock held by the Company
or a Subsidiary.
Key Person: An employee of the Company or a Subsidiary who, in the opinion
of the Committee, has contributed or can contribute significantly to the growth
and successful operations of the Company or one or more Subsidiaries. The grant
of a Stock Incentive to an employee shall be deemed a determination by the
Committee that such person is a Key Person.
Nonstatutory Stock Option: An Option that is not an Incentive Stock
Option.
Option: An option granted under this Plan to purchase shares of Common
Stock.
Option Agreement: An agreement setting forth the terms of an Option.
Plan: The 1998 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
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corporation" as defined in Section 424(f) of the Code and the regulations
thereunder, as in effect from time to time.
3. Grants of Stock Incentives. (a) Subject to the provisions of this
Plan, the Committee may at any time and from time to time grant Stock Incentives
under this Plan to, and only to, Key Persons.
(b) The Committee may grant a Stock Incentive to be effective at a
specified future date or upon the future occurrence of a specified event. For
the purposes of this Plan, any such Stock Incentive shall be deemed granted on
the date it becomes effective. An agreement or other commitment to grant a Stock
Incentive that is to be effective in the future shall not be deemed the grant of
a Stock Incentive until the date on which such Stock Incentive becomes
effective.
(c) A Stock Incentive may be granted in the form of:
(i) a Stock Award, or
(ii) an Option, or
(iii) a combination of a Stock Award and an Option.
4. Stock Subject to this Plan. (a) Subject to the provisions of paragraph
(c) of this section 4 and the provisions of section 8, the maximum number of
shares of Common Stock that may be issued pursuant to Stock Incentives granted
under this Plan shall not exceed Six Million (6,000,000).
(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 15% may be subject to Options
granted to any one Key Person and (ii) no more than 15% may be subject to Stock
Incentives granted to any one Key Person.
5. Stock Awards. Except as otherwise provided in section 12, Stock
Incentives in the form of Stock Awards shall be subject to the following
provisions:
(a) For purposes of this Plan, all shares of Common Stock subject to a
Stock Award shall be valued at not less than 100% of the Fair Market Value
of such shares on the date such Stock Award is granted, regardless of
whether or when such shares are issued pursuant to such Stock Award and
whether or not such shares are subject to restrictions affecting their
value.
(b) Shares of Common Stock subject to a Stock Award may be issued to a
Key Person at the time the Stock Award is granted, or at any time
subsequent thereto, or in installments from time to time. In the event that
any such issuance shall not be made at the time the Stock Award is granted,
the Stock 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.
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(c) The material terms of each Stock Award shall be determined by the
Committee. Each Stock Award shall be evidenced by a written instrument
consistent with this Plan. It is intended that a Stock Award would be (i)
made contingent upon the attainment of one or more specified performance
objectives and/or (ii) subject to restrictions on the sale or other
disposition of the Stock Award or the shares subject thereto for a period
of three or more years; provided, however, that (x) a Stock Award may
include restrictions and limitations in addition to those provided for
herein and (y) of the total number of shares specified in paragraph (a) of
section 4 (subject to adjustment as specified therein), up to 3% may be
subject to Stock Awards not subject to clause (i) or clause (ii) of this
sentence.
(d) A Stock Award shall be granted for such lawful consideration as
may be provided for therein.
6. Options. Except as otherwise provided in section 12, Stock Incentives
in the form of Options shall be subject to the following provisions:
(a) The purchase price per share of Common Stock shall be not less
than 100% of the Fair Market Value of a share of Common Stock on the date
the Option is granted. The purchase price and any withholding tax that may
be due on the exercise of an Option may be paid in cash, or, if so provided
in the Option Agreement, (i) in shares of Common Stock (including shares
issued pursuant to the Option being exercised and shares issued pursuant to
a Stock Award granted subject to restrictions as provided for in paragraph
(c) of section 5), or (ii) in a combination of cash and such shares;
provided, however, that no shares of Common Stock delivered in payment of
the purchase price may be "immature shares," as determined in accordance
with generally accepted accounting principles in effect at the time. Any
shares of Common Stock delivered to the Company in payment of the purchase
price or withholding tax shall be valued at their Fair Market Value on the
date of exercise. No certificate for shares of Common Stock shall be issued
upon the exercise of an Option until the purchase price for such shares has
been paid in full.
(b) If so provided in the Option Agreement, the Company shall, upon
the request of the holder of the Option and at any time and from time to
time, cancel all or a portion of the Option then subject to exercise and
either (i) pay the holder an amount of money equal to the excess, if any,
of the Fair Market Value, at such time or times, of the shares subject to
the portion of the Option so canceled over the purchase price for such
shares, or (ii) issue shares of Common Stock to the holder with a Fair
Market Value, at such time or times, equal to such excess, or (iii) pay
such excess by a combination of money and shares.
(c) Each Option may be exercisable in full at the time of grant, or
may become exercisable in one or more installments and at such time or
times or upon the occurrence of such events, as may be specified in the
Option Agreement, as determined by the Committee. Unless otherwise provided
in the Option Agreement, an Option, to the extent it is or becomes
exercisable, may be exercised at any time in whole or in part until the
expiration or termination of such Option.
(d) Each Option shall be exercisable during the life of the holder
only by him and, after his death, only by his estate or by a person who
acquires the right to exercise the Option by will or the laws of descent
and distribution. An Option, to the extent that it shall not have been
exercised or canceled, shall terminate as follows after the holder ceases
to serve: (i) if the holder shall voluntarily cease to serve without the
consent of the Committee or shall have his service terminated for cause,
the Option shall terminate immediately upon cessation of service; (ii) if
the holder shall cease to serve by reason of death, incapacity or
retirement under a retirement plan of the Company or a Subsidiary, the
Option shall terminate three years after the date on which he ceased to
serve; and (iii) except as provided in the next 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
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cessation of service within the meaning of this paragraph (d).
Notwithstanding the foregoing provisions of this paragraph (d) or any other
provision of this Plan, no Option shall be exercisable after expiration of
a period of ten years and one month from the date the Option is granted.
Where a Nonstatutory Option is granted for a term of less than ten years
and one month, the Committee may, at any time prior to the expiration of
the Option, extend its term for a period ending not later than ten years
and one month from the date the Option was granted. Such an extension shall
not be deemed the grant of a new Option under this Plan.
(e) No Option nor any right thereunder may be assigned or transferred
except by will or the laws of descent and distribution and except, in the
case of a Nonstatutory Option, pursuant to a qualified domestic relations
order (as defined in the Code), unless otherwise provided in the Option
Agreement.
(f) An Option may, but need not, be an Incentive Stock Option. All
shares of Common Stock that may be made subject to Stock Incentives under
this Plan may be made subject to Incentive Stock Options; provided,
however, that (i) no Incentive Stock Option may be granted more than ten
years after the effective date of this Plan, as provided in section 9; and
(ii) the aggregate Fair Market Value (determined as of the time an
Incentive Stock Option is granted) of the shares subject to each
installment becoming exercisable for the first time in any calendar year
under Incentive Stock Options granted on or after January 1, 1987 (under
all plans, including this Plan, of his employer corporation and its parent
and subsidiary corporations) to the Key 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 Agreement.
7. Combination of Stock Awards and Options. Stock Incentives authorized
by paragraph (c)(iii) of section 3 in the form of combinations of Stock Awards
and Options shall be subject to the following provisions: (a) A Stock Incentive
may be a combination of any form of Stock Award and any form of Option;
provided, however, that the terms and conditions of such Stock Incentive
pertaining to a Stock Award are consistent with section 5 and the terms and
conditions of such Stock Incentive pertaining to an Option are consistent with
section 6.
(b) Such combination Stock Incentive shall be subject to such other terms
and conditions as may be specified therein, including without limitation a
provision terminating in whole or in part a portion thereof upon the exercise in
whole or in part of another portion thereof.
(c) The material terms of each combination Stock Incentive shall be
determined by the Committee. Each combination Stock Incentive shall be evidenced
by a written instrument consistent with this Plan.
8. Adjustment Provisions. (a) In the event that any reclassification,
split-up or consolidation of the Common Stock shall be effected, or the
outstanding shares of Common Stock are, in connection with a merger or
consolidation of the Company or a sale by the Company of all or a part of its
assets, exchanged for a different number or class of shares of stock or other
securities or property of the Company or for shares of the stock or other
securities or property of any other corporation or person, or a record date for
determination of holders of Common Stock entitled to receive a dividend payable
in Common Stock shall occur, (i) the number, kind and class of shares or other
securities or property that may be issued pursuant to Stock Incentives
thereafter granted, (ii) the number, kind and class of shares or other
securities or property that 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 reacquire such shares or other securities or property, shall
in each case be equitably adjusted as determined by the Committee.
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(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 reacquire 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 on which the Common Stock is distributed to the holders of the common
stock of W. R. Grace & Co., a Delaware corporation subsequently renamed "Sealed
Air Corporation." 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,
which shall have full authority to act in the matter of selection of Key Persons
and in granting Stock Incentives to them and such other authority as is granted
to the Committee by this Plan. Notwithstanding any other provision of this Plan,
the Board of Directors may exercise any and all powers of the Committee with
respect to this Plan, except to the extent that the possession or exercise of
any power by the Board of Directors would cause any Stock Incentive to become
subject to, or to lose an exemption from, Section 162(m) of the Code or Section
16(b) of the Exchange Act.
(b) The Committee may establish such rules and regulations, not
inconsistent with the provisions of this Plan, as it deems necessary to
determine eligibility to be granted Stock Incentives under this Plan and for the
proper administration of this Plan, and may amend or revoke any rule or
regulation so established. The Committee may make such determinations and
interpretations under or in connection with this Plan as it deems necessary or
advisable. All such rules, regulations, determinations and interpretations shall
be binding and conclusive upon the Company, its Subsidiaries, its shareholders
and its directors, officers and employees, and upon their respective legal
representatives, beneficiaries, successors and assigns, and upon all other
persons claiming under or through any of them.
(c) Members of the Board of Directors and members of the Committee acting
under this Plan shall be fully protected in relying in good faith upon the
advice of counsel and shall incur no liability in the performance of their
duties, except as otherwise provided by applicable law.
11. General Provisions. (a) Nothing in this Plan or in any instrument
executed pursuant hereto shall confer upon any person any right to continue in
the service of the Company or a Subsidiary, or shall affect the right of the
Company or of a Subsidiary to terminate the service of any person with or
without cause.
(b) No shares of Common Stock shall be issued pursuant to a Stock Incentive
unless and until all legal requirements applicable to the issuance of such
shares have, in the opinion of counsel to the Company, been complied with. In
connection with any such issuance, the person acquiring the shares shall, if
requested by the Company, give assurances, satisfactory to counsel to the
Company, in respect of such matters as the Company or a Subsidiary may deem
desirable to assure compliance with all applicable legal requirements.
(c) No person (individually or as a member of a group), and no beneficiary
or other person claiming under or through him, shall have any right, title or
interest in or to any shares of Common Stock allocated or reserved for the
purposes of this Plan or subject to any Stock Incentive except as to such shares
of Common Stock, if any, as shall have been issued to him.
(d) In the case of a grant of a Stock Incentive to a Key Person who is
employed by a Subsidiary, such grant may provide for the issuance of the shares
covered by the Stock Incentive to the Subsidiary, for such consideration as may
be provided, upon the condition or understanding that the Subsidiary will
transfer the shares to the Key Person in accordance with the terms of the Stock
Incentive.
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(e) In the event the laws of a country in which the Company or a Subsidiary
has employees prescribe certain requirements for Stock Incentives to qualify for
advantageous tax treatment under the laws of that country (including, without
limitation, laws establishing options analogous to Incentive Stock Options), the
Committee, may, for the benefit of such employees, amend, in whole or in part,
this Plan and may include in such amendment additional provisions for the
purposes of qualifying the amended plan and Stock Incentives granted thereunder
under such laws; provided, however, that (i) the terms and conditions of a Stock
Incentive granted under such amended plan may not be more favorable to the
recipient than would be permitted if such Stock Incentive had been granted under
this Plan as herein set forth, (ii) all shares allocated to or utilized for the
purposes of such amended plan shall be subject to the limitations of section 4,
and (iii) the provisions of the amended plan may restrict but may not extend or
amplify the provisions of sections 9 and 13.
(f) The Company or a Subsidiary may make such provisions as either may deem
appropriate for the withholding of any taxes that the Company or a Subsidiary
determines is required to be withheld in connection with any Stock Incentive.
(g) Nothing in this Plan is intended to be a substitute for, or shall
preclude or limit the establishment or continuation of, any other plan, practice
or arrangement for the payment of compensation or benefits to directors,
officers or employees generally, or to any class or group of such persons, that
the Company or any Subsidiary now has or may hereafter put into effect,
including, without limitation, any incentive compensation, retirement, pension,
group insurance, stock purchase, stock bonus or stock option plan.
12. Acquisitions. If the Company or any Subsidiary should merge or
consolidate with, or purchase stock or assets or otherwise acquire the whole or
part of the business of, another entity, the Company, upon the approval of the
Committee, (a) may assume, in whole or in part and with or without modifications
or conditions, any stock incentives granted by the acquired entity to its
directors, officers, employees or consultants in their capacities as such, or
(b) may grant new Stock Incentives in substitution therefor. Any such assumed or
substitute Stock Incentives may contain terms and conditions inconsistent with
the provisions of this Plan (including the limitations set forth in paragraph
(d) of section 4), including additional benefits for the recipient; provided,
however, that if such assumed or substitute Stock Incentives are Incentive Stock
Options, such terms and conditions are permitted under the plan of the acquired
entity. For the purposes of any applicable plan provision involving time or a
date, a substitute Stock Incentive shall be deemed granted as of the date of
grant of the original stock incentive.
13. Amendments and Termination. (a) This Plan may be amended or
terminated by the Board of Directors upon the recommendation of the Committee;
provided, however, that, without the approval of the stockholders of the
Company, no amendment shall be made which (i) causes this Plan to cease to
comply with applicable law, (ii) permits any person who is not a Key Person to
be granted a Stock Incentive (except as otherwise provided in section 12), (iii)
amends the provisions of paragraph (d) of section 4, paragraph (a) of section 5
or paragraph (a) or paragraph (f) of section 6 to permit shares to be valued at,
or to have a purchase price of, respectively, less than the percentage of Fair
Market Value specified therein, (iv) amends section 9 to extend the date set
forth therein, or (v) amends this section 13.
(b) No amendment or termination of this Plan shall adversely affect any
Stock Incentive theretofore granted, and no amendment of any Stock Incentive
granted pursuant to this Plan shall adversely affect such Stock Incentive,
without the consent of the holder thereof.
14. Change in Control Provisions. (a) Notwithstanding any other provision
of this Plan to the contrary, in the event of a Change in Control:
(i) Any Options outstanding as of the date on which such Change in
Control occurs, and which are not then exercisable and vested, shall become
fully exercisable and vested to the full extent of the original grant; and
(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.
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(b) Notwithstanding any other provision of this Plan, during the 60-day
period from and after a Change in Control (the "Exercise Period"), unless the
Committee shall determine otherwise at the time of grant, the holder of an
Option shall have the right, in lieu of the payment of the purchase price for
the shares of Common Stock being purchased under the Option, by giving notice to
the Company, to elect (within the Exercise Period) to surrender all or part of
the Option to the Company and to receive cash, within 30 days after such notice,
in an amount equal to the amount by which the Change in Control Price per share
of Common Stock on the date of such election shall exceed the purchase price per
share of Common Stock under the Option (the "Spread") multiplied by the number
of shares of Common Stock subject to the Option as to which the right subject to
this section 14(b) shall have been exercised.
(c) Notwithstanding any other provision of this Plan, if any right granted
pursuant to this Plan to receive cash in respect of a Stock Incentive would make
a Change in Control transaction ineligible for pooling-of-interests accounting
that, but for the nature of such grant, would otherwise be eligible for such
accounting treatment, the Committee shall have the ability to substitute for
such cash Common Stock with a Fair Market Value equal to the amount of such
cash.
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ANNEX D
W. R. GRACE & CO.
(FORMERLY NAMED GRACE SPECIALTY CHEMICALS, INC.)
1998 STOCK PLAN FOR NONEMPLOYEE DIRECTORS
1. Purposes. The purposes of this Plan are (a) to enable the Company to
attract and retain the most highly qualified individuals to serve as Nonemployee
Directors, (b) to link the compensation of Nonemployee Directors to the
performance of the Common Stock, and (c) to unite the interests of Nonemployee
Directors with those of the Company's shareholders.
2. Definitions. When used in this Plan, the following terms shall have
the meanings set forth in this section 2.
Board of Directors: The Board of Directors of the Company.
Common Stock: The common stock of the Company, par value $.01 per share,
or such other class of shares or other securities or property as may be
applicable pursuant to the provisions of section 7.
Company: W. R. Grace & Co., a Delaware corporation formerly named Grace
Specialty Chemicals, Inc.
Fair Market Value: (a) The mean between the high and low sales prices of a
share of Common Stock in New York Stock Exchange composite transactions for the
applicable date, as reported in The Wall Street Journal or another newspaper of
general circulation, or, if no sales of shares of Common Stock were reported for
such date, for the next preceding date for which such sales were so reported, or
(b) the fair market value of a share of Common Stock determined in accordance
with any other reasonable method.
Fee: A fee for attendance by a Nonemployee Director at a meeting of the
Board of Directors or a committee thereof.
issuance (or words of similar import): (a) The issuance of authorized but
unissued Common Stock, (b) the transfer of issued Common Stock held by the
Company or a Subsidiary, or (c) the delivery of Common Stock purchased for use
under this Plan by an agent independent of the Company.
Nonemployee Director: An individual who is (or was) a director of the
Company and who is (or was) not employed by the Company or a Subsidiary while
serving as a director of the Company.
Plan: The 1998 Stock Plan for Nonemployee Directors herein set forth, as
the same may from time to time be amended.
Retainer: An annual retainer for service as a Nonemployee Director or for
service as the chair of a committee of the Board of Directors.
service: Service as a Nonemployee Director. "To serve" has a correlative
meaning.
Service Period: A calendar year, or any other period designated by the
Board of Directors, in respect of which a Nonemployee Director is to receive a
Retainer and/or Fees.
Subsidiary: A corporation (or other form of business association) of which
shares (or other ownership interests) having 50% or more of the voting power
regularly entitled to vote for directors (or equivalent management rights) are
owned, directly or indirectly, by the Company.
3. Eligibility and Participation. All Nonemployee Directors are eligible
to participate in the Plan. Each Nonemployee Director will participate as
described in section 5.
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4. Stock Subject to this Plan.
(a) Subject to the provisions of paragraphs (b) and (c) of this section 4
and the provisions of section 7, the maximum number of shares of Common Stock
that may be issued under this Plan shall be One Hundred Fifty Thousand (150,000)
shares of Common Stock.
(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. In
addition, shares of outstanding Common Stock purchased by an agent independent
of the Company may be used under this Plan, in which case such shares shall be
deemed issued under this Plan for purposes of paragraph (a) of this section 4.
(c) If any shares of Common Stock issued pursuant to this Plan shall, after
issuance, be reacquired by the Company or a Subsidiary from the recipient of
such Common Stock, or from the estate of such recipient, for any reason, such
shares shall no longer be charged against the limitation provided for in
paragraph (a) of this section 4 and may be issued pursuant to this Plan.
5. Use of Common Stock Issued under this Plan. Shares of Common Stock may
be issued under this Plan in respect of Fees and Retainers on such terms as may
be fixed by the Board of Directors from time to time. All shares of Common Stock
issued pursuant to this Plan shall be valued at not less than 100% of the Fair
Market Value of such shares on the effective date of issuance of such shares,
regardless of when such shares are actually issued.
6. Payment and Deferral of Retainers and Fees.
(a) Except as otherwise expressly set forth in this section 6, (i) a
portion of any Retainer or Fee shall be payable in shares of Common Stock, with
the balance being payable in cash, all in accordance with determinations made by
the Board of Directors from time to time, and (ii) all payments shall be made as
promptly as practicable following the conclusion of each Service Period.
(b) Subject to and in conformity with such procedures as may be approved by
the Board of Directors from time to time, a Nonemployee Director may elect to
receive in shares of Common Stock all or any portion of any Retainer or Fee that
would otherwise be payable in cash.
(c) Not later than the day immediately preceding the first day of any
Service Period, a Nonemployee Director may elect to defer all or any portion of
the Common Stock or the cash payable in respect of any Retainer or Fee, as the
case may be, for the next following Service Period. Such election shall be made
in writing and, once made, shall be irrevocable.
(d)(i) Any portion of a Retainer or Fee payable in cash and as to which a
deferral election is made shall be payable to the Nonemployee Director or his or
her heirs or beneficiaries in a lump sum or in installments (as specified by the
Nonemployee Director in accordance with arrangements approved by the Board of
Directors) following a date specified by the Nonemployee Director, which date
shall in no event be earlier than such Nonemployee Director's termination from
service. An interest equivalent on any amount so deferred shall be computed at
such rate or rates as may be fixed by the Board of Directors from time to time.
(ii) Any portion of a Retainer or Fee payable in Common Stock and as to
which a deferral election is made shall be payable to the Nonemployee Director
or his or her heirs or beneficiaries in a lump sum or in installments (as
specified by the Nonemployee Director in accordance with arrangements approved
by the Board of Directors) following a date specified by the Nonemployee
Director, which date shall in no event be earlier than such Nonemployee
Director's termination from service. The Common Stock shall be held in a trust
established by the Company. Dividends paid on such Common Stock will be
reinvested in Common Stock. The Nonemployee Director shall have the right to
vote the Common Stock held in such trust, if, as and to the extent specified in
the trust.
(e) The terms of this Plan are intended to insure that the electing
Nonemployee Director is not subject to income tax on any cash or Common Stock
(including any cash or Common Stock that has been deferred) until such amounts
are paid to the Nonemployee Director.
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7. Adjustment Provisions.
(a) In the event that any reclassification, split-up or consolidation of
the Common Stock shall be effected, or the outstanding shares of Common Stock
are, in connection with a merger or consolidation of the Company or a sale by
the Company of all or a part of its assets, exchanged for a different number or
class of shares of stock or other securities or property of the Company or for
shares of the stock or other securities or property of any other corporation or
person, or a record date for determination of holders of Common Stock entitled
to receive a dividend payable in Common Stock shall occur, the number, class and
kind of shares that have not been issued pursuant to this Plan shall be
equitably adjusted.
(b) In the event that any spin-off or other distribution of assets of the
Company to its shareholders (including without limitation an extraordinary
dividend) shall occur, the number, class and kind of shares that have not been
issued pursuant to this Plan shall be equitably adjusted.
8. Term. This Plan shall be deemed adopted and shall become effective on
the date on which the Common Stock is distributed to the holders of common stock
of W. R. Grace & Co., a Delaware corporation subsequently renamed "Sealed Air
Corporation." No Common Stock shall be issued under this Plan after the tenth
anniversary of such date.
9. General Provisions.
(a) Nothing in this Plan or in any instrument executed pursuant hereto
shall confer upon any person any right to continue to serve as a Nonemployee
Director or to receive Retainers or Fees.
(b) No shares of Common Stock shall be issued pursuant to this Plan 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 or entity 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 or her, shall have any right,
title or interest in or to any shares of Common Stock allocated or reserved for
the purposes of this Plan except as to such shares of Common Stock, if any, as
shall have been issued to him or her. No rights to receive shares of Common
Stock under this Plan shall be subject in any manner to alienation, sale,
transfer, assignment, pledge, encumbrance or charge, except by will or the laws
of descent and distribution. The only rights that may exist under this Plan
shall be limited to those of an unsecured creditor of the Company.
(d) Nothing in this Plan is intended to be a substitute for, or shall
preclude or limit the establishment or continuation of, any other plan, practice
or arrangement for the payment of compensation or benefits to Nonemployee
Directors that the Company now has or may hereafter put into effect.
10. Amendments and Termination.
(a) This Plan may be terminated, suspended or amended at any time by the
Board of Directors upon the recommendation of its Compensation Committee;
provided, however, that no amendment shall become effective without the approval
of the shareholders of the Company to the extent shareholder approval is
required by applicable law.
(b) No termination, suspension or amendment of this Plan shall adversely
affect any shares theretofore issued pursuant to this Plan.
D-3
<PAGE> 98
ANNEX E
The following is an excerpt from Grace's 1997 Proxy Statement. The following
excerpt does not purport to be complete and is qualified in its entirety by
reference to such Proxy Statement, which has been filed with the Securities and
Exchange Commission. As used in the following excerpt, the "Company" means Grace
(including its predecessors) and/or one or more of its subsidiaries.
COMPENSATION
Summary Compensation Table. The following Summary Compensation Table contains
information concerning the compensation of (1) Mr. Costello, the Company's chief
executive officer since May 1, 1995; (2) the other four most highly compensated
executive officers of the Company who were serving as such at year-end 1996; and
(3) Constantine L. Hampers and Donald H. Kohnken, who resigned as executive
officers on June 14, 1996 and September 30, 1996, respectively, and whose
compensation would have been reportable under clause (2) but for the fact that
they were not executive officers of the Company at year-end 1996. Certain
information has been omitted from the Summary Compensation Table because it is
not applicable or because it is not required under the rules of the Securities
and Exchange Commission ("SEC").
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------------
OTHER
NAME AND PRINCIPAL ANNUAL
POSITION YEAR SALARY BONUS COMPENSATION
-------- ---- ------ ----- ------------
<S> <C> <C> <C> <C>
A. J. Costello 1996 $900,000 $582,075 $ 12,872
Chairman, President 1995(e) 600,000 900,000 106,599
and Chief Executive
Officer
R. H. Beber 1996 297,475 165,000 12,788
Executive Vice 1995 282,713 200,000 5,456
President and 1994 266,000 220,000 246
General Counsel
L. Ellberger 1996 283,083 150,000 57,219
Senior Vice 1995(e) 173,162 125,000 28,977
President
and Chief Financial
Officer
J. R. Hyde 1996 272,600 130,000 5,194
Senior Vice 1995 248,650 230,000 2,235
President 1994 206,667 240,000 731
F. Lempereur 1996 294,300 100,000 22,592
Senior Vice 1995 290,725 100,000 3,323
President 1994 281,167 95,000 93
C. L. Hampers 1996 875,270 422,755 316,157(f)
Executive Vice 1995 821,068 720,000 210,915
President 1994 786,250 85,425
D. H. Kohnken 1996 295,425 148,000 66,496
Executive Vice 1995 371,725 394,000 9,576
President 1994 357,000 410,000 86
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
----------------------
AWARDS PAYOUTS
------ -------
NO. OF SHARES ALL
RESTRICTED UNDERLYING OTHER
NAME AND PRINCIPAL STOCK OPTIONS LTIP COMPENSATION
POSITION AWARD(a) GRANTED(b) PAYOUTS(c) (d)
-------- -------- ---------- ---------- ---
<S> <C> <C> <C> <C>
A. J. Costello 77,625 $ 799,116 $ 27,250
Chairman, President 465,750
and Chief Executive
Officer
R. H. Beber 16,767 927,518 33,380
Executive Vice 37,260 99,589 49,695
President and 37,260 28,099
General Counsel
L. Ellberger 12,576 178,369 38,102
Senior Vice $92,438 111,780 2,094
President
and Chief Financial
Officer
J. R. Hyde 16,767 670,596 25,374
Senior Vice 37,260 27,534 29,724
President 37,260 20,538
F. Lempereur 12,576 630,492 26,689
Senior Vice 37,260 42,666 27,758
President 37,260 23,284
C. L. Hampers 2,425,992 91,790
Executive Vice 108,675 105,564
President 108,675 89,278
D. H. Kohnken 1,783,688 523,842
Executive Vice 93,150 153,716 55,657
President 77,625 36,200
</TABLE>
(Footnotes appear on following page)
E-1
<PAGE> 99
------------
(a) Other than the award to Mr. Ellberger, no restricted stock awards were
made during the 1994-1996 period. The dollar value of Mr. Ellberger's
1,500 restricted shares shown in the table has not been adjusted to
give effect to the September 1996 separation of the Company's health
care business. At December 31, 1996, the dollar value of these
restricted shares was $77,625, excluding the value of additional
securities received by Mr. Ellberger in respect of these restricted
shares in the September 1996 transaction (see note (d) below). The
restrictions on these shares are to terminate on May 14, 1998 (see
"Employment Agreements") or earlier, in the event of Mr. Ellberger's
death or disability or the termination of his employment without cause
(including following a change of control), subject to the forfeiture of
the shares in certain circumstances. Mr. Ellberger receives all
dividends paid on, and has the right to vote, these restricted shares.
(b) The share amounts shown in this column reflect adjustments made in
September 1996 in connection with the separation of the Company's health
care business.
(c) The amounts in this column for 1996 represent awards earned under the
Company's Long-Term Incentive Program ("LTIP") for the 1993-1995
Performance Period. The amounts in this column for 1995 represent the
third and final installment of awards earned under the LTIP for the
1990-1992 Performance Period; Dr. Hampers did not participate in the LTIP
for the 1990-1992 Performance Period. No payments were made under the
LTIP in 1994.
(d) The amounts in this column for 1996 consist of the following: (1) the
actuarially determined value of Company-paid premiums on "split-dollar"
life insurance, as follows: Mr. Beber -- $18,456; Mr. Hyde -- $10,296;
Mr. Lempereur -- $14,410; Dr. Hampers -- $52,849; and Mr. Kohnken --
$9,626; (2) life insurance premiums of $9,250 for Mr. Costello and
$3,447 for Mr. Ellberger (who do not currently participate in the
split-dollar life insurance program); (3) payments made to persons
whose personal and/or Company contributions to the Company's Salaried
Employees Savings and Investment Plan ("Savings Plan") would be subject
to limitations under federal income tax law, as follows: Mr. Costello
-- $13,500; Mr. Beber -- $10,424; Mr. Ellberger -- $521; Mr. Hyde --
$10,578; Mr. Lempereur -- $7,779; Dr. Hampers -- $38,941; and Mr.
Kohnken -- $16,183; (4) Company contributions to the Savings Plan of
$4,500 for each of Messrs. Costello, Beber, Hyde, Lempereur and Kohnken
and of $3,824 for Mr. Ellberger; (5) a severance payment of $493,533
made to Mr. Kohnken; and (6) $30,310 of additional securities issued to
Mr. Ellberger by entities other than the Company in September 1996 in
respect of the restricted shares awarded to him in 1995.
(e) Messrs. Costello and Ellberger joined the Company in May 1995.
(f) This amount includes the value of personal benefits received by Dr.
Hampers during 1996, including $57,750 attributable to his personal use
of corporate aircraft and $26,769 attributable to his personal use of a
chauffeur paid by the Company.
E-2
<PAGE> 100
Stock Options. The following table contains information concerning stock
options granted in 1996, including the potential realizable value of each grant
assuming that the market value of the Common Stock appreciates from the date of
grant to the expiration of the option at annualized rates of (a) 5% and (b) 10%,
in each case compounded annually over the term of the option. For example, the
option granted to Mr. Costello in 1996 would produce the pretax gain of
$6,365,009 shown in the table only if the market price of the Common Stock rises
to $133.45 per share by the time the option is exercised; based on the number
and market price of the shares outstanding at year-end 1996, such an increase in
the price of the Common Stock would produce a corresponding aggregate pretax
gain of nearly $6.5 billion for the Company's shareholders. The assumed rates of
appreciation shown in the table have been specified by the SEC for illustrative
purposes only and are not intended to predict future prices of the Company's
Common Stock, which will depend upon various factors, including market
conditions and the Company's future performance and prospects.
Options become exercisable at the time or times determined by the
Compensation Committee; the options shown below become exercisable in three
approximately equal annual installments beginning one year after the date of
grant or upon the earlier occurrence of a "change in control" of the Company
(see "Employment Agreements" and "Severance Agreements"). All of the options
shown below have purchase prices equal to the fair market value of the Common
Stock at the date of grant.
<TABLE>
<CAPTION>
1996 GRANTS*
- ----------------------------------------------------------------------------
NO. OF % OF TOTAL
SHARES OPTIONS
UNDERLYING GRANTED TO PURCHASE
OPTIONS EMPLOYEES PRICE EXPIRATION
NAME GRANTED IN 1996 ($/SHARE) DATE
------- ------- --------- ----
<S> <C> <C> <C> <C>
A. J. Costello ......... 77,625 7.7% 51.4493 3/5/06
R. H. Beber ............ 16,767 1.7 51.4493 3/5/06
L. Ellberger ........... 12,576 1.2 51.4493 3/5/06
J. R. Hyde ............. 16,767 1.7 51.4493 3/5/06
F. Lempereur ........... 12,576 1.2 51.4493 3/5/06
C. L. Hampers .......... -0- -- -- --
D. H. Kohnken .......... -0- -- -- --
All Shareholders ....... -- -- -- --
Named Executive
Officers' Percentage
of
Realizable Value
Gained by All
Shareholders........... -- -- -- --
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR OPTION
TERM
<TABLE>
<CAPTION>
NAME 5% 10%
- -----------------------------------------------------------
<S> <C> <C>
A. J. COSTELLO $ 2,511,650 $6,365,009
R. H. BEBER 542,516 1,374,842
L. ELLBERGER 406,912 1,031,193
J. R. HYDE 542,516 1,374,842
F. LEMPEREUR 406,912 1,031,193
C. L. HAMPERS -- --
D. H. KOHNKEN -- --
ALL SHAREHOLDERS 2,554,571,529 6,473,787,377
NAMED EXECUTIVE
OFFICERS' PERCENTAGE
OF
REALIZABLE VALUE
GAINED BY ALL
SHAREHOLDERS 0.2% 0.2%
</TABLE>
- ------------
* The number of shares covered by each option and the purchase price of each
option reflect adjustments made in connection with the September 1996
separation of the Company's health care business.
E-3
<PAGE> 101
The following table contains information concerning stock options exercised
in 1996, including the "value realized" upon exercise (the difference between
the total purchase price of the options exercised and the market value, at the
date of exercise, of the shares acquired), and the value of unexercised
"in-the-money" options held at December 31, 1996 (the difference between the
aggregate purchase price of all such options held and the market value of the
shares covered by such options at December 31, 1996).
<TABLE>
<CAPTION>
OPTION EXERCISES IN 1996 AND OPTION VALUES AT 12/31/96*
-----------------------------------------------------------------------
NUMBER OF VALUE OF
SHARES UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
NO. OF SHARES 12/31/96 12/31/96
ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE REALIZED ($) UNEXERCISABLE UNEXERCISABLE
---- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
A. J. Costello ... -0- -0- 155,250/388,125 $2,796,690/5,616,720
R. H. Beber ...... -0- -0- 252,749/16,767 7,091,485/5,042
L. Ellberger ..... -0- -0- 62,100/62,256 741,176/596,723
J. R. Hyde ....... 3,105 $ 97,437 178,538/16,767 4,817,959/5,042
F. Lempereur ..... -0- -0- 169,223/12,576 4,338,281/3,782
C. L. Hampers .... 450,226 10,199,375 0/0 0/0
D. H. Kohnken .... 45,375 1,869,507 458,411/0 11,872,282/0
</TABLE>
- ------------
* The number of shares covered by each option and the purchase price of each
option reflect adjustments made in connection with the September 1996
separation of the Company's health care business.
LTIP. Under the LTIP as in effect during 1996, executive officers and other
senior managers could be granted contingent "Performance Units" under which
awards could be earned based on (1) value contribution performance (based on
cash flow attributable to net operating profit after taxes of the product line
or the Company, less a charge based on average annual gross assets), and/or (2)
shareholder value performance (measured by appreciation in the price of the
Common Stock and dividends paid) as compared to that of the companies in the
Standard & Poor's Industrials Index, during a three-year "Performance Period." A
new three-year Performance Period commences each year, and contingent
Performance Units are granted for each such Performance Period (however, the
terms of such contingent Performance Units granted subsequent to 1996 differ
from those granted in 1996 and prior years, as discussed under "Approval of
Long-Term Incentive Program"). Performance Units granted in 1996 to employees of
product lines were weighted 67% on the value contribution performance of their
respective product lines or other units, and 33% on shareholder value
performance, during the Performance Period; Performance Units granted to
corporate employees were weighted 50% on the basis of the Company's value
contribution performance and 50% on the basis of shareholder value performance
during the Performance Period. The number of Performance Units earned under the
LTIP may be decreased by up to 20%, at the discretion of the Compensation
Committee, based upon individual performance.
Amounts, if any, earned under Performance Units are paid following the end of
each Performance Period. In keeping with the Company's compensation philosophy
of uniting executive interests with those of the shareholders (see "Report of
the Compensation Committee on Executive Compensation--Stock Ownership
Guidelines"), up to 100% of any such payments may be made in shares of Common
Stock issued under the Company's 1996 Stock Incentive Plan (see "Approval of
1996 Stock Incentive Plan"); however, the Compensation Committee has authority
to reduce the portion of earned Performance Units payable in Common Stock or to
pay such Units entirely in cash. A participant may elect to defer receipt of the
cash and/or Common Stock otherwise payable in respect of earned Performance
Units. Cash amounts may be deferred under the Company's deferred compensation
program, earning interest equivalents computed at the prime rate, compounded
semiannually. Deferred Common Stock is held in a trust established by the
Company; dividends paid on the deferred Common Stock held in the trust are
reinvested in Common Stock, and participants have the right to vote the Common
Stock held in the trust. Deferred amounts are generally payable to the
participant following termination of employment.
E-4
<PAGE> 102
The following table shows the Performance Units granted during 1996 to the
executive officers named in the Summary Compensation Table. All of such
Performance Units relate to the 1996-1998 Performance Period. Half of the
Performance Units granted to Messrs. Hyde and Lempereur are weighted 50%/50%, as
discussed above, and the other half are weighted 67%/33%, as discussed above;
the Performance Units granted to the other recipients are all weighted 50%/50%.
<TABLE>
<CAPTION>
1996 AWARDS OF CONTINGENT PERFORMANCE UNITS UNDER
LTIP(a)
---------------------------------------------------
MAXIMUM
NUMBER OF THRESHOLD TARGET NUMBER OF
NAME UNITS (b)(c) (c)(d) UNITS (e)
- ---- ----- ------ ------ ---------
<S> <C> <C> <C> <C>
A. J.
Costello...... 18,630 $0 or $242,190 $1,210,950 46,575
R. H. Beber.... 3,726 0 or 48,425 242,190 9,315
L. Ellberger .. 2,795 0 or 36,335 181,675 6,988
J. R. Hyde..... 3,726 0 or 24,245 242,190 9,315
F. Lempereur .. 2,795 0 or 11,635 181,675 6,988
C. L. Hampers . -0- -- -- --
D. H. Kohnken . 6,210 0 or 20,215 403,650 15,525
</TABLE>
- ------------
(a) The numbers of Performance Units reflect adjustments made in connection
with the September 1996 separation of the Company's health care business.
(b) Refers to the minimum amount payable under the LTIP with respect to the
1996-1998 Performance Period. For Messrs. Costello, Beber, Ellberger and
Kohnken, no payment will be made unless the minimum targeted level of
value contribution or shareholder value performance is achieved by the
Company. For Messrs. Hyde and Lempereur, the "threshold" payments will be
made if the minimum targeted level of value contribution performance is
achieved by their respective product lines.
(c) The threshold and target payments shown in the table have been calculated
on the basis of a market price of $65 per share of Common Stock at the
end of the 1996-1998 Performance Period. The threshold amounts for
Messrs. Lempereur and Kohnken have been adjusted on a pro rata basis to
reflect their resignations.
(d) Refers to the amount payable with respect to the 1996-1998 Performance
Period if the targeted levels of both value contribution and shareholder
value performance are achieved.
(e) Refers to the maximum number of Performance Units that can be earned with
respect to the 1996-1998 Performance Period under the LTIP.
Employees to whom Performance Units are granted also receive grants of stock
options based on the number of Performance Units granted. Information concerning
options granted in 1996 to the executive officers named in the Summary
Compensation Table appears under "Stock Options."
Pension Arrangements. Salaried employees of designated units of the Company
who are 21 or older and who have one or more years of service are eligible to
participate in the Company's Retirement Plan for Salaried Employees. Under this
basic retirement plan, pension benefits are based upon (1) the employee's
average annual compensation for the 60 consecutive months in which his or her
compensation is highest during the last 180 months of continuous participation
and (2) the number of years of the employee's credited service. For purposes of
this basic retirement plan, compensation generally includes nondeferred base
salary and nondeferred annual incentive compensation (bonus) awards; however,
for 1996, federal income tax law limited to $150,000 the annual compensation on
which benefits under this plan may be based.
E-5
<PAGE> 103
The Company also has a Supplemental Executive Retirement Plan under which a
covered employee will receive the full pension to which he or she would be
entitled in the absence of the above and other limitations imposed under federal
income tax law. In addition, this supplemental plan recognizes deferred base
salary, deferred annual incentive compensation awards and, in some cases,
periods of employment with the Company during which an employee was ineligible
to participate in the basic retirement plan. An employee will generally be
eligible to participate in the supplemental plan if he or she has an annual base
salary of at least $75,000 and is earning credited service under the basic
retirement plan.
The following table shows the annual pensions payable under the basic and
supplemental plans for different levels of compensation and years of credited
service. The amounts shown have been computed on the assumption that the
employee retired at age 65 on January 1, 1997, with benefits payable on a
straight life annuity basis. Such amounts are subject to (but do not reflect) an
offset of 1.25% of the employee's primary Social Security benefit at retirement
age for each year of credited service under the basic and supplemental plans.
<TABLE>
<CAPTION>
HIGHEST YEARS OF CREDITED SERVICE
AVERAGE ANNUAL -----------------------------------------------------------------------------------
COMPENSATION 10 YEARS 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 100,000 ... $ 15,000 $ 22,500 $ 30,000 $ 37,500 $ 45,000 $ 52,500
200,000 ... 30,000 45,000 60,000 75,000 90,000 105,000
300,000 ... 45,000 67,500 90,000 112,500 135,000 157,000
400,000 ... 60,000 90,000 120,000 150,000 180,000 210,000
500,000 ... 75,000 112,500 150,000 187,500 225,000 262,500
600,000 ... 90,000 135,000 180,000 225,000 270,000 315,000
700,000 ... 105,000 157,500 210,000 262,500 315,000 367,500
800,000 ... 120,000 180,000 240,000 300,000 360,000 420,000
900,000 ... 135,000 202,500 270,000 337,500 405,000 472,500
1,000,000 ... 150,000 225,000 300,000 375,000 450,000 525,000
1,100,000 ... 165,000 247,500 330,000 412,500 495,000 577,500
1,200,000 ... 180,000 270,000 360,000 450,000 540,000 630,000
1,300,000 ... 195,000 292,500 390,000 487,500 585,000 682,500
1,400,000 ... 210,000 315,000 420,000 525,000 630,000 735,000
1,500,000 ... 225,000 337,500 450,000 562,500 675,000 787,500
1,600,000 ... 240,000 360,000 480,000 590,000 720,000 840,000
1,700,000 ... 255,000 382,500 510,000 617,500 765,000 892,500
1,800,000 ... 270,000 405,000 540,000 645,000 810,000 945,000
1,900,000 ... 285,000 427,500 570,000 672,500 855,000 997,500
2,000,000 ... 300,000 450,000 600,000 700,000 900,000 1,050,000
2,100,000 ... 315,000 472,500 630,000 727,500 945,000 1,102,500
2,200,000 ... 330,000 495,000 660,000 755,000 990,000 1,155,000
</TABLE>
Messrs. Costello, Beber, Ellberger, Hyde, Lempereur and Kohnken had 1, 8,
1, 33, 5 and 27 years of credited service, respectively, under the basic and
supplemental retirement plans at year-end 1996 (September 30, 1996 in the
case of Mr. Kohnken). For purposes of those plans, the 1996 compensation of
such executive officers was as follows: Mr. Costello -- $1,800,000; Mr. Beber
- -- $497,475; Mr. Ellberger -- $408,083; Mr. Hyde -- $502,600; Mr. Lempereur
- -- $409,300; and Mr. Kohnken -- $689,425. Dr. Hampers was not covered by the
basic or supplemental plan. At year-end 1996, the accrued annual benefit
payable to Dr. Hampers at age 65 under the retirement plan of National
Medical Care Inc. ("NMC"), a former subsidiary of the Company (in which Dr.
Hampers was an inactive participant), was approximately $120,000. The Company
previously agreed to provide certain pension benefits to Mr. Ellberger and
Dr. Hampers (see "Employment Agreements" and "Resignations of Executive
Officers").
E-6
<PAGE> 104
Employment Agreements. The Company has an employment agreement with Mr.
Costello providing for his service as the Company's chairman, president and
chief executive officer through April 1998, subject to (1) earlier termination
in certain circumstances and (2) automatic one-year extensions unless either
party gives notice that the agreement is not to be extended. The agreement also
provides that Mr. Costello will stand for election as a director during its
term. Under the agreement, Mr. Costello is entitled to an annual base salary of
at least $900,000; an annual incentive compensation award (bonus) of at least
$900,000 for 1995 and awards thereafter based on the performance of the Company,
in accordance with its annual incentive compensation program; participation in
the LTIP on the same basis as other senior executives; grants of stock options;
and participation in all other compensation and benefit plans and programs
generally available to senior executives of the Company. The agreement also
provides for payments in the case of Mr. Costello's disability or death, or the
termination of his employment with or without cause, including termination
following a "change in control" and termination by Mr. Costello for "good
reason." For purposes of the agreement, "change in control" means the
acquisition of 20% or more of the Common Stock, the failure of Company-nominated
directors to constitute a majority of any class of the Board of Directors, the
occurrence of a transaction in which the Company's shareholders immediately
preceding such transaction do not own more than 60% of the combined voting power
of the corporation resulting from such transaction, or the liquidation or
dissolution of the Company. In the event of the termination of Mr. Costello's
employment following a change in control, he will receive a multiple of the sum
of his annual base salary plus bonus, pro rata bonus and LTIP awards, earned but
unpaid compensation, and the balance of the LTIP awards for all Performance
Periods during which the change in control takes place. The foregoing
description of Mr. Costello's employment agreement does not purport to be
complete and is qualified in its entirety by reference to such agreement, which
has been filed with the SEC as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1995, and by reference to an amendment
to such agreement, which has been filed with the SEC as an exhibit to the
Company's Current Report on Form 8-K filed on October 10, 1996.
The Company has an employment agreement with Mr. Ellberger providing for his
service as the Company's senior vice president, strategic planning and
development, through May 14, 1998; at that time, the agreement will terminate
(except with respect to the retirement arrangements described below) and his
employment will be "at will." The agreement provides for an initial annual base
salary of $275,000; participation in the Company's annual incentive compensation
program, LTIP, and other compensation and benefit plans and programs; the grant
of stock options; and the grant of the restricted stock award shown in the
Summary Compensation Table. The agreement also provides that if the Company
should terminate Mr. Ellberger's employment without cause during the term of the
agreement (except in the event of a change in control of the Company), he will
receive 145% of his base salary for one year or, if longer, the remaining term
of the agreement. In addition, the agreement provides that, in determining the
benefits payable to Mr. Ellberger under the Company's basic and supplemental
retirement plans, his service with his prior employer will be recognized as if
it were continuous service with the Company (except that his first year of
service with the Company would be excluded), with an offset for any retirement
benefits payable from his prior employer's retirement plans; however, this
special pension arrangement will apply only if Mr. Ellberger's employment by the
Company ceases after the term of the agreement (or during such term, if his
employment is terminated without cause, including termination without cause
following a change in control of the Company). The agreement also provides for
standard relocation assistance arrangements and for a Company-leased car. For
purposes of the agreement, "change in control" has the same meaning as in Mr.
Costello's agreement, described above. The foregoing description of Mr.
Ellberger's employment agreement does not purport to be complete and is
qualified in its entirety by reference to such agreement and related agreements,
which have been filed as exhibits to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996.
In 1992, the Company entered into an agreement with Mr. Lempereur relating to
his relocation from France to the United States. The agreement provided that Mr.
Lempereur would participate in the Company's U.S. compensation and benefit plans
and programs and that the Company would reimburse Mr. Lempereur for the cost of
trips between Florida and France for his family and would provide Mr. Lempereur
with a Company-leased car. The agreement also provided for the loan referred to
under "Relationships and Transactions with Management and Others" and for
arrangements relating to his
E-7
<PAGE> 105
return to France following the end of his assignment. This description of Mr.
Lempereur's agreement does not purport to be complete and is qualified in its
entirety by reference to the agreement, which has been filed as an exhibit to
the Company's Annual Report on Form 10-K for the year ended December 31, 1996.
Dr. Hampers previously had an employment agreement providing for his
employment as an executive vice president of the Company and head of its health
care business. Under the agreement, Dr. Hampers was initially entitled to an
annual base salary of at least $675,000, subject to increases of at least 9%
every 18 months, and to participate in the Company's annual incentive
compensation program. The agreement also provided for benefits generally
available to senior executives of the Company, as well as the use of a corporate
aircraft (and an option to purchase the aircraft at its fair market value).
Further, the agreement entitled Dr. Hampers to a supplementary annual pension
benefit equal to the amount by which (1) the lesser of (a) $300,000 and (b)
three times his actual annual pension benefit exceeded (2) such actual pension
benefit, subject to certain cost-of-living adjustments. The agreement prohibited
Dr. Hampers from engaging in certain competitive activities during its term and
for three years thereafter and provided for the continuation of compensation for
the term of the agreement in the event his employment terminated other than for
cause. The foregoing description of Dr. Hampers' employment agreement does not
purport to be complete and is qualified in its entirety by reference to such
agreement, which was filed with the SEC as an exhibit to the Company's Annual
Report on Form 10-K for the year ended December 31, 1991, and by reference to
related agreements, which were filed with the SEC as exhibits to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996 and its
Registration Statement on Form S-1 filed on August 2, 1996.
See "Resignations of Executive Officers" for information concerning the
resignations of Mr. Lempereur and Dr. Hampers, and "Relationships and
Transactions with Management and Others" for information concerning Dr. Hampers'
purchase of a corporate aircraft from the Company and litigation by him against
the Company and others arising out of his employment agreement.
Severance Agreements. The Company has severance agreements with all of its
executive and other officers (except for Mr. Costello, whose employment
agreement, discussed above, provides for severance arrangements). These
agreements generally provide that in the event of the involuntary termination of
the individual's employment without cause (including constructive termination
caused by a material reduction in his or her authority or responsibility)
following a change in control of the Company, he or she will receive a severance
payment equal to the greater of (1) 2.99 times his or her average annual taxable
compensation for the five years preceding the change in control, plus certain
additional benefits, subject to reduction in certain cases to prevent the
recipient from incurring liability for excise taxes and the Company from
incurring nondeductible compensation expense, or (2) three times the
individual's annual base salary plus bonus, plus a "gross-up" payment to cover
any excise tax obligations resulting from the severance payment; in the event
employment terminates after January 1, 1999 (following a change in control), and
in the case of officers elected in and subsequent to May 1996, the severance
payment would be made solely in accordance with clause (2). For purposes of
these severance agreements, the definition of "change in control" is identical
to the definition contained in Mr. Costello's employment agreement (see
"Employment Agreements"). This description of the Company's severance agreements
does not purport to be complete and is qualified in its entirety by reference to
the forms of such agreements, which have been filed as exhibits to the Company's
Registration Statement on Form S-1 filed on August 2, 1996.
Executive Salary Protection Plan. The Company has had an Executive Salary
Protection Plan ("ESPP") for many years. All executive and other officers
participate in the ESPP, which provides that, in the event of a participant's
death or disability prior to age 70, the Company will continue to pay all or a
portion of base salary to the participant or a beneficiary for a period based on
the participant's age at the time of death or disability. Payments under the
ESPP may not exceed 100% of base salary for the first year and 50% thereafter in
the case of death (60% in the case of disability). This description of the ESPP
does not purport to be complete and is qualified in its entirety by reference to
the text of the ESPP, as amended, which has been filed as an exhibit to the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
E-8
<PAGE> 106
Resignations of Executive Officers. In connection with Mr. Lempereur's
resignation as an executive officer of the Company in February 1997, he entered
into an agreement with the Company providing that (1) he will remain an
employee, and continue to receive salary and participate in the Company's
benefit plans and programs, through November 1997, at which time he will be
entitled to receive severance pay for seven months; (2) he will be considered
for an annual incentive compensation award for 1996; (3) he will remain a
participant in the LTIP for the 1994-1996 Performance Period and, on a pro rata
basis, the 1995-1997 and 1996-1998 Performance Periods; (4) his unvested stock
options will become exercisable in full; and (5) his participation in the
Company's split-dollar life insurance program will terminate, although he can
elect to purchase the policy by reimbursing the Company for the premiums paid on
his behalf (approximately $490,000). The agreement also provides that Mr.
Lempereur will receive amounts due him under other Company plans and programs in
accordance with their terms; that he will receive outplacement assistance and
reimbursement for the expenses incurred in his relocation to France, generally
in accordance with standard Company practice; and that his loan from the Company
(see "Employment Agreements" and "Relationships and Transactions with Management
and Others") will be repaid upon the sale of his Florida residence or, if
earlier, December 31, 1997.
Dr. Hampers entered into an agreement with the Company in June 1996 providing
for the termination of his employment agreement and his severance agreement (see
"Employment Agreements" and "Severance Agreements"). His termination agreement
also provided that (1) he would continue to receive salary and certain benefits,
as specified in his employment agreement, through December 31, 1996 (including
the use of a corporate aircraft and an option to purchase the aircraft at its
fair market value); (2) effective January 1, 1997, he would be eligible to
commence receiving the pension benefit contemplated by his employment agreement;
(3) he would be entitled to participate in the Company's annual incentive
compensation program for 1996 (however, no award was paid to him under such
program for 1996); and (4) he would remain a participant in the LTIP for the
1994-1996 Performance Period and, on a pro rata basis, the 1995-1997 Performance
Period.
In connection with Mr. Kohnken's resignation as an executive officer of the
Company on September 30, 1996, he entered into an agreement with the Company
providing that (1) he would receive the severance payment included in "All Other
Compensation" in the Summary Compensation Table above; (2) he would be
considered for an annual incentive compensation award for 1996; (3) he would
remain a participant in the LTIP, on a pro rata basis, for the 1994-1996,
1995-1997 and 1996-1998 Performance Periods; (4) certain restrictions on shares
and stock options granted to him in 1991 would be removed, and any unvested
options he held would become exercisable in full; and (5) his participation in
the Company's split-dollar life insurance program would be terminated, although
he could elect to purchase the policy by reimbursing the Company for the
premiums paid on his behalf (approximately $323,000). The agreement also
provided that he would receive amounts due him under other Company plans and
programs in accordance with their terms.
The foregoing descriptions of the agreements with Mr. Lempereur, Dr. Hampers
and Mr. Kohnken do not purport to be complete and are qualified in their
entirety by reference to such agreements, which have been filed with the SEC as
exhibits to the Company's Annual Report on Form 10-K for the year ended December
31, 1996 (in the case of Mr. Lempereur), the Company's Registration Statement on
Form S-1 filed on August 2, 1996 (in the case of Dr. Hampers), and its Current
Report on Form 8-K filed on October 10, 1996 (in the case of Mr. Kohnken).
Directors' Compensation and Consulting Arrangements. Under the Company's
current compensation program for nonemployee directors, (1) each nonemployee
director receives an annual retainer of $24,000, payable in Common Stock; (2)
the Chairs of the Audit and Compensation Committees receive annual cash
retainers of $12,000, and the Chairs of the Nominating Committee and the
Committee on Corporate Responsibility receive annual cash retainers of $2,000;
and (3) each nonemployee director receives $2,000 in cash for each Board meeting
and $1,000 in cash for each committee meeting attended (except that committee
chairs receive $1,200 per committee meeting). In addition, the Company has had a
retirement plan under which a person retiring after more than four years of
service as a nonemployee director receives annual payments of $24,000 for a
period equal to the length of service as a nonemployee director (but not more
than 15 years). In the event of a director's death, payments are made to the
director's surviving spouse.
E-9
<PAGE> 107
Subject to shareholder approval of the 1997 Stock Plan for Nonemployee
Directors (see "Approval of 1997 Stock Plan for Nonemployee Directors"), a new
compensation program for nonemployee directors will be implemented effective
July 1, 1997. Under the new program, (1) each nonemployee director will receive
an annual retainer of $50,000, of which $35,000 will be in the form of Common
Stock and the balance will be in cash or Common Stock, at the election of the
director; (2) each committee chair will receive an additional annual retainer of
$3,000 in cash or Common Stock, at the election of the director; and (3) each
nonemployee director will receive $2,000 for each Board meeting and $1,000 for
each committee meeting attended (except that committee chairs will receive
$1,200 per committee meeting), in cash or Common Stock, at the election of the
director.
In addition, the current nonemployee directors' retirement plan will
terminate effective July 1, 1997. Previously retired directors will continue to
receive their remaining benefits under the plan. Benefits earned and accrued
with respect to current directors will be frozen, vested (to the extent not
previously vested) and converted to present value (as determined by an
independent actuarial consulting firm) based on a 7% discount rate and certain
other assumptions. The amount so determined will be deferred in cash or in
Common Stock (as described below), at the election of the director, and will be
paid following the director's termination from service.
Under both the current and new compensation programs, a nonemployee director
may defer payment of all or part of the fees received for attending Board and
committee meetings and/or the cash retainers (or cash portions of the retainers)
referred to above. The deferred cash (plus an interest equivalent) will be
payable to the director or his or her heirs or beneficiaries in a lump sum or in
quarterly installments over two to 20 years following a date specified by the
director (but in no event earlier than the director's termination from service).
The interest equivalent on deferred cash is computed at the higher of (1) the
prime rate plus two percentage points or (2) 120% of the prime rate, in either
case compounded semiannually. This program provides for the payment of
additional survivors' benefits in certain circumstances. Following the effective
date of the new compensation program, the Common Stock portion of the annual
retainer may be deferred and held, and the balance of the annual retainer or
other retainers and/or fees a director elects to receive in the form of Common
Stock will be deferred and held, in a trust established by the Company.
Dividends paid on the Common Stock held in such trust will be reinvested in
Common Stock, and directors will have the right to direct the voting of the
Common Stock held in such trust; however, such Common Stock will not be
delivered to a director until his or her termination from service (or a
subsequent date specified by the director).
Nonemployee directors are reimbursed for expenses they incur in attending
Board and committee meetings, and the Company maintains business travel accident
insurance coverage for them. In addition, nonemployee directors receive a fee of
$1,000 per day for work performed at the Company's request.
The Company has a consulting agreement with Kamsky Associates Inc. (of which
Ms. Kamsky is chairman and co-chief executive officer) relating to the Company's
interests in The People's Republic of China. The agreement expires on May 31,
1997 (and is not being renewed) and provides for monthly fees of $25,000, plus
additional payments based on the extent to which the Company establishes certain
business relationships in The People's Republic of China. In 1996, the Company
paid fees totaling $300,000 under this agreement. NMC has had a consulting
agreement with another company of which Ms. Kamsky is a principal relating to
business opportunities in nine other countries in the Asia Pacific region. The
agreement expires on May 31, 1997 and provides for monthly fees of $10,000, plus
additional payments based on the extent to which NMC establishes certain
business relationships in the relevant countries. From January 1996 through
September 1996 (when NMC separated from the Company), NMC paid Ms. Kamsky's
company consulting fees totaling $108,000 under its agreement. The foregoing
description does not purport to be complete and is qualified in its entirety by
reference to the agreements referred to above, which have been filed with the
SEC as exhibits to the Company's Annual Reports on Form 10-K for the years ended
December 31, 1992 and 1994 and the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1995.
E-10
<PAGE> 108
Compensation Committee Interlocks and Insider Participation. Prior to May
10, 1996, the Compensation Committee consisted of Messrs. Eckmann, Holmes and
Phipps, as well as Edward W. Duffy (who retired from the Board on that date) and
Peter S. Lynch (who resigned from the Board on that date). In addition, Thomas
L. Gossage, then chairman and chief executive officer of Hercules, Incorporated
("Hercules"), was a member of the Compensation Committee until his resignation
from the Board in March 1996. On May 10, 1996, the Compensation Committee was
reconstituted to consist of Messrs. Eckmann, Holmes, Phipps and Vanderslice; Mr.
Akers joined the Compensation Committee in January 1997 and Mr. Murphy in March
1997. As noted above, Mr. Holmes served as acting president and chief executive
officer of the Company for a two-month period in 1995. During 1996, the Company
purchased approximately $428,000 of products from, and sold approximately
$36,000 of products to, Hercules.
RELATIONSHIPS AND TRANSACTIONS WITH MANAGEMENT AND OTHERS
The following are descriptions of certain relationships and transactions
between the Company and its directors and executive officers and/or businesses
with which they are affiliated. Information regarding certain consulting
arrangements appears under "Compensation -- Directors' Compensation and
Consulting Arrangements."
Commercial Transactions. Mr. Costello is a director of Becton, Dickinson and
Company ("Becton Dickinson") and FMC Corporation ("FMC"). During 1996, various
units of the Company purchased approximately $3.3 million of materials and/or
products from, and sold approximately $556,000 of materials and/or products to,
units of Becton Dickinson. In addition, during 1996 various units of the Company
purchased approximately $3.1 million of materials and/or products from, and sold
approximately $171,000 of materials and/or products to, FMC.
Thomas L. Gossage was a director of the Company from July 1995 to March 1996,
during which time he was chairman and chief executive officer of Hercules.
During 1996, the Company purchased approximately $428,000 of products from, and
sold approximately $36,000 of products to, Hercules.
The foregoing transactions were in the ordinary course of business and were
on terms believed to be similar to those with unaffiliated parties.
Under his employment agreement and the terms of his resignation (see
"Employment Agreements" and "Resignations of Executive Officers" under the
heading "Compensation"), Dr. Hampers was previously granted an option to
purchase, for its fair market value, a Gulfstream IV aircraft owned by the
Company. In August 1996, Dr. Hampers purchased the aircraft for $19 million.
This price was based upon independent parties' estimates of the fair market
value of the aircraft.
Loans to Officers. The Company previously made a $350,000 interest-free loan
to Mr. Lempereur in connection with his relocation to Florida. See "Employment
Agreements" and "Resignations of Executive Officers" under the heading
"Compensation" for additional information.
E-11
<PAGE> 109
SECURITY OWNERSHIP OF MANAGEMENT AND OTHERS
MANAGEMENT SECURITY OWNERSHIP
The following table sets forth the Common Stock beneficially owned at January
31, 1997 by each current director and nominee, by each of the executive officers
named in the Summary Compensation Table set forth under "Election of Directors
- -- Compensation" (other than those who resigned in 1996 and early 1997), and by
such directors and executive officers as a group. The table includes shares
owned by (1) those persons and their spouses, minor children and certain
relatives, (2) trusts and custodianships for their benefit and (3) trusts and
other entities as to which the persons have the power to direct the voting or
investment of securities (including shares as to which the persons disclaim
beneficial ownership). The table also includes shares in accounts under the
Savings Plan and shares covered by currently exercisable stock options; it does
not reflect shares covered by unexercisable stock options. The Common Stock
owned by directors and executive officers as a group (excluding option shares)
at January 31, 1997 represents less than 1% of the Common Stock outstanding at
March 11, 1997.
<TABLE>
<CAPTION>
AMOUNT/NATURE
OF OWNERSHIP
---------------
<S> <C>
J. F. Akers ................. 1,000
R. H. Beber ................. 7,595
258,338(O)
H. Brown .................... 1,000
C. Cheng .................... 0
A. J. Costello .............. 32,710*
181,125(O)
H. A. Eckmann ............... 3,259
L. Ellberger ................ 1,583*
66,292(O)
M. A. Fox ................... 425
J. W. Frick ................. 2,830
T. A. Holmes ................ 3,990
J. R. Hyde .................. 8,995
184,127(O)
V. A. Kamsky ................ 2,500
J. J. Murphy ................ 0
J. E. Phipps ................ 11,490
17,450(T,S)
T. A. Vanderslice ........... 1,300
Various directors, executive
officers and others, as
Trustees ................... 2,696 (T,S)
Directors and executive
officers as a group ........ 94,789*
20,146 (T,S)
864,802(O)
</TABLE>
- ------------
* Excludes shares beneficially owned by certain executive officers in
respect of LTIP awards earned for the 1994-1996 Performance Period
(payable in March 1997), as follows: Mr. Costello -- 30,917 shares; Mr.
Ellberger -- 14,406 shares; and directors and executive officers as a
group -- 55,278 shares.
(O) Shares covered by stock options exercisable on or within 60 days after
January 31, 1997.
(T) Shares owned by trusts and other entities as to which the person has the
power to direct voting and/or investment.
(S) Shares as to which the person shares voting and/or investment power with
others.
E-12
<PAGE> 110
ANNEX F
FINANCIAL SUPPLEMENT
W. R. GRACE & CO.
FOR THE YEAR ENDED DECEMBER 31, 1996
F-1
<PAGE> 111
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.
<TABLE>
<S> <C>
Albert J. Costello Larry Ellberger
Chairman, President and Senior Vice President and
Chief Executive Officer Chief Financial Officer
</TABLE>
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-3
through F-23 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-2
<PAGE> 112
CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
W. R. Grace & Co. and Subsidiaries
CONSOLIDATED STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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-7 to F-23, are integral
parts of these statements.
F-3
<PAGE> 113
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
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-7 to F-23, are integral
parts of these statements.
(1) See Notes 1 and 6 for supplemental information relating to noncash investing
and financing activities.
F-4
<PAGE> 114
CONSOLIDATED BALANCE SHEET
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Dollars in miDECEMBERe31,pt par value 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-7 to F-23, are integral
parts of these statements.
F-5
<PAGE> 115
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
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-7 to F-23, are integral
parts of these statements.
F-6
<PAGE> 116
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-7
<PAGE> 117
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-8
<PAGE> 118
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, 1995 1996
- --------------------------------------------------------------------------
<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, 1995 1996
- -----------------------------------------------------------------------------------
<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, 1995(1) 1996(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 not necessarily indicative of actual costs. Based on the factors
discussed above, Grace does not
F-9
<PAGE> 119
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-10
<PAGE> 120
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-11
<PAGE> 121
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-12
<PAGE> 122
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-13
<PAGE> 123
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-14
<PAGE> 124
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-15
<PAGE> 125
- --------------------------------------------------------------------------------
7. OTHER BALANCE SHEET ITEMS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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.
- --------------------------------------------------------------------------------
8. PROPERTIES AND EQUIPMENT
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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-16
<PAGE> 126
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.
- --------------------------------------------------------------------------------
9. DEBT
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
- ----------------------------------------------------------------------------------
<S> <C> <C>
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-17
<PAGE> 127
- --------------------------------------------------------------------------------
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 part of cost of goods sold and operating expenses.
The 1995 provision related
F-18
<PAGE> 128
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-19
<PAGE> 129
- --------------------------------------------------------------------------------
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-20
<PAGE> 130
- --------------------------------------------------------------------------------
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>
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-21
<PAGE> 131
- --------------------------------------------------------------------------------
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-22
<PAGE> 132
- --------------------------------------------------------------------------------
17. GEOGRAPHIC AREA INFORMATION
- --------------------------------------------------------------------------------
The table below presents information related to Grace's continuing operations by
geographic region for the years 1996-1994.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
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-23
<PAGE> 133
- --------------------------------------------------------------------------------
QUARTERLY SUMMARY AND STATISTICAL INFORMATION Unaudited -- dollars in millions,
except per share
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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.
- --------------------------------------------------------------------------------
CAPITAL EXPENDITURES, NET FIXED ASSETS AND DEPRECIATION AND LEASE AMORTIZATION
Dollars in millions
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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-24
<PAGE> 134
- --------------------------------------------------------------------------------
FINANCIAL SUMMARY(1) Dollars in millions, except per share amounts
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
Sales and revenues................................. $3,454.1 $3,552.6 $3,128.5 $2,824.7 $2,985.2
Cost of goods sold and operating expenses.......... 2,071.0 2,151.2 1,832.6 1,692.9 1,814.0
Depreciation and amortization...................... 184.4 186.1 164.6 153.9 164.6
Interest expense and related financing costs....... 71.6 71.3 49.5 43.0 49.4
Research and development expenses.................. 93.9 111.6 99.6 100.8 99.5
Income/(loss) from continuing operations before
income taxes..................................... 348.6 (284.1) (77.7) 44.5 91.9
Provision for/(benefit from) income taxes.......... 134.8 (104.5) (42.6) 16.4 84.1
Income/(loss) from continuing operations........... 213.8 (179.6) (35.1) 28.1 7.7
Income/(loss) from discontinued operations(2)...... 2,643.9 (146.3) 118.4 (2.1) (112.2)
Cumulative effect of accounting changes............ -- -- -- -- (190.0)
Net income/(loss).................................. 2,857.7 (325.9) 83.3 26.0 (294.5)
- -----------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Current assets..................................... $1,774.9 $1,681.3 $2,228.9 $2,077.6 $2,091.4
Current liabilities................................ 1,487.1 2,214.2 2,231.5 1,992.6 1,639.6
Properties and equipment, net...................... 1,871.3 1,736.1 1,730.1 1,454.1 1,707.9
Total assets....................................... 4,945.8 6,360.6 6,230.6 6,108.6 5,598.6
Total debt......................................... 1,388.2 1,933.8 1,529.7 1,706.1 1,819.2
Shareholders' equity -- common stock............... 632.4 1,224.4 1,497.1 1,510.2 1,537.5
- -----------------------------------------------------------------------------------------------------------
DATA PER COMMON SHARE
Earnings/(loss) from continuing operations......... $ 2.32 $ (1.87) $ (.38) $ .30 $ .08
Cumulative effect of accounting changes............ -- -- -- -- (2.12)
Net earnings/(loss)................................ 31.06 (3.40) .88 .28 (3.29)
Dividends.......................................... .50 1.175 1.40 1.40 1.40
Book value......................................... 8 .06 12.57 15.91 16.16 17.10
Average common shares outstanding (thousands)...... 91,976 95,822 93,936 91,461 89,543
- -----------------------------------------------------------------------------------------------------------
OTHER STATISTICS
Income from continuing operations before special
items(3)......................................... $ 222.5 $ 205.7 $ 163.9 $ 128.1 $ 152.8
Dividends paid on common stock..................... 45.6 112.1 131.5 127.9 125.4
Capital expenditures............................... 456.6 537.6 444.6 309.6 398.4
Common shareholders of record...................... 17,415 19,496 18,501 19,358 20,869
Common stock price range(4)........................ 56 1/4-33 1/16 45 7/8-24 13/16 29 15/16-23 3/16 26 9/16-22 5/16 29-20 5/8
Number of employees -- continuing operations
(thousands)...................................... 17.4 20.3 19.9 19.8 19.4
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Certain prior-year amounts have been reclassified to conform to the 1996
presentation.
(2) 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.
(3) Income/(loss) from continuing operations reconciles to income from
continuing operations before special items as follows:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Income/(loss) from continuing operations.................. $ 213.8 $ (179.6) $ (35.1) $ 28.1 $ 7.7
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 from continuing operations before special items.... $ 222.5 $ 205.7 $ 163.9 $ 128.1 $ 152.8
======== ======== ======== ======== ========
</TABLE>
Although "Income from continuing operations before special items" is a
measure not recognized under generally accepted accounting principles and
may be inconsistent with similar measures presented by other companies,
Grace management believes that the presentation of this measure enhances the
comparability of Grace's operating results from period to period.
(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-25
<PAGE> 135
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 footnote (3)
to 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>
(Dollars in millions)
W.R. GRACE & CO. AND SUBSIDIARIES ------------------------------------
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/(loss) before divested businesses.......... $ 407.2 $ 217.5 $ (17.3)
Operating income/(loss) of divested businesses (1).......... 2.0 (6.6) (1.9)
-------- -------- --------
Operating income/(loss) (2)(3)......................... $ 409.2 $ (224.1) $ (19.2)
Other income/(expenses) (4):
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) A reconciliation of operating income/(loss) to operating income before
special items is as follows:
<TABLE>
<S> <C> <C> <C>
Operating income/(loss)..................................... $ 409.2 $(224.1) $ (19.2)
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 before special items..................... $ 419.4 $ 367.4 $ 309.8
------- ------- -------
</TABLE>
Although "Operating income before special items" is a measure not recognized
under generally accepted accounting principles and may be inconsistent with
similar measures presented by other companies, Grace management believes that
the presentation of this measure enhances the comparability of Grace's
operating results from period to period.
(4) 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>
F-26
<PAGE> 136
<TABLE>
<CAPTION>
1996 as a Percentage of 1995
----------------------------------------
SALES AND REVENUES ESTIMATED VARIANCE ANALYSIS VOLUME PRICE/MIX TRANSLATION Total
- ---------------------------------------------- ------ --------- ----------- -----
<S> <C> <C> <C> <C>
Packaging.......................... 3.9% (1.0)% (.3)% 2.6%
Container.......................... 1.0 (.3) (2.6) (1.9)
Total Packaging............... 3.4 (.9) (.6) 1.9
Catalysts and other silica-based products... 7.2 (1.3) (1.3) 4.6
Construction....................... 8.8 .9 (.2) 9.5
Other (1).......................... (5.9) .1 (2.6) (8.4)
Sales and revenues............ 4.7% (.8)% (.7)% 3.2%
<CAPTION>
1995 as a Percentage of 1994
----------------------------------------
SALES AND REVENUES ESTIMATED VARIANCE ANALYSIS Volume Price/Mix Translation Total
- ---------------------------------------------- ------ --------- ----------- -----
<S> <C> <C> <C> <C>
Packaging.......................... 10.2% 6.0% 3.2% 19.4%
Container.......................... 4.9 .8 5.0 10.7
Total Packaging............... 9.4 5.2 3.5 18.1
Catalysts and other silica-based products... 4.7 4.7 4.4 13.8
Construction....................... .4 1.1 1.1 2.6
Other (1).......................... (8.2) (.8) 4.0 (5.0)
Sales and revenues............ 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.
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(TM) (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.
F-27
<PAGE> 137
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 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
F-28
<PAGE> 138
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.
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-29
<PAGE> 139
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-30
<PAGE> 140
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-31
<PAGE> 141
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 F-2 herein also included an audit of
the Financial Statement Schedule appearing on page F-33 herein. 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.
PRICE WATERHOUSE LLP
Price Waterhouse LLP
Ft. Lauderdale, Florida
February 3, 1997
F-32
<PAGE> 142
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 $ -- $ .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 $ .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 $ .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> 143
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> 144
ANNEX G
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
W.R. GRACE & CO. AND SUBSIDIARIES Three Months Ended Nine Months Ended
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) September 30, September 30,
- ----------------------------------------------------------------------------------------------------
in millions (except per share amounts) 1997 1996 1997 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales and revenues................................... $833.1 $ 821.3 $2,460.7 $2,603.2
Other income......................................... 12.9 8.2 36.5 26.3
------ -------- -------- --------
TOTAL........................................... 846.0 829.5 2,497.2 2,629.5
------ -------- -------- --------
Cost of goods sold and operating expenses............ 499.2 503.9 1,492.4 1,565.7
Selling, general and administrative expenses......... 163.3 151.6 467.9 546.5
Depreciation and amortization........................ 47.8 43.4 145.5 134.2
Interest expense and related financing costs......... 19.2 18.2 58.6 54.9
Research and development expenses.................... 23.3 22.5 66.9 75.0
Restructuring costs.................................. -- -- 12.4 53.7
Gain on sales of businesses.......................... -- -- (103.1) (326.4)
------ -------- -------- --------
TOTAL........................................... 752.8 739.6 2,140.6 2,103.6
------ -------- -------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES........................................ 93.2 89.9 356.6 525.9
Provision for income taxes........................... 34.5 35.5 134.1 192.9
------ -------- -------- --------
INCOME FROM CONTINUING OPERATIONS............... 58.7 54.4 222.5 333.0
Income from discontinued operations.................. 12.4 2,465.5 12.4 2,584.4
------ -------- -------- --------
NET INCOME...................................... $ 71.1 $2,519.9 $ 234.9 $2,917.4
------ -------- -------- --------
- ----------------------------------------------------------------------------------------------------
Primary earnings per share:
Continuing operations........................... $ .77 $ .58 $ 2.92 $ 3.42
Net income...................................... $ .93 $ 26.99 $ 3.08 $ 30.02
Fully diluted earnings per share:
Continuing operations........................... $ .77 $ .58 $ 2.91 $ 3.40
Net income...................................... $ .93 $ 26.83 $ 3.07 $ 29.76
Dividends declared per common share.................. $ .145 $ .125 $ .415 $ .375
Weighted average shares outstanding.................. 73.7 91.1 73.9 95.2
- ----------------------------------------------------------------------------------------------------
</TABLE>
The Notes to Consolidated Financial Statements are integral parts of these
statements.
G-1
<PAGE> 145
<TABLE>
<CAPTION>
W.R. GRACE & CO. AND SUBSIDIARIES NINE MONTHS ENDED
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) SEPTEMBER 30,
- ----------------------------------------------------------------------------------------------
In millions 1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Income from continuing operations before income taxes............. $ 356.6 $ 525.9
Reconciliation to cash provided by operating activities:
Depreciation and amortization................................... 145.5 134.2
Provision relating to restructuring costs....................... 12.4 53.7
Gain on sales of businesses..................................... (103.1) (326.4)
Changes in assets and liabilities, excluding effect of
businesses acquired/divested and foreign currency exchange:
Increase in notes and accounts receivable, net............... (63.6) (158.6)
(Increase)/decrease in inventories........................... (13.3) 26.1
Proceeds from asbestos-related insurance settlements......... 53.3 139.1
Payments made for asbestos-related litigation settlements,
judgments and defense costs................................ (88.2) (86.6)
Decrease in accounts payable................................. (36.9) (36.4)
Other........................................................ (30.7) (116.3)
------- --------
NET PRETAX CASH PROVIDED BY OPERATING ACTIVITIES OF CONTINUING
OPERATIONS................................................... 232.0 154.7
Net pretax cash (used for)/provided by operating activities of
discontinued operations......................................... (41.0) 68.6
------- --------
NET PRETAX CASH PROVIDED BY OPERATING ACTIVITIES................ 191.0 223.3
Income taxes paid................................................. (54.5) (113.8)
------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES....................... 136.5 109.5
------- --------
INVESTING ACTIVITIES
Capital expenditures.............................................. (164.4) (335.3)
Net proceeds from divestments..................................... 684.8 2,802.9
Businesses acquired in purchase transactions, net of cash acquired
and debt assumed................................................ (16.3) (33.8)
Net investing activities of discontinued operations............... (70.7) (181.2)
Other............................................................. 19.5 25.3
------- --------
NET CASH PROVIDED BY INVESTING ACTIVITIES....................... 452.9 2,277.9
------- --------
FINANCING ACTIVITIES
Dividends paid.................................................... (30.5) (36.0)
Repayments of borrowings having original maturities in excess of
three months.................................................... (105.7) (513.6)
Increase in borrowings having original maturities in excess of
three months.................................................... .5 .1
Net repayments of borrowings having original maturities of three
months or less.................................................. (165.1) (512.7)
Stock options exercised........................................... 49.1 52.0
Net financing activities of discontinued operations............... -- (198.8)
Purchase of treasury stock........................................ (335.9) (727.1)
Other............................................................. -- .2
------- --------
NET CASH USED FOR FINANCING ACTIVITIES.......................... (587.6) (1,935.9)
Effect of exchange rate changes on cash and cash equivalents...... (3.9) (.5)
------- --------
(DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS................ $ (2.1) $ 451.0
------- ---------
- ----------------------------------------------------------------------------------------------
</TABLE>
The Notes to Consolidated Financial Statements are integral parts of these
statements.
G-2
<PAGE> 146
W. R. GRACE & CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
In millions (except share data) 1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents.................................. $ 66.2 $ 68.3
Notes and accounts receivable, net......................... 616.0 831.4
Inventories................................................ 370.0 376.1
Net assets of discontinued operations...................... 26.8 297.4
Deferred income taxes...................................... 116.4 183.9
Other current assets....................................... 26.1 17.8
-------- --------
TOTAL CURRENT ASSETS..................................... 1,221.5 1,774.9
Properties and equipment, net of accumulated depreciation
and amortization of $1,489.6 (December 31,
1996 -- $1,436.6)........................................ 1,771.5 1,871.3
Goodwill, less accumulated amortization of $14.4 (December
31, 1996 -- $18.6)....................................... 37.0 40.6
Asbestos-related insurance receivable...................... 260.4 296.3
Deferred income taxes...................................... 309.2 309.2
Other assets............................................... 600.4 653.5
-------- --------
TOTAL ASSETS............................................. $ 4,200.0 $4,945.8
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt............................................ $ 41.5 $ 315.2
Accounts payable........................................... 218.5 274.7
Income taxes............................................... 113.1 123.3
Other current liabilities.................................. 676.4 773.9
-------- --------
TOTAL CURRENT LIABILITIES................................ 1,049.5 1,487.1
Long-term debt............................................. 1,062.7 1,073.0
Deferred income taxes...................................... 43.5 43.5
Noncurrent liability for asbestos-related litigation....... 775.5 859.1
Other liabilities.......................................... 788.8 850.7
-------- --------
TOTAL LIABILITIES........................................ 3,720.0 4,313.4
------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock issued, par value $.01........................ .8 .8
Paid in capital............................................ 593.1 524.1
Retained earnings.......................................... 377.0 172.6
Cumulative translation adjustments......................... (154.0) (64.6)
Deferred compensation trust, at market..................... (5.2) --
Treasury stock, at cost: 6.2 million common shares at
September 30, 1997....................................... (331.7) (.5)
-------- --------
TOTAL SHAREHOLDERS' EQUITY............................... 480.0 632.4
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............... $ 4,200.0 $4,945.8
------------ ------------
- -------------------------------------------------------------------------------------------
</TABLE>
The Notes to Consolidated Financial Statements are integral parts of these
statements.
G-3
<PAGE> 147
W. R. GRACE & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
1. BASIS OF PRESENTATION
The interim consolidated financial statements in this Report are unaudited and
should be read in conjunction with the consolidated financial statements in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996 (1996
Form 10-K). The interim consolidated financial statements reflect all
adjustments that, in the opinion of management, are necessary for a fair
presentation of the results of the interim periods presented; all such
adjustments were of a normal recurring nature. Certain amounts in the prior
periods' consolidated financial statements have been reclassified to conform to
the current periods' basis of presentation and as required with respect to
discontinued operations.
The results of operations for the three- and nine-month interim periods ended
September 30, 1997 are not necessarily indicative of the results of operations
for the fiscal year ending December 31, 1997.
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 43,700 asbestos-related lawsuits at
September 30, 1997 (17 involving claims for property damage and the remainder
involving approximately 105,800 claims for personal injury), compared to
approximately 41,500 lawsuits at December 31, 1996 (31 involving claims for
property damage and the remainder involving approximately 91,500 claims for
personal injury).
Property Damage Litigation
Through September 30, 1997, 139 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 (none of which is on appeal) for a total of $60.3; and 195
property damage cases were settled for a total of $476.6. Property damage case
activity for the nine months ended September 30, 1997 was as follows:
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Cases outstanding, December 31, 1996.................................................................. 31
Settlements........................................................................................... (9)
Dismissals............................................................................................ (4)
Judgment in favor of Grace............................................................................ (1)
---
Cases outstanding, September 30, 1997............................................................. 17
==
</TABLE>
- --------------------------------------------------------------------------------
Personal Injury Litigation
Through September 30, 1997, approximately 12,600 asbestos personal injury
lawsuits involving approximately 29,100 claims were dismissed without payment of
any damages or settlement amounts (primarily on the basis that Grace products
were not involved), and approximately 34,100 lawsuits involving approximately
71,300 claims were disposed of for a total of $212.1. Personal injury claim
activity for the nine months ended September 30, 1997 was as follows:
G-4
<PAGE> 148
W. R. GRACE & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Claims outstanding, December 31, 1996................................................................................ 91,511
New claims........................................................................................................... 17,852
Claims under amended complaints...................................................................................... 3,261
Settlements.......................................................................................................... (5,009)
Dismissals........................................................................................................... (1,767)
Judgments............................................................................................................ (5)
-------
Claims outstanding, September 30, 1997........................................................................... 105,843
-------
</TABLE>
- --------------------------------------------------------------------------------
Asbestos-Related Liability
Based upon and subject to the factors discussed in Note 2 to the consolidated
financial statements in the 1996 Form 10-K, Grace estimates that its probable
liability with respect to the defense and disposition of asbestos property
damage and personal injury cases and claims was as follows at September 30, 1997
and December 31, 1996:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30, December 31,
1997(1) 1996(1)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current liability for asbestos-related litigation(2)......................................... $ 135.0 $135.0
Noncurrent liability for asbestos-related litigation......................................... 775.5 859.1
------ ------
Total asbestos-related liability(3)...................................................... $ 910.5 $994.1
--------- ---------
</TABLE>
- --------------------------------------------------------------------------------
(1) Reflects property damage and personal injury cases and claims pending at
September 30, 1997 and December 31, 1996, respectively, as well as personal
injury claims expected to be filed through 2001.
(2) Included in "Other current liabilities" in the Consolidated Balance Sheet.
(3) Excludes 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.
Asbestos-Related Insurance Receivable
Grace previously purchased insurance policies with respect to its
asbestos-related lawsuits and claims. The following table displays the activity
in Grace's notes receivable from insurance carriers and asbestos-related
insurance receivable during the nine months ended September 30, 1997:
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
NOTES RECEIVABLE
Notes receivable from insurance carriers at December 31, 1996, net of discount of $7.4(1)............................. $ 48.5
Proceeds from asbestos-related insurance settlements.................................................................. (17.4)
Amortization, net..................................................................................................... 1.9
------
Notes receivable from insurance carriers at September 30, 1997, net of discount of $5.5(2)........................ $ 33.0
------
INSURANCE RECEIVABLE
Asbestos-related insurance receivable at December 31, 1996(3)......................................................... $331.3
Proceeds from asbestos-related insurance settlements.................................................................. (35.9)
------
Asbestos-related insurance receivable at September 30, 1997(3).................................................... $295.4
------
Total amounts due from insurance carriers......................................................................... $328.4
------
</TABLE>
- --------------------------------------------------------------------------------
(1) Classified in the December 31, 1996 Consolidated Balance Sheet as $17.2 in
"Notes and accounts receivable, net" and $31.3 in "Other assets."
(2) Classified in the September 30, 1997 Consolidated Balance Sheet as $15.6 in
"Notes and accounts receivable, net" and $17.4 in "Other assets."
(3) $35.0 of the asbestos-related insurance receivable is classified in "Notes
and accounts receivable, net" in the December 31, 1996 and September 30,
1997 Consolidated Balance Sheets.
G-5
<PAGE> 149
W. R. GRACE & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
Insurance Litigation
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 September 30, 1997, 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.
For additional information, see Note 2 to the consolidated financial statements
in the 1996 Form 10-K and "Management's Discussion and Analysis of Results of
Operations and Financial Condition -- Financial Condition -- Asbestos-Related
Matters" in this Report.
3. PROPOSED PACKAGING TRANSACTION
In August 1997, Grace and Sealed Air Corporation (Sealed Air) entered into a
definitive agreement to combine Grace's flexible packaging business with the
business of Sealed Air to create a new publicly owned company, which will retain
the name "Sealed Air Corporation" (New Sealed Air). The combination would follow
(a) the borrowing of approximately $1,200.0 (subject to adjustment) by Grace,
(b) the contribution of the proceeds of the borrowing by Grace to a new company,
which will retain the name "W.R. Grace & Co." and will own and operate Grace's
specialty chemicals businesses (New Grace), and (c) the distribution by Grace of
one share of New Grace common stock for each outstanding Grace share. As a
result of these transactions, the holders of Grace common stock would own 100%
of New Grace (i.e., the specialty chemicals businesses, consisting of catalysts
and silica-based products, construction chemicals and specialty building
materials, and container sealants and coatings), as well as New Sealed Air
common stock and convertible preferred stock constituting approximately 63% of
the equity of New Sealed Air. New Grace will use the $1,200.0 contribution to
repay substantially all of its debt, and New Sealed Air will remain liable under
the $1,200.0 borrowing. The completion of these transactions is subject to
various conditions (including approval by the shareholders of Grace and Sealed
Air) and is expected to occur in the first quarter of 1998. The transactions are
expected to be tax-free, for U.S. federal income tax purposes, to Grace and its
shareholders.
G-6
<PAGE> 150
W. R. GRACE & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
4. ACQUISITIONS AND DIVESTMENTS
Acquisitions
In April 1997, Grace purchased all of the shares of capital stock of Schurpack,
Inc. (Schurpack), a manufacturer of flexible food packaging located in St.
Joseph, Missouri. Schurpack, with 1996 sales of approximately $20.0, is a
leading manufacturer of plastic laminate packaging materials for the
institutional and retail cook-in market segment. Schurpack also co-extrudes and
converts film for food and non-food applications.
In July 1996, Grace completed the acquisition of Cypress Packaging, Inc.
(Cypress), a U.S. manufacturer of flexible packaging, primarily for the retail
pre-cut produce market segment. In August 1996, Grace acquired Bayem S.A. de
C.V. (Bayem), a Mexican manufacturer of can coatings and closure sealants for
the rigid container industry.
Divestments
In May 1997, Grace completed the sale of its specialty polymers business to
National Starch and Chemical Company for $148.0, subject to adjustment. The
sales and revenues of this business for the period from January through May 1,
1997 (the date of sale) were $24.8 ($17.8 and $53.9 for the three and nine
months ended September 30, 1996, respectively); its financial position and
results of operations were not significant to Grace. The sale of this business
resulted in pretax and after-tax gains of $103.1 and $63.0 ($.85 per common
share), respectively, in continuing operations.
In June 1996, Grace sold its water treatment and process chemicals business
(Dearborn). The sales and revenues of this business for the period from January
through June 30, 1996 (the date of sale) were $201.2; its financial position and
results of operations were not significant to Grace. The sale of this business
and the biopesticides business (sold in the second quarter of 1996) resulted in
pretax and after-tax gains of $326.4 and $210.1 ($2.20 per common share),
respectively, in continuing operations.
5. DISCONTINUED OPERATIONS
In February 1997, Grace sold its cocoa business to Archer-Daniels-Midland
Company (ADM) for total proceeds of $470.0 (inclusive of debt assumed by the
buyer), subject to adjustment. The pretax and after-tax effects of the
divestment were consistent with prior estimates and were charged against
previously established reserves. In October 1997, ADM paid Grace an additional
$7.9 (including $.4 of interest income) in settlement of the purchase price
adjustment. In anticipation of this settlement, in the third quarter of 1997
Grace reversed previously recorded provisions of $12.4 (net of an applicable tax
effect of $6.6), in discontinued operations.
G-7
<PAGE> 151
W. R. GRACE & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
In the fourth quarter of 1996, Grace classified its thermal and emission control
systems business (TEC Systems) as a discontinued operation. In August 1997,
Grace sold TEC Systems to Sequa Corporation for total proceeds of $18.4, subject
to adjustment. The pretax and after-tax loss on this sale was consistent with
prior estimates and was charged against previously established reserves.
Grace classified its health care business as a discontinued operation in the
second quarter of 1995 and disposed of that business in 1996.
Results of these discontinued operations that were not charged against
previously established reserves, the reversal of previously recorded provisions,
and the gain on the May 1996 sale of Grace's transgenic plant business, were as
follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales and revenues...................................... $ -- $ 545.5 $ -- $1,703.6
----- -------- ----- --------
(Loss)/income from operations before taxes(1)........... $ -- $ (16.2) $ -- $ 54.5
Income tax provision.................................... -- 2.0 -- 33.2
----- -------- ----- --------
Total Operating Results............................ $ -- $ (18.2) $ -- $ 21.3
----- -------- ----- --------
Gain on separation/sale of businesses................... 19.0 2,473.7 19.0 2,602.7
Provision for/(benefit from) income taxes on
separation/sale of businesses......................... 6.6 (10.0) 6.6 39.6
----- -------- ----- --------
Total income from discontinued operations.......... $12.4 $2,465.5 $12.4 $2,584.4
----- -------- ----- --------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(1) Reflects interest expense allocated to the health care segment of $25.1 and
$76.3 for the three and nine months ended September 30, 1996, respectively,
based on the ratio of the net assets of the health care business compared to
Grace's total capital.
For the three and nine months ended September 30, 1997, the operating results of
TEC Systems, the cocoa business and other discontinued operations have been
charged against previously established reserves and, therefore, are not
reflected in the Consolidated Statement of Operations.
G-8
<PAGE> 152
W. R. GRACE & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
The components of the net assets of Grace's discontinued operations (excluding
intercompany assets) are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
SEPTEMBER 30, December 31,
1997 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets............................................. $11.7 $360.5
Properties and equipment, net.............................. 4.6 207.2
Investments in and advances to affiliated companies........ 12.1 12.1
Other assets............................................... 1.1 65.1
----- ------
Total assets.......................................... $29.5 $644.9
----- ------
Current liabilities........................................ $ 1.7 $262.8
Other liabilities.......................................... 1.0 84.7
----- ------
Total liabilities..................................... $ 2.7 $347.5
----- ------
Net assets............................................ $26.8 $297.4
---------- -----------
- --------------------------------------------------------------------------------------------
</TABLE>
For additional information, see Note 6 to the consolidated financial statements
in the 1996 Form 10-K.
6. RESTRUCTURING COSTS
As discussed in Note 4 to the consolidated financial statements in the 1996 Form
10-K, Grace began implementing a worldwide program in 1995 focused on
streamlining processes and reducing general and administrative expenses, factory
administration costs and noncore corporate research and development expenses. As
previously reported, Grace has continued to implement additional cost reductions
and efficiency improvements beyond those initiated in 1995, as its businesses
have further evaluated and reengineered their operations. As a result of these
evaluations, in the second quarters of 1997 and 1996, Grace recorded pretax
charges of $12.4 ($8.0 after-tax) and $53.7 ($32.4 after-tax), respectively,
principally related to the restructuring of its packaging business. The 1997
charge primarily related to the restructuring of the packaging business from a
worldwide group of independent regional units into an integrated global
organization, and was primarily comprised of employee termination benefits. The
1996 charge primarily related to the restructuring of Grace's European packaging
business and consisted of costs related to employee termination benefits and
lease termination costs.
G-9
<PAGE> 153
W. R. GRACE & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
7. INVENTORIES
The components of Grace's inventories are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, December 31,
1997 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Raw materials.......................................................... $ 97.3 $ 100.9
In process............................................................. 80.8 67.6
Finished products...................................................... 169.0 179.0
General merchandise.................................................... 69.5 73.4
Less: Adjustment of certain inventories to a last-in/first-out (LIFO)
basis................................................................ (46.6) (44.8)
------ ------
$ 370.0 $ 376.1
------------ ------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
8. OTHER ASSETS
The components of Grace's other assets are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, December 31,
1997 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Prepaid pension costs.................................................. $ 280.3 $ 275.1
Long-term receivables, less allowance of $19.9 (December 31,
1996 - $42.7)........................................................ 129.0 152.9
Deferred charges....................................................... 109.0 102.4
Other.................................................................. 82.1 123.1
------ ------
$ 600.4 $ 653.5
------------ ------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
9. SHAREHOLDERS' EQUITY
During the first quarter of 1997, the Company substantially completed the share
repurchase program initiated in 1996 by acquiring 6,306,300 additional shares of
its common stock for $335.9, or an average price of $53.26 per share. For
additional information, see Note 13 to the consolidated financial statements in
the 1996 Form 10-K.
In 1997, Grace established a trust to fund certain deferred employee incentive
compensation and nonemployee director compensation and benefits. The shares held
in the trust are valued at the closing market price at the end of each reporting
period. At September 30, 1997, 71,161 shares were held in the trust.
G-10
<PAGE> 154
W. R. GRACE & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
10. EARNINGS PER SHARE
In the first quarter of 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share," which establishes new standards for computing and presenting earnings
per share effective December 31, 1997. At December 31, 1997, all prior periods
will be restated to reflect the new basic and diluted earnings per share amounts
required by SFAS No. 128. Had the Company followed the methodology prescribed by
SFAS No. 128 for the three and nine months ended September 30, 1997, earnings
per share (EPS) for those periods would have been as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Actual Pro Forma
Three Months Ended September 30, Three Months Ended September 30,
1997 1996 1997 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Primary EPS $ .93 $26.99 Basic EPS $ .97 $27.66
----- ------ ----- ------
Fully diluted
EPS $ .93 $26.83 Diluted EPS $ .93 $26.99
----- ------ ----- ------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Actual Pro Forma
Nine Months Ended September 30, Nine Months Ended September 30,
1997 1996 1997 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Primary EPS $3.08 $30.02 Basic EPS $3.18 $30.64
----- ------ ----- ------
Fully diluted
EPS $3.07 $29.76 Diluted EPS $3.08 $30.02
----- ------ ----- ------
</TABLE>
- --------------------------------------------------------------------------------
11. YEAR 2000 COMPUTER SYSTEMS COMPLIANCE
Grace has made and will continue to make certain expenditures to ensure that its
software systems and applications continue to function properly in and after
2000. These expenditures have not been and are not anticipated to be material to
Grace's financial position or results of operations.
G-11
<PAGE> 155
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
REVIEW OF OPERATIONS
OVERVIEW
Grace is one of the world's leading packaging and specialty chemicals companies.
Grace's principal businesses are flexible packaging and container sealants and
coatings (Grace Packaging); catalysts and silica-based products (Grace Davison);
and construction chemicals and specialty building materials (Grace Construction
Products).
Excluding divested businesses, sales and revenues increased 3.7% for the 1997
third quarter and 3.8% for the nine months ended September 30, 1997 over the
comparable periods of 1996. Including the divested businesses, sales and
revenues increased 1.4% for the third quarter of 1997 over the third quarter of
1996 and decreased 5.5% for the nine months ended September 30, 1997 compared to
the nine months ended September 30, 1996. Pretax operating income from
continuing operations was $108.0 million for the 1997 third quarter, an increase
of .7% versus the 1996 third quarter. As noted in footnote (2) to the table
below, pretax income from continuing operations for the nine months ended
September 30, 1997 and 1996 was affected by various special items. Excluding
these special items, Grace's pretax operating income was $317.8 million for the
nine months ended September 30, 1997, an increase of 6.0% over the same period
in 1996. Pretax income from continuing operations was $93.2 million for the
third quarter of 1997, a 3.7% increase compared to the 1996 third quarter, and
was $356.6 million for the nine months ended September 30, 1997, a 32.2%
decrease compared to the nine months ended September 30, 1996. Pretax operating
results for the three and nine months ended September 30, 1996 have been
restated to reflect the classification of certain businesses as discontinued
operations.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
PRETAX OPERATING RESULTS - CONTINUING OPERATIONS September 30, September 30,
(In millions) 1997 1996 1997 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales and revenues, excluding divested businesses... $833.1 $803.5 $2,435.9 $2,347.4
Sales and revenues of divested businesses(1)........ -- 17.8 24.8 255.8
------ ------ -------- --------
Sales and revenues............................. $833.1 $821.3 $2,460.7 $2,603.2
------ ------ -------- --------
Operating income before divested businesses......... $108.0 $106.5 $ 404.7 $ 567.5
Operating income of divested businesses(1).......... -- .8 3.8 4.9
------ ------ -------- --------
Operating income(2)............................ $108.0 $107.3 $ 408.5 $ 572.4
Other (expense)/income:
Interest expense and related financing costs...... (19.2) (18.2) (58.6) (54.9)
Other income, net................................. 4.4 .8 6.7 8.4
------ ------ -------- --------
Income from continuing operations.............. $ 93.2 $ 89.9 $ 356.6 $ 525.9
------ ------ -------- --------
</TABLE>
- --------------------------------------------------------------------------------
(1) Primarily reflects Grace's specialty polymers business, divested in May
1997, and Grace's water treatment and process chemicals business, divested
in June 1996.
G-12
<PAGE> 156
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
A reconciliation of operating income to operating income before special
items is as follows:
<TABLE>
<S> <C> <C> <C> <C>
Operating income..................................... $108.0 $107.3 $ 408.5 $ 572.4
Special items:
Gain on sales of businesses.......................... -- -- (103.1) (326.4)
Restructuring costs.................................. -- -- 12.4 53.7
------ ------ ------- -------
Operating income before special items.............. $108.0 $107.3 $ 317.8 $ 299.7
====== ====== ======== ========
</TABLE>
(2) Although "Operating income before special items" is a measure not recognized
under generally accepted accounting principles and may be inconsistent with
similar measures presented by other companies, Grace management believes
that the presentation of this measure enhances the comparability of Grace's
operating results from period to period.
The following discussion includes projections and/or other "forward-looking"
information. 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. For a discussion of
such risks and uncertainties, see "Introduction and Overview -- Projections and
Other Forward-Looking Information" in Item 1 of the 1996 Form 10-K.
SALES AND REVENUES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Three Months Ended September 30,
SALES AND REVENUES (excluding divested businesses) % OF CHANGE
(In millions) 1997 1996 1997 VS. 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Grace Packaging........................................... $528.2 $506.1 4.4%
Grace Davison............................................. 175.9 177.7 (1.0)
Grace Construction Products............................... 128.9 119.1 8.2
Other..................................................... .1 .6 (83.3)
------ ------
Sales and revenues...................................... $833.1 $803.5 3.7%
------ ------
- -------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Nine Months Ended September 30,
SALES AND REVENUES (excluding divested businesses) % OF CHANGE
(In millions) 1997 1996 1997 VS. 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Grace Packaging...................................... $1,548.8 $1,474.5 5.0%
Grace Davison........................................ 526.0 553.5 (5.0)
Grace Construction Products.......................... 359.7 317.6 13.3
Other................................................ 1.4 1.8 (22.2)
-------- --------
Sales and revenues................................. $2,435.9 $2,347.4 3.8%
-------- --------
- --------------------------------------------------------------------------------------------------------
</TABLE>
As noted above, sales and revenues (excluding divested businesses) increased
3.7% for the three months and 3.8% for the nine months ended September 30, 1997
over the same periods in 1996. Excluding unfavorable currency translation
variances estimated at 4.9% for the three months and 3.7% for the nine months
ended September 30, 1997, sales and revenues increased by an estimated 8.6% and
7.5%, respectively, over the comparable 1996 periods. The following is a
discussion of the sales and revenues of Grace's product lines.
G-13
<PAGE> 157
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
GRACE PACKAGING
Sales and revenues of $528.2 million and $1,548.8 million for the three and nine
months ended September 30, 1997, respectively, increased 4.4% and 5.0%,
respectively, over the comparable 1996 periods. The sales increases resulted
from favorable volume variances and, to a lesser degree, favorable price/product
mix variances. The increases were partially offset by the effect of a
strengthening dollar against foreign currencies, estimated at 5.1% and 4.0%,
respectively. Grace Packaging sales volume in 1997 was positively affected by
the July 1996 acquisition of Cypress, a leading supplier of plastic packaging
materials for the retail pre-cut produce market segment, the August 1996
acquisition of Bayem, a Mexican producer of can coatings and closure sealants
for the rigid container industry, and the April 1997 acquisition of Schurpack, a
U.S. manufacturer of plastic laminate packaging materials for the institutional
and retail cook-in market segment. These acquisitions accounted for
approximately 33% and 34% of the overall sales increases for the 1997 third
quarter and first nine months, respectively. 1997 third quarter and year-to-date
sales also increased due to the consolidation in January 1997 of a flexible
packaging joint venture accounted for under the equity method in 1996. In
addition to these acquisitions, Grace Packaging experienced sales growth within
its product groups, as described below (in all cases excluding the effects of
currency translation).
G-14
<PAGE> 158
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
Bag sales increased across all geographic regions for the three and nine months
ended September 30, 1997 over the comparable prior-year periods. Volumes
increased in North America as a result of sales of fresh red meat (FRM) bags to
new customers and the continued penetration of TBG(TM) boneguard packaging
products into the fresh beef segment. Third quarter 1997 FRM bag sales also were
favorably impacted within the boneless beef segment by market share gains
resulting from patent litigation among Grace's competitors (however, Grace
cannot predict whether or to what extent these market share gains are
permanent). In addition to the volume increases noted above, 1997 third quarter
and year-to-date sales increased as a result of price increases in North America
that went into effect during the latter part of the second quarter. The
year-to-date increases were moderately offset by softness in the North American
pork market, reflecting reduced slaughter rates stemming from 1996 livestock
reductions caused by higher prices for corn and other feeds; in the third
quarter of 1997, slaughter rates improved as corn prices stabilized and
livestock numbers returned to more normal levels. European bag sales for the
three and nine months ended September 30, 1997 increased over the comparable
periods of 1996, as FRM sales (primarily in the U.K. and France) recovered due
to the abatement of consumer fears associated with publicity surrounding bovine
spongiform encephalopathy - commonly referred to as "mad cow disease." Strong
sales in the cheese and processed meat segments in northeastern Europe
(primarily Poland and Russia) continued through the 1997 third quarter. The
increase in cheese sales was primarily due to a milk shortage that negatively
impacted 1996 sales. Additionally, substantial growth in Russian domestic sales,
due to an improving economy, drove large exports of cheese from Poland to the
Russian market. The processed meat increase was primarily due to the continued
modernization of food distribution infrastructures in northeastern Europe.
Volumes in Latin America increased due to the growing acceptance of boxed beef
packaging (primarily in Brazil), and cheese sales increased as a mild winter
allowed more milk production. Additionally, pork bag sales to Mexican producers
for export to Asia Pacific increased in the 1997 third quarter as a result of an
outbreak of foot and mouth disease in Taiwanese and other Asia Pacific pork
herds. Bag sales volumes in Asia Pacific increased as a result of continued
strong demand in the Australian beef and lamb markets. These increases were
partially offset by volume decreases in Japan due to a decline in beef
consumption, price decreases in Japan as a result of competition, and a decrease
in chilled pork bag sales in Taiwan due to the outbreak of foot and mouth
disease, as discussed above.
Laminate sales increased 15.3% for the three months and 10.8% for the nine
months ended September 30, 1997 compared to the 1996 periods, primarily due to
increases in North America and Latin America. In North America, volumes improved
as a result of increased customer acceptance of flexible packaging for liquid
products, as well as the Schurpack acquisition discussed above. Additionally,
the 1997 third quarter benefited from increased sales to an existing customer.
Further, vacuum skin packaging (VSP) sales grew over the third quarter of 1996,
primarily due to an increased number of VSP machines being placed in service and
an increase in VSP marketing efforts. Sales growth in Latin America resulted
from increased demand for cook-in and food service packaging for processed and
prepared foods.
G-15
<PAGE> 159
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
Film sales for the three and nine months ended September 30, 1997 increased in
all regions as compared to the 1996 periods. In North America, film sales
increased as a result of the introduction of thinner gauge, high-performance
films for industrial and consumer goods applications, as well as a price
increase that took effect during the second quarter of 1997. In Latin America,
film sales increased, primarily due to strong volumes resulting from a
strengthening of distribution channels. In Europe, film sales increased during
the nine-month period due to the continued success of central packaging programs
for FRM, poultry and fish (primarily in Italy and the U.K.), partially offset by
a decline in bakery market sales due to pricing competition.
Container sealants and coatings sales increased 2.0% for the three months and
3.4% for the nine months ended September 30, 1997 compared to the same periods
in 1996. In Latin America, volumes increased as a result of improved market
penetration of can coating products, primarily due to the Bayem acquisition
discussed above. In Asia Pacific, third quarter volumes increased as a result of
higher volumes in can sealants in the Philippines (due to increased market
demand for canned fish and meat) and higher volumes in China (due to market
share gains, as a customer began using Grace coatings). However, Asia Pacific
volumes for the nine months ended September 30, 1997 were unfavorable to the
comparable 1996 period, primarily due to the depletion of customers' excess
inventory in China, weather conditions that adversely impacted beverage
consumption, a decline in market demand due to the depressed Japanese economy
and the increased penetration of alternative forms of packaging, such as plastic
and glass. The overall 1997 third quarter and year-to-date increases for
container sealants and coatings sales were limited by unfavorable volume
variances in Europe, primarily due to an unseasonably cool spring and summer,
which resulted in decreased beverage consumption. Additionally, two European
customers reverted to manufacturing their own closure sealants during 1997.
These decreases were partially offset by increased shipments of new products
using oxygen scavenging technology; the oxygen scavenging sealants market for
bottled beer continues to gain momentum, although sales are still at a moderate
level.
GRACE DAVISON
- --------------------
Sales and revenues of catalysts and silica-based products declined 1.0% for the
three months and 5.0% for the nine months ended September 30, 1997, compared to
the same periods in 1996. Excluding unfavorable currency translation variances
estimated at 6.5% for the three months and 4.6% for the nine months ended
September 30, 1997, sales and revenues increased 5.5% and decreased .4%,
respectively, versus the 1996 periods. Volume variances favorably impacted sales
and revenues by an estimated 12.7% for the three months and 7.1% for the nine
months ended September 30, 1997, offset by unfavorable price/mix variances
estimated at 7.2% for the three months and 7.5% for the nine months. A
discussion of product group results follows (in all cases excluding the effect
of currency translation).
G-16
<PAGE> 160
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
Fluid cracking catalyst (FCC) sales increased 2.2% for the three months ended
September 30, 1997 compared to the same period in 1996, and increased 10.2% over
the second quarter of 1997, due to increases in volumes in both North America
and Europe, partially offset by the pricing pressures discussed below. Volumes
in North America rose due to record refinery utilization, while increased
volumes in Europe were due to the addition of two new customers in September.
Volumes in Asia Pacific were below the comparable 1996 periods, but are expected
to increase in the final quarter of 1997 due to the addition of a new customer
late in the third quarter.
FCC sales decreased 8.0% for the nine months ended September 30, 1997 compared
to the same period in 1996. The factors contributing to the decrease were price
reductions in all geographic areas and volume reductions in Europe and Asia
Pacific. Competitive pricing pressures, which began in the third quarter of
1996, appear to have begun to lessen in 1997 in North America and Europe, but
continue in Asia Pacific. Volume reductions were primarily caused by a large
number of refinery turnarounds in the first quarter of 1997, a large order to
the Middle East in the second quarter of 1996, the refining of increased amounts
of "sweet" crude oil (which requires less fluid cracking catalysts) in the first
six months of 1997, and the loss of two customers in Asia Pacific. These
decreases were partially offset by volume increases in North America compared to
the same period in 1996, primarily due to the record refinery utilization rates
discussed above.
Silica/adsorbent sales increased 9.4% for the three months and 6.9% for the nine
months ended September 30, 1997 compared to the same periods in 1996 due to
volume increases in all geographic regions. North America experienced volume
increases in adsorbents as a result of large orders placed by two customers;
Europe experienced increased sales of coatings and gels for paint and plastics;
and Asia Pacific was favorably impacted by sales generated by Grace's new silica
plant in Kuantan, Malaysia (reflecting the plant's status as an approved
supplier for an increasing number of Grace's customers). Increased volumes were
partially offset by unfavorable price/mix variances in North America, Europe and
Asia Pacific.
G-17
<PAGE> 161
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
Polyolefin catalyst sales increased 4.0% for the three months and 10.5% for the
nine months ended September 30, 1997 compared to the same periods of 1996. The
increase in the three months was due to favorable price/mix variances; the
increase in the nine months was due to favorable price/mix and volume variances.
The volume increase was primarily due to the addition of two new customers in
the second quarter and the start-up of another customer's new petrochemical
refinery in Asia Pacific in September; the start-up of this refinery is expected
to have a positive impact on sales and revenues during the remainder of 1997 as
compared to the same period in 1996. The strength of the plastics industry
continues to benefit the polyolefin catalyst business.
GRACE CONSTRUCTION PRODUCTS
Grace Construction Products continued to perform exceptionally well, achieving
record sales for the 1997 third quarter of $128.9 million, an 8.2% increase over
the prior-year third quarter. Sales for the first nine months of 1997 reached
$359.7 million, a 13.3% increase over the prior-year period. For the third
quarter and first nine months of 1997, each region and global product line grew
in sales, driven by volume increases. Higher volumes of construction chemicals
accounted for approximately half of the increase, with increased volumes of
specialty building materials contributing significantly to the remainder of the
growth. New value-added products, primarily water-reducing and anti-corrosion
concrete admixtures and waterproofing products, showed strong sales growth
mainly as a result of increasing market acceptance.
Sales in North America increased by 9.8% for the three months and 16.2% for the
nine months ended September 30, 1997 over the 1996 periods, contributing
approximately 75% of the overall sales increase in the 1997 third quarter and
first nine months. A mild winter in the northeastern U.S., which allowed greater
than normal construction activity, drove the increase in the first four months
of the year, while market penetration of new value-added products (discussed
above), the overall strength of the U.S. economy, and market share gains
contributed to the sales increase throughout the nine-month period. Sales in
Asia Pacific increased by 6.7% in the 1997 third quarter and 8.0% in the nine
months over the 1996 periods, despite unfavorable currency translation variances
in the third quarter estimated at 5.4%. In the 1997 third quarter, sales
increases slowed due to currency devaluations and economic sluggishness in
certain developing countries in Southeast Asia. However, strong sales in other
Asia Pacific countries produced a sales increase over the prior-year third
quarter, and strong sales growth in all of Asia Pacific earlier in the year
contributed to the year-to-date increase. In the 1997 third quarter, Europe also
experienced unfavorable currency translation variances, estimated at 3%, but
sales still increased by 3.8% in the 1997 third quarter and 6.3% in the nine
months over the comparable 1996 periods. Volume increases in specialty building
materials drove sales in Europe after construction activity rebounded from
weather-related delays at the beginning of the year.
G-18
<PAGE> 162
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
OPERATING RESULTS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Three Months Ended September 30,
OPERATING INCOME (In millions) % CHANGE
(excluding special items and divested businesses) 1997 1996 1997 VS. 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Grace Packaging........................................... $ 75.0 $ 70.3 6.7%
Grace Davison............................................. 19.6 22.8 (14.0)
Grace Construction Products............................... 14.4 13.4 7.5
Other..................................................... (1.0) -- N.D.
------ ------
Operating income........................................ $108.0 $106.5 1.4%
------ ------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended September 30,
OPERATING INCOME (In millions) % CHANGE
(excluding special items and divested businesses) 1997 1996 1997 VS. 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Grace Packaging.......................................... $220.8 $194.4 13.6%
Grace Davison............................................ 58.6 75.1 (22.0)
Grace Construction Products.............................. 33.5 21.7 54.4
Other.................................................... 1.1 3.6 (69.4)
------ ------
Operating income....................................... $314.0 $294.8 6.5%
------ ------
- ------------------------------------------------------------------------------------------------------
</TABLE>
Cost management programs initially implemented in 1995 continued to favorably
impact pretax operating income across all geographic regions and product lines.
Grace has implemented, and expects to further implement, additional cost
reductions and efficiency improvements, as it further evaluates and reengineers
its manufacturing processes and operations. Significantly offsetting the
favorable impact of the cost management programs was a 1997 third quarter
accrual relating to Grace's long-term incentive compensation program (LTIP).
Grace's stock price as of the close of each quarter is one of the primary
factors used in calculating the LTIP accrual. Since Grace's stock appreciated by
34% during the third quarter (which management believes is an indication of
favorable market receptivity to the proposed transaction with Sealed Air
described in Note 3 to the interim consolidated financial statements in this
Report), a significant additional charge was required. The following is a
discussion of the operating results of Grace's product lines, which include the
adverse effects of the additional LTIP charge.
GRACE PACKAGING
Grace Packaging pretax operating income increased 6.7% for the three months and
13.6% for the nine months ended September 30, 1997 compared to the three and
nine months ended September 30, 1996, principally reflecting improved operating
results in North America. The favorable variances were primarily due to the
volume and price increases discussed above, favorable manufacturing rates, and a
shift toward sales of higher margin products. 1997 year-to-date operating income
was adversely affected by increased prices for resins, although resin prices
declined in the 1997 third quarter as compared to the first half of the year. It
is expected that resin prices will further stabilize through the end of 1997.
Grace's ongoing cost containment efforts have contributed favorably to pretax
operating income for the three and nine months ended September 30, 1997.
However, these improvements have been partially offset by increased expenses
(primarily depreciation and amortization expenses) associated with the new
packaging plant in Kuantan, Malaysia that began operations in the fourth quarter
of 1996 and an increase in research and development expenses as a result of the
continued emphasis on new product development.
G-19
<PAGE> 163
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
GRACE DAVISON
Grace Davison pretax operating income decreased 14.0% for the three months and
22.0% for the nine months ended September 30, 1997 compared to the same periods
in 1996. A weak FCC market was the primary cause for these decreases; however,
there appeared to be some recovery in the FCC market, with larger volumes being
sold in North America and Europe as compared to September 1996, as discussed
above. Price/mix variances in North America and Europe also had an unfavorable
effect upon operating income. Further, there were unusual items contributing to
the decrease in operating income in the first nine months of 1997 versus 1996.
In particular, the large number of refinery turnarounds decreased sales, and
harsh winter weather at Grace Davison's Lake Charles, Louisiana facility
increased repair and maintenance costs. These charges were offset by
manufacturing efficiencies and ongoing cost reduction efforts. Despite the
decline in operating income for the first nine months of 1997, results for the
1997 third quarter improved over results for the 1997 second quarter, and Grace
Davison expects this trend to continue. Grace Davison has maintained its global
market position, and continues to implement new manufacturing process
technologies and introduce new products to improve margins.
GRACE CONSTRUCTION PRODUCTS
Grace Construction Products pretax operating income increased 7.5% for the three
months and 54.4% for the nine months ended September 30, 1997 over the 1996
comparable periods. The favorable results were primarily due to the record sales
levels achieved in 1997, discussed above. Enhancements to manufacturing
processes, production rate and material cost improvements, and additional cost
containment efforts also contributed to earnings growth.
G-20
<PAGE> 164
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
OTHER ITEMS
INTEREST EXPENSE AND RELATED FINANCING COSTS
Interest expense and related financing costs for continuing operations of $19.2
million for the three months and $58.6 million for the nine months ended
September 30, 1997 increased 5.5% and 6.7%, respectively, compared to the 1996
periods. Including amounts allocated to discontinued operations, interest
expense and related financing costs decreased 55.6% for the three months and
55.3% for the nine months ended September 30, 1997, versus the 1996 periods. The
decrease was primarily due to lower average debt levels (as a result of debt
repayments made with the proceeds from the September 1996 separation of Grace's
principal health care business and other divestments).
See "Financial Condition: Liquidity and Capital Resources" below for further
information on borrowings.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development (R&D) spending of $23.3 million increased 3.6% for the
three months ended September 30, 1997 versus the 1996 quarter. The increase was
primarily due to Grace's continued emphasis on R&D activities, with the goal of
introducing new value-added products and services and enhanced manufacturing
processes, especially in Grace Packaging. R&D spending decreased 10.8% for the
nine months ended September 30, 1997 compared to the nine months ended September
30, 1996. The year-to-date decrease reflects the continued positive impact of
cost management initiatives implemented during 1996 and 1995, primarily the
elimination of Grace's corporate research organization, the transfer of core R&D
activities to product lines and the termination of R&D activities not related to
Grace's packaging and specialty chemicals businesses. As a result of these
initiatives, Grace has been able to increase R&D spending for its principal
businesses while reducing total R&D expenses. The decrease is also attributable
to the elimination of R&D spending related to Grace's water treatment and
process chemicals business and its specialty polymers business, which were
divested in June 1996 and May 1997, respectively.
G-21
<PAGE> 165
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
RESTRUCTURING COSTS
As discussed in Note 4 to the consolidated financial statements in the 1996 Form
10-K, Grace began implementing a worldwide program in 1995 focused on
streamlining processes and reducing general and administrative expenses, factory
administration costs and noncore corporate research and development expenses. As
previously reported, Grace has continued to implement additional cost reductions
and efficiency improvements beyond those initiated in 1995, as its businesses
have further evaluated and reengineered their operations. As a result of these
evaluations, in the first nine months of 1997 and 1996, Grace recorded pretax
charges of $12.4 million ($8.0 million after-tax) and $53.7 million ($32.4
million after-tax), respectively, principally related to the restructuring of
its packaging business. The 1997 charge primarily related to the restructuring
of the packaging business from a worldwide group of independent regional units
into an integrated global organization and was primarily comprised of employee
termination benefits. The 1996 charge primarily related to the restructuring of
Grace's European packaging operations and consisted of costs related to employee
termination benefits and lease termination costs. Management expects to finalize
a plan and take an additional charge in the fourth quarter of 1997 in connection
with the Sealed Air transaction (see Note 3 to the interim consolidated
financial statements in this Report) and related corporate restructuring
activities.
INCOME TAXES
Grace's effective tax rates were 37.0% for the three months and 37.6% for the
nine months ended September 30, 1997, compared to 39.5% and 36.7%, for the
respective 1996 periods. Excluding special items, the effective tax rates were
37.0% for the three and nine months ended September 30, 1997 and 39.5% and
38.6%, respectively, for the three and nine months ended September 30, 1996. The
lower effective tax rates for 1997 were due to lower state and foreign income
taxes.
DISCONTINUED OPERATIONS
In February 1997, Grace sold its cocoa business to ADM for total proceeds of
$470.0 million (inclusive of debt assumed by the buyer), subject to adjustment.
The pretax and after-tax effects of the divestment were consistent with prior
estimates and were charged against previously established reserves. In October
1997, ADM paid Grace an additional $7.9 million (including $.4 million of
interest income) in settlement of the purchase price adjustment. In anticipation
of this settlement, in the third quarter of 1997, Grace reversed previously
recorded provisions of $12.4 million (net of an applicable tax effect of $6.6
million), in discontinued operations.
G-22
<PAGE> 166
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
During 1996, Grace completed the separation of National Medical Care, Inc. (NMC)
and sold its separations science business (Amicon). These health care businesses
had been classified as discontinued operations in 1995. Income from discontinued
operations of $2,465.5 million for the three months and $2,584.4 million for the
nine months ended September 30, 1996, included net losses of $19.3 million
($17.3 million pretax) and net income of $24.1 million ($59.8 million pretax),
respectively, from health care operations. Income from discontinued operations
also included a gain on the separation of NMC of $2,483.7 million for the three
and nine months ended September 30, 1996.
In 1996, Grace classified TEC Systems as a discontinued operation. Income for
the nine months ended September 30, 1996 from discontinued operations included a
loss of $3.9 million ($6.4 million pretax) from TEC Systems. In September 1997,
Grace sold TEC Systems to Sequa Corporation. The loss on the sale and the 1997
operating losses have been charged against previously established reserves.
In May 1996, Grace completed the sale of its transgenic plant business for
$150.0 million in cash, resulting in a pretax gain of $129.0 million ($79.4
million after-tax), in discontinued operations.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
Grace's continuing operating activities provided net pretax cash of $232.0
million for the nine months ended September 30, 1997, as compared to $154.7
million for the nine months ended September 30, 1996. The increase in cash
provided by operating activities of continuing operations was primarily due to
improved earnings and working capital management, partially offset by higher
payments made for the defense and disposition of asbestos-related litigation,
net of amounts received from settlements with certain insurance carriers in
connection with such litigation. Net pretax cash provided by operating
activities of discontinued operations for the nine months ended September 30,
1997 decreased by $109.6 million compared to the nine months ended September 30,
1996, primarily due to the disposition of Grace's health care and cocoa
businesses. After giving effect to the payment of income taxes, the net cash
provided by operating activities was $136.5 million and $109.5 million for the
nine months ended September 30, 1997 and 1996, respectively.
Investing activities provided $452.9 million of cash for the nine months ended
September 30, 1997, largely reflecting net cash proceeds of $469.2 million from
divestments (primarily the sale of Grace's specialty polymers, TEC and cocoa
businesses) and the receipt of $215.6 million in January 1997 on the 1996
divestments of Dearborn and Amicon. Grace made capital expenditures of $164.4
million during the nine months ended September 30, 1997, primarily related to
the Grace Packaging and Grace Davison businesses. Total Grace capital
expenditures for 1997 are not expected to exceed $300.0 million.
G-23
<PAGE> 167
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
Net cash used for financing activities for the nine months ended September 30,
1997 was $587.6 million, primarily reflecting reductions in debt, the repurchase
of stock as discussed below, and the payment of dividends, partially offset by
proceeds from the exercise of employee stock options. Total debt was $1,104.2
million at September 30, 1997, a decrease of $284.0 million from December 31,
1996.
During the first quarter of 1997, the Company substantially completed the share
repurchase program initiated in 1996 by acquiring 6,306,300 additional shares of
its common stock for $335.9 million, or an average price of $53.26 per share.
Grace is targeting a ratio of debt to earnings before interest, taxes,
depreciation and amortization (EBITDA) of 1.6 to 2.0. The debt/EBITDA ratio was
1.7 at September 30, 1997.
At September 30, 1997, Grace had committed borrowing facilities totaling $1.0
billion, consisting of $650.0 million under a 364-day facility expiring in May
1998 (extendible for successive 364-day periods at the discretion of Grace and
the lenders) and $350.0 million under a long-term facility expiring in May 2002.
As of September 30, 1997, $620.6 million was available under these facilities.
Grace believes that cash flow generated from future operations and committed
borrowing facilities will be sufficient to meet its cash requirements for the
foreseeable future. See Note 3 to the interim consolidated financial statements
in this Report regarding cash proceeds to be received in connection with the
proposed transaction with Sealed Air.
ASBESTOS-RELATED MATTERS
In the nine months ended September 30, 1997, Grace paid $34.9 million for the
defense and disposition of asbestos-related property damage and personal injury
litigation, net of amounts received under settlements with certain insurance
carriers. Although the total amount 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.
In May 1997, the Texas legislature adopted legislation that had the effect of
making it more difficult for out-of-state residents to file claims in Texas
state courts. Although the rate of filing of asbestos claims in Texas during the
1997 third quarter was lower than that of the first half of 1997, the effect of
this legislation on Grace's ultimate exposure with respect to its asbestos-
related cases and claims cannot be predicted with certainty.
See Note 2 to the interim consolidated financial statements in this Report for
further information concerning asbestos-related lawsuits and claims.
G-24
<PAGE> 168
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
ENVIRONMENTAL MATTERS
There were no significant developments relating to environmental liabilities in
the nine months ended September 30, 1997. For additional information relating to
environmental liabilities, see Note 11 to the consolidated financial statements
in the 1996 Form 10-K.
G-25
<PAGE> 169
EXHIBIT 11
W. R. GRACE & CO. AND SUBSIDIARIES
WEIGHTED AVERAGE NUMBER OF SHARES AND EARNINGS USED IN PER SHARE COMPUTATIONS
For the three and nine months ended September 30, 1997 and 1996
(Dollars in millions, except per share; shares in thousands)
<TABLE>
<CAPTION>
3 MOS. ENDED 9 MOS. ENDED
9/30/97 9/30/96 9/30/97 9/30/96
------------------- -------------------
<S> <C> <C> <C> <C>
EARNINGS PER SHARE:
Weighted average shares outstanding................ 73,662 91,092 73,885 95,188
======= ======== ======= ========
Net income......................................... $ 71.1 $2,519.9 $ 234.9 $2,917.4
Dividends paid on preferred stocks................. - (.1) - (.4)
------- -------- ------- --------
Income used in per share computation of earnings... $ 71.1 $2,519.8 $ 234.9 $2,917.0
======= ======== ======= ========
Net income per share............................... $ .97 $ 27.66 $ 3.18 $ 30.64
PRIMARY:
Weighted average shares outstanding................ 73,662 91,092 73,885 95,188
Dilutive effect (as determined by the application
of the treasury stock method).................... 2,377 2,262 2,295 1,978
------- -------- ------- --------
Weighted average number of shares outstanding -
primary.......................................... 76,039 93,354 76,180 97,166
======= ======== ======= ========
Net income......................................... $ 71.1 $2,519.9 $ 234.9 $2,917.4
Dividends paid on preferred stocks................. - (.1) - (.4)
------- -------- ------- --------
Income used in per share computation of earnings
and in per share computation of earnings assuming
dilutive effect.................................. $ 71.1 $2,519.8 $ 234.9 $2,917.0
======= ======== ======= ========
Net income per share - primary..................... $ .93 $ 26.99 $ 3.08 $ 30.02
FULLY DILUTED:
Weighted average shares outstanding................ 73,662 91,092 73,885 95,188
Dilutive effect (as determined by the application
of the treasury stock method).................... 2,686 2,826 2,687 2,826
------- -------- ------- --------
Weighted average number of shares
outstanding - fully diluted...................... 76,348 93,918 76,572 98,014
======= ======== ======= ========
Net income......................................... $ 71.1 $2,519.9 $ 234.9 $2,917.4
Dividends paid on preferred stocks................. - (.1) - (.4)
------- -------- ------- --------
Income used in per share computation of earnings
and in per share computation of earnings assuming
dilutive effect.................................. $ 71.1 $2,519.8 $ 234.9 $2,917.0
======= ======== ======= ========
Net income per share - fully diluted............... $ .93 $ 26.83 $ 3.07 $ 29.76
</TABLE>
G-26
<PAGE> 170
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>
Nine Months Ended
Years Ended December 31,(c) September 30,
------------------------------------------------------- ----------------------
1996(d) 1995(e) 1994(f) 1993(g) 1992(h) 1997(i) 1996(c)(j)
------- ------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net income/(loss) from continuing
operations................................. $213.8 $(179.6) $(35.1) $ 28.1 $ 7.7 $222.5 $333.0
Add/(deduct):
Provision for/(benefit from) income
taxes.................................... 134.8 (104.5) (42.6) 16.4 84.1 134.1 192.9
Income taxes of 50%-owned companies........ -- -- -- .1 2.1 -- --
Equity in unremitted losses/(earnings) of
less than 50%-owned companies............ (.4) .8 (.6) (.5) (2.0) (.7) (.4)
Interest expense and related financing
costs, including amortization of
capitalized interest..................... 160.8 179.8 138.5 122.7 162.7 65.0 139.1
Estimated amount of rental expense deemed
to represent the interest factor......... 8.4 8.5 10.1 11.3 14.0 3.9 8.3
------ ------- ------ ------ ------ ------ ------
Income/(loss) as adjusted.................... $517.4 $(95.0) $ 70.3 $178.1 $268.6 $424.8 $672.9
====== ======= ====== ====== ====== ====== ======
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 $ 72.9 $154.2
Estimated amount of rental expense deemed
to represent the interest factor......... 8.4 8.5 10.1 11.3 14.0 3.9 8.3
------ ------- ------ ------ ------ ------ ------
Fixed charges................................ 185.5 204.0 153.3 134.1 190.3 76.8 162.5
Preferred stock dividend requirements(b)..... .6 .5 .5 .8 .8 -- .6
------ ------- ------ ------ ------ ------ ------
Combined fixed charges and preferred stock
dividends.................................. $186.1 $204.5 $153.8 $134.9 $191.1 $ 76.8 $163.1
====== ======= ====== ====== ====== ====== ======
Ratio of earnings to fixed charges........... 2.79 (k) (k) 1.33 1.41 5.53 4.14
====== ======= ====== ====== ====== ====== ======
Ratio of earnings to combined fixed charges
and preferred stock dividends.............. 2.78 (k) (k) 1.32 1.41 5.53 4.13
====== ======= ====== ====== ====== ====== ======
</TABLE>
(a) Grace's preferred stocks were retired in 1996; for additional information,
see Note 1 to the consolidated financial statements in the 1996 Form 10-K.
(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 using Grace's effective tax
rate.
(c) Certain amounts have been restated to conform to the 1997 presentation.
(d) Includes a pretax gain on sales of businesses of $326.4, 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 related 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) Includes a pretax gain of $103.1 on the sale of Grace's specialty polymers
business and a pretax provision of $12.4 relating to restructuring costs.
(j) Includes a pretax gain of $326.4 on the sale of businesses, principally the
water treatment and process chemicals business, and a pretax provision of
$53.7 relating to restructuring costs.
(k) As a result of the losses incurred for the years ended December 31, 1995
and 1994, Grace was unable to fully cover the indicated fixed charges
G-27
<PAGE> 171
INDEX OF EXHIBITS
2.1 Form of Distribution Agreement, by and among Grace,
Grace-Conn. and New Grace (attached as Annex B to the Joint
Proxy Statement/Prospectus)
3.1 Form of Amended and Restated Certificate of Incorporation
of New Grace (attached as Annex A to the Information
Statement)
3.2 Form of Amended and Restated By-Laws of New Grace (attached
as Annex B to the Information Statement)
*4.1 Form of Rights Agreement, by and between New Grace and The
Chase Manhattan Bank, as Rights Agent
4.2 Indenture, dated as of September 29, 1992, among
Grace-Conn., Grace and Bankers Trust Company (incorporated
by reference to Exhibit 4.2 to Grace's Annual Report on
Form 10-K for the year ended December 31, 1992)
4.3 Supplemental Indenture, dated as of September 24, 1996,
among Grace-Conn., Grace, Grace Holding, Inc. and Bankers
Trust Company, to Indenture, dated as of September 29, 1992
(incorporated by reference to Exhibit 4.4 to Grace's Form
8-K filed October 10, 1996)
4.4 Indenture, dated as of January 28, 1993, among Grace-Conn.,
Grace and The Bank of New York (successor to NationsBank of
Georgia, N.A.) (incorporated by reference to Exhibit 4.4 to
Grace's Annual Report on Form 10-K for the year ended
December 31, 1992)
4.5 Supplemental Indenture, dated as of September 24, 1996,
among Grace-Conn., Grace, Grace Holding, Inc. and The Bank
of New York, to Indenture, dated as of January 28, 1993
(incorporated by reference to Exhibit 4.5 to Grace's Form
8-K filed October 10, 1996)
*10.1 Form of Employee Benefits Allocation Agreement, by and
among Grace, Grace-Conn. and New Grace
*10.2 Form of Tax Sharing Agreement, by and among Grace,
Grace-Conn. and Sealed Air Corporation
10.3 Form of New Grace 1998 Stock Incentive Plan (attached as
Annex C to the Information Statement)
10.4 Form of New Grace 1998 Stock Plan for Nonemployee
Directors (attached as Annex D to the Information
Statement)
10.5 Grace 1996 Stock Incentive Plan, as amended (incorporated
by reference to Exhibit 10.1 to Grace's Form 10-Q for the
period ended March 31, 1997)
10.6 Grace 1996 Stock Retainer Plan for Nonemployee Directors
(incorporated by reference to Exhibit 10.2 to Grace's Form
8-K filed October 10, 1996)
10.7 Grace Supplemental Executive Retirement Plan, as amended
(incorporated by reference to Exhibit 10.03 to Grace's
Annual Report on Form 10-K for the year ended December 31,
1996)
<PAGE> 172
10.8 Grace Executive Salary Protection Plan, as amended
(incorporated by reference to Exhibit 10.04 to Grace's
Annual Report on Form 10-K for the year ended December 31,
1996)
10.9 Grace 1981 Stock Incentive Plan, as amended (incorporated
by reference to Exhibit 10.3 to Grace's Form 8-K filed
October 10, 1996)
10.10 Grace 1986 Stock Incentive Plan, as amended (incorporated
by reference to Exhibit 10.4 to Grace's Form 8-K filed
October 10, 1996)
10.11 Grace 1989 Stock Incentive Plan, as amended (incorporated
by reference to Exhibit 10.5 to Grace's Form 8-K filed
October 10, 1996)
10.12 Grace 1994 Stock Incentive Plan, as amended (incorporated
by reference to Exhibit 10.6 to Grace's Form 8-K filed
October 10, 1996)
10.13 Forms of Stock Option Agreements (incorporated by reference
to Exhibit 10(h) to Grace's Annual Report on Form 10-K for
the year December 31, 1991)
10.14 Information concerning Grace Incentive Compensation
Program, Deferred Compensation Program and Long-Term
Incentive Program (incorporated by reference to pages 7-12
and 26-36 to Grace's Proxy Statement filed April 7, 1997)
10.15 Form of Long-Term Incentive Program Award (incorporated by
reference to Exhibit 10.13 to Grace's Form S-1 filed August
2, 1996)
10.16 Form of Stock Option Agreements (incorporated by reference
to Exhibit 10.14 to Grace's Form S-1 filed August 2, 1996)
10.17 Grace Retirement Plan for Outside Directors, as amended
(incorporated by reference to Exhibit 10.13 to Grace's
Annual Report on Form 10-K for the year ended December 31,
1996)
10.18 Form of Executive Severance Agreement between Grace and
officers elected prior to May 1996 (incorporated by
reference to Exhibit 10.22 to Grace's Form S-1 filed August
2, 1996)
10.19 Form of Executive Severance Agreement between Grace and
officers elected in or after May 1996 (incorporated by
reference to Exhibit 10.23 to Grace's Form S-1 filed August
2, 1996)
*10.20 Form of Executive Severance Agreement between Grace and
officers
10.21 Employment Agreement, dated as of May 1, 1995, between
Grace and Albert J. Costello (incorporated by reference to
Exhibit 10.1 to Grace's Form 10-Q for the period ended June
30, 1995)
10.22 Amendment dated August 9, 1996 to Employment Agreement,
dated as of May 1, 1995, between Grace and Albert J.
Costello (incorporated by reference to Exhibit 10.7 to
Grace's Form 8-K filed October 10, 1996)
10.23 Option Agreement between Grace and Albert J. Costello,
dated May 1, 1995, as amended (incorporated by reference to
Exhibit 10.8 to Grace's Form 8-K filed October 10, 1996)
10.24 Option Agreement between Grace and Albert J. Costello,
dated March 6, 1996 (incorporated by reference to Exhibit
10.37 to Grace's Form S-1 filed August 2, 1996)
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<PAGE> 173
*10.25 Option Agreement between Grace and Albert J. Costello,
dated March 5, 1997
10.26 Employment Agreement, dated as of May 15, 1995, between
Grace and Larry Ellberger (incorporated by reference to
Exhibit 10.28 to Grace's Annual Report on Form 10-K for the
year ended December 31, 1996)
10.27 Restricted Stock Award Agreement, dated June 6, 1995,
between Grace and Larry Ellberger, as amended by letter
agreement, dated August 26, 1996, between Larry Ellberger
and Grace (incorporated by reference to Exhibit 10.29 to
Grace's Annual Report on Form 10-K for the year ended
December 31, 1996)
10.28 Letter Agreement, dated December 10, 1996, between Grace
and Larry Ellberger (incorporated by reference to Exhibit
10.30 to Grace's Annual Report on Form 10-K for the year
ended December 31, 1996)
10.29 Distribution Agreement by and among Grace, a New York
corporation subsequently renamed Fresinius National Medical
Care Holdings, Inc., Grace-Conn. and Fresinius AG, dated
February 4, 1996 (incorporated by reference to Exhibit 2 to
Grace's Form 8-K filed February 6, 1996)
10.30 Form of Indemnification Agreement between Grace and certain
directors (incorporated by reference to Exhibit 10.39 to
Grace's Form S-1 filed August 2, 1996)
10.31 Form of Indemnification Agreement between Grace and certain
directors (incorporated by reference to Exhibit 10.37 to
Grace's Annual Report on Form 10-K for the year ended
December 31, 1996)
10.32 364-Day Credit Agreement, dated as of May 16, 1997, among
Grace-Conn., Grace, the several banks parties thereto,
NationsBank, N.A. (South), as documentation agent, and The
Chase Manhattan Bank, as administrative agent for such
banks (incorporated by reference to Exhibit 10.1 to Grace's
Form 10-Q for the period ended June 30, 1997)
10.33 Credit Agreement, dated as of May 16, 1997, among
Grace-Conn., Grace, the several banks parties thereto, and
The Chase Manhattan Bank, as administrative agent for such
banks (incorporated by reference to Exhibit 10.2 to Grace's
Form 10-Q for the period ended June 30, 1997)
*21 Subsidiaries of New Grace
- ------------------
* Filed herewith
-10-
<PAGE> 1
GRACE SPECIALTY CHEMICALS, INC.
(to be renamed W. R. GRACE & CO.)
AND
THE CHASE MANHATTAN BANK, AS
RIGHTS AGENT
* * *
FORM OF
RIGHTS AGREEMENT
DATED AS OF _______ __, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 1. Certain Definitions.................................................................. 1
Section 2. Appointment of Rights Agent.......................................................... 4
Section 3. Issue of Right Certificates.......................................................... 4
Section 4. Form of Right Certificates........................................................... 5
Section 5. Countersignature and Registration.................................................... 5
Section 6. Transfer, Split Up, Combination and Exchange of Right Certificates; Mutilated,
Destroyed, Lost or Stolen Right Certificates...................................... 6
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights........................ 7
Section 8. Cancellation and Destruction of Right Certificates................................... 8
Section 9. Availability of Preferred Shares..................................................... 8
Section 10. Preferred Shares Record Date......................................................... 8
Section 11. Adjustment of Purchase Price, Number of Shares or Number of Rights................... 9
Section 12. Certificate of Adjusted Purchase Price or Number of Shares........................... 15
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power................. 15
Section 14. Fractional Rights and Fractional Shares.............................................. 16
Section 15. Rights of Action..................................................................... 17
Section 16. Agreement of Right Holders........................................................... 17
Section 17. Right Certificate Holder Not Deemed a Stockholder.................................... 18
Section 18. Concerning the Rights Agent.......................................................... 18
Section 19. Merger or Consolidation or Change of Name of Rights Agent............................ 18
Section 20. Duties of Rights Agent............................................................... 19
Section 21. Change of Rights Agent............................................................... 21
Section 22. Issuance of New Right Certificates................................................... 22
Section 23. Redemption........................................................................... 22
Section 24. Exchange............................................................................. 22
Section 25. Notice of Certain Events............................................................. 24
Section 26. Notices.............................................................................. 24
Section 27. Supplements and Amendments........................................................... 25
Section 28. Successors........................................................................... 25
Section 29. Benefits of This Agreement........................................................... 25
Section 30. Severability......................................................................... 26
Section 31. Governing Law........................................................................ 26
Section 32. Counterparts......................................................................... 26
Section 33. Descriptive Headings................................................................. 26
Exhibit A Form of Right Certificate............................................................ A-1
</TABLE>
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<PAGE> 3
AGREEMENT, dated as of ______ __,1998, between Grace Specialty
Chemicals, Inc., a Delaware corporation which, following the Spin-off (as
hereinafter defined), will be renamed W. R. Grace & Co. (the "Company"), and The
Chase Manhattan Bank (the "Rights Agent").
WHEREAS, the Board of Directors of the Company has authorized
and declared that a dividend of one preferred share purchase right (a "Right")
be paid in respect of each Common Share (as hereinafter defined) of the Company
outstanding at the moment of consummation of the Spin-off (such moment, the
"Record Date") to the holder of record thereof at such moment, each Right
representing the right to purchase one hundredth of a Preferred Share (as
hereinafter defined), upon the terms and subject to the conditions herein set
forth, and has further authorized and directed the issuance of one Right with
respect to each Common Share that shall become outstanding between the Record
Date and the earliest of the Distribution Date, the Redemption Date and the
Final Expiration Date (as such terms are hereinafter defined).
ACCORDINGLY, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this
Agreement, the following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person (as such term is
hereinafter defined) who or which, together with all Affiliates and
Associates (as such terms are hereinafter defined) of such Person,
shall be the Beneficial Owner (as such term is hereinafter defined) of
20% or more of the Common Shares of the Company then outstanding, but
shall not include the Company, any Subsidiary (as such term is
hereinafter defined) of the Company, any employee benefit plan of the
Company or any Subsidiary of the Company, or any entity holding Common
Shares for or pursuant to the terms of any such plan.
Notwithstanding the foregoing, no Person shall become an
"Acquiring Person" as the result of an acquisition of Common Shares by
the Company which, by reducing the number of shares outstanding,
increases the proportionate number of shares beneficially owned by such
Person to 20% or more of the Common Shares of the Company then
outstanding; provided, however, that if a Person shall become the
Beneficial Owner of 20% or more of the Common Shares of the Company
then outstanding by reason of share purchases by the Company and shall,
after such share purchases by the Company, become the Beneficial Owner
of any additional Common Shares of the Company, then such Person shall
be deemed to be an "Acquiring Person." Notwithstanding the foregoing,
if the Board of Directors of the Company determines in good faith that
a Person who would otherwise be an "Acquiring Person," as defined
pursuant to the foregoing provisions of this paragraph (a), has become
such inadvertently, and such Person divests as promptly as practicable
a sufficient number of Common Shares so that such Person would no
longer be an "Acquiring Person," as defined pursuant to the foregoing
provisions of this paragraph (a), then such Person shall not be deemed
to be an "Acquiring Person" for any purposes of this Agreement.
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<PAGE> 4
(b) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as in effect on the date of this Agreement.
(c) A Person shall be deemed the "Beneficial Owner" of and
shall be deemed to "beneficially own" any securities:
(i) which such Person or any of such Person's
Affiliates or Associates beneficially owns, directly or
indirectly;
(ii) which such Person or any of such Person's
Affiliates or Associates has (A) the right to acquire (whether
such right is exercisable immediately or only after the
passage of time) pursuant to any agreement, arrangement or
understanding (other than customary agreements with and
between underwriters and selling group members with respect to
a bona fide public offering of securities), or upon the
exercise of conversion rights, exchange rights, rights (other
than these Rights), warrants or options, or otherwise;
provided, however, that a Person shall not be deemed the
Beneficial Owner of, or to beneficially own, securities
tendered pursuant to a tender or exchange offer made by or on
behalf of such Person or any of such Person's Affiliates or
Associates until such tendered securities are accepted for
purchase or exchange; or (B) the right to vote pursuant to any
agreement, arrangement or understanding; provided, however,
that a Person shall not be deemed the Beneficial Owner of, or
to beneficially own, any security if the agreement,
arrangement or understanding to vote such security (1) arises
solely from a revocable proxy or consent given to such Person
in response to a public proxy or consent solicitation made
pursuant to, and in accordance with, the applicable rules and
regulations promulgated under the Exchange Act and (2) is not
also then reportable on Schedule 13D under the Exchange Act
(or any comparable or successor report); or
(iii) which are beneficially owned, directly or
indirectly, by any other Person with which such Person or any
of such Person's Affiliates or Associates has any agreement,
arrangement or understanding (other than customary agreements
with and between underwriters and selling group members with
respect to a bona fide public offering of securities) for the
purpose of acquiring, holding, voting (except to the extent
contemplated by the proviso to Section 1(c)(ii)(B)) or
disposing of any securities of the Company.
Notwithstanding anything in this definition of Beneficial
Ownership to the contrary, the phrase "then outstanding," when used with
reference to a Person's Beneficial Ownership of securities of the Company, shall
mean the number of such securities then issued and outstanding together with the
number of such securities not then actually issued and outstanding which such
Person would be deemed to own beneficially hereunder.
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<PAGE> 5
(d) "Business Day" shall mean any day other than a Saturday, a
Sunday, or a day on which banking or trust institutions in New York are
authorized or obligated by law or executive order to close.
(e) "Close of business" on any given date shall mean 5:00
P.M., New York time, on such date; provided, however, that if such date
is not a Business Day it shall mean 5:00 P.M., New York time, on the
next succeeding Business Day.
(f) "Common Shares" when used with reference to the Company
shall mean the shares of common stock, par value $.01 per share, of the
Company. "Common Shares" when used with reference to any Person other
than the Company shall mean the capital stock (or equity interest) with
the greatest voting power of such other Person or, if such other Person
is a Subsidiary of another Person, the Person or Persons which
ultimately control such first-mentioned Person.
(g) "Distribution Date" shall have the meaning set forth in
Section 3 hereof.
(h) "Final Expiration Date" shall have the meaning set forth
in Section 7 hereof.
(i) "Grace" shall mean W. R. Grace & Co., a Delaware
corporation, which, in connection with the Spin-off, is to be renamed
"Sealed Air Corporation."
(j) "Grace Common Shares" shall mean the shares of common
stock, par value $.01 per share, of Grace.
(k) "Person" shall mean any individual, firm, corporation or
other entity, and shall include any successor (by merger or otherwise)
of such entity.
(l) "Preferred Shares" shall mean shares of Series A Junior
Participating Preferred Stock, par value $.01 per share, of the Company
having the rights and preferences set forth in the Amended and Restated
Certificate of Incorporation of the Company.
(m) "Redemption Date" shall have the meaning set forth in
Section 7 hereof.
(n) "Shares Acquisition Date" shall mean the first date of
public announcement by the Company or an Acquiring Person that an
Acquiring Person has become such.
(o) "Spin-off" shall mean the distribution by Grace of one
Common Share of the Company in respect of each Grace Common Share.
(p) "Subsidiary" of any Person shall mean any corporation or
other entity of which a majority of the voting power of the voting
equity securities or equity interest is owned, directly or indirectly,
by such Person.
Section 2. Appointment of Rights Agent. The Company hereby
appoints the Rights Agent to act as agent for the Company in accordance with the
terms and conditions
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<PAGE> 6
hereof, and the Rights Agent hereby accepts such appointment. The Company may
from time to time appoint such co-Rights Agents as it may deem necessary or
desirable.
Section 3. Issue of Right Certificates. (a) Until the earlier
of (i) the tenth day after the Shares Acquisition Date or (ii) the tenth
business day (or such later date as may be determined by action of the Board of
Directors of the Company prior to such time as any Person becomes an Acquiring
Person) after the date of the commencement by any Person (other than the
Company, any Subsidiary of the Company, any employee benefit plan of the Company
or of any Subsidiary of the Company or any entity holding Common Shares for or
pursuant to the terms of any such plan) of, or after the date of the first
public announcement of the intention of any Person (other than the Company, any
Subsidiary of the Company, any employee benefit plan of the Company or of any
Subsidiary of the Company or any entity holding Common Shares for or pursuant to
the terms of any such plan) to commence, a tender or exchange offer the
consummation of which would result in any Person becoming the Beneficial Owner
of Common Shares aggregating 20% or more of the then outstanding Common Shares
(including any such date which is after the date of this Agreement and prior to
the issuance of the Rights; the earlier of such dates being herein referred to
as the "Distribution Date"), (x) the Rights will be evidenced (subject to the
provisions of Section 3(b) hereof) by the certificates for Common Shares
registered in the names of the holders thereof (which certificates shall also be
deemed to be Right Certificates) and not by separate Right Certificates, and (y)
the right to receive Right Certificates will be transferable only in connection
with the transfer of Common Shares. As soon as practicable after the
Distribution Date, the Company will promptly notify the Rights Agent thereof,
and the Company will prepare and execute, the Rights Agent will countersign, and
the Company will send or cause to be sent (and the Rights Agent will, if
requested and presented with a list of the holders of record of the Common
Shares by the transfer agent of the Common Shares, send) by first-class,
insured, postage-prepaid mail, to each record holder of Common Shares as of the
close of business on the Distribution Date, at the address of such holder shown
on the records of the Company, a right certificate, in substantially the form of
Exhibit A hereto (a "Right Certificate"), evidencing one Right for each Common
Share so held. As of the Distribution Date, the Rights will be evidenced solely
by such Right Certificates.
(b) Until the earliest of the Distribution Date, the
Redemption Date or the Final Expiration Date, certificates representing Common
Shares of the Company shall have impressed on, printed on, written on or
otherwise affixed to them the following legend:
This certificate also evidences and entitles the holder
hereof to certain rights, as set forth in a Rights
Agreement (the "Rights Agreement") between W. R. Grace &
Co. (the "Company"), and The Chase Manhattan Bank (the
"Rights Agent"), the terms of which are hereby
incorporated herein by reference and a copy of which is on
file at the principal offices of the Company. Under
certain circumstances, as set forth in the Rights
Agreement, such Rights will be evidenced by separate
certificates and will no longer be evidenced by this
certificate. The Company will mail to the holder of this
certificate a copy of the Rights Agreement, as in effect
on the date of mailing, without charge
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<PAGE> 7
promptly after receipt of a written request therefor.
Under certain circumstances set forth in the Rights
Agreement, rights beneficially owned by an Acquiring
Person or any Affiliates or Associates thereof (as such
terms are defined in the Rights Agreement), or certain
transferees thereof, may become null and void.
With respect to such certificates containing the foregoing
legend, until the Distribution Date, the Rights associated with the Common
Shares represented by such certificates shall be evidenced by such certificates
alone, and the surrender for transfer of any such certificate shall also
constitute the transfer of the Rights associated with the Common Shares
represented thereby. In the event that the Company purchases or acquires any
Common Shares after the Record Date but prior to the Distribution Date, any
Rights associated with such Common Shares shall be deemed cancelled and retired
so that the Company shall not be entitled to exercise any Rights associated with
the Common Shares which are no longer outstanding.
Section 4. Form of Right Certificates. The Right Certificates
(and the forms of election to purchase Preferred Shares and of assignment to be
printed on the reverse thereof) shall be substantially the same as Exhibit A
hereto and may have such marks of identification or designation and such
legends, summaries or endorsements printed thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this Agreement,
or as may be required to comply with any applicable law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any stock
exchange on which the Rights may from time to time be listed, or to conform to
usage; provided, however, that such marks, legends, summaries or endorsements
may not affect the rights or responsibilities of the Rights Agent unless the
Rights Agent consents in writing thereto. Subject to the provisions of Section
22 hereof, the Right Certificates shall entitle the holders thereof to purchase
such number of hundredths of a Preferred Share as shall be set forth therein at
the price per hundredth of a Preferred Share set forth therein (the "Purchase
Price"), but the number of such hundredths of a Preferred Share and the Purchase
Price shall be subject to adjustment as provided herein.
Section 5. Countersignature and Registration. The Right
Certificates shall be executed on behalf of the Company by its Chairman of the
Board, its Chief Executive Officer, its President, any of its Vice Presidents,
or its Treasurer, either manually or by facsimile signature, shall have affixed
thereto the Company's seal or a facsimile thereof, and shall be attested by the
Secretary or an Assistant Secretary of the Company, either manually or by
facsimile signature. The Right Certificates shall be manually countersigned by
the Rights Agent and shall not be valid for any purpose unless countersigned. In
case any officer of the Company who shall have signed any of the Right
Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Right Certificates, nevertheless, may be countersigned by the Rights Agent
and issued and delivered by the Company with the same force and effect as though
the person who signed such Right Certificates had not ceased to be such officer
of the Company; and any Right Certificate may be signed on behalf of the Company
by any person who, at the actual date of the execution of such Right
Certificate, shall be a proper officer of the Company to sign such Right
Certificate, although at the date of the execution of this Rights Agreement any
such person was not such an officer.
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<PAGE> 8
Following the Distribution Date and receipt by the Rights
Agent of the list of record holders of Common Shares referred to in Section 3(a)
hereof, the Rights Agent will keep or cause to be kept, at the office designated
in Section 26 hereof (the "Designated Office"), books for registration and
transfer of the Right Certificates issued hereunder. Such books shall show the
names and addresses of the respective holders of the Right Certificates, the
number of Rights evidenced on its face by each of the Right Certificates and the
date of each of the Right Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of
Right Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates.
Subject to the provisions of Sections 14 and 24 hereof, at any time after the
close of business on the Distribution Date, and at or prior to the close of
business on the earlier of the Redemption Date or the Final Expiration Date, any
Right Certificate or Right Certificates (other than Right Certificates
representing Rights that have become null and void pursuant to Section 11(a)(ii)
hereof or that have been exchanged pursuant to Section 24 hereof) may be
transferred, split up, combined or exchanged for another Right Certificate or
Right Certificates, entitling the registered holder to purchase a like number of
hundredths of a Preferred Share as the Right Certificate or Right Certificates
surrendered then entitled such holder to purchase. Any registered holder
desiring to transfer, split up, combine or exchange any Right Certificate or
Right Certificates shall make such request in writing delivered to the Rights
Agent, and shall surrender the Right Certificate or Right Certificates to be
transferred, split up, combined or exchanged at the Designated Office. Thereupon
the Rights Agent shall countersign and deliver to the person entitled thereto a
Right Certificate or Right Certificates, as the case may be, as so requested.
The Company may require payment of a sum sufficient to cover any tax or
governmental charge that may be imposed in connection with any transfer, split
up, combination or exchange of Right Certificates. The Rights Agent shall have
no duty or obligation under this Section unless and until it is satisfied that
all such taxes and/or charges have been paid.
Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Right Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them, and, at the Company's request,
reimbursement to the Company and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation of
the Right Certificate if mutilated, the Company will make and deliver a new
Right Certificate of like tenor to the Rights Agent for delivery to the
registered holder in lieu of the Right Certificate so lost, stolen, destroyed or
mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date
of Rights. (a) The registered holder of any Right Certificate may exercise the
Rights evidenced thereby (except as otherwise provided herein) in whole or in
part at any time after the Distribution Date upon surrender of the Right
Certificate, with the form of election to purchase on the reverse side thereof
duly and properly executed, to the Rights Agent at the Designated Office,
together with payment of the Purchase Price for each hundredth of a Preferred
Share as to which the Rights are exercised, at or prior to the earliest of (i)
the close of business on __________ __, 2008 (the "Final Expiration Date"), (ii)
the time at which the Rights are redeemed as provided in Section 23
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<PAGE> 9
hereof (the "Redemption Date"), or (iii) the time at which such Rights are
exchanged as provided in Section 24 hereof.
(b) The Purchase Price for each hundredth of a Preferred Share
purchasable pursuant to the exercise of a Right shall initially be $100, and
shall be subject to adjustment from time to time as provided in Section 11 or 13
hereof and shall be payable in lawful money of the U.S. of America in accordance
with paragraph (c) below.
(c) Upon receipt of a Right Certificate representing
exercisable Rights, with the form of election to purchase duly executed,
accompanied by payment of the Purchase Price for the shares to be purchased and
an amount equal to any applicable tax or governmental charge required to be paid
by the holder of such Right Certificate in accordance with Section 9 hereof by
certified check, cashier's check or money order payable to the order of the
Company, the Rights Agent shall thereupon promptly (i) (A) requisition from any
transfer agent of the Preferred Shares certificates for the number of Preferred
Shares to be purchased and the Company hereby irrevocably authorizes its
transfer agent to comply with all such requests, or (B) requisition from the
depositary agent depositary receipts representing such number of hundredths of a
Preferred Share as are to be purchased (in which case certificates for the
Preferred Shares represented by such receipts shall be deposited by the transfer
agent with the depositary agent) and the Company hereby directs the depositary
agent to comply with such request, (ii) when appropriate, requisition from the
Company the amount of cash to be paid in lieu of issuance of fractional shares
in accordance with Section 14 hereof, (iii) after receipt of such certificates
or depositary receipts, cause the same to be delivered to or upon the order of
the registered holder of such Right Certificate, registered in such name or
names as may be designated by such holder and (iv) when appropriate, after
receipt, deliver such cash to or upon the order of the registered holder of such
Right Certificate.
(d) In case the registered holder of any Right Certificate
shall exercise less than all the Rights evidenced thereby, a new Right
Certificate evidencing Rights equivalent to the Rights remaining unexercised
shall be issued by the Rights Agent to the registered holder of such Right
Certificate or to his duly authorized assigns, subject to the provisions of
Sections 6 and 14 hereof.
Section 8. Cancellation and Destruction of Right Certificates.
All Right Certificates surrendered for the purpose of exercise, transfer, split
up, combination or exchange shall, if surrendered to the Company or to any of
its agents, be delivered to the Rights Agent for cancellation or in cancelled
form, or, if surrendered to the Rights Agent, shall be cancelled by it, and no
Right Certificates shall be issued in lieu thereof except as expressly permitted
by any of the provisions of this Rights Agreement. The Company shall deliver to
the Rights Agent for cancellation and retirement, and the Rights Agent shall so
cancel and retire, any other Right Certificate purchased or acquired by the
Company otherwise than upon the exercise thereof. The Rights Agent shall deliver
all cancelled Right Certificates to the Company, or shall, at the written
request of the Company, destroy such cancelled Right Certificates, and in such
case shall deliver a certificate of destruction thereof to the Company.
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<PAGE> 10
Section 9. Availability of Preferred Shares. The Company
covenants and agrees that it will cause to be reserved and kept available out of
its authorized and unissued Preferred Shares or any Preferred Shares held in its
treasury, the number of Preferred Shares that will be sufficient to permit the
exercise in full of all outstanding Rights in accordance with Section 7. The
Company covenants and agrees that it will take all such action as may be
necessary to ensure that all Preferred Shares delivered upon exercise of Rights
shall, at the time of delivery of the certificates for such Preferred Shares
(subject to payment of the Purchase Price), be duly and validly authorized and
issued and fully paid and nonassessable shares.
The Company further covenants and agrees that it will pay when
due and payable any and all federal and state transfer taxes and charges which
may be payable in respect of the issuance or delivery of the Right Certificates
or of any Preferred Shares upon the exercise of Rights. The Company shall not,
however, be required to pay any tax or governmental charge which may be payable
in respect of any transfer or delivery of Right Certificates to a person other
than, or the issuance or delivery of certificates or depositary receipts for the
Preferred Shares in a name other than that of, the registered holder of the
Right Certificate evidencing Rights surrendered for exercise or to issue or to
deliver any certificates or depositary receipts for Preferred Shares upon the
exercise of any Rights until any such tax or governmental charge shall have been
paid (any such tax or governmental charge being payable by the holder of such
Right Certificate at the time of surrender) or until it has been established to
the Company's reasonable satisfaction that no such tax or governmental charge is
due.
Section 10. Preferred Shares Record Date. Each Person in whose
name any certificate for Preferred Shares is issued upon the exercise of Rights
shall for all purposes be deemed to have become the holder of record of the
Preferred Shares represented thereby on, and such certificate shall be dated,
the date upon which the Right Certificate evidencing such Rights was duly
surrendered and payment of the Purchase Price (and any applicable taxes and
governmental charges) was made; provided, however, that if the date of such
surrender and payment is a date upon which the Preferred Shares transfer books
of the Company are closed, such person shall be deemed to have become the record
holder of such shares on, and such certificate shall be dated, the next
succeeding Business Day on which the Preferred Shares transfer books of the
Company are open. Prior to the exercise of the Rights evidenced thereby, the
holder of a Right Certificate shall not be entitled to any rights of a holder of
Preferred Shares for which the Rights shall be exercisable, including, without
limitation, the right to vote, to receive dividends or other distributions or to
exercise any preemptive rights, and shall not be entitled to receive any notice
of any proceedings of the Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number of Shares or
Number of Rights. The Purchase Price, the number of Preferred Shares covered by
each Right and the number of Rights outstanding are subject to adjustment from
time to time as provided in this Section 11.
(a) (i) In the event the Company shall at any time after the
Record Date (A) declare a dividend on the Preferred Shares payable in Preferred
Shares, (B) subdivide the outstanding Preferred Shares, (C) combine the
outstanding Preferred Shares into a smaller number
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<PAGE> 11
of Preferred Shares or (D) issue any shares of its capital stock in a
reclassification of the Preferred Shares (including any such reclassification in
connection with a consolidation or merger in which the Company is the continuing
or surviving corporation), except as otherwise provided in this Section 11(a),
the Purchase Price in effect at the time of the record date for such dividend or
of the effective date of such subdivision, combination or reclassification, and
the number and kind of shares of capital stock issuable on such date, shall be
proportionately adjusted so that the holder of any Right exercised after such
time shall be entitled to receive the aggregate number and kind of shares of
capital stock which, if such Right had been exercised immediately prior to such
date and at a time when the Preferred Shares transfer books of the Company were
open, he would have owned upon such exercise and been entitled to receive by
virtue of such dividend, subdivision, combination or reclassification; provided,
however, that in no event shall the consideration to be paid upon the exercise
of one Right be less than the aggregate par value of the shares of capital stock
of the Company issuable upon exercise of one Right.
(ii) Subject to Section 24 of this Agreement, in the event
any Person becomes an Acquiring Person, each holder of a Right shall thereafter
have a right to receive, upon exercise thereof at a price equal to the then
current Purchase Price multiplied by the number of hundredths of a Preferred
Share for which a Right is then exercisable, in accordance with the terms of
this Agreement and in lieu of Preferred Shares, such number of Common Shares of
the Company as shall equal the result obtained by (x) multiplying the then
current Purchase Price by the number of hundredths of a Preferred Share for
which a Right is then exercisable and dividing that product by (y) 50% of the
then current per share market price of the Company's Common Shares (determined
pursuant to Section 11(d) hereof) on the date of the occurrence of such event.
In the event that any Person shall become an Acquiring Person and the Rights
shall then be outstanding, the Company shall not take any action which would
eliminate or diminish the benefits intended to be afforded by the Rights.
From and after the occurrence of such event, any Rights that
are or were acquired or beneficially owned by any Acquiring Person (or any
Associate or Affiliate of such Acquiring Person) shall be null and void and any
holder of such Rights shall thereafter have no right to exercise such Rights
under any provision of this Agreement. No Right Certificate shall be issued
pursuant to Section 3 that represents Rights beneficially owned by an Acquiring
Person whose Rights would be null and void pursuant to the preceding sentence or
any Associate or Affiliate thereof; no Right Certificate shall be issued at any
time upon the transfer of any Rights to an Acquiring Person whose Rights would
be null and void pursuant to the preceding sentence or any Associate or
Affiliate thereof or to any nominee of such Acquiring Person, Associate or
Affiliate; and any Right Certificate delivered to the Rights Agent for transfer
to an Acquiring Person whose Rights would be null and void pursuant to the
preceding sentence shall be cancelled. The Rights Agent shall have no duty or
liability under this paragraph until it has been notified in writing of the
identity of any Acquiring Person.
(iii) In the event that there shall not be sufficient Common
Shares issued but not outstanding or authorized but unissued to permit the
exercise in full of the Rights in accordance with the foregoing subparagraph
(ii), the Company shall take all such action as may be necessary to authorize
additional Common Shares for issuance upon exercise of the Rights. In the event
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<PAGE> 12
the Company shall, after good faith effort, be unable to take all such action as
may be necessary to authorize such additional Common Shares, the Company shall
substitute, for each Common Share that would otherwise be issuable upon exercise
of a Right, a number of Preferred Shares or fraction thereof such that the
current per share market price of one Preferred Share multiplied by such number
or fraction is equal to the current per share market price of one Common Share
as of the date of issuance of such Preferred Shares or fraction thereof.
(b) In case the Company shall fix a record date for the
issuance of rights, options or warrants to all holders of Preferred Shares
entitling them (for a period expiring within 45 calendar days after such record
date) to subscribe for or purchase Preferred Shares (or shares having the same
rights, privileges and preferences as the Preferred Shares ("equivalent
preferred shares")) or securities convertible into Preferred Shares or
equivalent preferred shares at a price per Preferred Share or equivalent
preferred share (or having a conversion price per share, if a security
convertible into Preferred Shares or equivalent preferred shares) less than the
then current per share market price of the Preferred Shares (as defined in
Section 11(d)) on such record date, the Purchase Price to be in effect after
such record date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the number of Preferred Shares outstanding on such record date plus the
number of Preferred Shares which the aggregate offering price of the total
number of Preferred Shares and/or equivalent preferred shares so to be offered
(and/or the aggregate initial conversion price of the convertible securities so
to be offered) would purchase at such current market price and the denominator
of which shall be the number of Preferred Shares outstanding on such record date
plus the number of additional Preferred Shares and/or equivalent preferred
shares to be offered for subscription or purchase (or into which the convertible
securities so to be offered are initially convertible); provided, however, that
in no event shall the consideration to be paid upon the exercise of one Right be
less than the aggregate par value of the shares of capital stock of the Company
issuable upon exercise of one Right. In case such subscription price may be paid
in a consideration part or all of which shall be in a form other than cash, the
value of such consideration shall be as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a statement
filed with the Rights Agent. Preferred Shares owned by or held for the account
of the Company shall not be deemed outstanding for the purpose of any such
computation. Such adjustment shall be made successively whenever such a record
date is fixed; and in the event that such rights, options or warrants are not so
issued, the Purchase Price shall be adjusted to be the Purchase Price which
would then be in effect if such record date had not been fixed.
(c) In case the Company shall fix a record date for the making
of a distribution to all holders of the Preferred Shares (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of indebtedness
or assets (other than a regular quarterly cash dividend or a dividend payable in
Preferred Shares) or subscription rights or warrants (excluding those referred
to in Section 11(b) hereof), the Purchase Price to be in effect after such
record date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the then current per share market price of the Preferred Shares on such
record date, less the fair market value (as determined in good faith by the
Board
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<PAGE> 13
of Directors of the Company, whose determination shall be described in a
statement filed with the Rights Agent) of the portion of the assets or evidences
of indebtedness so to be distributed or of such subscription rights or warrants
applicable to one Preferred Share and the denominator of which shall be such
current per share market price of the Preferred Shares; provided, however, that
in no event shall the consideration to be paid upon the exercise of one Right be
less than the aggregate par value of the shares of capital stock of the Company
to be issued upon exercise of one Right. Such adjustments shall be made
successively whenever such a record date is fixed; and in the event that such
distribution is not so made, the Purchase Price shall again be adjusted to be
the Purchase Price which would then be in effect if such record date had not
been fixed.
(d) (i) For the purpose of any computation hereunder, the
"current per share market price" of any security (a "Security" for the purpose
of this Section 11(d)(i)) on any date shall be deemed to be the average of the
daily closing prices per share of such Security for the 30 consecutive Trading
Days (as such term is hereinafter defined) immediately prior to, but not
including, such date; provided, however, that in the event that the current per
share market price of the Security is determined during a period following the
announcement by the issuer of such Security of (A) a dividend or distribution on
such Security payable in shares of such Security or securities convertible into
such shares, or (B) any subdivision, combination or reclassification of such
Security and prior to the expiration of 30 Trading Days after, but not
including, the ex-dividend date for such dividend or distribution, or the record
date for such subdivision, combination or reclassification, then, and in each
such case, the current per share market price shall be appropriately adjusted to
reflect the current market price per share equivalent of such Security; and
provided, further, that in the event that the current per share market price of
the Common Shares is determined as of a date prior to the expiration of 30
Trading Days following, but not including, the Record Date, the current per
share market price of the Common Shares shall be deemed to be the average of the
daily closing prices per Common Share for the period of Trading Days commencing
with the Record Date and ending immediately prior to such date. The closing
price for each day shall be the last sale price, regular way, or, in case no
such sale takes place on such day, the average of the closing bid and asked
prices, regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the New York Stock Exchange or, if the Security is not listed or
admitted to trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the Security is listed or
admitted to trading or, if the Security is not listed or admitted to trading on
any national securities exchange, the last quoted price or, if not so quoted,
the average of the high bid and low asked prices in the over-the-counter market,
as reported by the National Association of Securities Dealers, Inc. Automated
Quotations System ("NASDAQ") or such other system then in use, or, if on any
such date the Security is not quoted by any such organization, the average of
the closing bid and asked prices as furnished by a professional market maker
making a market in the Security selected by the Board of Directors of the
Company. The term "Trading Day" shall mean a day on which the principal national
securities exchange on which the Security is listed or admitted to trading is
open for the transaction of business or, if the Security is not listed or
admitted to trading on any national securities exchange, a Business Day.
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<PAGE> 14
(ii) For the purpose of any computation hereunder, the
"current per share market price" of the Preferred Shares shall be determined in
accordance with the method set forth in Section 11(d)(i). If the Preferred
Shares are not publicly traded, the "current per share market price" of the
Preferred Shares shall be conclusively deemed to be the current per share market
price of the Common Shares as determined pursuant to Section 11(d)(i)
(appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof), multiplied by one hundred. If
neither the Common Shares nor the Preferred Shares are publicly held or so
listed or traded, "current per share market price" shall mean the fair value per
share as determined in good faith by the Board of Directors of the Company,
whose determination shall be described in a statement filed with the Rights
Agent.
(e) No adjustment in the Purchase Price shall be required
unless such adjustment would require an increase or decrease of at least 1% in
the Purchase Price; provided, however, that any adjustments which by reason of
this Section 11(e) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under this
Section 11 shall be made to the nearest cent or to the nearest millionth of a
Preferred Share or ten-thousandth of any other share or security, as the case
may be. Notwithstanding the first sentence of this Section 11(e), any adjustment
required by this Section 11 shall be made no later than the earlier of (i) three
years from the date of the transaction which requires such adjustment or (ii)
the date of the expiration of the right to exercise any Rights.
(f) If as a result of an adjustment made pursuant to Section
11(a) hereof, the holder of any Right thereafter exercised shall become entitled
to receive any shares of capital stock of the Company other than Preferred
Shares, thereafter the number of such other shares so receivable upon exercise
of any Right shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Preferred Shares contained in Section 11(a) through (m), inclusive, and the
provisions of Sections 7, 9, 10 and 13 with respect to the Preferred Shares
shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to
any adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of hundredths of a
Preferred Share purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as
provided in Section 11(i), upon each adjustment of the Purchase Price as a
result of the calculations made in Sections 11(b) and (c), each Right
outstanding immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase, at the adjusted Purchase Price, that number of
hundredths of a Preferred Share (calculated to the nearest millionth of a
Preferred Share) obtained by (i) multiplying (x) the number of hundredths of a
share covered by a Right immediately prior to this adjustment by (y) the
Purchase Price in effect immediately prior to such adjustment of the Purchase
Price and (ii) dividing the product so obtained by the Purchase Price in effect
immediately after such adjustment of the Purchase Price.
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<PAGE> 15
(i) The Company may elect on or after the date of any
adjustment of the Purchase Price to adjust the number of Rights, in substitution
for any adjustment in the number of hundredths of a Preferred Share purchasable
upon the exercise of a Right. Each of the Rights outstanding after such
adjustment of the number of Rights shall be exercisable for the number of
hundredths of a Preferred Share for which a Right was exercisable immediately
prior to such adjustment. Each Right held of record prior to such adjustment of
the number of Rights shall become that number of Rights (calculated to the
nearest ten-thousandth) obtained by dividing the Purchase Price in effect
immediately prior to adjustment of the Purchase Price by the Purchase Price in
effect immediately after adjustment of the Purchase Price. The Company shall
make a public announcement, with written notice thereof to the Rights Agent, of
its election to adjust the number of Rights, indicating the record date for the
adjustment, and, if known at the time, the amount of the adjustment to be made.
This record date may be the date on which the Purchase Price is adjusted or any
day thereafter, but, if the Right Certificates have been issued, shall be at
least 10 days later than the date of the public announcement. If Right
Certificates have been issued, upon each adjustment of the number of Rights
pursuant to this Section 11(i), the Company shall, as promptly as practicable,
cause to be distributed to holders of record of Right Certificates on such
record date Right Certificates evidencing, subject to Section 14 hereof, the
additional Rights to which such holders shall be entitled as a result of such
adjustment, or, at the option of the Company, shall cause to be distributed to
such holders of record in substitution and replacement for the Right
Certificates held by such holders prior to the date of adjustment, and upon
surrender thereof, if required by the Company, new Right Certificates evidencing
all the Rights to which such holders shall be entitled after such adjustment.
Right Certificates so to be distributed shall be issued, executed and
countersigned in the manner provided for herein and shall be registered in the
names of the holders of record of Right Certificates on the record date
specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase
Price or the number of hundredths of a Preferred Share issuable upon the
exercise of the Rights, the Right Certificates theretofore and thereafter issued
may continue to express the Purchase Price and the number of hundredths of a
Preferred Share which were expressed in the initial Right Certificates issued
hereunder.
(k) Before taking any action that would cause an adjustment
reducing the Purchase Price below one hundredth of the then par value, if any,
of the Preferred Shares issuable upon exercise of the Rights, the Company shall
take any corporate action which may, in the opinion of its counsel, be necessary
in order that the Company may validly and legally issue fully paid and
nonassessable Preferred Shares at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer (and shall provide the Rights
Agent with notice of such election) until the occurrence of such event the
issuing to the holder of any Right exercised after such record date of the
Preferred Shares and other capital stock or securities of the Company, if any,
issuable upon such exercise over and above the Preferred Shares and other
capital stock or securities of the Company, if any, issuable upon such exercise
on the basis of the Purchase Price in effect prior to such
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<PAGE> 16
adjustment; provided, however, that the Company shall deliver to such holder a
due bill or other appropriate instrument evidencing such holder's right to
receive such additional shares upon the occurrence of the event requiring such
adjustment.
(m) Anything in this Section 11 to the contrary
notwithstanding, the Company shall be entitled to make such reductions in the
Purchase Price, in addition to those adjustments expressly required by this
Section 11, as and to the extent that it in its sole discretion shall determine
to be advisable in order that any consolidation or subdivision of the Preferred
Shares, issuance wholly for cash of any Preferred Shares at less than the
current market price, issuance wholly for cash of Preferred Shares or securities
which by their terms are convertible into or exchangeable for Preferred Shares,
dividends on Preferred Shares payable in Preferred Shares or issuance of rights,
options or warrants referred to hereinabove in Section 11(b), hereafter made by
the Company to holders of its Preferred Shares shall not be taxable to such
stockholders.
(n) In the event that at any time after the date of this
Agreement and prior to the Distribution Date, the Company shall (i) declare or
pay any dividend on the Common Shares payable in Common Shares or (ii) effect a
subdivision, combination or consolidation of the Common Shares (by
reclassification or otherwise than by payment of dividends in Common Shares)
into a greater or lesser number of Common Shares, then in any such case (A) the
number of hundredths of a Preferred Share purchasable after such event upon
proper exercise of each Right shall be determined by multiplying the number of
hundredths of a Preferred Share so purchasable immediately prior to such event
by a fraction, the numerator of which is the number of Common Shares outstanding
immediately before such event and the denominator of which is the number of
Common Shares outstanding immediately after such event, and (B) each Common
Share outstanding immediately after such event shall have issued with respect to
it that number of Rights which each Common Share outstanding immediately prior
to such event had issued with respect to it. The adjustments provided for in
this Section 11(n) shall be made successively whenever such a dividend is
declared or paid or such a subdivision, combination or consolidation is
effected.
Section 12. Certificate of Adjusted Purchase Price or Number
of Shares. Whenever an adjustment is made as provided in Section 11 or 13
hereof, the Company shall promptly (a) prepare a certificate setting forth such
adjustment, and a brief statement of the facts and computations accounting for
such adjustment, (b) file with the Rights Agent and with each transfer agent for
the Common Shares or the Preferred Shares a copy of such certificate and (c)
mail a brief summary thereof to each holder of a Right Certificate in accordance
with Section 26 hereof. The Rights Agent shall be fully protected in relying on
any such certificate and on any adjustment contained therein, and shall have no
duty with respect to, and shall not be deemed to have knowledge of, any
adjustment unless and until it shall have received such a certificate.
Section 13. Consolidation, Merger or Sale or Transfer of
Assets or Earning Power. In the event, directly or indirectly, at any time after
a Person has become an Acquiring Person, (a) the Company shall consolidate with,
or merge with and into, any other Person, (b) any Person shall consolidate with
the Company, or merge with and into the Company and the Company shall be the
continuing or surviving corporation of such merger and, in connection
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<PAGE> 17
with such merger, all or part of the Common Shares shall be changed into or
exchanged for stock or other securities of any other Person (or the Company) or
cash or any other property, or (c) the Company shall sell or otherwise transfer
(or one or more of its Subsidiaries shall sell or otherwise transfer), in one or
more transactions, assets or earning power aggregating 50% or more of the assets
or earning power of the Company and its Subsidiaries (taken as a whole) to any
other Person other than the Company or one or more of its wholly owned
Subsidiaries, then, and in each such case, proper provision shall be made so
that (i) each holder of a Right (except as otherwise provided herein) shall
thereafter have the right to receive, upon the exercise thereof at a price equal
to the then current Purchase Price multiplied by the number of hundredths of a
Preferred Share for which a Right is then exercisable, in accordance with the
terms of this Agreement and in lieu of Preferred Shares, such number of Common
Shares of such other Person (including the Company as successor thereto or as
the surviving corporation) as shall equal the result obtained by (A) multiplying
the then current Purchase Price by the number of hundredths of a Preferred Share
for which a Right is then exercisable and dividing that product by (B) 50% of
the then current per share market price of the Common Shares of such other
Person (determined pursuant to Section 11(d) hereof) on the date of consummation
of such consolidation, merger, sale or transfer; (ii) the issuer of such Common
Shares shall thereafter be liable for, and shall assume, by virtue of such
consolidation, merger, sale or transfer, all the obligations and duties of the
Company pursuant to this Agreement; (iii) the term "Company" shall thereafter be
deemed to refer to such issuer; and (iv) such issuer shall take such steps
(including, but not limited to, the reservation of a sufficient number of its
Common Shares in accordance with Section 9 hereof) in connection with such
consummation as may be necessary to assure that the provisions hereof shall
thereafter be applicable, as nearly as reasonably may be, in relation to the
Common Shares thereafter deliverable upon the exercise of the Rights. The
Company shall not consummate any such consolidation, merger, sale or transfer
unless prior thereto the Company and such issuer shall have executed and
delivered to the Rights Agent a supplemental agreement so providing. The Company
shall not enter into any transaction of the kind referred to in this Section 13
if at the time of such transaction there are any rights, warrants, instruments
or securities outstanding or any agreements or arrangements which, as a result
of the consummation of such transaction, would eliminate or substantially
diminish the benefits intended to be afforded by the Rights. The provisions of
this Section 13 shall similarly apply to successive mergers or consolidations or
sales or other transfers.
Section 14. Fractional Rights and Fractional Shares. (a) The
Company shall not be required to issue fractions of Rights or to distribute
Right Certificates which evidence fractional Rights. In lieu of such fractional
Rights, there shall be paid to the registered holders of the Right Certificates
with regard to which such fractional Rights would otherwise be issuable, an
amount in cash equal to the same fraction of the current market value of a whole
Right. For the purposes of this Section 14(a), the current market value of a
whole Right shall be the closing price of the Rights for the Trading Day
immediately prior to the date on which such fractional Rights would have been
otherwise issuable. The closing price for any day shall be the last sale price,
regular way, or, in case no such sale takes place on such day, the average of
the closing bid and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if the Rights
are not listed or admitted to trading on the New York Stock Exchange,
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<PAGE> 18
as reported in the principal consolidated transaction reporting system with
respect to securities listed on the principal national securities exchange on
which the Rights are listed or admitted to trading or, if the Rights are not
listed or admitted to trading on any national securities exchange, the last
quoted price or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by NASDAQ or such other
system then in use or, if on any such date the Rights are not quoted by any such
organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Rights selected by the Board of
Directors of the Company. If on any such date no such market maker is making a
market in the Rights, the fair value of the Rights on such date determined in
good faith by the Board of Directors of the Company shall be used.
(b) The Company shall not be required to issue fractions of
Preferred Shares (other than fractions which are integral multiples of one
hundredth of a Preferred Share) upon exercise of the Rights or to distribute
certificates which evidence fractional Preferred Shares (other than fractions
which are integral multiples of one hundredth of a Preferred Share). Fractions
of Preferred Shares in integral multiples of one hundredth of a Preferred Share
may, at the election of the Company, be evidenced by depositary receipts,
pursuant to an appropriate agreement between the Company and a depositary
selected by it; provided, that such agreement shall provide that the holders of
such depositary receipts shall have all the rights, privileges and preferences
to which they are entitled as beneficial owners of the Preferred Shares
represented by such depositary receipts. In lieu of fractional Preferred Shares
that are not integral multiples of one hundredth of a Preferred Share, the
Company shall pay to the registered holders of Right Certificates at the time
such Rights are exercised as herein provided an amount in cash equal to the same
fraction of the current market value of one Preferred Share. For the purposes of
this Section 14(b), the current market value of a Preferred Share shall be the
closing price of a Preferred Share (as determined pursuant to the second
sentence of Section 11(d)(i) hereof) for the Trading Day immediately prior to
the date of such exercise.
(c) The holder of a Right by the acceptance of the Right
expressly waives his right to receive any fractional Rights or any fractional
shares upon exercise of a Right (except as provided above).
Section 15. Rights of Action. All rights of action in respect
of this Agreement, excepting the rights of action given to the Rights Agent
under Section 18 hereof, are vested in the respective registered holders of the
Right Certificates (and, prior to the Distribution Date, the registered holders
of the Common Shares); and any registered holder of any Right Certificate (or,
prior to the Distribution Date, of the Common Shares), without the consent of
the Rights Agent or of the holder of any other Right Certificate (or, prior to
the Distribution Date, of the Common Shares), may, in his own behalf and for his
own benefit, enforce, and may institute and maintain any suit, action or
proceeding against the Company to enforce, or otherwise act in respect of, his
right to exercise the Rights evidenced by such Right Certificate in the manner
provided in such Right Certificate and in this Agreement. Without limiting the
foregoing or any remedies available to the holders of Rights, it is specifically
acknowledged that the holders of Rights would not have an adequate remedy at law
for any breach of this Agreement and will be entitled to specific
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<PAGE> 19
performance of the obligations under, and injunctive relief against actual or
threatened violations of the obligations of any Person subject to, this
Agreement.
Section 16. Agreement of Right Holders. Every holder of a
Right, by accepting the same, consents and agrees with the Company and the
Rights Agent and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of the Common Shares;
(b) after the Distribution Date, the Right Certificates are
transferable only on the registry books of the Rights Agent if
surrendered at the Designated Office, duly endorsed or accompanied by a
proper instrument of transfer; and
(c) the Company and the Rights Agent may deem and treat the
Person in whose name the Right Certificate (or, prior to the
Distribution Date, the associated Common Shares certificate) is
registered as the absolute owner thereof and of the Rights evidenced
thereby (notwithstanding any notations of ownership or writing on the
Right Certificates or the associated Common Shares certificate made by
anyone other than the Company or the Rights Agent) for all purposes
whatsoever, and neither the Company nor the Rights Agent shall be
affected by any notice to the contrary.
Section 17. Right Certificate Holder Not Deemed a Stockholder.
No holder, as such, of any Right Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the Preferred Shares or any
other securities of the Company which may at any time be issuable on the
exercise of the Rights represented thereby, nor shall anything contained herein
or in any Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 25 hereof), or to receive dividends
or subscription rights, or otherwise, until the Right or Rights evidenced by
such Right Certificate shall have been exercised in accordance with the
provisions hereof.
Section 18. Concerning the Rights Agent. The Company agrees to
pay to the Rights Agent reasonable compensation for all services rendered by it
hereunder and, from time to time, on demand of the Rights Agent, its reasonable
expenses and counsel fees and other disbursements incurred in the preparation,
delivery, administration and execution of this Agreement and any amendment of
this Agreement and the exercise and performance of its duties hereunder. The
Company also agrees to indemnify the Rights Agent for, and to hold it harmless
against, any loss, liability, damage, judgment, fine, penalty, claim, demand,
settlement, cost or expense, incurred without negligence, bad faith or willful
misconduct on the part of the Rights Agent, for any action taken, suffered or
omitted by the Rights Agent in connection with the acceptance and administration
of this Agreement, including, without limitation, the costs and expenses of
defending against any claim of liability in the premises. In no case will the
Rights Agent be liable
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<PAGE> 20
for special, indirect, incidental or consequential loss or damages of any kind
whatsoever, even if the Rights Agent has been advised of the possibility of such
loss or damages.
The Rights Agent shall be authorized and protected and shall
incur no liability for, or in respect of any action taken, suffered or omitted
by it in connection with, its acceptance and administration of this Agreement in
reliance upon any Right Certificate or certificate for the Preferred Shares or
Common Shares or for other securities of the Company, instrument of assignment
or transfer, power of attorney, endorsement, affidavit, letter, notice,
direction, consent, certificate, statement, or other paper or document believed
by it to be genuine and to be signed, executed and, where necessary, verified or
acknowledged, by the proper person or persons, or otherwise upon the advice of
counsel as set forth in Section 20 hereof.
Section 19. Merger or Consolidation or Change of Name of
Rights Agent. Any Person into which the Rights Agent or any successor Rights
Agent may be merged or with which it may be consolidated, or any Person
resulting from any merger or consolidation to which the Rights Agent or any
successor Rights Agent shall be a party, or any Person succeeding to the stock
transfer or shareholder services business of the Rights Agent or any successor
Rights Agent, shall be the successor to the Rights Agent under this Agreement
without the execution or filing of any paper or any further act on the part of
any of the parties hereto; provided, that such Person would be eligible for
appointment as a successor Rights Agent under the provisions of Section 21
hereof. In case at the time such successor Rights Agent shall succeed to the
agency created by this Agreement, any of the Right Certificates shall have been
countersigned but not delivered, any such successor Rights Agent may adopt the
countersignature of the predecessor Rights Agent and deliver such Right
Certificates so countersigned; and in case at that time any of the Right
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Right Certificates either in the name of the predecessor Rights
Agent or in the name of the successor Rights Agent; and in all such cases such
Right Certificates shall have the full force provided in the Right Certificates
and in this Agreement.
In case at any time the name of the Rights Agent shall be
changed and at such time any of the Right Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the countersignature
under its prior name and deliver Right Certificates so countersigned; and in
case at that time any of the Right Certificates shall not have been
countersigned, the Rights Agent may countersign such Right Certificates either
in its prior name or in its changed name; and in all such cases such Right
Certificates shall have the full force provided in the Right Certificates and in
this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent
undertakes only the duties and obligations imposed by this Agreement upon the
following terms and conditions, by all of which the Company and the holders of
Right Certificates, by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may
be legal counsel for the Company), and the advice or opinion of such
counsel shall be full and complete authorization and protection to the
Rights Agent, and the Rights Agent shall incur no li-
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<PAGE> 21
ability, for or in respect of any action taken or omitted by it in good
faith and in accordance with such advice or opinion.
(b) Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable that
any fact or matter be proved or established by the Company prior to
taking, suffering or omitting to take any action hereunder, such fact
or matter (unless other evidence in respect thereof be herein
specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by any one of the Chairman, the
Chief Executive Officer, the President, any Vice President, the
Treasurer or the Secretary of the Company and delivered to the Rights
Agent; and such certificate shall be full authorization and protection
to the Rights Agent, and the Rights Agent shall incur no liability, for
or in respect of any action taken, suffered or omitted to be taken in
good faith by it under the provisions of this Agreement in reliance
upon such certificate.
(c) The Rights Agent shall be liable hereunder to the Company
and any other Person only for its own negligence, bad faith or willful
misconduct.
(d) The Rights Agent shall not be liable for or by reason of
any of the statements of fact or recitals contained in this Agreement
or in the Right Certificates (except its countersignature thereof) or
be required to verify the same, but all such statements and recitals
are and shall be deemed to have been made by the Company only.
(e) The Rights Agent shall not have any liability for, nor be
under any responsibility in respect of the validity of, this Agreement
or the execution and delivery hereof (except the due execution hereof
by the Rights Agent) or in respect of the validity or execution of any
Right Certificate (except its countersignature thereof); nor shall it
be responsible for any breach by the Company of any covenant or
condition contained in this Agreement or in any Right Certificate; nor
shall it be responsible for any transfer to an Acquiring Person (unless
such transfer is effected after the giving of the notice specified in
Section 11(a)(ii)) or any change in the exercisability of the Rights
(including the Rights becoming void pursuant to Section 11(a)(ii)
hereof) or any adjustment in the terms of the Rights (including the
manner, method or amount thereof) provided for in Section 3, 11, 13, 23
or 24, or the ascertaining of the existence of facts that would require
any such change or adjustment (except with respect to the exercise of
Rights evidenced by Right Certificates after actual notice that such
change or adjustment is required); nor shall it by any act hereunder be
deemed to make any representation or warranty as to the authorization
or reservation of any Preferred Shares to be issued pursuant to this
Agreement or any Right Certificate or as to whether any Preferred
Shares will, when issued, be validly authorized and issued, fully paid
and nonassessable.
(f) The Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed,
acknowledged and delivered all such further and other acts, instruments
and assurances as may reasonably be required by the Rights Agent
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<PAGE> 22
for the carrying out or performing by the Rights Agent of the
provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties
hereunder from any one of the Chairman, the Chief Executive Officer,
the President, any Vice President, the Secretary or the Treasurer of
the Company, and to apply to such officers for advice or instructions
in connection with its duties, and it shall not be liable for any
action taken, suffered or omitted to be taken by it in good faith in
accordance with instructions of any such officer or for any delay in
acting while waiting for those instructions.
(h) The Rights Agent and any stockholder, affiliate, director,
officer or employee of the Rights Agent may buy, sell or deal in any of
the Rights or other securities of the Company or become pecuniarily
interested in any transaction in which the Company may be interested,
or contract with or lend money to the Company or otherwise act as fully
and freely as though it were not Rights Agent under this Agreement.
Nothing herein shall preclude the Rights Agent from acting in any other
capacity for the Company or for any other Person.
(i) The Rights Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any duty hereunder
either itself or by or through its attorneys or agents, and the Rights
Agent shall not be answerable or accountable for any act, default,
neglect or misconduct of any such attorneys or agents or for any loss
to the Company or any other Person resulting from any such act,
default, neglect or misconduct, provided reasonable care was exercised
in the selection and continued employment thereof.
Section 21. Change of Rights Agent. The Rights Agent or any
successor Rights Agent may resign and be discharged from its duties under this
Agreement upon 30 days' notice in writing mailed to the Company and to each
transfer agent of the Common Shares or Preferred Shares by registered or
certified mail, and to the holders of the Right Certificates by first-class
mail. The Company may remove the Rights Agent or any successor Rights Agent upon
30 days' notice in writing, mailed to the Rights Agent or successor Rights
Agent, as the case may be, and to each transfer agent of the Common Shares or
Preferred Shares by registered or certified mail, and to the holders of the
Right Certificates by first-class mail. If the Rights Agent shall resign or be
removed or shall otherwise become incapable of acting, the Company shall appoint
a successor to the Rights Agent. If the Company shall fail to make such
appointment within a period of 30 days after giving notice of such removal or
after it has been notified in writing of such resignation or incapacity by the
resigning or incapacitated Rights Agent or by the holder of a Right Certificate
(who shall, with such notice, submit his Right Certificate for inspection by the
Company), then the registered holder of any Right Certificate may apply to any
court of competent jurisdiction for the appointment of a new Rights Agent. Any
successor Rights Agent, whether appointed by the Company or by such a court,
shall be a Person, or an Affiliate of such Person, organized and doing business
under the laws of the U.S. or of the State of New York (or of any other state of
the U.S. so long as such Person is authorized to do business in the State of New
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<PAGE> 23
York), in good standing, having an office in the State of New York, which is
subject to supervision or examination by federal or state authority and which
has at the time of its appointment as Rights Agent a combined capital and
surplus of at least $50 million. After appointment, the successor Rights Agent
shall be vested with the same powers, rights, duties and responsibilities as if
it had been originally named as Rights Agent without further act or deed; but
the predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment the Company shall file notice
thereof in writing with the predecessor Rights Agent and each transfer agent of
the Common Shares or Preferred Shares, and mail a notice thereof in writing to
the registered holders of the Right Certificates. Failure to give any notice
provided for in this Section 21, however, or any defect therein, shall not
affect the legality or validity of the resignation or removal of the Rights
Agent or the appointment of the successor Rights Agent, as the case may be.
Section 22. Issuance of New Right Certificates.
Notwithstanding any of the provisions of this Agreement or of the Rights to the
contrary, the Company may, at its option, issue new Right Certificates
evidencing Rights in such form as may be approved by its Board of Directors to
reflect any adjustment or change in the Purchase Price and the number or kind or
class of shares or other securities or property purchasable under the Right
Certificates made in accordance with the provisions of this Agreement.
Section 23. Redemption. (a) The Board of Directors of the
Company may, at its option, at any time prior to such time as any Person becomes
an Acquiring Person, redeem all but not less than all the then outstanding
Rights at a redemption price of $.01 per Right, appropriately adjusted to
reflect any stock split, stock dividend or similar transaction occurring after
the date hereof (such redemption price being hereinafter referred to as the
"Redemption Price"). The redemption of the Rights by the Board of Directors of
the Company may be made effective at such time, on such basis and with such
conditions as the Board of Directors in its sole discretion may establish.
(b) Immediately upon the action of the Board of Directors of
the Company ordering the redemption of the Rights pursuant to paragraph (a) of
this Section 23, and without any further action and without any notice, the
right to exercise the Rights will terminate and the only right thereafter of the
holders of Rights shall be to receive the Redemption Price. The Company shall
promptly give public notice (with prompt written notice thereof to the Rights
Agent) of any such redemption; provided, however, that the failure to give, or
any defect in, any such notice shall not affect the validity of such redemption.
Within 10 days after such action of the Board of Directors ordering the
redemption of the Rights, the Company shall mail a notice of redemption to all
the holders of the then outstanding Rights at their last addresses as they
appear upon the registry books of the Rights Agent or, prior to the Distribution
Date, on the registry books of the transfer agent for the Common Shares. Any
notice which is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of redemption
will state the method by which the payment of the Redemption Price will be made.
Neither the Company nor any of its Affiliates or Associates may redeem, acquire
or purchase for value any Rights at any time in any manner other than that
specifically set forth in this Section
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<PAGE> 24
23 or in Section 24 hereof, and other than in connection with the purchase of
Common Shares prior to the Distribution Date.
Section 24. Exchange. (a) The Board of Directors of the
Company may, at its option, at any time after any Person becomes an Acquiring
Person, exchange all or part of the then outstanding and exercisable Rights
(which shall not include Rights that have become null and void pursuant to the
provisions of Section 11(a)(ii) hereof) for Common Shares at an exchange ratio
of one Common Share per Right, appropriately adjusted to reflect any stock
split, stock dividend or similar transaction occurring after the date hereof
(such exchange ratio being hereinafter referred to as the "Exchange Ratio").
Notwithstanding the foregoing, the Board of Directors shall not be empowered to
effect such exchange at any time after any Person (other than the Company, any
Subsidiary of the Company, any employee benefit plan of the Company or any such
Subsidiary, or any entity holding Common Shares for or pursuant to the terms of
any such plan), together with all Affiliates and Associates of such Person,
becomes the Beneficial Owner of 50% or more of the Common Shares then
outstanding.
(b) Immediately upon the action of the Board of Directors of
the Company ordering the exchange of any Rights pursuant to paragraph (a) of
this Section 24 and without any further action and without any notice, the right
to exercise such Rights shall terminate and the only right thereafter of holders
of such Rights shall be to receive that number of Common Shares equal to the
number of such Rights held by such holder multiplied by the Exchange Ratio. The
Company shall promptly give public notice of any such exchange (with prompt
written notice thereof to the Rights Agent); provided, however, that the failure
to give, or any defect in, such notice shall not affect the validity of such
exchange. The Company promptly shall mail a notice of any such exchange to all
of the holders of such Rights at their last addresses as they appear upon the
registry books of the Rights Agent. Any notice which is mailed in the manner
herein provided shall be deemed given, whether or not the holder receives the
notice. Each such notice of exchange will state the method by which the exchange
of the Common Shares for Rights will be effected and, in the event of any
partial exchange, the number of Rights which will be exchanged. Any partial
exchange shall be effected pro rata based on the number of Rights (other than
Rights which have become void pursuant to the provisions of Section 11(a)(ii)
hereof) held by each holder of Rights.
(c) In the event that there shall not be sufficient Common
Shares issued but not outstanding or authorized but unissued to permit any
exchange of Rights as contemplated in accordance with this Section 24, the
Company shall take all such action as may be necessary to authorize additional
Common Shares for issuance upon exchange of the Rights. In the event the Company
shall, after good faith effort, be unable to take all such action as may be
necessary to authorize such additional Common Shares, the Company shall
substitute, for each Common Share that would otherwise be issuable upon exchange
of a Right, a number of Preferred Shares or fraction thereof such that the
current per share market price of one Preferred Share multiplied by such number
or fraction is equal to the current per share market price of one Common Share
as of the date of issuance of such Preferred Shares or fraction thereof.
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<PAGE> 25
(d) The Company shall not be required to issue fractions of
Common Shares or to distribute certificates which evidence fractional Common
Shares. In lieu of such fractional Common Shares, the Company shall pay to the
registered holders of the Right Certificates with regard to which such
fractional Common Shares would otherwise be issuable an amount in cash equal to
the same fraction of the current market value of a whole Common Share. For the
purposes of this paragraph (d), the current market value of a whole Common Share
shall be the closing price of a Common Share (as determined pursuant to the
second sentence of Section 11(d)(i) hereof) for the Trading Day immediately
prior to the date of exchange pursuant to this Section 24.
Section 25. Notice of Certain Events. (a) In case the Company
shall propose (i) to pay any dividend payable in stock of any class to the
holders of its Preferred Shares or to make any other distribution to the holders
of its Preferred Shares (other than a regular quarterly cash dividend), (ii) to
offer to the holders of its Preferred Shares rights or warrants to subscribe for
or to purchase any additional Preferred Shares or shares of stock of any class
or any other securities, rights or options, (iii) to effect any reclassification
of its Preferred Shares (other than a reclassification involving only the
subdivision of outstanding Preferred Shares), (iv) to effect any consolidation
or merger into or with, or to effect any sale or other transfer (or to permit
one or more of its Subsidiaries to effect any sale or other transfer), in one or
more transactions, of 50% or more of the assets or earning power of the Company
and its Subsidiaries (taken as a whole) to, any other Person, (v) to effect the
liquidation, dissolution or winding up of the Company, or (vi) to declare or pay
any dividend on the Common Shares payable in Common Shares or to effect a
subdivision, combination or consolidation of the Common Shares (by
reclassification or otherwise than by payment of dividends in Common Shares)
then, in each such case, the Company shall give to the Rights Agent and to each
holder of a Right Certificate, in accordance with Section 26 hereof, a notice of
such proposed action, which shall specify the record date for the purposes of
such stock dividend, or distribution of rights or warrants, or the date on which
such reclassification, consolidation, merger, sale, transfer, liquidation,
dissolution, or winding up is to take place and the date of participation
therein by the holders of the Common Shares and/or Preferred Shares, if any such
date is to be fixed, and such notice shall be so given in the case of any action
covered by clause (i) or (ii) above at least 10 days prior to the record date
for determining holders of the Preferred Shares for purposes of such action, and
in the case of any such other action, at least 10 days prior to the date of the
taking of such proposed action or the date of participation therein by the
holders of the Common Shares and/or Preferred Shares, whichever shall be the
earlier.
(b) In case the event set forth in Section 11(a)(ii) hereof
shall occur, then the Company shall as soon as practicable thereafter give to
the Rights Agent and to each holder of a Right Certificate, in accordance with
Section 26 hereof, a notice of the occurrence of such event, which notice shall
describe such event and the consequences of such event to holders of Rights
under Section 11(a)(ii) hereof.
Section 26. Notices. Notices or demands authorized by this
Agreement to be given or made by the Rights Agent or by the holder of any Right
Certificate to or on the Com-
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<PAGE> 26
pany shall be sufficiently given or made if sent by first-class mail, postage
prepaid, addressed (until another address is filed in writing with the Rights
Agent) as follows:
W. R. Grace & Co.
One Town Center Road
Boca Raton, FL 33486-1010
Attention: Corporate Secretary
Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made by the Company or by the holder of any
Right Certificate to or on the Rights Agent shall be sufficiently given or made
if sent by first-class mail, postage prepaid, addressed (until another address
is filed in writing with the Company) as follows:
The Chase Manhattan Bank
Stock Transfer Department
450 West 33rd Street
New York, NY 10001
Attention: Vice President -- Administration
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
Section 27. Supplements and Amendments. The Company may from
time to time supplement or amend this Agreement without the approval of any
holders of Right Certificates in order to cure any ambiguity, to correct or
supplement any provision contained herein which may be defective or inconsistent
with any other provisions herein, or to make any other provisions with respect
to the Rights which the Company may deem necessary or desirable, any such
supplement or amendment to be evidenced by a writing signed by the Company and
the Rights Agent; provided, however, that from and after such time as any Person
becomes an Acquiring Person, this Agreement shall not be amended in any manner
which would adversely affect the interests of the holders of Rights and further
provided, however, that the Rights Agent shall have no duty or obligation to
execute such amendment or supplement if such amendment or supplement changes or
increases its rights, duties or obligations. Without limiting the foregoing, the
Company may at any time prior to such time as any Person becomes an Acquiring
Person amend this Agreement to lower the thresholds set forth in Sections l(a)
and 3(a) to not less than the greater of (i) the sum of .001% and the largest
percentage of the outstanding Common Shares then known by the Company to be
beneficially owned by any Person (other than the Company, any Subsidiary of the
Company, any employee benefit plan of the Company or any Subsidiary of the
Company, or any entity holding Common Shares for or pursuant to the terms of any
such plan) and (ii) 10%.
Section 28. Successors. All the covenants and provisions of
this Agreement by or for the benefit of the Company or the Rights Agent shall
bind and inure to the benefit of their respective successors and assigns
hereunder.
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<PAGE> 27
Section 29. Benefits of This Agreement. Nothing in this
Agreement shall be construed to give to any person or corporation other than the
Company, the Rights Agent and the registered holders of the Right Certificates
(and, prior to the Distribution Date, the Common Shares) any legal or equitable
right, remedy or claim under this Agreement; but this Agreement shall be for the
sole and exclusive benefit of the Company, the Rights Agent and the registered
holders of the Right Certificates (and, prior to the Distribution Date, the
Common Shares).
Section 30. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
Section 31. Governing Law. This Agreement and each Right
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts to
be made and performed entirely within such State; provided, however, that all
provisions regarding the rights, duties and obligations of the Rights Agent
shall be governed by and construed in accordance with the laws of the Sate of
New York applicable to contracts made and to be performed entirely within such
State.
Section 32. Counterparts. This Agreement may be executed in
any number of counterparts and each of such counterpart shall for all purposes
be deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
Section 33. Descriptive Headings. Descriptive headings of the
several Sections of this Agreement are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions
hereof.
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<PAGE> 28
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and attested, all as of the day and year first
above written.
Attest: GRACE SPECIALTY CHEMICALS, INC.
(TO BE RENAMED W. R. GRACE & CO.)
By______________________________ By________________________________
Title: Title:
Attest: THE CHASE MANHATTAN BANK
By______________________________ By________________________________
Title: Title:
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<PAGE> 29
Exhibit A
FORM OF RIGHT CERTIFICATE
Certificate No. R- ________ Rights
NOT EXERCISABLE AFTER __________ __, 2008 OR EARLIER IF
REDEMPTION OR EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO
REDEMPTION AT $.01 PER RIGHT AND TO EXCHANGE ON THE TERMS SET
FORTH IN THE RIGHTS AGREEMENT.
RIGHT CERTIFICATE
NEW W. R. GRACE & CO.
This certifies that ____________________, or registered
assigns, is the registered owner of the number of Rights set forth above, each
of which entitles the owner thereof, subject to the terms, provisions and
conditions of the Rights Agreement, dated as of __________ __, 1998 (the "Rights
Agreement"), between W. R. Grace & Co., a Delaware corporation (formerly Grace
Specialty Chemicals, Inc.) (the "Company"), and The Chase Manhattan Bank (the
"Rights Agent"), to purchase from the Company at any time after the Distribution
Date (as such term is defined in the Rights Agreement) and prior to 5:00 P.M.,
New York time, on __________ __, 2008 at the office of the Rights Agent
designated for such purpose, or at the office of its successor as Rights Agent,
one hundredth of a fully paid nonassessable share of Series A Junior
Participating Preferred Stock, without par value (the "Preferred Shares"), of
the Company, at a purchase price of $200 per hundredth of a Preferred Share (the
"Purchase Price"), upon presentation and surrender of this Right Certificate
with the Form of Election to Purchase duly and properly executed. The number of
Rights evidenced by this Right Certificate (and the number of hundredths of a
Preferred Share which may be purchased upon exercise hereof) set forth above,
and the Purchase Price set forth above, are the number and Purchase Price as of
__________, 1998, based on the Preferred Shares as constituted at such date. As
provided in the Rights Agreement, the Purchase Price and the number of
hundredths of a Preferred Share which may be purchased upon the exercise of the
Rights evidenced by this Right Certificate are subject to modification and
adjustment upon the happening of certain events.
This Right Certificate is subject to all of the terms,
provisions and conditions of the Rights Agreement, which terms, provisions and
conditions are hereby incorporated herein by reference and made a part hereof
and to which Rights Agreement reference is hereby made for a full description of
the rights, limitations of rights, obligations, duties and immunities hereunder
A-1
<PAGE> 30
of the Rights Agent, the Company and the holders of the Right Certificates.
Copies of the Rights Agreement are on file at the principal executive offices of
the Company and the above-mentioned offices of the Rights Agent.
This Right Certificate, with or without other Right
Certificates, upon surrender at the office of the Rights Agent designated for
such purpose, may be exchanged for another Right Certificate or Right
Certificates of like tenor and date evidencing Rights entitling the holder to
purchase a like aggregate number of Preferred Shares as the Rights evidenced by
the Right Certificate or Right Certificates surrendered shall have entitled such
holder to purchase. If this Right Certificate shall be exercised in part, the
holder shall be entitled to receive upon surrender hereof another Right
Certificate or Right Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate (i) may be redeemed by the Company at a redemption
price of $.01 per Right or (ii) may be exchanged in whole or in part for
Preferred Shares or shares of the Company's Common Stock, par value $.01 per
share.
No fractional Preferred Shares will be issued upon the
exercise of any Right or Rights evidenced hereby (other than fractions which are
integral multiples of one hundredth of a Preferred Share, which may, at the
election of the Company, be evidenced by depositary receipts), but in lieu
thereof a cash payment will be made, as provided in the Rights Agreement.
No holder of this Right Certificate shall be entitled to vote
or receive dividends or be deemed for any purpose to be the holder of the
Preferred Shares or of any other securities of the Company which may at any time
be issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a shareholder of the Company or any right to vote with respect
to the election of directors or upon any matter submitted to shareholder at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of any meeting or other action affecting shareholder (except as
provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Right
Certificate shall have been exercised as provided in the Rights Agreement.
This Right Certificate shall not be valid or obligatory for
any purpose until it shall have been countersigned by the Rights Agent.
A-2
<PAGE> 31
WITNESS the facsimile signature of the proper officers of the
Company and its corporate seal.
Dated as of ___________________.
ATTEST: W. R. GRACE & CO.
____________________________________ By:________________________
Countersigned:
THE CHASE MANHATTAN BANK
By:_________________________________
Authorized Signature
A-3
<PAGE> 32
Form of Reverse Side of Right Certificate
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Right Certificate.)
FOR VALUE RECEIVED ______________________________ hereby
sells, assigns and transfers unto_______________________________________________
(Please print name and address of transferee)
__________________________________________________________________________ this
Right Certificate, together with all right, title and interest therein, and does
hereby irrevocably constitute and appoint _________________________ Attorney, to
transfer the within Right Certificate on the books of the within-named Company,
with full power of substitution.
Dated: _________________
___________________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered
national securities exchange, a member of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office or
correspondent in the United States.
The undersigned hereby certifies that the Rights evidenced by
this Right Certificate are not beneficially owned by an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement).
___________________________________
Signature
A-4
<PAGE> 33
Form of Reverse Side of Right Certificate -- continued
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise
Rights represented by the Right Certificate.)
To: W. R. Grace & Co.
The undersigned hereby irrevocably elects to exercise
__________________ Rights represented by this Right Certificate to purchase the
Preferred Shares issuable upon the exercise of such Rights and requests that
certificates for such Preferred Shares be issued in the name of:
Please insert social security
or other identifying number
________________________________________________________________________________
(Please print name and address)
If such number of Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
________________________________________________________________________________
(Please print name and address)
Dated: ________________
____________________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered
national securities exchange, a member of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office or
correspondent in the United States.
A-5
<PAGE> 34
Form of Reverse Side of Right Certificate -- continued
The undersigned hereby certifies that the Rights evidenced by
this Right Certificate are not beneficially owned by an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement).
____________________________________
Signature
----------------------------------------------------------------------------
NOTICE
The signature in the Form of Assignment or Form of Election to
Purchase, as the case may be, must conform to the name as written upon the face
of this Right Certificate in every particular, without alteration or enlargement
or any change whatsoever.
In the event the certification set forth above in the Form of
Assignment or the Form of Election to Purchase, as the case may be, is not
completed, the Company and the Rights Agent will deem the beneficial owner of
the Rights evidenced by this Right Certificate to be an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement) and such
Assignment or Election to Purchase will not be honored.
A-6
<PAGE> 1
FORM OF EMPLOYEE BENEFITS ALLOCATION AGREEMENT
This EMPLOYEE BENEFITS ALLOCATION AGREEMENT (this
"Agreement"), dated as of [ ], 1998, by and among W. R. Grace & Co., a Delaware
corporation ("Grace"), W. R. Grace & Co.-Conn., a Connecticut corporation and a
wholly owned subsidiary of Grace ("Grace-Conn."), and General Specialty
Chemicals, Inc. (to be renamed W. R. Grace & Co.), a Delaware corporation and a
wholly owned subsidiary of Grace ("New Grace").
RECITALS
A. The Merger Agreement. Grace and Sealed Air Corporation, a
Delaware corporation ("SAC"), have entered into an Agreement and Plan of Merger,
dated as of [ ], 1998 (the "Merger Agreement"), pursuant to which, at the
Effective Time (as defined therein), a wholly owned subsidiary of Grace will
merge with and into SAC, with SAC being the surviving corporation (the
"Merger"), and Grace being renamed Sealed Air Corporation.
B. The Distribution Agreement. The Distribution Agreement
dated as of [ ], 1998, by and among Grace, Grace-Conn. and New Grace (the
"Distribution Agreement") and the Other Agreements (as defined in the
Distribution Agreement) set forth certain transactions that SAC has required as
a condition to its willingness to consummate the Merger, and the purpose of the
Distribution Agreement is to make possible the Merger by divesting Grace of the
businesses and operations to be conducted by New Grace and its subsidiaries,
including New Grace-Conn.
C. The Contribution. Prior to the Effective Time, and subject
to the terms and conditions set forth in the Distribution Agreement, Grace
intends to cause the transfer to a wholly owned subsidiary of Grace-Conn.
("Packco") of certain assets and liabilities of Grace and its subsidiaries
predominantly related to the Packaging Business (the "Contribution"), as
contemplated by the Distribution Agreement and the Other Agreements.
D. The Distribution. Following the Contribution and prior to
the Effective Time, subject to the conditions set forth in the Distribution
Agreement, (i) the capital stock of Packco will be distributed to Grace, (ii)
the capital stock of Grace-Conn. will be contributed to New Grace and (iii) all
of the issued and outstanding shares of the common stock of New Grace (together
with the New Grace Rights, "New Grace Common Stock") will be distributed (the
"Distribution") to the holders as of the Record Date of the common stock of
Grace, par value $.01 per share ("Grace Common Stock"), other than shares held
in the treasury of Grace, on a pro rata basis.
E. This Agreement. This Agreement is one of the Other
Agreements contemplated by the Distribution Agreement, and its purpose is to set
forth the agreement of Grace, Grace-Conn. and New Grace with respect to certain
matters relating to employees and employee benefit plans and compensation
arrangements.
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NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements set forth herein, the
parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. GENERAL. Capitalized terms used but not defined
herein shall have the meanings set forth in the Distribution Agreement or the
Merger Agreement, as applicable. As used in this Agreement, the following terms
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
Agreement: has the meaning assigned to it in the preamble
hereof.
ABO: has the meaning assigned to it in Section 4.01(b).
AICP: the Annual Incentive Compensation Program of Grace.
Alternate Payee: an alternate payee under a domestic relations
order which qualifies under Section 414(p) of the Code and Section 206(d) of
ERISA and which creates or recognizes an alternate payee's right to, or assigns
to an alternate payee, all or a portion of the benefits payable to a participant
under any Plan, or an alternate recipient under a medical child support order
which qualifies under Section 609(a) of ERISA and which creates or recognizes
the existence of an alternate recipient's right to, or assigns to an alternate
recipient the right to, receive benefits for which a participant or beneficiary
is eligible under any Plan.
ASA: has the meaning assigned to it in Section 4.01(b).
Benefit Plan: any Plan established, sponsored or maintained by
any member of the Packco Group, any member of the New Grace Group, or any
predecessor or affiliate of any of the foregoing, existing as of the
Distribution Date or prior thereto, to which any member of the Packco Group or
the New Grace Group contributes, has contributed, is required to contribute or
has been required to contribute, on behalf of any employee of a member of the
Packco Group or a member of the New Grace Group, or under which any employee of
a member of the Packco Group or a member of the New Grace Group, former employee
of a member of the Packco Group or a member of the New Grace Group, or any
beneficiary or dependent thereof, is covered, is eligible for coverage or has
benefits rights.
Change in Control Severance Agreements: the agreements listed
on Schedule I hereto.
Change in Control Severance Plan: the Grace Change in Control
Severance Program for U.S. Employees (April 3, 1996-April 3, 1998).
Current Performance Period: any three-year performance period
under the Grace LTIP that begins before and ends after the Effective Time.
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Current Plan Year: the plan year or fiscal year, to the extent
applicable with respect to any Plan, during which the Distribution Date occurs.
Cypress 401(k) Plans: the Cypress Packaging, Inc. Union
Employees 401(k) Pension Plan and the Cypress Packaging, Inc. 401(k) Retirement
Plan.
Deferred Compensation Plan: the W. R. Grace & Co. Deferred
Compensation Program.
Distribution Agreement: has the meaning assigned to it in the
fourth paragraph hereof.
Employee: with respect to any entity, an individual who is
considered, according to the payroll and other records of such entity, to be
employed by such entity, regardless of whether such individual is, at the
relevant time, actively at work or on leave of absence (including vacation,
holiday, sick leave, family and medical leave, disability leave, military leave,
jury duty, layoff with rights of recall, and any other leave of absence or
similar interruption of active employment that is not considered, according to
the policies or practices of such entity, to have resulted in a permanent
termination of such individual's employment), but excluding any individual who
is, as of the relevant time, on long-term disability leave.
Foreign Plans: has the meaning assigned to it in Section 6.01.
Grace: has the meaning assigned to it in the first paragraph
hereof.
Grace Dependent Care Plan: the W. R. Grace & Co. Dependent
Care Plan.
Grace LTIP: the Grace Long Term Incentive Program.
Grace Medical Expense Plan: the W. R. Grace & Co. Health Care
Reimbursement Account Plan.
Grace Option: an option to purchase shares of Grace Common
Stock granted pursuant to any Grace Stock Incentive Plan.
Grace Severance Pay Plan: the W. R. Grace & Co. Severance Pay
Plan for Salaried Employees, as amended effective July 1, 1996.
Grace Stock Incentive Plans: the Grace 1996 Stock Incentive
Plan, the Grace 1994 Stock Incentive Plan, the Grace 1989 Stock Incentive Plan,
the Grace 1986 Stock Incentive Plan, and the Grace 1981 Stock Incentive Plan.
Hourly Non-Union Retirement Plan: the W. R. Grace & Co.-Conn.
Retirement Plan for Non-Union Employees of Subsidiary Corporations.
Hourly SIP: the W. R. Grace & Co. Hourly Employee Savings and
Investment Plan.
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Insured Foreign Plan: a Foreign Plan that provides retirement
or pension benefits and that is funded through individually allocated insurance
contracts, each of which is identified as such in the Packaging Business
Disclosure Letter to the Merger Agreement.
IRS: the Internal Revenue Service.
Local Actuary: has the meaning assigned to it in Section 6.01.
LTIP Awards: has the meaning assigned to it in Section 3.01(a)
hereof.
Newco Ratio: the amount obtained by dividing (i) the average
of the arithmetic mean between the highest and lowest sales prices of a share of
Grace Common Stock on the New York Stock Exchange Composite Tape on each of the
five trading days immediately preceding the ex-dividend date for the
Distribution, by (ii) the average of the arithmetic mean between the highest and
lowest sales prices of a share of Newco Common Stock on the New York Stock
Exchange Composite Tape on each of the five trading days beginning on the
ex-dividend date for the Distribution.
New Grace Benefit Plan: any Benefit Plan that is sponsored or
maintained by a member of the New Grace Group as of the Distribution Date.
New Grace Employee: any Employee who is allocated to the New
Grace Group pursuant to Section 2.01 of this Agreement and who is not hired by
any member of the Packco Group pursuant to Section 6.11(b) of the Merger
Agreement.
New Grace Participant: any individual who is a New Grace
Employee or a beneficiary, dependent or Alternate Payee of such an individual.
New Grace Ratio: the amount obtained by dividing (i) the
average of the arithmetic mean between the highest and lowest sales prices of a
share of Grace Common Stock on the New York Stock Exchange Composite Tape on
each of the five trading days immediately preceding the ex-dividend date for the
Distribution by (ii) the average of the arithmetic mean between the highest and
lowest sales prices of a share of New Grace Common Stock on the New York Stock
Exchange Composite Tape on each of the five trading days beginning on the
ex-dividend date for the Distribution.
Noninsured Foreign Pension Plan: a Foreign Plan that is a
defined benefit pension plan and is not an Insured Foreign Plan, each Noninsured
Foreign Pension Plan being identified as such in the Packaging Business
Disclosure Schedule to the Merger Agreement.
Packco Benefit Plan: any Benefit Plan that is sponsored or
maintained by a member of the Packco Group following the Distribution Date.
Packco Employee: any Employee who is allocated to the Packco
Group pursuant to Section 2.01 of this Agreement or who is hired by any member
of the Packco Group pursuant to Section 6.11(b) of the Merger Agreement.
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Packco Health Plan: the Blue Cross Blue Shield Health Plan for
Cryovac and Formpac Employees.
Packco Hourly Non-Union Retirement Plan: has the meaning
assigned to it in Section 4.01(d).
Packco Medical and Dependent Care Expense Plan: the Health
Care and Dependent Care Spending Account Plan for Cryovac and Formpac Employees.
Packco Participant: any individual who is a Packco Employee or
a beneficiary, dependent or Alternate Payee of such an individual.
Packco Savings Plan: a Qualified Plan designated by Grace to
receive a transfer of assets from the Hourly SIP and/or the Salaried SIP
pursuant to Section 4.02(b).
Pension Plan: any Benefit Plan that is an "employee pension
benefit plan" (within the meaning of section 3(2) of ERISA), whether or not that
Plan is a Qualified Plan.
Plan: any bonus, incentive compensation, deferred
compensation, pension, profit sharing, retirement, stock purchase, stock option,
stock ownership, stock appreciation rights, phantom stock, company car, fringe
benefit, leave of absence, layoff, vacation, day or dependent care, legal
services, cafeteria, life, health, medical, accident, disability, workman's
compensation or other insurance, severance, separation or other employee benefit
plan, practice, policy or other arrangement of any kind (including, but not
limited to, any "employee benefit plan" (within the meaning of section 3(3) of
ERISA)).
Qualified Plan: any Benefit Plan that is an "employee pension
benefit plan" (within the meaning of section 3(2) of ERISA) and which is
intended to qualify under section 401(a) of the Code.
Salaried Retirement Plan: the W. R. Grace & Co. Retirement
Plan for Salaried Employees.
Salaried SIP: the W. R. Grace & Co. Salaried Employees Savings
and Investment Plan.
Salary Protection Plan: the W.R. Grace & Co. Executive Salary
Protection Plan.
Schurpack 401(k) Plan: the Schurpack Employees 401(k) Thrift
Plan.
SERP: the W. R. Grace & Co. Supplemental Executive Retirement
Plan.
Split Dollar Program: the W. R. Grace & Co. Executive Split
Dollar Life Insurance Program.
Terminated Grace Employee: any individual who is, as of the
Distribution Date, a former Employee of any member of the New Grace Group or the
Packco Group.
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Terminated Grace Participant: a Terminated Grace Employee or a
beneficiary, dependent or Alternate Payee of a Terminated Grace Employee.
Termination Benefits: has the meaning assigned to it in
Section 2.02(a) hereof.
Union Retirement Plan: the Retirement Plan of W. R. Grace &
Co.-Conn. Chemical Group (Cedar Rapids Plant).
U.S. Welfare Plan: a Welfare Plan other than a Welfare Plan
that is maintained outside of the United States primarily for the benefit of
individuals substantially all of whom are nonresident aliens with respect to the
United States.
Welfare Plan: any Benefit Plan that is an "employee welfare
benefit plan" (within the meaning of section 3(1) of ERISA).
ARTICLE II
TRANSFER OF EMPLOYEES; TERMINATION BENEFITS
SECTION 2.01. TRANSFER OF EMPLOYEES. (a) Grace and New Grace
shall take all steps necessary or appropriate so that all of the Employees of
Grace and its subsidiaries are allocated between the New Grace Group and the
Packco Group in accordance with the principles set forth in the Section 2.01(b),
and so that each individual who is so allocated to the Packco Group is, as of
the Distribution Date, an Employee of a member of the Packco Group, and each
other individual who is, as of the Distribution Date, an Employee of Grace or
any of its Subsidiaries is an Employee of a member of the New Grace Group.
(b) In making the allocation provided for in Section 2.01,
Grace and New Grace shall allocate each Employee who is exclusively employed in
the Packaging Business to the Packco Group and each Employee who is exclusively
employed in the New Grace Business to the New Grace Group. All other Employees
shall be allocated in a mutually agreeable manner that, to the extent possible,
takes into account the Employees' expertise, experience and existing positions
and duties and does not unreasonably disrupt either the Packaging Business or
the New Grace Business and maximizes the ability of each of the Packco Group and
the New Grace Group to manage and operate their respective businesses after the
Distribution Date, taking into account the respective needs of such businesses
as established by past practice.
SECTION 2.02. CHANGE OF CONTROL BENEFITS; TERMINATION
BENEFITS. (a) No New Grace Employee and no Packco Employee shall be deemed, as a
result of the steps called for by Section 2.01 or otherwise as a result of the
consummation of the transactions contemplated by the Distribution Agreement and
the Merger, to have become entitled to any benefits under any Benefit Plan,
contract, agreement, statute, regulation or other arrangement that provides for
the payment of severance pay, salary continuation, pay in lieu of notice, unused
vacation pay, or similar benefits in connection with actual or constructive
termination or alleged actual or constructive termination of employment
(collectively, "Termination Benefits"). Without limiting
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the generality of the foregoing, none of the transactions contemplated by the
Distribution Agreement and the Merger Agreement constitute a "change in control"
for purposes of any Benefit Plan. Grace shall take all steps necessary and
appropriate so that any Change in Control Severance Agreement between Grace and
any Packco Employee terminates before the Distribution Date.
(b) All Liabilities (other than for Severance Costs as defined
in Section 8.04 of the Distribution Agreement) relating to or arising out of
claims made by or on behalf of New Grace Participants or Packco Participants
for, or with respect to, Termination Benefits relating to the actual or
constructive termination or alleged actual or constructive termination of
employment of any New Grace Employee or Packco Employee with any member of the
Packco Group or the New Grace Group, which claims arise as a result of the
consummation of the transactions contemplated by the Distribution Agreement,
shall be considered other Transaction Costs that are governed by clause (ii) of
the first sentence of Section 8.04 of the Distribution Agreement.
(c) Except as specifically provided otherwise in Section
2.02(b) above and in Section 8.04 of the Distribution Agreement, effective as of
the Distribution Date, the New Grace Group shall assume or retain, as
appropriate, all Liabilities relating to or arising out of claims made by or on
behalf of New Grace Participants for, or with respect to, Termination Benefits
relating to the actual or constructive termination or alleged actual or
constructive termination of employment of any New Grace Employee with any member
of the Packco Group or the New Grace Group, whether before, on or after the
Distribution Date. In addition, the New Grace Group shall assume or retain, as
appropriate, all Liabilities (including with respect to Packco Employees)
pursuant to the Change in Control Severance Plan and the Change in Control
Severance Agreements.
(d) Except as specifically provided otherwise in Sections
2.02(b) and (c) above and in Section 8.04 of the Distribution Agreement,
effective as of the Distribution Date, the Packco Group shall assume or retain,
as appropriate, all Liabilities relating to or arising out of claims made by or
on behalf of Packco Participants for, or with respect to, Termination Benefits
relating to the actual or constructive termination or alleged actual or
constructive termination of employment of any Packco Employee with any member of
the Packco Group or the New Grace Group, whether before (in the case of
constructive termination), on or after the Distribution Date.
ARTICLE III
INCENTIVE PLANS
SECTION 3.01. GRACE LTIP. (a) The contingent awards for
Current Performance Periods held by New Grace Participants and Packco
Participants (such contingent awards, the "LTIP Awards") under the Grace LTIP
shall be adjusted and paid in cash by New Grace in accordance with such
methodology as New Grace determines in its sole discretion.
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(b) Effective as of the Distribution Date, the New Grace Group
shall assume or retain, as appropriate, all Liabilities relating to or arising
out of awards payable under the Grace LTIP.
SECTION 3.02. GRACE OPTIONS. (a) New Grace shall assume and
adopt, effective as of the Distribution Date, each of the Grace Stock Incentive
Plans, with such changes as may be necessary to reflect the change in the issuer
of awards thereunder and such other changes as New Grace shall, in its sole
discretion, determine. As soon as practicable after and effective as of the
Distribution Date, all Grace Options that are then outstanding shall be adjusted
or replaced as set forth in this Section 3.02, or in such other manner as the
parties hereto shall agree.
(b) Each such Grace Option that is held by a New Grace
Employee or a Terminated Grace Participant shall be replaced with an option (a
"New Grace Option") to acquire a number of New Grace Common Shares that equals
the number of shares subject to such Grace Option immediately before such
replacement, times the New Grace Ratio (rounded up to the nearest whole share),
with a per-share exercise price that equals the per-share exercise price of such
Grace Option immediately before such replacement, divided by the New Grace Ratio
(rounded up to the nearest one hundredth of a cent). Each New Grace Option shall
otherwise have the same terms and conditions as the Grace Option it replaces,
except that references to employment by or termination of employment with Grace
and its affiliates shall be changed to references to employment by or
termination of employment with New Grace and its affiliates. Effective as of the
Distribution Date, New Grace shall assume all Liabilities relating to or arising
under the New Grace Options or the Grace Stock Incentive Plans.
(c) Each such Grace Option that is held by a Packco Employee
shall be adjusted so that the number of Newco Common Shares subject to such
Grace Option equals the number of shares subject to such Grace Option
immediately before such adjustment, times the Newco Ratio (rounded down to the
nearest whole share), and the per-share exercise price equals the per-share
exercise price of such Grace Option immediately before such adjustment, divided
by the Newco Ratio (rounded up to the nearest whole cent). Each Grace Option as
so adjusted shall otherwise have the same terms and conditions as were in effect
before such adjustment. Effective as of the Distribution Date, Grace shall
retain all Liabilities relating to or arising under the Grace Options held by
Packco Employees.
SECTION 3.03. ANNUAL INCENTIVE COMPENSATION PLAN. (a) New
Grace shall pay, or cause to be paid by another member of the New Grace Group,
all bonuses earned by Packco Employees and New Grace Employees for the 1997
calendar year under the AICP, in accordance with the terms of the AICP as
interpreted by New Grace in its sole discretion. Effective as of the
Distribution Date, the New Grace Group shall assume all Liabilities relating to
or arising under the AICP.
(b) Packco Employees shall not be eligible to earn bonuses
under the AICP for 1998 or any subsequent year. However, if the Distribution
Date occurs later than March 31, 1998, then Grace and New Grace shall use
reasonable best efforts to develop and implement an annual incentive program for
Packco Employees, the cost of which will be shared between the
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New Grace Group and the Packco Group in a manner relating to the relative
portions of the 1998 calendar year that precede and follow the Distribution
Date.
ARTICLE IV
PENSION AND SAVINGS PLANS
SECTION 4.01. RETIREMENT PLANS AND SUPPLEMENTAL RETIREMENT
PLAN. (a) Grace, New Grace and Grace-Conn. shall take all steps necessary or
appropriate so that, effective no later than the Distribution Date: (i) one or
more members of the New Grace Group are the sole sponsors of the Salaried
Retirement Plan, the SERP and the Hourly Non-Union Retirement Plan; and (ii) one
or more members of the Packco Group are the sole sponsors of the Union
Retirement Plan. Such steps shall include, without limitation, the appointment
or reappointment by New Grace (by action after the Distribution Date to approve
or ratify such appointment or reappointment) of all named fiduciaries, trustees,
custodians, recordkeepers and other fiduciaries and service providers to the
Salaried Retirement Plan, the SERP and the Hourly Non-Union Retirement Plan, and
the appointment or reappointment by Grace of all named fiduciaries, trustees,
custodians, recordkeepers and other fiduciaries and service providers to the
Union Retirement Plan.
(b) Effective as of the Distribution Date, the Packco
Employees shall cease accruing benefits under the Salaried Retirement Plan, the
SERP and the Hourly Non-Union Retirement Plan. As promptly as practicable
following the Distribution Date, and effective as of the Distribution Date,
Grace intends to implement a program for Packco Employees who participated in
the Salaried Retirement Plan before the Distribution Date designed to
substantially make up for any anticipated material adverse impact on them
resulting from the termination of such participation as of the Distribution
Date. Such program will assume that each such Packco Participant works as an
employee until normal retirement (age 65) and that he or she will achieve a
reasonable investment return on his or her account in the Sealed Air Corporation
Profit Sharing Plan. Upon the implementation of such program by Grace, New Grace
shall (i) cause the Salaried Retirement Plan to be amended so that, effective
immediately before the Distribution Date: (A) the accrued benefit of each Packco
Employee who is a participant therein is increased by crediting such Packco
Employee with an additional year of service; (B) the accrued benefit of each
such Packco Employee who is at least 40 years old as of the Distribution Date is
also increased by an amount equal to the lesser of (x) 13 percent of the amount
of such accrued benefit (after giving effect to the increase described in clause
(A) of this sentence) or (y) the increase that results from crediting such
Packco Employee with an additional four years of service, and (C) the accrued
benefits of all such Packco Employees, as so increased, shall be fully vested as
of the Distribution Date; or (ii) provide additional retirement benefits to such
Packco Employees as a group having, in the aggregate, a value substantially
equivalent to the increased benefits described in clause (i); provided, that the
aggregate expense associated with the benefits described in clause (i) or (ii)
(as applicable) shall be limited to the extent necessary so that the Accrued
Benefit Obligation, calculated in accordance with FAS 87 ("ABO"), of such
benefits does not exceed $15 million. Such ABO shall be determined by Actuarial
Sciences Associates ("ASA")
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in accordance with the actuarial assumptions set forth in Schedule II hereto and
in a manner consistent with past practice with respect to the Salaried
Retirement Plan.
(c) Effective as of the Distribution Date, the New Grace Group
shall assume or retain (as applicable) all Liabilities relating to or arising
under the Salaried Retirement Plan and the SERP, including without limitation
for benefits payable thereunder to Packco Participants. Effective as of the
Distribution Date, the Packco Group shall assume or retain (as applicable) all
Liabilities relating to or arising under the Union Retirement Plan.
(d) (i) Effective immediately after the Effective Time, Grace
shall establish, cause to be established or designate a defined benefit pension
plan (the "Packco Hourly Non-Union Retirement Plan") to provide benefits and
assume liabilities and accept a transfer of assets from the Hourly Non-Union
Retirement Plan, as provided for in this Section 4.01(d).
(ii) As soon as practicable after the Effective Time,
following (A) the receipt by New Grace of a copy of a favorable determination
letter or Grace's certification to New Grace, in a manner reasonably acceptable
to New Grace, that the Packco Hourly Non-Union Retirement Plan is qualified
under Section 401(a) of the Code and the related trust is exempt from taxation
under Section 501(a) of the Code, and (B) the receipt by Grace of a copy of a
favorable determination letter or New Grace's certification to Grace, in a
manner reasonably acceptable to Grace, that the Hourly Non-Union Retirement Plan
is qualified under Section 401(a) of the Code and the related trust is exempt
from taxation under Section 501(a) of the Code, New Grace shall direct the
trustee of the trust funding the Hourly Non-Union Retirement Plan to transfer to
the trustee of the trust established to fund the Packco Hourly Non-Union
Retirement Plan the amount described in Section 4.01(d)(iii) below. Such
transfer shall be in cash unless otherwise agreed by Grace and New Grace. As of
the date of such transfer, and effective immediately after the Effective Time,
the Packco Group and the Packco Hourly Non-Union Retirement Plan shall assume
all Liabilities for benefits payable to Packco Participants under the Hourly
Non-Union Retirement Plan, and the New Grace Group and the Hourly Non-Union
Retirement Plan shall retain no Liabilities for such benefits.
(iii) The amount transferred pursuant to this Section 4.01(d)
shall be an amount equal to (A) less (B), as adjusted by (C); where (A) equals a
portion of the assets of the Hourly Non-Union Retirement Plan having a fair
market value equal to the ABO as of the Distribution Date attributable to Packco
Participants; where (B) equals the aggregate payments made from the trust
funding the Hourly Non-Union Retirement Plan in respect of Packco Participants
from the Effective Time through the date the transfer occurs; and where (C)
equals the amount of the net earnings or losses, as the case may be, from the
Effective Time through the date the transfer occurs, on the average of the daily
balances of the foregoing and based upon the actual rate of return earned by the
Hourly Non-Union Retirement Plan during such period. All of the foregoing
calculations shall be made by ASA in accordance with the assumptions set forth
on Schedule III hereto. Grace shall be entitled to review and comment on such
calculations as ASA is in the process of performing them. Notwithstanding the
foregoing, however, in no event shall the amount so transferred be less than the
amount necessary to comply with, nor more than the
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maximum amount permitted by, Section 414(l) of the Code and the regulations
promulgated thereunder, as determined by ASA.
(iv) Grace, New Grace and Grace-Conn. shall, in connection
with the transfer described in this Section 4.01(d), cooperate in making any and
all appropriate filings required under the Code or ERISA, and the regulations
thereunder and any applicable securities laws, and take all such action as may
be necessary and appropriate to cause such transfers to take place as soon as
practicable after the Effective Time. New Grace and Grace-Conn. agree, during
the period ending with the date of the transfer of assets to the Packco Hourly
Non-Union Retirement Plan, to cause distributions in respect of Packco
Participants to be made in the ordinary course from the Hourly Non-Union
Retirement Plan in accordance with applicable law and pursuant to plan
provisions.
SECTION 4.02. SAVINGS PLANS. (a) Grace, New Grace and
Grace-Conn. shall take all steps necessary or appropriate so that, effective no
later than the Distribution Date: (i) one or more members of the New Grace Group
are the sole sponsors of the Hourly SIP and the Salaried SIP; and (ii) one or
more members of the Packco Group are the sole sponsors of the Cypress 401(k)
Plans and the Schurpack 401(k) Plan. Effective as of the Distribution Date, the
Packco Group shall assume all Liabilities relating to or arising under the
Cypress 401(k) Plans and the Schurpack 401(k) Plan. Such steps shall include,
without limitation, the appointment or reappointment by New Grace (by action
after the Distribution Date to approve or ratify such appointment or
reappointment) of all named fiduciaries, trustees, custodians, recordkeepers and
other fiduciaries and service providers to the Hourly SIP and the Salaried SIP,
and the appointment or reappointment by Grace of all named fiduciaries,
trustees, custodians, recordkeepers and other fiduciaries and service providers
to the Cypress 401(k) Plans and the Schurpack 401(k) Plan.
(b) Each of the transfers provided for in this Section 4.02(b)
shall be implemented only if both Grace and New Grace so agree after the
Distribution Date.
(i) Grace, New Grace and Grace-Conn. shall take all steps
necessary or appropriate in order to transfer to a Packco Savings Plan and the
related trust, as soon as practicable after the Effective Time, all account
balances (including the pre-tax, after-tax and rollover account balances) under
each of the Hourly SIP and the Salaried SIP of all Packco Participants. Such
assets shall be transferred in kind, to the extent elected by New Grace with the
consent of Grace (which consent shall not be unreasonably withheld), and
otherwise shall be made in cash; provided, that in any event, unless the parties
agree otherwise, any outstanding participant loans and FMC American Depositary
Receipts shall be transferred in kind. It is the intention of Grace, New Grace
and Grace-Conn. to carry out such transfer so as to preserve, to the extent
practicable, the investment elections of participants as in effect immediately
before the transfer, unless the parties agree otherwise.
(ii) Grace, New Grace and Grace-Conn. shall cooperate in
making all appropriate filings required under the Code or ERISA, and the
regulations thereunder and any applicable securities laws, implementing all
appropriate communications with participants, main-
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taining and transferring appropriate records, and taking all such other actions
as may be necessary and appropriate to implement the provisions of this Section
4.02(b) and to cause the transfers of assets pursuant to this Section 4.02(b) to
take place as soon as practicable after the Effective Time; provided, that each
of such transfers shall take place only after (A) the receipt by New Grace of a
favorable determination letter or Grace's certification, in a manner reasonably
acceptable to New Grace, that the relevant Packco Savings Plan is qualified
under Section 401(a) of the Code and the related trust is exempt from taxation
under Section 501(a) of the Code, and (B) the receipt by Grace of a favorable
determination letter or New Grace's certification, in a manner reasonably
acceptable to Grace, that the Hourly SIP or the Salaried SIP, as applicable, is
qualified under Section 401(a) of the Code and the related trust is exempt from
taxation under Section 501(a) of the Code.
(c) If Grace and New Grace agree to implement the transfers
provided for in Section 4.02(b), subject to the completion of such transfer and
effective as of the Distribution Date, the members of the Packco Group and the
SAC Savings Plan shall assume all Liabilities to or relating to Packco
Participants relating to or arising under the Hourly SIP and the Salaried SIP.
Effective as of the Distribution Date, the New Grace Group shall assume or
retain (as applicable) all Liabilities relating to or arising under the Hourly
SIP and the Salaried SIP, including without limitation for benefits payable
thereunder to Packco Participants, that are not assumed by the Packco Group and
the relevant Packco Savings Plan pursuant to the preceding sentence.
SECTION 4.03. QUALIFICATION OF PLANS. The New Grace Group
shall be responsible for all Liabilities incurred by the Packco Group as a
result of the failure of any of the Hourly Non-Union Retirement Plan, the Union
Retirement Plan, the Hourly SIP, the Salaried SIP, the Cypress 401(k) Plans or
the Schurpack 401(k) Plan to be qualified under Section 401(a) of the Code on or
before the date assets are transferred from such Plan to a Packco Benefit Plan,
or the date sponsorship of such Plan is assumed by any member of the Packco
Group, as applicable. The Packco Group shall be responsible for all Liabilities
incurred by the New Grace Group as a result of the failure of the Packco Hourly
Non-Union Retirement Plan or any Packco Savings Plan to be qualified under
Section 401(a) of the Code on or before the date assets are transferred to such
Plan from a New Grace Benefit Plan. The parties hereto agree that to the extent
any of them becomes aware that any such Plan fails or may fail to be so
qualified, it shall notify the other parties and the parties shall cooperate and
use best efforts to avoid such disqualification, including using the Internal
Revenue Service's Voluntary Compliance Resolution program or similar programs,
and taking any steps available pursuant to such program to avoid
disqualification, as determined by the party who is made responsible under this
Section 4.03 for the Liabilities that would result from such disqualification
(and the Liabilities for which such party is responsible shall include all costs
and expenses resulting from such steps, including fines, penalties,
contributions, attorneys' fees and expenses and administrative expenses).
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ARTICLE V
WELFARE AND OTHER BENEFITS
SECTION 5.01. BENEFITS FOR ACTIVE EMPLOYEES. (a) Grace, New
Grace and Grace-Conn. shall take all steps necessary or appropriate so that,
effective no later than the Distribution Date, one or more members of the Packco
Group are the sole sponsors of the Packco Health Plan. Such steps shall include,
without limitation, the appointment or reappointment by Grace of all named
fiduciaries, trustees, custodians, recordkeepers and other fiduciaries and
service providers to the Packco Health Plan, to the extent such appointments or
reappointments are necessary.
(b) Effective as of the Distribution Date, the New Grace Group
shall assume or retain (as applicable) all Liabilities relating to or arising
out of claims for benefits under U.S. Welfare Plans by New Grace Participants
and Terminated Grace Participants, whenever such claims are incurred, and (ii)
by Packco Participants to the extent such claims are incurred before the
Distribution Date and reported within 365 days thereafter. Effective as of the
Distribution Date, the Packco Group shall assume or retain (as applicable) all
Liabilities relating to or arising out of all other claims for benefits under
U.S. Welfare Plans by Packco Participants, except as specifically provided in
Section 5.02.
SECTION 5.02. RETIREE WELFARE BENEFITS. Effective as of the
Distribution Date, the New Grace Group shall assume all Liabilities for
providing post-retirement medical and life insurance benefits under U.S. Welfare
Plans sponsored by Grace or any of its subsidiaries before the Distribution Date
or any members of the New Grace Group on or after the Distribution Date, to: (i)
Terminated Grace Participants; (ii) Packco Participants who would have been
eligible to receive such benefits if they had retired at any time on or before
the first anniversary of the Distribution Date (regardless of when they actually
do retire); and (iii) any New Grace Participants who become eligible for such
benefits after the Distribution Date pursuant to the Grace Severance Pay Plan as
a result of a termination of employment as of the Distribution Date. Effective
as of the Distribution Date, the Packco Group shall provide Packco Participants
who retire after the Distribution Date for whom the New Grace has not assumed
Liabilities for providing post-retirement medical and life insurance benefits
pursuant to the preceding sentence with such benefits pursuant to one or more
group insurance or group self-insured programs; provided, that the Packco Group
may require such Packco Participants to bear the entire cost of such benefits,
together with a reasonable fee for their allocable share of the Packco Group's
costs of administering such programs.
SECTION 5.03. SEVERANCE. The Packco Group shall adopt,
effective as of the Distribution Date, and shall maintain in effect without
amendment adverse to participants, at least through the first anniversary of the
Distribution Date, a severance plan providing Packco Employees with severance
benefits as outlined in Exhibit A hereto.
SECTION 5.04. SPLIT DOLLAR PLAN; DEFERRED COMPENSATION PLAN;
SALARY PROTECTION PLAN. Effective as of the Distribution Date, each Packco
Employee who participates in
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the Split Dollar Plan, the Deferred Compensation Plan or the Salary Protection
Plan shall be treated as a terminated participant under such Plan, and shall
have the same options with respect to such Plan as are available to any other
participant in such Plan upon termination of employment, in accordance with the
terms of such Plan as in effect immediately before the Distribution Date.
Effective as of the Distribution Date, the New Grace Group shall assume all
Liabilities relating to or arising under the Split Dollar Plan, the Deferred
Compensation Plan and the Salary Protection Plan.
SECTION 5.05. DEPENDENT CARE AND MEDICAL EXPENSE PLANS. (a)
Grace, New Grace and Grace-Conn. shall take all steps necessary or appropriate
so that, effective no later than the Distribution Date, one or more members of
the New Grace Group are the sole sponsors of the Grace Dependent Care Plan and
the Grace Medical Expense Plan, and the New Grace Group shall assume all
Liabilities under such Plans. Such steps shall include, without limitation, the
appointment or reappointment by New Grace (by action after the Distribution Date
to approve or ratify such appointment or reappointment) of all named
fiduciaries, trustees, custodians, recordkeepers and other fiduciaries and
service providers to such Plans, to the extent such appointments or
reappointments are necessary.
(b) Grace, New Grace and Grace-Conn. shall take all steps
necessary or appropriate so that, effective no later than the Distribution Date,
one or more members of the Packco Group are the sole sponsors of the Packco
Medical and Dependent Care Expense Plan, and the Packco Group shall assume all
Liabilities under such Plan. Such steps shall include, without limitation, the
appointment or reappointment by Grace of all named fiduciaries, trustees,
custodians, recordkeepers and other fiduciaries and service providers to such
Plan, to the extent such appointments or reappointments are necessary. No
employer contributions to such Plan shall be made or promised with respect to
the 1998 plan year unless the parties otherwise agree.
ARTICLE VI
NON-U.S. PLANS
SECTION 6.01. NON-U.S. PLANS GENERALLY. As soon as practicable
after the date of this Agreement, the parties hereto shall enter into one or
more agreements or memoranda of understanding (collectively, the "Foreign Plans
Agreement") regarding the treatment and allocation of Liabilities relating to or
arising under Benefit Plans (the "Foreign Plans") for Employees located outside
the United States, including without limitation expatriates, and to expatriate
employees located in the United States. The Foreign Plans Agreement shall
provide for the treatment of each Foreign Plan, which treatment may include
(without limitation) (i) the retention or assumption of such Foreign Plan by the
Packco Group, (ii) the retention or assumption of such Foreign Plan by the New
Grace Group, or (iii) an allocation of the liabilities and assets (if any) of
the Foreign Plan between a Plan (which may include the Foreign Plan) that is
intended to be maintained by the New Grace Group and a Plan (which may include
the Foreign Plan) that is intended to be maintained by the Packco Group, after
the Distribution Date; provided, that the insurance contracts funding each
Insured Foreign Pension Plan (and any assets related thereto) shall be divided
between the appropriate Packco Benefit Plan and New Grace Benefit Plan by the
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<PAGE> 15
insurer in accordance with applicable law, regulation and practice. Any
transfers of assets or liabilities from a Noninsured Foreign Pension Plan shall
be made on the basis of reasonable methods and assumptions determined by the
local actuarial firm that is, as of the date of this Agreement, serving as the
actuary for such Noninsured Foreign Pension Plan (or another actuarial firm if
the parties hereto so agree) (the "Local Actuary"), in accordance with
applicable legal and regulatory requirements, local practice and the past
practice of Grace; provided, that each of Grace, Grace-Conn. and New Grace shall
be entitled to review such methods and assumptions and object to them if they
are unreasonable, and to review all calculations and determinations of the Local
Actuary for accuracy. It is the intention of the parties hereto that the Packco
Group will assume or retain Liabilities for Packco Employees under Foreign Plans
and that to the extent permitted and practicable under legal and regulatory
requirements and local practice, assets transferred from Noninsured Foreign
Pension Plans pursuant to the Foreign Plans Agreement shall equal the Projected
Benefit Obligation, calculated in accordance with FAS 87, for the liabilities
assumed by Packco Benefit Plans pursuant to the Foreign Plans Agreement.
ARTICLE VII
GENERAL
SECTION 7.01. PRESERVATION OF RIGHTS TO AMEND OR TERMINATE
PLANS AND TO TERMINATE OR CHANGE TERMS OF EMPLOYMENT. No provision of this
Agreement shall be construed as a limitation on the rights of any member of the
Packco Group or the New Grace Group to amend or terminate any Benefit Plan or
other plan, program or arrangement relating to employees. No provision of this
Agreement shall be construed to create a right in any employee or former
employee or beneficiary or dependent of such employee or former employee under a
Benefit Plan which such employee or former employee or beneficiary would not
otherwise have under the terms of the Benefit Plan itself. Nothing contained in
this Agreement shall confer upon any individual the right to remain an employee
of any member of the Packco Group or the New Grace Group or restrain any member
of the Packco Group or the New Grace Group from changing the terms and
conditions of employment of any individual at any time following the
Distribution Date, except as provided in Section 5.03 of this Agreement.
SECTION 7.02. OTHER LIABILITIES; GUARANTEE OF OBLIGATIONS.
Effective as of the Distribution Date, the New Grace Group shall assume or
retain (as applicable) all Liabilities relating to or arising out of claims for
compensation and benefits made by or on behalf of any New Grace Participant,
including salary, wages, bonuses, incentive compensation, severance benefits,
separation pay, accrued sick, holiday, vacation, health, dental or retirement
benefits, or other compensation under applicable law or otherwise, relating to
or arising out of employment by Grace or any of its subsidiaries before the
Distribution Date or employment by any member of the New Grace Group on or after
the Distribution Date. Effective as of the Distribution Date, the Packco Group
shall assume or retain (as applicable) responsibility for all Liabilities
relating to or arising out of claims for compensation and benefits made by or on
behalf of any Packco Participant, including salary, wages, bonuses, incentive
compensation, severance benefits, separation pay, accrued sick, holiday,
vacation, health, dental or retirement benefits, or other compensation under
applicable law or otherwise, relating to or arising out of employment by Grace
or any of its
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<PAGE> 16
subsidiaries before the Distribution Date or employment by any member of the
Packco Group on or after the Distribution Date. Notwithstanding the foregoing,
this Section 7.02 shall not apply to any Liability that is specifically provided
for elsewhere in this Agreement.
SECTION 7.03. ASSUMPTION OF PLANS; TERMINATION OF
PARTICIPATION. Except as specifically provided otherwise in this Agreement,
Grace, New Grace and Grace-Conn. shall take all steps necessary or appropriate
so that, effective no later than the Distribution Date, one or more members of
the New Grace Group are the sole sponsors of all Benefit Plans that are, as of
the date of this Agreement, sponsored by Grace, and the New Grace Group shall
assume or retain (as applicable) all Liabilities relating to or arising under
such Benefit Plans. Such steps shall include, without limitation and where
appropriate, the appointment or reappointment by New Grace (by action after the
Distribution Date to approve or ratify such appointment or reappointment) of all
named fiduciaries, trustees, custodians, recordkeepers and other fiduciaries and
service providers to such Benefit Plans. Except as specifically provided
otherwise in this Agreement or in the agreement provided for in Section 6.01 of
this Agreement, the accrual of benefits by Packco Participants in any New Grace
Benefit Plan shall cease not later than the Distribution Date.
SECTION 7.04. INFORMATION. The parties hereto shall, before
the Distribution Date or as soon as practicable thereafter, provide each other
with all information as may reasonably be requested and necessary to administer
each Benefit Plan effectively in compliance with applicable law. Such
information shall be provided in the form requested if, at the time of such
request, it exists in such form or can readily be converted to such form. If a
request would require a party providing information to incur any expenses in
order to receive advice from any actuary, consultant or consulting firm, the
information need not be provided unless the requesting party reimburses the
party providing the information for all such expenses.
SECTION 7.05. COMPLETE AGREEMENT; COORDINATION WITH TAX
SHARING AGREEMENT. (a) This Agreement, the Exhibits and Schedules hereto and the
agreements and other documents referred to herein, shall constitute the entire
agreement between the parties hereto with respect to the subject matter hereof
(other than the Distribution Agreement, the Merger Agreement and the schedules
and exhibits thereto) and shall supersede all previous negotiations, commitments
and writings with respect to such subject matter.
(b) This Agreement, and not the Tax Sharing Agreement,
constitutes the sole agreement of the parties regarding responsibility for any
excise taxes, penalties or similar levies that may be imposed by any taxing
authority on, or with respect to, any Benefit Plan, except as otherwise
specifically provided in the Tax Sharing Agreement with respect to payroll
taxes.
SECTION 7.06. GOVERNING LAW. This Agreement shall be governed
by and construed and enforced in accordance with the laws of the State of
Delaware (other than the laws regarding choice of laws and conflict of laws that
would apply the substantive laws of any other jurisdiction) as to all matters,
including matters of validity, construction, effect, performance and remedies,
except to the extent preempted by federal law.
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<PAGE> 17
SECTION 7.07. NOTICES. All notices, requests, claims, demands
and other communications hereunder shall be in writing and shall be given as
provided in the Distribution Agreement.
SECTION 7.08. SUCCESSORS AND ASSIGNS; NO THIRD-PARTY
BENEFICIARIES. This Agreement and all of the provisions hereof shall be binding
upon and inure to the benefit of the parties hereto and their successors and
permitted assigns, but neither this Agreement nor any of the rights, interests
and obligations hereunder shall be assigned by any party hereto without the
prior written consent of the other party (which consent shall not be
unreasonably withheld). Without limiting the generality of the foregoing, it is
expressly acknowledged that at the Effective Time, the Certificate of
Incorporation of Grace will be amended (the "Newco Amendment") to change the
name of Grace to "Sealed Air Corporation" and that references herein to "Grace"
include, from and after the Effective Time, such corporation (which is also
referred to in the Merger Agreement as Newco). Accordingly, to the extent this
Agreement calls for the agreement of "Grace" or of "the parties" from and after
the Effective Time, the agreement of Newco (as defined in the Merger Agreement)
will be required. This Agreement is solely for the benefit of the parties hereto
and their Subsidiaries and is not intended to confer, nor shall it confer, upon
any other Persons (including New Grace Participants and Packco Participants) any
rights or remedies hereunder.
SECTION 7.09. AMENDMENT AND MODIFICATION. This Agreement may
be amended, modified or supplemented only by a written agreement signed by all
of the parties hereto.
SECTION 7.10. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SECTION 7.11. INTERPRETATION. The Article and Section headings
contained in this Agreement are solely for the purpose of reference, are not
part of the agreement of the parties hereto and shall not in any way affect the
meaning or interpretation of this Agreement.
SECTION 7.12. INDEMNITY PROCEDURES. The provisions of Article
IV of the Distribution Agreement shall apply with respect to Liabilities
allocated under this Agreement.
SECTION 7.13. SEVERABILITY. If any provision of this Agreement
or the application thereof to any person or circumstance is determined by a
court of competent jurisdiction to be invalid, void or unenforceable, the
remaining provisions hereof, or the application of such provision to persons or
circumstances other than those as to which it has been held invalid or
unenforceable, shall remain in full force and effect and shall in no way be
affected, impaired or invalidated thereby, so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party.
SECTION 7.14. REFERENCES; CONSTRUCTION. References to any
"Article," "Exhibit," "Schedule" or "Section," without more, are to Articles,
Exhibits, Schedules and Sections to or of this Agreement. Unless otherwise
expressly stated, clauses beginning with the term
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<PAGE> 18
"including" set forth examples only and in no way limit the generality of the
matters thus exemplified.
SECTION 7.15. SAC REASONABLE CONSENT. The parties hereto agree
that any actions to be taken by Grace, Grace-Conn. or New Grace to implement the
terms of this Agreement that are not specifically required herein that relate to
Packco or the Packaging Business, and any actions that are to be taken pursuant
to this Agreement only by agreement of the parties, must be reasonably
satisfactory to SAC.
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<PAGE> 19
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above written.
W. R. GRACE & CO.
By:________________________________
Name:
Title:
W. R. GRACE & CO.-CONN.
By:________________________________
Name:
Title:
GENERAL SPECIALTY CHEMICALS, INC.
By:________________________________
Name:
Title:
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<PAGE> 1
FORM OF
TAX SHARING AGREEMENT
BY AND AMONG
W. R. GRACE & CO.,
W. R. GRACE & CO.-CONN.
AND
SEALED AIR CORPORATION
DATED AS OF [ ], 1998
<PAGE> 2
TAX SHARING AGREEMENT
This TAX SHARING AGREEMENT (this "Agreement"), dated as of
__________, 1998, by and among W. R. Grace & Co., a Delaware corporation
("Grace"), W. R. Grace & Co.-Conn., a Connecticut corporation and a wholly owned
subsidiary of Grace ("Grace-Conn."), and Sealed Air Corporation, a Delaware
corporation ("Sealed Air").
RECITALS
WHEREAS, Grace, Packco Acquisition Corp., a Delaware
corporation and a wholly owned subsidiary of Grace, and Sealed Air have entered
into an Agreement and Plan of Merger (the "Merger Agreement");
WHEREAS, Grace, Grace-Conn. and Grace Specialty Chemicals,
Inc., a Delaware corporation and a wholly owned subsidiary of Grace ("New
Grace"), have entered into the Distribution Agreement;
AND WHEREAS, Grace, on behalf of itself and the Packco Group,
and Grace-Conn., on behalf of itself and the New Grace Group, wish to provide
for the allocation between the Packco Group and the New Grace Group of all
responsibilities, liabilities and benefits relating to or affecting Taxes (as
hereinafter defined) paid or payable by either of them for all taxable periods,
whether beginning before, on or after the Distribution Date (as hereinafter
defined) and to provide for certain other matters.
NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements set forth herein, the
parties hereto hereby agree as follows:
ARTICLE I.
DEFINITIONS
Capitalized terms used but not defined herein shall have the
respective meanings assigned to them in the Distribution Agreement or the Merger
Agreement. As used in this Agreement, the following terms shall have the
following meanings (such meanings to be equally applicable to both the singular
and the plural forms of the terms defined):
"Action": as defined in Section 5.3(a).
"Active New Grace Businesses": as defined in Section 5.2(b).
"Active Packo Business": as defined in Section 5.1(b).
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"Adjusted Item": as defined in Section 3.2(a)(v).
"Adjusted Party" means the party for the account of which is
an Adjusted Item.
"Affiliated Group" means the affiliated group of which Grace
is the common parent or any predecessor or successor thereto.
"Code" means the Internal Revenue Code of 1986, as amended,
and shall include corresponding provisions of any subsequently enacted federal
tax laws.
"Conn Prepared Returns": as defined in Section 2.2(a).
"Conn Prior Payments": as defined in Section 3.2(c)(iii).
"Consistency/Basis Disagreement": as defined in Section
2.2(b).
"Corresponding Item": as defined in Section 3.2(a)(v).
"Corresponding Party" means the party for the account of which
is a Corresponding Item.
"Del Prepared Returns": as defined in Section 2.2(a).
"Discontinued Businesses": shall mean (x) the can sealing and
coating portion of the New Grace Business which portion is described in the
proviso to the definition of the Packaging Business and (y) certain other
businesses currently accounted for as discontinued operations.
"Distribution Date" means the date on which the Distribution
occurs. For purposes of this Agreement, the Distribution shall be deemed
effective as of the close of business on the Distribution Date.
"Equity Securities" means any stock or other equity securities
treated as stock for tax purposes, or options, warrants, rights, convertible
debt, or any other instrument or security that affords any Person the right,
whether conditional or otherwise, to acquire stock.
"Final Determination" means the final resolution of liability
for any Tax for a taxable period (i) by a duly executed IRS Form 870 or 870-AD
(or any successor forms thereto), on the date such Form is effective, or by a
comparable form under the laws of other jurisdictions; except that a Form 870 or
870-AD or comparable form that reserves (whether by its terms or by operation of
law) the right of the taxpayer to file a claim for refund and/or the right of
the taxing authority to assert a further deficiency shall not constitute a Final
Determination
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<PAGE> 4
with respect to the right so reserved; (ii) by a decision, judgment, decree, or
other order by a court of competent jurisdiction, which has become final and
unappealable; (iii) by a closing agreement or accepted offer in compromise under
Section 7121 or 7122 of the Code, or comparable agreements under the laws of
other jurisdictions; (iv) by any allowance of a refund or credit in respect of
an overpayment of Tax, but only after the expiration of all periods during which
such refund may be recovered (including by way of offset) by the jurisdiction
imposing Tax; or (v) by any other final disposition, including by reason of the
expiration of the applicable statute of limitations or by mutual agreement of
the parties.
"Foreign Cap" shall mean $3 million.
"Foreign Packco Subsidiary" means a Packco Subsidiary
organized in a foreign jurisdiction.
"Foreign Packco Tax Item" means a Tax Item of a Foreign Packco
Subsidiary arising in the Pre-Distribution Period attributable to the Packaging
Business conducted by such Subsidiary other than any Tax Item of a Foreign
Packco Subsidiary arising as a result of a Foreign Transfer.
"Foreign New Grace Subsidiary" means a New Grace Subsidiary
organized in a foreign jurisdiction.
"Forwarding Party": as defined in Section 4.1.
"Forwarding Responsibilities": as defined in Section 4.1.
"Hypothetical Pre-Distribution Tax": as defined in Section
2.2(d).
"Hypothetical Pre-Distribution Overall Tax Benefit": as
defined in Section 2.2(d).
"Indemnified Amount": as defined in Section 4.1.
"Indemnitee": as defined in Section 4.2(a).
"Indemnitor": as defined in Section 4.2(a).
"Indemnity Issue": as defined in Section 4.2(a).
"Interest": as defined under "Taxes" below.
"IRS" means the Internal Revenue Service.
"New Grace Tax Item" means a Tax Item arising in the
Pre-Distribution Period attributable to (i) New Grace, Grace-Conn., Packco, any
Foreign New Grace Subsidiary, any member of the Affiliated Group which was a
member prior to the Distribution
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<PAGE> 5
Date or any member of the affiliated group for United States federal income tax
purposes of which W. R. Grace & Co., a New York corporation, was the common
parent or (ii) the New Grace Business conducted by any Foreign Packco
Subsidiary.
"Overall Tax Benefit" shall mean, for any taxable period, the
net operating loss, unused credits (taking into account foreign tax credits when
realized regardless of the period for which the associated earnings and profits
were earned) and any other aggregate net unused Tax Benefit not used to reduce
Taxes for the period.
"Packco Prior Payments": as defined in Section 3.2(c)(iii).
"Packaging Tax Item" means a Tax Item attributable to Sealed
Air, any member of the Packco Group or otherwise relating to the Packaging
Business or the Packaging Assets that is not a New Grace Tax Item or a Foreign
Packco Tax Item.
"Payee": as defined in Section 3.2(c).
"Payor": as defined in Section 3.2(c).
"Post-Distribution Period" means the Post-Distribution Taxable
Periods and the portion of any Straddle Period beginning on the date after the
Distribution Date.
"Post-Distribution Taxable Period" means any taxable period
beginning after the Distribution Date.
"Pre-Distribution Period" means the Pre-Distribution Taxable
Periods and the portion of any Straddle Period ending on the Distribution Date.
"Pre-Distribution Schedules": as defined in Section 2.2(b).
"Pre-Distribution Taxable Period" means any taxable period
ending on or before the Distribution Date
"Proceeding" shall mean any audit or other examination,
judicial or administrative proceeding relating to liability for or refunds or
adjustments with respect to Taxes.
"Recipient Group": as defined in Section 4.1.
"Restriction Period" means the period beginning on the date
hereof and ending on the two-year anniversary of the Effective Time.
"Reviewing Party": as defined in Section 5.3(c).
"Ruling/Opinion Exception": as defined in Section 5.1.
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<PAGE> 6
"Sealed Air Parties" means Sealed Air and each of its past,
present or future Affiliates, other than any member of the Packco Group.
"Straddle Period" means a taxable period that includes, but
does not end on, the Distribution Date.
"Substantial Authority": as defined in Section 2.1.
"Tax Benefit" means any item of loss, deduction, credit or any
other Tax Item which decreases Taxes paid or payable.
"Tax Deficiency" means an assessment of Taxes, as a result of
a Final Determination.
"Tax Detriment" means any item of income, gain, recapture of
credit or any other Tax Item which increases Taxes paid or payable.
"Tax-Free Status" means the qualification of the Distribution
(i) as a transaction described in Section 355(a)(1) of the Code, (ii) as a
transaction in which the stock distributed thereby is qualified property for
purposes of Section 355(c)(2) of the Code and (iii) as a transaction in which
each of Grace, Grace-Conn., Packco, New Grace and each member of the New Grace
Group recognizes no income or gain.
"Tax Item" means any item of income, gain, loss, deduction,
credit, recapture of credit or any other item which increases or decreases Taxes
paid or payable, including an adjustment under Code Section 481 resulting from a
change in accounting method.
"Tax Opinions" shall mean the Grace Tax Opinion and the Sealed
Air Tax Opinion.
"Tax Refund" means a refund of Taxes as the result of a Final
Determination.
"Tax Return" means any return, filing, questionnaire,
information return or other document required to be filed, including requests
for extensions of time, filings made with estimated tax payments, claims for
refund and amended returns that may be filed, for any period with any taxing
authority (whether domestic or foreign) in connection with any Tax or Taxes
(whether or not a payment is required to be made with respect to such filing).
"Taxes" means all forms of taxation, whenever created or
imposed, and whether of the United States or elsewhere, and whether imposed by a
local, municipal, governmental, state, foreign, federation or other body, and,
without limiting the generality of the foregoing, shall include income, sales,
use, ad valorem, gross receipts, trade, license, value added, franchise,
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<PAGE> 7
transfer, recording, withholding, payroll, employment, excise, occupation,
unemployment insurance, social security, business license, business
organization, stamp, environmental, premium and property taxes, together with
any related interest, penalties and additions to any such tax, or additional
amounts imposed by any taxing authority (domestic or foreign) (such interest,
penalties, additions and additional amounts, "Interest").
"Transaction Party": as defined in Section 5.3(c).
ARTICLE II.
FILING OF TAX RETURNS
Section 2.1. Manner of Filing. All Tax Returns filed after the
Distribution Date and the Pre-Distribution Schedules shall be prepared on a
basis which is consistent with the consummation of the transactions as set forth
in the Distribution Agreement, the Grace Tax Matters Certificate, the Sealed Air
Tax Matters Certificate, the Tax Opinions and any opinions, rulings, agreements
or written advice relating to Foreign Transfers (in the absence of a controlling
change in law or circumstances) and shall be filed on a timely basis (including
extensions) by the party responsible for such filing under this Agreement. The
Pre-Distribution Schedules and all Tax Returns in respect of a Pre-Distribution
Taxable Period or portion, ending on the Distribution Date of any Straddle
Period, that include any member of the New Grace Group or the Packco Group shall
be prepared on the basis of substantial authority or on a reasonable basis with
(if applicable) appropriate disclosure (each, "Substantial Authority");
provided, however, that such Schedules and Returns shall be prepared on a basis
consistent with the elections (other than elections relating to carrybacks and
carryforwards described in Section 3.3(a)), accounting methods, conventions and
principles of taxation used for the most recent taxable periods of members of
the New Grace Group for which Tax Returns involving similar Tax Items have been
filed, to the extent that a failure to do so would result in a Tax Detriment, or
a reduction in a Tax Benefit, to a member of the Packco Group, as long as such
consistent position has Substantial Authority. All Tax Returns in respect of a
Post-Distribution Taxable Period or portion, beginning after the Distribution
Date, of any Straddle Period, shall be prepared with Substantial Authority;
provided, however, that such Returns shall be prepared on a basis consistent
with the elections (other than elections relating to carrybacks and
carryforwards described in Section 3.3(a)), accounting methods, conventions and
principles of taxation used for the most recent taxable periods of members of
the New Grace Group for which Tax Returns involving similar Tax Items have been
filed, to the extent that a failure to do so would result in a Tax Detriment, or
a reduction in a Tax Benefit, to a member of the other Group, as long as such
consistent position has Substantial Authority. In the event of a conflict with
respect to a Straddle Period between the requirements of the immediately
preceding sentence
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and the second preceding sentence, the second preceding sentence shall prevail.
Subject to the provisions of this Agreement, all decisions relating to the
preparation of Tax Returns shall be made in the sole discretion of the party
responsible under this Agreement for such preparation. Grace shall provide
Grace-Conn. with copies of all Tax Returns filed after the Distribution Date
that relate to any member of the New Grace Group. Grace-Conn. shall provide
Grace with a copy of any portion of a Tax Return necessary to confirm
Grace-Conn.'s entitlement to payment hereunder in respect of a carryback or
refund.
Section 2.2. Pre-Distribution and Straddle Period Tax Returns.
(a) Grace shall prepare and file, or cause to be prepared and
filed, any Tax Returns required to be filed by a member or members of the New
Grace Group or the Packco Group for any Pre-Distribution Taxable Period and any
Straddle Period; provided, however, that Grace-Conn. shall prepare and file, or
cause to be prepared and filed, any Tax Returns relating solely to a member or
members of the New Grace Group or their respective assets or businesses (such
Tax Returns to be prepared and filed, or caused to be prepared and filed, by
Grace, the "Del Prepared Returns", and by Grace-Conn., the "Conn Prepared
Returns", respectively).
(b) With respect to any Del Prepared Return that has not been
filed as of the Distribution Date and relates to a Pre-Distribution Taxable
Period or a Straddle Period, Grace-Conn. shall, 25 calendar days before the due
date (including extensions) for such Return, provide Grace with a schedule
(collectively, the "Pre-Distribution Schedules") detailing the computation of
(i) in the case of a Pre-Distribution Taxable Period, the Tax and/or Overall Tax
Benefit and (ii) in the case of a Straddle Period, the Hypothetical
Pre-Distribution Tax and/or Hypothetical Pre-Distribution Overall Tax Benefit,
in either case, attributable to the member or members of the New Grace Group or
the Packco Group included in such Return. Any Pre-Distribution Schedule relating
to a Pre-Distribution Taxable Period shall be delivered to Grace in the form of
a completed, but unexecuted Tax Return. If Grace so requests, Grace-Conn. shall
discuss with Grace the preparation of, and allow Grace periodically to review
major issues with respect to, any Pre-Distribution Schedule. In the event that
Grace disagrees with any Tax Item reflected (or anticipated to be reflected) on
a Pre-Distribution Schedule and demonstrates (by means of a written explanation
in sufficient detail to permit such conclusion to be verified) its conclusion
that Grace-Conn. has failed to comply with the requirements of the second
sentence of Section 2.1 hereof (a "Consistency/Basis Disagreement"), Grace-Conn.
shall explain its calculation of such Tax Item within 14 days of receipt of
Grace's written explanation. The parties shall attempt in good faith mutually to
resolve any Consistency/Basis
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Disagreements prior to the due date for filing the relevant Tax Return.
(c) Whether or not any Consistency/Basis Disagreements or any
other disagreements relating to a Tax Item on a Pre-Distribution Schedule have
been resolved by the applicable due date, Grace shall (i) prepare the Del
Prepared Returns on the basis of, and in a manner consistent with, the
Pre-Distribution Schedules, (ii) provide Grace-Conn. with a copy of each Del
Prepared Return 14 calendar days before such Return is filed and reflect any
comments thereon provided in good faith by Grace-Conn. and (iii) provide
Grace-Conn. with a copy of each Del Prepared Return two business days after such
Return is filed. In the event that any Consistency/Basis Disagreements relating
to a Pre-Distribution Schedule have not been resolved prior to the filing of the
relevant Tax Return, such disagreements shall be promptly resolved pursuant to
Section 6.7 hereof.
(d) The "Hypothetical Pre-Distribution Tax" shall mean the Tax
that would have been due for the taxable period ending on the Distribution Date
if the Distribution Date were the last day of the taxable period. The
"Hypothetical Pre-Distribution Overall Tax Benefit" shall mean the Overall Tax
Benefit that would have arisen in the taxable period ending on the Distribution
Date if the Distribution Date were the last day of the taxable period. Such Tax
or Overall Tax Benefit shall be computed by determining items of income,
expense, deduction, loss and credit on a "closing of the books" basis,
reflecting tax accounting principles as of the close of business on the
Distribution Date.
Section 2.3. Post-Distribution Tax Returns. Any Tax Return for
a Post-Distribution Taxable Period shall be the responsibility of the New Grace
Group if such Tax Return relates solely to a member or members of the New Grace
Group or their respective assets or businesses, and shall be the responsibility
of the Packco Group if such Tax Return relates solely to a member or members of
the Packco Group or Sealed Air or their respective assets or businesses.
ARTICLE III.
PAYMENT OF TAXES
Section 3.1. Allocation of Tax Liabilities With Respect to
Unfiled Returns.
(a) All Taxes shall be paid by the party responsible under
this Agreement for filing the Tax Return pursuant to which such Taxes are due;
provided, however, that
(i) in the case of Taxes due with respect to
Del Prepared Returns for Pre-Distribution Taxable Periods or Straddle Periods,
Grace-Conn. shall pay Grace the amount, if any,
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of the Tax or Hypothetical Pre-Distribution Tax, as the case may be, if any,
reflected in the Pre-Distribution Schedule relating to such Tax Return
attributable to the member or members of the New Grace Group or the Packco Group
included in such Return. Such payment shall be made, at Grace-Conn.'s
discretion, either in immediately available funds on the morning of the relevant
date when payment is due to the governmental authority in respect of such Tax
Return or, if not in immediately available funds, two business days prior to
such due date. Grace shall forward any such payment that it receives from
Grace-Conn. to the appropriate taxing authority.
(ii) in the case of Del Prepared Returns for
any taxable period, on the relevant date on which payment is due (or a refund is
received) in respect of such Tax Return, Grace shall pay Grace-Conn. the amount,
if any, of the actual reduction in Taxes, or the actual increase in the Tax
refund, that would have been payable or receivable with respect to such Tax
Return but for any Overall Tax Benefit (or Hypothetical Pre-Distribution Tax
Benefit) that is for the account of Grace-Conn. under Section 3.2(a)(iii),
below. In the case of a payment by Grace in respect of a reduction in Taxes,
such payment shall be made in immediately available funds on the morning of the
relevant due date or, if not in immediately available funds, two business days
prior to the due date.
(iii) the parties intend that, in
implementing this Section 3.1(a), payment and reimbursement between the parties
shall reflect the principles of Section 3.2(a).
(b) Notwithstanding anything to the contrary, any Tax Item
resulting from any act or omission not in the ordinary course of business (other
than transactions contemplated by this Agreement, the Distribution Agreement,
the Merger Agreement or the Benefits Agreement) on the part of any member of the
Packco Group or any of the Sealed Air Parties occurring on the Distribution Date
after the Effective Time shall be deemed to arise in a taxable period which
begins after the Distribution Date.
Section 3.2. Indemnities; Redetermined Tax Liabilities. Except
as otherwise provided in Article V:
(a) Indemnities.
(i) Grace-Conn. shall be responsible for (w)
any Tax for a Pre-Distribution Taxable Period (and any Hypothetical
Pre-Distribution Tax for a Straddle Period) of Grace, Grace-Conn., Packco, any
Foreign New Grace Subsidiary, any current or former member of the Affiliated
Group which was a member prior to the Distribution Date or any current or former
member of the affiliated group for United States federal income tax purposes of
which W. R. Grace & Co., a New York corporation,
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was the common parent, (x) any Tax for a Pre-Distribution Taxable Period (and
any Hypothetical Pre-Distribution Tax for a Straddle Period) of a Foreign Packco
Subsidiary attributable to the Packaging Business reflected on a Tax Return
filed by such Subsidiary on or before the Distribution Date or on a
Pre-Distribution Schedule, (y) any Tax of any member of the New Grace Group or a
Foreign Packco Subsidiary, in either case, to the extent attributable to the New
Grace Business and (z) 75% (or if the Packco Group has borne an amount of Tax in
respect of adjustments to Foreign Packco Tax Items (and fees and expenses in
Proceedings relating to such adjustments) that exceeds the Foreign Cap, then
100%) of any increase in Tax of a member of the Packco Group attributable to an
adjustment to a Foreign Packco Tax Item.
(ii) Grace shall be responsible for any
Taxes (x) of any member of the Packco Group or otherwise relating to the
Packaging Business or the Packaging Assets (except to the extent that
Grace-Conn. is responsible for such Taxes pursuant to clause (i) above) and (y)
of any of the Sealed Air Parties, whether arising before, on or after the
Distribution Date.
(iii) Any Overall Tax Benefit (or
Hypothetical Pre-Distribution Overall Tax Benefit) shall be for the account of
Grace-Conn. to the extent that such Overall Tax Benefit (or Hypothetical
Pre-Distribution Overall Tax Benefit) is attributable to (w) Grace, Grace-Conn.,
Packco, any Foreign New Grace Subsidiary, any current or former member of the
Affiliated Group which was a member prior to the Distribution Date or any
current or former member of the affiliated group for United States federal
income tax purposes of which W. R. Grace & Co., a New York corporation, was the
common parent, in each case, for the Pre-Distribution Period, (x) the Packaging
Business of a Foreign Packco Subsidiary for the Pre-Distribution Period
reflected on a Tax Return filed by such Subsidiary on or before the Distribution
Date or on a Pre-Distribution Schedule (other than the Foreign NOLs), (y) a
Pre-Distribution Period of any member of the New Grace Group or a Foreign Packco
Subsidiary, in either case, to the extent attributable to the New Grace Business
(other than the Foreign NOLs) or (z) any adjustment to a Foreign Packco Tax
Item.
(iv) For purposes of determining the amount
for which Grace or Grace-Conn. is responsible for paying the other party, or
entitled to receive from the other party, in the event of any adjustment,
including a Final Determination, of a Tax Item of a Foreign Packaging Subsidiary
(other than a Tax Item that arises as a result of a Foreign Transfer), Tax Items
that are clearly attributable to the Packaging Business or the New Grace
Business, respectively, shall be allocated to such Business and Tax Items that
are not so attributable shall be allocated in the proportion that the earnings
from operations of such Business operated by such Subsidiary bears to the total
earnings from operations of such Subsidiary, as reflected in audited financial
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statements for the most recent, as of the end of such taxable period, full-year
accounting period. Tax Items so allocated shall be treated for all purposes of
this Agreement as attributable to the Business to which they are allocated.
(v) Timing Adjustments. In the event of any
adjustment, including a Final Determination, of a Tax Item (the "Adjusted Item")
which results in a Tax Benefit or Tax Detriment for the account of one party and
a corresponding Tax Detriment or Tax Benefit (the "Corresponding Item") for the
account of the other party, then (I) if the Corresponding Item is a Tax Benefit,
the Corresponding Party shall pay the Adjusted Party and (II) if the
Corresponding Item is a Tax Detriment, the Adjusted Party shall pay the
Corresponding Party, in either case, for each taxable period in which a member
of the Group of the party entitled to payment under this Section 3.2(a)(v)
actually realizes the Tax Benefit, in the case of (I), or the Tax Detriment, in
the case of (II), by reason of the adjustment, an amount equal to such realized
Tax Benefit, in the case of (I), or realized Tax Detriment, in the case of (II),
including interest (computed at a 5% annual rate) from the original due date
(without extensions) for filing of the Return for such taxable period through
the date of payment under this Section 3.2(a)(v).
(b) Final Determinations. In the case of any Final
Determination regarding a Tax Return, any Tax Deficiency shall be paid to the
appropriate taxing authority by, and any Tax Refund received from the
appropriate taxing authority shall be paid to, the party which filed such
Return; provided, however, that whether or not there is a Tax Deficiency or Tax
Refund and whether or not a payment is required to or from the appropriate
taxing authority, Grace shall make payments to, or receive payments from,
Grace-Conn. based upon the following principles:
(i) Grace-Conn. shall make a payment to
Grace in an amount equal to (x) any increase in the Tax of any of the Sealed Air
Parties or any member of the Packco Group resulting from any adjustment to a New
Grace Tax Item and (y) 75% (or, if the Packco Group has borne an amount of Tax
in respect of adjustments to Foreign Packco Tax Items (and fees and expenses in
Proceedings relating to such adjustments) that exceeds the Foreign Cap, then
100%) of any increase in the Tax of any of the Sealed Air Parties or any member
of the Packco Group resulting from any adjustment to a Foreign Packco Tax Item,
in either case (x) or (y), together with any Interest relating thereto that is
or has been imposed by the relevant taxing authority (or would have been imposed
but for an offsetting Packaging Tax Item).
(ii) Grace shall pay to Grace-Conn. an
amount equal to (x) any decrease in the Tax of any of the Sealed Air Parties or
any member of the Packco Group resulting from any adjustment to a New Grace Tax
Item and (y) any decrease in the Tax of any of the Sealed Air Parties or any
member of the Packco Group resulting from any adjustment to a Foreign Packco Tax
Item,
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in either case (x) or (y), together with any Interest relating thereto that is
or has been paid by the relevant taxing authority (or would have been paid but
for an offsetting Packaging Tax Item).
(iii) The parties intend that, in
implementing this Section 3.2(b), payment and reimbursement between the parties
shall reflect the principles of Section 3.2(a).
(iv) Payments otherwise required to be made
under this Section 3.2(b) with respect to a single Final Determination shall be
netted and offset against each other so that either Grace shall make a payment
to Grace-Conn. or Grace-Conn. shall make a payment to Grace, but not both.
(c) Calculation and Payment of Amounts.
(i) All calculations and determinations
required to be made pursuant to this Article III shall initially be made by the
party obligated to make such payment (the "Payor") in its good faith. If the
party entitled to receive a payment (the "Payee") so requests, the Payor shall
present its calculations and determinations to the Payee in writing. The Payee
shall be deemed to consent to such calculations and determinations unless the
Payee notifies the Payor in writing within 30 days of receiving such
calculations and determinations. If the Payee disagrees with the Payor's
calculations and determinations, the parties shall attempt in good faith
mutually to resolve the disagreement. In the event that they cannot so resolve
the disagreement, it shall be resolved promptly pursuant to Section 6.7 hereof.
(ii) For all tax purposes, the parties
hereto agree to treat, and to cause their respect affiliates to treat, (x) any
payment required to be paid to a member of the other Group by this Agreement as
an adjustment to the portion of the New Grace Capital Contribution that is
contributed from Grace to New Grace and (ii) any payment of interest or Taxes
(other than U.S. Federal income taxes) by or to a taxing authority as taxable or
deductible, as the case may be, to the party entitled under this Agreement to
retain such payment or required under this Agreement to make such payment, in
either case except as otherwise mandated by the law or a Final Determination. In
the event of such a Final Determination, the payment in question shall be
adjusted to place the parties in the same after-tax position that they would
have enjoyed absent such Final Determination. Any payment required by this
Agreement that is not made on or before the date required hereunder shall bear
interest, from and after such date through the date of payment, at the
appropriate market interest rate.
(iii) Payment of any amount required to be
made pursuant to this Article III as a result of a Final
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Determination shall become due and payable after such Final Determination has
been made within ten business days of the receipt of written notice from the
party entitled to receive such payment to the party required to make such
payment. Any amounts required to be paid in respect of Taxes or Overall Tax
Benefits pursuant to this Article III shall be adjusted to avoid duplication of
payments and to take into account the sum of any payments previously made by any
member of the Packco Group on or prior to the Distribution Date or by
Grace-Conn. or any other member of the New Grace Group at any time in respect of
such Taxes or Overall Tax Benefits (the "Conn Prior Payments") and the sum of
any payments previously made by any member of the Packco Group after the
Distribution Date in respect of such Taxes or Overall Tax Benefits (the "Packco
Prior Payments"). Appropriate payments will be made between the parties in the
event that the Conn Prior Payments or the Packco Prior Payments, respectively,
exceed the amounts for which Grace-Conn. or Packco, respectively, is responsible
under the principles of Section 3.2(a).
(d) Other Tax Liabilities and Refunds. Any Tax or Tax refund
that is not otherwise covered by Section 3.1 or 3.2(b) shall be allocated, and
payment shall be made by Grace-Conn. or Grace, using the principles of Sections
3.2(a); provided, however, that any Tax refund (whether or not governed by
Section 3.1 or 3.2(b)) arising as a result of an adjustment of a Foreign Packco
Tax Item shall be allocated in the same manner and to the same extent as Taxes
and expenses in respect of adjustments of Foreign Packco Tax Items have been
borne (it being agreed and understood that to the extent that the Foreign Cap
has been exceeded, such refund shall be entirely for the benefit of Grace-Conn.
and to the extent that refunds are shared 75% by Grace-Conn. and 25% by Grace
the Foreign Cap shall be increased by the amount refunded to Grace). Any Tax
refund received by one party that is for the account of the other party shall be
paid to such other party promptly upon receipt thereof. Any Tax paid by one
party that is the responsibility of the other party shall be reimbursed promptly
by the other party.
Section 3.3. Carrybacks and Refund Claims. (a) Any Tax refund
resulting from the carryback by any member of the New Grace Group of any Tax
Item arising after the Distribution Date to a Pre-Distribution Taxable Period or
a Straddle Period shall be for the account of Grace-Conn., and Grace shall
promptly pay over to Grace-Conn. any such Tax refund that it receives. In the
event that a member of the New Grace Group, on the one hand, and a member of the
Packco Group or a Sealed Air Party, on the other hand, are each entitled to
carryback a Tax Item to a Pre-Distribution Taxable Period or a Straddle Period,
the respective Tax Items shall be utilized under the rules of applicable law
(which shall be, in the case of carrybacks to such periods of the Affiliated
Group and carrybacks under foreign or State law with respect to which there is
no applicable rule regarding the priority of such utilization, the rules
contained in Treasury Regulation Section 1.1502-21T). Any election affecting the
carryback
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or carryforward of any Tax Item of any member of the New Grace Group, or a
payment to or by such a member under this Agreement in respect of a carryback or
carryforward, including the elections under Section 172(b)(3) of the Code and
Treasury Regulation Section 1.1502-21T(b)(3) and 1.172-13(c) with respect
to the taxable years of the Affiliated Group that begin on each of January 1,
1997, and January 1, 1998, shall not be made without the consent of Grace-Conn.
and shall be made if Grace-Conn. so requests.
(b) Grace-Conn. shall be permitted to file, and Grace shall
fully cooperate with Grace-Conn. in connection with, any refund claim. To the
extent that such a refund claim (other than a claim arising from a carryback)
does not result in a Tax refund (or would not result in a refund if a claim were
filed) as the result of an offsetting Packaging Tax Item (including a Packaging
Tax Item carried back to a Pre-Distribution Taxable Period or a Straddle
Period), Grace shall remit to Grace-Conn. the amount of any decrease in Tax that
results or would have resulted from such refund claim.
Section 3.4. Liability for Taxes with Respect to
Post-Distribution Periods. Unless otherwise specifically provided in this
Agreement or the Distribution Agreement, the New Grace Group shall pay all Taxes
and shall be entitled to receive and retain all refunds of Taxes with respect to
periods beginning after the Distribution Date which are attributable to the New
Grace Business. Unless otherwise provided in this Agreement, the Packco Group
shall pay all Taxes and shall be entitled to receive and retain all refunds of
Taxes with respect to periods beginning after the Distribution Date which are
attributable to the Packaging Business.
ARTICLE IV.
INDEMNITY, COOPERATION AND EXCHANGE OF INFORMATION
Section 4.1. Breach. Grace-Conn. shall be liable for and shall
indemnify, defend and hold harmless the Packco Indemnitees from and against, and
Grace shall be liable for and shall indemnify, defend and hold harmless the New
Grace Indemnitees from and against, any payment required to be made as a result
of the breach by a member of the New Grace Group or the Packco Group,
respectively, of any obligation under this Agreement. If any member of the
Packco Group or the New Grace Group, fails to comply in any respect whatsoever
with any of its responsibilities under this Agreement relating to promptly
forwarding to any member of the other Group (the "Recipient Group") any
communications with and refunds received from any taxing authority ("Forwarding
Responsibilities"), then Grace or Grace-Conn., as the case may be, (the
"Forwarding Party") shall be liable for and shall indemnify and hold the New
Grace Indemnitees or the Packco Indemnitees, as the case may be, harmless from
and against any costs or expenses (including,
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without limitation, Taxes and reasonably incurred lawyers' and accountants'
fees) ("Indemnified Amount") incurred by or imposed upon any member of the
Recipient Group arising out of, in connection with or relating to such
communication; provided, however, that the liability of the Forwarding Party
with respect to any one such failure shall be equal to that portion of the
Indemnified Amount that a member of the Recipient Group demonstrates is caused
(directly or indirectly) by such failure.
Section 4.2. Contests. (a) Whenever a party hereto (the
"Indemnitee") becomes aware of the existence of an issue that could increase the
liability for any Tax, or decrease the amount of any refund, of the other party
hereto or any member of its Group or require a payment hereunder (an "Indemnity
Issue"), the Indemnitee shall in good faith promptly give notice to such other
party (the "Indemnitor") of such Indemnity Issue. The failure of any Indemnitee
to give such notice shall not relieve any Indemnitor of its obligations under
this Agreement, except to the extent that such Indemnitor or its affiliate is
actually materially prejudiced by such failure to give notice.
(b) The Indemnitor and its representatives, at the
Indemnitor's expense, shall be entitled to participate (i) in all conferences,
meetings or proceedings with any taxing authority, the subject matter of which
is or includes an Indemnity Issue in respect of a Pre-Distribution Period and
(ii) in all appearances before any court, the subject matter of which is or
includes an Indemnity Issue in respect of a Pre-Distribution Period.
(c) Except as provided in Section 4.2(d), Grace-Conn. shall
have the right to decide as between the parties hereto how any Indemnity Issue
for a Pre-Distribution Taxable Period is to be dealt with and finally resolved
with the appropriate taxing authority and shall control all Proceedings relating
thereto. Grace agrees to cooperate with Grace-Conn. in the settlement of any
such Indemnity Issue; provided, however, that Grace-Conn. shall act in good
faith in the conduct of such Proceedings and shall keep Grace reasonably
informed of any developments which can reasonably be expected to affect
adversely Grace. Such cooperation shall include permitting Grace-Conn. to
litigate or otherwise resolve any such Indemnity Issue. It is expressly the
intention of the parties to this Agreement to take, and the parties shall take,
all actions necessary to establish Grace-Conn. as the sole agent for Tax
purposes of each member of the Affiliated Group, as if Grace-Conn. were the
common parent of the Affiliated Group, with respect to all combined,
consolidated and unitary Tax Returns of the Affiliated Group for the
Pre-Distribution Taxable Periods.
(d) The parties jointly shall represent the interests of (i)
the Affiliated Group in any Proceeding relating to any Straddle Period and (ii)
any Foreign Packco Subsidiary in any Proceeding relating to any taxable period
that involves an Indemnity Issue. Neither party shall settle any dispute
relating
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to any such period without the consent of the other party (which consent shall
not be unreasonably withheld); provided, however, that if either party proposes
a settlement and the other party does not consent thereto, the nonconsenting
party shall assume control of the Proceeding (and bear all subsequently incurred
costs, fees and expenses relating thereto) and the respective liabilities of the
parties shall be determined pursuant to Section 6.7 based on the magnitude and
likelihood of success of the issues involved in the Proceeding, the
reasonableness of the settlement offer, the expense of continuing the Proceeding
and other relevant factors. Any other disputes regarding the conduct or
resolution of any such Proceeding shall be resolved pursuant to Section 6.7. All
costs, fees and expenses paid to third parties in the course of such Proceeding
shall be borne by the parties in the same ratio as the ratio in which, pursuant
to the terms of this Agreement, the parties would share the responsibility for
payment of the Taxes asserted by the taxing authority in its claim or assessment
if such claim or assessment were sustained in its entirety; provided, however,
that in the event that any party hereto retains its own advisors or experts in
connection with any Proceeding, the costs and expenses thereof shall be borne
solely by such party.
Section 4.3. Cooperation and Exchange of Information.
(a) Grace shall, and shall cause each appropriate member of
the Packco Group to, prepare and submit to Grace-Conn., as soon as practicable,
but in no event later than the date that is 30 days after a request from
Grace-Conn. (i) all information as Grace-Conn. shall reasonably request to
enable Grace-Conn. to file any Conn Prepared Return or prepare any
Pre-Distribution Schedule (which information shall be provided in the form and
of the quality in which comparable information was provided prior to the
Distribution) and (ii) any Del Prepared Return (including any amended return)
for any year within the carryback or carryforward period for an Overall Tax
Benefit or Hypothetical Pre-Distribution Overall Tax Benefit that is for the
account of Grace-Conn. or for any year with respect to which Grace is entitled
to a payment under Section 3.2(a)(v). Grace-Conn. shall bear any out-of-pocket
marginal expense paid by any member of the Packco Group in preparing and
submitting such information in respect of a Pre-Distribution Schedule relating
to a Pre-Distribution Taxable Period, and the parties shall share equally any
such expenses in respect of a Pre-Distribution Schedule relating to a Straddle
Period.
(b) Each party on behalf of itself and each member of its
Group, agrees to provide the other party and the members of such party's Group
with such cooperation and information as the second party or its Group members
shall reasonably request in connection with the preparation or filing of any Tax
Return, Pre-Distribution Schedule or claim for refund not inconsistent with this
Agreement or in conducting any Proceeding in respect of Taxes. Such cooperation
and information shall include, without
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limitation, (i) execution and delivery of a power of attorney by Grace or any
other member of the Packco Group to Grace-Conn. or another member of the New
Grace Group or designation of an officer of Grace-Conn. or another member of the
New Grace Group as an officer of Grace or any other member of the Packco Group
for the purpose of signing Tax Returns, cashing refund checks and conducting
Proceedings if Grace Conn. could not otherwise exercise its rights under this
Agreement with respect to such Returns, refunds or Proceedings, (ii) promptly
forwarding copies of appropriate notices and forms or other communications
received from or sent to any taxing authority which relate to the Affiliated
Group, the Packaging Business or the New Grace Business and (iii) providing
copies of all relevant portions of Tax Returns, accompanying schedules, related
workpapers, documents relating to rulings or other determinations by taxing
authorities, including, without limitation, foreign taxing authorities, and
records concerning the ownership and Tax basis of property, which either party
may possess. Each party shall make, and shall cause the members of the Packco
Group to make, their employees and facilities available on a mutually convenient
basis to provide explanation of any documents or information provided hereunder.
(c) Grace and Grace-Conn. agree to retain all Tax Returns,
related schedules and workpapers, and all material records and other documents
as required under Section 6001 of the Code and the regulations promulgated
thereunder relating thereto existing on the date hereof or created through the
Distribution Date, until the expiration of the statute of limitations (including
extensions) of the taxable years to which such Tax Returns and other documents
relate and until the Final Determination of any payments which may be required
in respect of such years under this Agreement. Grace-Conn. and Grace agree to
advise each other promptly of any such Final Determination. Any information
obtained under this Section shall be kept confidential, except as may be
otherwise necessary in connection with the filing of Tax Returns or claims for
refund or in conducting any audit or other proceeding.
(d) If (i) any member of the Packco Group fails to provide any
information requested pursuant to this Section 4.3(a) by the dates and in the
manner specified in Section 4.3(a) hereof or (ii) with respect to information
not requested pursuant to Section 4.3(a) hereof, any member of either Group
fails to provide any information requested pursuant to this Section 4.3, within
a reasonable period, then the requesting party shall have the right to engage a
"Big Six" public accounting firm of its choice to gather such information. Each
party agrees upon two business days' notice, in the case of a failure to provide
information pursuant to Section 4.3 hereof to permit any such "Big Six" public
accounting firm full access to all appropriate records or other information in
the possession of any member of the party's Group during reasonable business
hours, and promptly
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to reimburse or pay directly all costs and expenses in connection with the
engagement of such public accountants.
(e) If any member of either Group supplies information
pursuant to this Agreement and an officer of any member of the other Group signs
a statement or other document under penalties of perjury in reliance upon the
accuracy of such information and so requests, then a duly authorized officer of
the member supplying such information shall certify, under penalties of perjury,
the accuracy and completeness of the information so supplied. Grace agrees to
indemnify and hold harmless each New Grace Indemnitee, and Grace-Conn. agrees to
indemnify and hold harmless each Packco Indemnitee, from and against any cost,
fine, penalty or other expense of any kind attributable to the gross negligence
or willful misconduct of a member of the Packco Group, or New Grace Group, as
the case may be, in supplying a member of the other Group with inaccurate or
incomplete information.
ARTICLE V.
CERTAIN POST-DISTRIBUTION TRANSACTIONS
Section 5.1. Sealed Air and Packco Group Covenants.
Unless, in the case of any of Sections 5.1(a) through (f)
below, Grace has obtained a ruling letter from the IRS or an opinion of
nationally recognized counsel to Grace, in either case, to the effect that,
without material qualification, such act or omission will not adversely affect
the federal income tax consequences of the Distribution to any of Grace,
Grace-Conn. or the stockholders of Grace-Conn., as set forth in the Tax
Opinions, and the substance of, and basis for, such conclusion in such ruling or
opinion is reasonably satisfactory to Grace-Conn. in its good faith solely with
regard to preserving the Tax-Free Status of the Distribution (the
"Ruling/Opinion Exception"):
(a) No Sealed Air Party at any time nor any member of the
Packco Group at any time after the Effective Time shall take any action, or fail
or omit to take any action, that would cause any representation made in the
Sealed Air Tax Matters Certificate or the Grace Tax Matters Certificate to be
untrue in a manner that would have an adverse effect on the Tax-Free Status of
the Distribution.
(b) Until the first day after the Restriction Period, the
Packco Group shall continue the active conduct of the Packaging Business (the
"Active Packco Business"). The Packco Group shall not liquidate, dispose of, or
otherwise discontinue the conduct of any material portion of the Active Packco
Business. The Packco Group shall continue the active conduct of the Packaging
Business primarily through officers and employees of the Packco Group (and not
through independent contractors).
(c) Until the first day after the Restriction Period,
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no Sealed Air Party nor any member of the Packco Group shall sell or otherwise
issue to any Person, or redeem or otherwise acquire from any Person (other than
any member of the Packco Group), any Equity Securities of Grace or any other
member of the Packco Group; provided, however, that purchases that, in the
aggregate, meet the requirements of Section 4.05(1)(b) of Revenue Procedure
96-30 shall not constitute a redemption or acquisition of stock of Grace for
purposes of this Section 5.1(c).
(d) Until the first day after the Restriction Period, no
Sealed Air Party nor any member of the Packco Group shall (i) solicit any Person
to make a tender offer for, or otherwise acquire or sell, the Equity Securities
of Grace, (ii) participate in or support any unsolicited tender offer for, or
other acquisition or disposition of, the Equity Securities of Grace or (iii)
approve or otherwise permit any proposed business combination or any transaction
which, in the case of (i), (ii) or (iii), individually or in the aggregate,
together with the transactions contemplated under the Distribution Agreement,
the Merger Agreement, the Benefits Agreement and this Agreement, results in one
or more Persons acquiring (other than in acquisitions not taken into account for
purposes of Section 355(e)) directly or indirectly stock representing a 50
percent or greater interest (within the meaning of Section 355(e) of the Code)
in Grace. In addition, no Sealed Air Party nor any member of the Packco Group
shall at any time, whether before or subsequent to the expiration of the
Restriction Period, engage in any action described in clauses (i), (ii) or (iii)
of the preceding sentence if it is pursuant to an arrangement negotiated (in
whole or in part) prior to the Distribution, even if at the time of the
Distribution it is subject to various conditions, nor shall any such Party or
member take any action, or fail or omit to take any action, that would cause
Section 355(d) or (e) to apply to the Distribution.
(e) Until the first day after the Restriction Period, no
Sealed Air Party nor the members of the Packco Group shall sell, transfer, or
otherwise dispose of or agree to dispose of assets (including, for such purpose,
any shares of capital stock of a Subsidiary) that, in the aggregate, constitute
more than 60% of the gross assets of Packco, nor shall they sell, transfer, or
otherwise dispose of or agree to dispose of assets (including, for such purpose,
any shares of capital stock of a Subsidiary) that, in the aggregate, constitute
more than 60% of the consolidated gross assets of the Packco Group. The
foregoing sentence shall not apply to sales, transfers, or dispositions of
assets in the ordinary course of business. The percentages of gross assets or
consolidated gross assets of Packco or the Packco Group, as the case may be,
sold, transferred, or otherwise disposed of, shall be based on the fair market
value of the gross assets of Packco and the Packco Group as of the Effective
Time, and for this purpose, the values set forth in the Packaging Business
Disclosure Letter Balance Sheet shall be conclusive.
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(f) Until the first day after the Restriction Period, neither
Packco nor its Subsidiaries shall voluntarily dissolve or liquidate or engage in
any merger, consolidation or other re-organization. The foregoing sentence shall
not apply to trans-actions in which Packco acquires another corporation, limited
liability company, limited partnership, general partner-ship or joint venture
solely for cash or other consideration that is not Equity Securities.
Reorganizations of Packco with its Affiliates, and liquidations of Packco's
Affiliates, are not subject to Section 5.1(b) or this Section 5.1(f) to the
extent not inconsistent with the structure necessary for the Distribution to
qualify for Tax-Free Status.
(g) Until the first day after the Restriction Period, Grace
shall furnish Grace-Conn. with a copy of any ruling request that Sealed Air,
Grace or any of their Affiliates may file with the IRS and any opinion received
that relates to or otherwise reasonably could be expected to have an effect on
the Tax-Free Status of the Distribution.
Section 5.2. New Grace Covenants.
Unless, in the case of any of Sections 5.2(a) through (e)
below, Grace-Conn. has obtained a ruling letter from the IRS or an opinion of
nationally recognized counsel to Grace-Conn., in either case, to the effect
that, without material qualification, such act or omission will not adversely
affect the federal income tax consequences of the Distribution to any of Grace,
Grace-Conn. or the stockholders of Grace-Conn., as set forth in the Tax
Opinions, and the substance of, and basis for, such conclusion in such ruling or
opinion is reasonably satisfactory to Grace in its good faith solely with regard
to preserving the Tax-Free Status of the Distribution:
(a) No member of the New Grace Group shall take any action, or
fail or omit to take any action, that would cause any representation made in the
Sealed Air Tax Matters Certificate or the Grace Tax Matters Certificate to be
untrue in a manner that would have an adverse effect on the Tax-Free Status of
the Distribution.
(b) Until the first day after the Restriction Period, the New
Grace Group shall continue the active conduct of one of the Active New Grace
Businesses. "Active New Grace Businesses" shall mean each of the Grace Davison
business and the Grace Construction Business. The New Grace Group may dispose
of, liquidate or discontinue the conduct of the Grace Davison business or the
Grace Construction Products business if it actively continues the conduct of the
other. The New Grace Group shall continue the active conduct of at least one of
the Active New Grace Businesses primarily through officers and employees of the
New Grace Group (and not through independent contractors).
(c) Until the first day after the Restriction Period,
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no member of the New Grace Group shall sell or otherwise issue to any Person, or
redeem or otherwise acquire from any Person (other than any member of the New
Grace Group), any Equity Securities of New Grace or any other member of the New
Grace Group; provided, however, that purchases that, in the aggregate, meet the
requirements of Section 4.05(1)(b) of Revenue Procedure 96-30 shall not
constitute a redemption or acquisition of stock of New Grace for purposes of
this Section 5.2(c).
(d) Until the first day after the Restriction Period, no
member of the New Grace Group shall (i) solicit any Person to make a tender
offer for, or otherwise acquire or sell, the Equity Securities of New Grace,
(ii) participate in or support any unsolicited tender offer for, or other
acquisition or disposition of, the Equity Securities of New Grace or (iii)
approve or otherwise permit any proposed business combination or any transaction
which, in the case of (i), (ii) or (iii), individually or in the aggregate,
together with the transactions contemplated under the Distribution Agreement,
the Merger Agreement, the Benefits Agreement and this Agreement, results in one
or more Persons acquiring (other than in acquisitions not taken into account for
purposes of Section 355(e)) directly or in-directly stock representing a 50
percent or greater interest (within the meaning of Section 355(e) of the Code)
in New Grace. In addition, no member of the New Grace Group shall at any time,
whether before or subsequent to the expiration of the Restriction Period, engage
in any action described in clauses (i), (ii) or (iii) of the preceding sentence
if it is pursuant to an arrangement negotiated (in whole or in part) prior to
the Distribution, even if at the time of the Distribution it is subject to
various conditions, nor shall any such member take any action, or fail or omit
to take any action, that would cause Section 355(d) or (e) of the Code to apply
to the Distribution.
(e) Until the first day after the Restriction Period, no
member of the New Grace Group shall sell, transfer, or other-wise dispose of or
agree to dispose of assets (including, for such purpose, any shares of capital
stock of a Subsidiary) that, in the aggregate, constitute more than 60% of the
gross assets of New Grace, nor shall they sell, transfer, or otherwise dispose
of or agree to dispose of assets (including, for such purpose, any shares of
capital stock of a Subsidiary) that, in the aggregate, constitute more than 60%
of the consolidated gross assets of the New Grace Group. The foregoing sentence
shall not apply to sales, transfers, or dispositions of assets in the ordinary
course of business or to a sale, transfer or disposition of any or all of the
Discontinued Businesses and either of the Active New Grace Businesses; provided,
however, that in the event of a sale, transfer or disposition of one of the
Active New Grace Businesses, the retained Active New Grace Business shall be
conducted by a member of the New Grace Group at substantially the same level as
on the Distribution Date. The percentages of gross assets or consolidated gross
assets of New Grace or the New Grace Group, as the case may be, sold,
transferred, or otherwise
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<PAGE> 23
disposed of, shall be based on the fair market value of the gross assets of New
Grace and the New Grace Group as of the Effective Time, and for this purpose,
the values set forth in the [Registration Statements] shall be conclusive.
(f) Until the first day after the Restriction Period,
Grace-Conn. shall furnish Grace with a copy of any ruling request that
Grace-Conn. or any of its Affiliates may file with the IRS and any opinion
received that relates to or otherwise reasonably could be expected to have an
effect on the Tax-Free Status of the Distribution.
Section 5.3. Responsibility for Taxes.
(a) Sealed Air and Grace agree to indemnify and hold the
Grace-Conn. Indemnitees harmless from and against all Indemnifiable Losses
resulting from (x) any Action which causes the Distribution to fail to have
Tax-Free Status or (y) the Merger failing to qualify as a reorganization under
Section 368 of the Code. An "Action" shall mean any act or omission which fails
to comply with any of the representations in the Sealed Air Tax Matters
Certificate or the covenants in Section 5.1 and any act or omission which would
fail to comply with any of the covenants in Section 5.1 but for compliance with
the Ruling/Opinion Exception. An "Action" shall also include an action or
omission which would be a breach of the covenant contained in the first sentence
of Section 5.1(d), if such covenant were in effect until the day which is five
years after the Effective Time instead of until the first day after the
Restriction Period.
(b) Grace-Conn. agrees to indemnify and hold the Packco
Indemnitees harmless from and against any Tax resulting from the failure of the
Distribution to have Tax-Free Status, except where such failure is attributable
to an Action.
(c) For purposes of Sections 5.1 and 5.2 hereof, when a tax
opinion or ruling of one party (the "Transaction Party") is required to be
reasonably satisfactory to the other party (the "Reviewing Party"), the
Reviewing Party at the request of the Transaction Party shall designate
nationally recognized counsel to review such opinion or ruling without revealing
the substance of the underlying transaction to the Reviewing Party and the
concurrence of such outside counsel to the sufficiency of such opinion or ruling
shall constitute "reasonable satisfaction" to the Reviewing Party for purposes
of this Agreement.
Section 5.4. Injunction. The parties hereto agree that the
payment of monetary compensation would not be an adequate remedy for a breach of
the obligations contained in Article V hereof, and each party consents to the
issuance and entry of an injunction against the taking of any action by it or a
member of its Group that would constitute such a breach; provided, however, that
the foregoing shall be without prejudice
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<PAGE> 24
to and shall not constitute a waiver of any other remedy either party may be
entitled to at law or at equity hereunder.
ARTICLE VI.
MISCELLANEOUS
Section 6.1. Expenses. Unless otherwise expressly provided in
this Agreement, the Distribution Agreement or the Merger Agreement, each party
shall bear any and all expenses that arise from their respective obligations
under this Agreement.
Section 6.2. Foreign Transfer Taxes. Adjusted Foreign Transfer
Taxes shall be shared by the parties as provided in the Distribution Agreement.
Audit adjustments and Final Determinations of such Taxes shall be governed by
the Distribution Agreement. This Agreement governs responsibilities of the
parties with respect to filing Tax Returns relating to Foreign Transfer Taxes,
paying Foreign Transfer Taxes reflected on such Tax Returns to the applicable
governmental authority and conducting Proceedings relating to Foreign Transfer
Taxes. For purposes of determining indemnity and reimbursement obligations of
the parties under this Agreement, Tax Items arising as a result of the Foreign
Transfers (but not Tax Items arising from any actual distribution of Subsidiary
Excess Cash) shall be disregarded, and the Pre-Distribution Schedules shall not
reflect such Tax Items.
Section 6.3. Payments Paid or Received on Behalf of
Indemnitees; Right to Designate Payee. Each of Grace-Conn. and Grace shall be
entitled to designate an Affiliate of such party as payee with respect to any
payment that would otherwise be made to Grace-Conn. or Grace, respectively,
under this Agreement. Any payment received by Grace-Conn. or Grace,
respectively, or its respective designees shall be received on behalf of the
relevant Grace-Conn. Indemnitees or Packco Indemnitees.
Section 6.4. Foreign Exchange Rate. If any amount required to
be paid hereunder is determined by reference to a Tax, Tax refund, Tax Benefit
or Tax Detriment that is denominated in a currency other than United States
dollars, such payment shall be made in United States dollars and the amount
thereof shall be computed using the Foreign Exchange Rate for such currency
determined as of the date that such Tax is paid, such Tax refund is received or
such Tax Benefit or Tax Detriment reduces or increases the amount of Tax or Tax
refund that would otherwise be paid or received.
Section 6.5. Amendment. This Agreement may not be amended
except by an agreement in writing, signed by the parties hereto. Anything in
this Agreement or the Distribution Agreement to the contrary notwithstanding, in
the event and to the extent that there shall be a conflict between the
provisions of this Agreement and the Distribution Agreement, the provisions of
this Agreement shall control.
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<PAGE> 25
Section 6.6. Notices. All notices and other communications
hereunder shall be in writing and shall be delivered by hand including overnight
business courier or mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses (or at such other addresses
for a party as shall be specified by like notice) and shall be deemed given on
the date on which such notice is received:
(a) To Grace-Conn. or any member of the New Grace Group:
W. R. Grace & Co.-Conn.
One Town Center Road
Boca Raton, Florida 33486-1010
Attention: Secretary
Fax: (561) 362-1635
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Andrew R. Brownstein, Esq.
Fax: (212) 403-2000
(b) To Grace or any member of the Packco Group:
care of Sealed Air
Park 80 East
Saddle Brook, New Jersey 07663
Attention: [ ]
Fax: [ ]
with a copy to:
Davis Polk & Wardwell
450 Lexington Ave.
New York, New York 10017
Attention: Christopher Mayer, Esq.
Fax: (212) 450-4800
Section 6.7. Resolution of Disputes. Any disputes between the
parties with respect to this Agreement regarding the practice and preparation of
returns or the calculation of amounts shall be resolved by a "Big Six" public
accounting firm whose determination shall be conclusive and binding on the
parties. The fees and expenses of such firm shall be shared equally by
Grace-Conn. and Grace, except as otherwise provided herein. Any other disputes
shall be resolved by a "Big Six" public accounting firm or a law firm or by any
other procedure that the parties may choose.
Section 6.8. Application to Present and Future Subsidiaries.
This Agreement is being entered into by Grace-
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<PAGE> 26
Conn. and Grace on behalf of themselves and each member of the New Grace Group
and Packco Group, respectively. This Agreement shall constitute a direct
obligation of each such member. Grace-Conn. and Grace hereby guarantee the
performance of all actions, agreements and obligations provided for under this
Agreement of each member of the New Grace Group and the Packco Group,
respectively. Grace-Conn. and Grace shall, upon the written request of the
other, cause any of their respective Group members formally to execute this
Agreement. This Agreement shall be binding upon, and shall inure to the benefit
of, the successors and assigns of any of the corporations bound hereby.
Section 6.9. Term. This Agreement shall commence on the date
of execution indicated below and shall continue in effect until otherwise agreed
to in writing by Grace-Conn. and Grace, or their successors.
Section 6.10. Titles and Headings. Titles and headings to
Sections herein are inserted for the convenience of reference only and are not
intended to be a part or to affect the meaning or interpretation of this
Agreement.
Section 6.11. Legal Enforceability. Any provision of this
Agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof. Any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. Without prejudice
to any rights or remedies otherwise available to any party hereto, each party
hereto acknowledges that damages would be an inadequate remedy for any breach of
the provisions of this Agreement and agrees that the obligations of the parties
hereunder shall be specifically enforceable.
Section 6.12. Governing Law. This Agreement shall be governed
by the laws of the State of Delaware.
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<PAGE> 27
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the __ day of ___________, 1998.
W. R. GRACE & CO.
By: _______________________________
Name:
Title:
W. R. GRACE & CO.-CONN.
By: _______________________________
Name:
Title:
SEALED AIR CORPORATION
By: _______________________________
Name:
Title:
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<PAGE> 1
CONFIDENTIAL
December __, 1997
- --------------------
W. R. Grace & Co.
One Town Center Road
Boca Raton, FL 33486
Dear Mr. _______:
W. R. Grace & Co., a Delaware corporation (the "Company"), considers
it essential to the best interests of its stockholders to foster the continuous
employment of key management personnel. In this connection, the Board of
Directors of the Company (the "Board") recognizes that, as is the case with many
publicly held corporations, the possibility of a change in control may exist and
that such possibility, and the uncertainty and questions which it may raise
among management, may result in the departure or distraction of management
personnel to the detriment of the Company, its subsidiaries and other business
units, and its stockholders.
Accordingly, the Board has determined that appropriate steps should
be taken to reinforce and encourage the continued attention and dedication of
members of the Company's management, including yourself, to their assigned
duties without distraction in the face of potentially disturbing circumstances
arising from the possibility of a change in control of the Company, although no
such change is now contemplated.
In order to induce you to remain in the employ of Grace (as
hereafter defined), the Company agrees that you shall receive the
<PAGE> 2
severance benefits set forth in this letter agreement ("Agreement") in the event
your employment with Grace is terminated subsequent to a Change in Control of
the Company (as hereinafter defined) under the circumstances provided in this
Agreement.
1. Definitions. When used in this Agreement as capitalized terms,
the following defined terms shall have the meanings set forth or specified in
this Section.
(a) "Board" shall have the meaning specified in the first paragraph
of this Agreement.
(b) "Change in Control of the Company" means and shall be deemed to
have occurred if (i) the Company determines that any "person" (as such term is
used in Sections 13(d) and 14(d) of the Exchange Act), other than a trustee or
other fiduciary holding securities under an employee benefit plan of the Company
or a corporation owned, directly or indirectly, by the stockholders of the
Company in substantially the same proportions as their ownership of stock of the
Company, has become the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of 20% or more of the outstanding common
stock of the Company (provided, however, that a Change in Control of the Company
shall not be deemed to have occurred if such person has become the beneficial
owner of 20% or more of the outstanding common stock of the Company as the
result of a sale of common stock by the Company that has been approved by the
Board of Directors); (ii) individuals who are Continuing Directors cease to
constitute a majority of any class of directors of the Board; (iii) there occurs
a reorganization, merger, consolidation or other corporate transaction involving
the Company (a "Corporate Transaction"), in each case, with respect to which the
stockholders of
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<PAGE> 3
the Company immediately prior to such Corporate Transaction do not, immediately
after the Corporate Transaction, own 50% or more of the combined voting power of
the corporation resulting from such Corporate Transaction; or (iv) the
shareholders of the Company approve a complete liquidation or dissolution of the
Company. Notwithstanding any other provision of this Agreement, the Packaging
Transaction shall not be deemed a "Change in Control of the Company" for
purposes of this Agreement.
(c) "Code" means the Internal Revenue Code of 1986, as amended and
in effect at the time of a Change in Control of the Company.
(d) "Company" means W. R. Grace & Co., a Delaware corporation, and
any successor as provided in Section 6(a).
(e) "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.
(f) "Corporate Transaction" shall have the meaning specified in
Section 1(b).
(g) "Date of Termination" shall have the meaning specified in
Section 3(e).
(h) "Disability" shall have the meaning specified in Section 3(a).
(i) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(j) "Excise Tax" means the excise tax imposed by Section 4999 of the
Code and/or any interest or penalties with respect to such
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<PAGE> 4
excise tax.
(k) "Grace" means the Company and/or one or more of its
subsidiaries.
(l) "Good Reason" shall have the meaning specified in Section 3(c).
(m) "Notice of Termination" means a written notice which shall
indicate the specific termination provision in this Agreement relied upon and
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of your employment under the provision so
indicated.
(n) "Other Payments" means payments and/or the value of benefits to
which you are entitled (other than the Severance Payment) pursuant to any
agreement (including this Agreement) that constitute "parachute payments" (as
defined in Section 280G of the Code and the regulations thereunder).
(o) "Packaging Transaction" means a transaction or series of
transactions whereby the Company's flexible packaging business is separated
from the other businesses presently conducted by the Company and its
subsidiaries (the "Non-Packaging Businesses"), and the Non-Packaging
Businesses commence to be conducted by Grace Specialty Chemicals, Inc. (to be
renamed W. R. Grace & Co.) and its subsidiaries. References herein to the
"Successor Corporation" refer to Grace Specialty Chemicals, Inc. (to be
renamed W. R. Grace & Co.).
(p) "Retirement" shall have the meaning specified in Section 4(a).
(q) "Retirement Plans" means retirement plans of Grace; "Retirement
Arrangements" means Retirement Plans and agreements of Grace relating to
retirement benefits, and "Insurance Plans" means
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<PAGE> 5
Grace's basic life and health insurance plans, the survivor benefit under any
Grace deferred compensation program, and the Executive Salary Protection Plan.
(r) "Successor Corporation" shall have the meaning specified in
Section 1(o).
(s) "Severance Payment" means a single, lump sum payment, in
accordance with Section 4(c)(ii).
(t) "Tax Advisor" means a tax advisor that, in the reasonable
judgment of the Company, is familiar with and experienced in the tasks required
of the "tax advisor" hereunder, and is selected by the Company to perform those
tasks. The Company shall pay all of the fees and expenses of the Tax Advisor.
2. Term of Agreement. This Agreement shall become effective on
January 1, 1998 and shall continue in effect through December 31, 1998;
provided, however, that commencing on each January 1 thereafter, the term of
this Agreement shall automatically be extended for one additional year unless,
not later than September 30 of the preceding year, the Company shall have given
notice that it does not wish to extend this Agreement or you shall have given
such notice to the Company; provided, further, if a Change in Control of the
Company shall have occurred during the original or any extended term of this
Agreement, this Agreement shall continue in effect for a period of 24 months
beyond the month in which such Change in Control of the Company occurred. This
Agreement shall terminate upon your ceasing to be an officer of the Company
unless prior thereto a Change in Control of the Company shall have occurred.
3. Termination Following Change in Control. No benefits shall be
payable hereunder unless there shall have been a Change in
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<PAGE> 6
Control of the Company during the term of this Agreement. If any of the events
described in Section 1(b) constituting a Change in Control of the Company shall
have occurred, you shall be entitled to the benefits provided in Section 4 upon
the subsequent termination of your employment during the term of this Agreement
unless such termination is (i) because of your death, Disability or Retirement,
(ii) by the Company for Cause, or (iii) by you other than for Good Reason, as
specified below.
(a) Disability. If, as a result of your incapacity due to physical
or mental illness, you shall have been absent from the full-time performance of
your duties with Grace for six consecutive months, and within 30 days after
written notice of termination is given you shall not have returned to the
full-time performance of your duties, your employment may be terminated for
"Disability".
(b) Cause. The Company shall be entitled to terminate your
employment for Cause. For the purposes of this Agreement, "Cause" means (i) the
willful and continued failure by you to substantially perform your duties with
Grace (other than any such failure resulting from your incapacity due to
physical or mental illness or any such actual or anticipated failure after the
issuance of a Notice of Termination by you for Good Reason) after a written
demand for substantial performance is delivered to you as authorized by the
Board, which demand specifically identifies the manner in which the Board
believes that you have not substantially performed your duties, or (ii) the
willful engaging by you in conduct which is demonstrably and materially
injurious to Grace, monetarily or otherwise. For purposes of this Subsection, no
act, or failure to act, on your part shall be deemed "willful" unless done, or
omitted to be done, by you
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<PAGE> 7
not in good faith and without reasonable belief that your action or omission was
in the best interest of Grace. Any act or omission based upon authority given
pursuant to authorization of the Board or upon the advice of counsel for Grace
shall be conclusively presumed to be done or omitted by you in good faith and in
the best interest of Grace. Notwithstanding the foregoing, your employment shall
not be deemed to have been terminated for Cause unless and until there shall
have been delivered to you a copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters of the entire membership of the
Board at a meeting of the Board, held after reasonable notice to you and an
opportunity for you, together with your counsel, to be heard before the Board,
finding that in the good faith opinion of the Board you were guilty of conduct
set forth above in clause (i) or (ii) of the second sentence of this Subsection
and specifying the particulars thereof in detail.
(c) Good Reason. You shall be entitled to terminate your employment
for "Good Reason". For purposes of this Agreement, "Good Reason" means the
occurrence after a Change in Control of the Company of any of the following
circumstances, without your express written consent, unless such circumstances
(other than that specified in paragraph (iii)) are fully corrected prior to the
Date of Termination specified in the Notice of Termination given by you in
respect thereof:
(i) The assignment to you of any duties inconsistent with your
status as an officer of the Company and an executive of Grace or a
substantial adverse alteration in the nature or status of your
responsibilities from those in effect immediately prior to the Change in
Control of the Company.
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<PAGE> 8
(ii) A reduction in your annual base salary as in effect on the date
hereof or as the same may be increased from time to time, or Grace's
failure to increase your annual base salary substantially in accordance
with increases given to other officers of the Company.
(iii) Grace's requiring you to be based anywhere other than the
metropolitan area in which your office is located immediately prior to the
Change in Control of the Company, except for required travel on Grace's
business to an extent substantially consistent with your business travel
obligations immediately prior to the Change in Control of the Company.
(iv) The failure by Grace, without your consent, to pay to you any
portion of your then current compensation, or the failure by Grace (and/or
any trust of which Grace is the grantor) to pay to you any portion of an
installment of deferred compensation under any deferred compensation
program of Grace within seven days of the date such deferred compensation
is due.
(v) The failure by Grace to continue in effect any compensation plan
or program in which you participate immediately prior to the Change in
Control of the Company which is material to your total compensation,
including but not limited to Grace's incentive compensation, long-term
incentive compensation, stock incentive and deferred compensation plans or
programs or any substitute plans or programs adopted prior to such Change
in Control of the Company, unless an equitable arrangement (embodied in an
ongoing substitute or alternative plan or program) has been made with
respect to such plan or program, or the failure by Grace to continue your
participation therein (or in such
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<PAGE> 9
substitute or alternative plan or program) on a basis not materially less
favorable, both in terms of the amount of benefits provided and the level
of your participation relative to other participants, as existed at the
time of such Change in Control of the Company.
(vi) The failure by Grace to continue to provide you with benefits
substantially similar to those enjoyed by you under any of the Retirement
Arrangements or Insurance Plans in which you were participating at the
time of the Change in Control of the Company, the taking of any action by
Grace that would directly or indirectly materially reduce any of such
benefits or deprive you of any material fringe benefit enjoyed by you at
the time of the Change in Control of the Company, or the failure by Grace
to provide you with the number of paid vacation days to which you are
entitled on the basis of your years of service with Grace in accordance
with Grace's normal vacation policies in effect at the time of the Change
in Control of the Company.
(vii) The failure of the Company to obtain a satisfactory agreement
from any successor corporation to assume and agree to perform this
Agreement, as contemplated in Section 6.
(viii) Any purported termination of your employment which is not
effected pursuant to a Notice of Termination satisfying the requirements
of Subsection (d) below (and, if applicable, the requirements of
Subsection (b) above). For purposes of this Agreement, no such purported
termination shall be effective.
Your right to terminate your employment pursuant to this Subsection shall not be
affected by your incapacity due to physical or mental illness. Your continued
employment shall not constitute consent to,
-9-
<PAGE> 10
or a waiver of rights with respect to, any circumstances constituting Good
Reason hereunder.
(d) Notice of Termination. Any purported termination of your
employment by Grace or by you following a Change in Control of the Company shall
be communicated by a Notice of Termination to the other party hereto in
accordance with Sections 1(m) and 7.
(e) Date of Termination, Etc. "Date of Termination" shall mean (i)
if your employment is terminated for Disability, 30 days after Notice of
Termination is given (provided that you shall not have returned to the full-time
performance of your duties during such 30-day period), and (ii) if your
employment is terminated pursuant to Subsection (b) or (c) above or for
Retirement or for any reason (other than Disability), the date specified in the
Notice of Termination (which, in the case of a termination pursuant to
Subsection (b) above shall not be less than 30 days, and in the case of a
termination pursuant to Subsection (c) above shall not be less than 15 nor more
than 60 days, respectively, after the date such Notice of Termination is given);
provided that if within 15 days after any Notice of Termination is given, or, if
later, prior to the Date of Termination (as determined without regard to this
proviso), the party receiving such Notice of Termination notifies the other
party that a dispute exists concerning the termination, the Date of Termination
shall be the date on which the dispute is finally determined, either by mutual
written agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (which is not
appealable or with respect to which the time for appeal therefrom has expired
and no appeal has been perfected); provided further that the Date of Termination
shall be
-10-
<PAGE> 11
extended by a notice of dispute only if such notice is given in good faith and
the party giving such notice pursues the resolution of such dispute with
reasonable diligence. Notwithstanding the pendency of any such dispute, the
Company will continue to pay, or cause a subsidiary to pay, you your full
compensation in effect when the notice giving rise to the dispute was given
(including, but not limited to, base salary) and continue you as a participant
in all compensation plans and programs, Retirement Arrangements and Insurance
Plans in which you were participating when the notice giving rise to the dispute
was given, until the dispute is finally resolved in accordance with this
Subsection. Amounts paid under this Subsection are in addition to all other
amounts due under this Agreement and shall not be offset against or reduce any
other amounts due under this Agreement.
4. Compensation During Disability and upon Termination. Following a
Change in Control of the Company, upon termination of your employment or during
a period of disability you shall be entitled to the following benefits:
(a) Disability; Retirement. During any period that you fail to
perform your full-time duties with Grace as a result of incapacity due to
physical or mental illness, you shall continue to receive your full base salary
at the rate in effect at the commencement of any such period, plus all other
amounts to which you are entitled under any compensation plan or program of
Grace in effect during such period, until your employment is terminated for
Disability pursuant to Section 3(a). Thereafter your benefits shall be
determined under the Retirement Arrangements, Insurance Plans and other
compensation plans and programs then in effect in accordance
-11-
<PAGE> 12
with the terms of such plans and programs (without regard to any amendment to
such plans and programs made subsequent to a Change in Control of the Company
and on or prior to the Date of Termination).
If your employment shall be terminated by your Retirement, or by
reason of your death, the Company shall pay, or cause a subsidiary to pay, you
your full base salary through the Date of Termination or the date of your death
plus all other amounts to which you are entitled under any compensation plan or
program of Grace. Thereafter your benefits shall be determined in accordance
with the Retirement Arrangements, Insurance Plans and other compensation plans
and programs then in effect in accordance with the terms of such plans and
programs (without regard to any amendment to such plans and programs made
subsequent to a Change in Control of the Company and on or prior to the Date of
Termination). As used herein, "Retirement" shall mean termination of employment
and retirement under a Retirement Plan but shall not include termination of
employment for Good Reason or involuntary retirement by reason of the failure of
the Company to approve your continued employment after you reach normal
retirement age.
(b) Cause; Voluntary Termination. If your employment shall be
terminated by the Company for Cause or by you other than for Good Reason,
Disability, Retirement or death, the Company shall pay, or cause a subsidiary to
pay, you your full base salary through the Date of Termination at the rate in
effect at the time the Notice of Termination is given, plus all other amounts to
which you are entitled under any compensation plan or program of Grace at the
time such payments are due, and the Company shall have no further obligations to
you under this Agreement except as provided in Subsection (g) below.
-12-
<PAGE> 13
(c) Involuntary Termination. If your employment shall be terminated
by you for Good Reason, or by the Company other than for Cause or Disability,
you shall be entitled to the benefits provided below:
(i) The Company shall pay, or cause a subsidiary to pay: (A) you
your full base salary and vacation pay accrued (but not taken) through the
Date of Termination at the rate in effect at the time Notice of
Termination is given; (B) you your total "targeted" annual incentive
compensation award (under the annual incentive compensation program of the
Company) for the calendar year immediately preceding the year in which the
Date of Termination occurs, but only if you have not received such an
award for such preceding calendar year; (C) you a pro-rata portion of your
total "targeted" annual incentive compensation award (under the annual
incentive compensation program of the Company) for the calendar year in
which the Date of Termination occurs (determined by reference to your base
salary and salary grade on the day before the Date of Termination),
calculated by multiplying such total "targeted" award by a fraction of
which the numerator is the number of days in such calendar year prior to
your Date of Termination, and the denominator is 365; (D) you all other
amounts to which you are entitled under any compensation plan or program
of Grace at the time such payments are due; and (E) an independent,
third-party outplacement service provider to provide you (at your request)
with outplacement services that are the same as (or substantially similar
to) outplacement services offered to Company officers under the
-13-
<PAGE> 14
termination program of the Company instituted during 1997 prior to the
date of this Agreement.
(ii) In lieu of any further salary payments to you for periods
subsequent to the Date of Termination: A Severance Payment equal to 3.00
multiplied by the sum of (a) your annual base salary in effect on the day
immediately preceding the Date of Termination plus (b) an amount equal to
your total "targeted" annual incentive compensation award (under the
annual incentive compensation program of the Company) for the calendar
year in which the Date of Termination occurs (determined by reference to
your base salary and salary grade on the day before the Date of
Termination). Notwithstanding the foregoing, if you have attained age 62
prior to the Date of Termination, the Severance Payment payable to you
under this Section 4(c)(ii) shall be reduced (but not below zero) by
multiplying such Severance Payment by a fraction of which the numerator is
equal to the number of whole calendar months that have elapsed since the
calendar month immediately preceding the month in which your 62nd birthday
occurs (i.e., the first calendar month counted is the calendar month in
which you attain age 62) but prior to the Date of Termination (i.e., the
last calendar month counted is the calendar month ending immediately prior
to the calendar month in which the Date of Termination occurs), and the
denominator is 36 (which, of course, reflects the number of months from
age 62 to age 65, the normal retirement age under the W. R. Grace & Co.
Retirement Plan for Salaried Employees).
(iii) For a 24-month period following the Date of Termination, the
Company shall arrange to provide you with basic
-14-
<PAGE> 15
life and health insurance benefits substantially similar to those you are
receiving under Insurance Plans immediately prior to the Notice of
Termination, and with salary continuance benefits similar to those which
you would receive under the Executive Salary Protection Plan had you
continued to be employed at the date of your death less the amount of your
Severance Payment hereunder. Benefits otherwise receivable by you pursuant
to this paragraph shall be reduced to the extent comparable benefits are
actually received by you during the 24-month period following the Date of
Termination, and any such benefits actually received by you shall be
reported by you to the Company. Thereafter your benefits shall be
determined in accordance with the Insurance Plans as in effect at the Date
of Termination (without regard to any amendment to such plans made
subsequent to a Change in Control of the Company and on or prior to the
Date of Termination). Notwithstanding the foregoing, benefits otherwise
receivable by you pursuant to this paragraph shall cease on the first day
of the calendar month following the month in which your 65th birthday
occurs (your "65th birthdate month"), unless you are not entitled to
receive retiree medical coverage from the Company as of the first day of
the calendar month following your 65th birthdate month, in which case such
benefits shall continue to be provided under the terms of this paragraph
(iii) for the remainder of the 24-month period following the Date of
Termination.
(d) Excise Tax. (i) Whether or not you are entitled to any Other
Payments, the Severance Payment calculated and payable under Section
4(c)(ii) (after any adjustment necessary to satisfy
-15-
<PAGE> 16
the requirements of the last sentence of Section 4(c)(ii)) shall be
reduced (but not below zero) by the amount necessary to avoid the
imposition of the Excise Tax with regard to the Severance Payment and/or
Other Payments; provided that such reduction shall only be effective if,
as calculated in accordance with this Agreement, the total amount of the
Severance Payment, as so reduced, plus Other Payments (together, the
"Reduced Payment") would be greater than the total amount of the Severance
Payment, without regard to any such reduction, plus Other Payments
(together, the "Full Payment"), after reducing the amount of both the
Reduced Payment and the Full Payment by the total of all applicable
federal, state, local and foreign taxes (including, but not limited to,
the Excise Tax).
(ii) The applicable federal, state, local and foreign taxes shall be
those taxes that, in the opinion of the Tax Advisor, will be imposed upon
you as a result of the receipt or enjoyment of the Severance Payment
and/or Other Payments and shall be calculated based upon the highest
possible marginal tax rates that could be applicable to you for the year
in which you receive the Severance Payment, unless you inform the Tax
Advisor that a different marginal tax rate is applicable with respect to
you for any such tax for that year.
(iii) The calculations necessary to effectuate the provisions of
this Section 4(c) shall be performed by the Tax Advisor prior to the date
the Severance Payment is made to you pursuant to Section 4(e). All issues
with regard to those calculations that are not specifically provided for
by this Agreement shall be decided in a manner that provides you with the
-16-
<PAGE> 17
greatest net after-tax benefit with respect to the Severance Payment and
Other Payments, taking into consideration the above-mentioned applicable
federal, state, local and foreign taxes.
(e) Payment Of Severance Payment.
(i) The Severance Payment to which you are entitled shall be paid to
you not later than the fifth day following your Date of Termination,
provided, however, that if the amount of such payment cannot be fully
determined on or before such day, the Company shall pay to you on such day
an estimate, as determined in good faith by the Tax Advisor, of the amount
of such payment and shall pay the remainder of such payment (together with
interest from such fifth day to the date of such payment at a rate of
interest per annum equal to the prime rate of interest announced by Morgan
Guaranty Trust Company of New York from time to time plus 2 percentage
points) as soon as the amount thereof can be determined but in no event
later than the thirtieth day after your Date of Termination. In the event
that the amount of the estimated payment exceeds the amount subsequently
determined to have been due, such excess shall be payable by you to the
Company, without interest, on the fifth day after demand by the Company.
(ii) The Company also shall pay to you all legal fees and expenses
incurred by you as a result of your termination of employment (including
all such fees and expenses, if any, incurred in contesting or disputing
any such termination, in seeking to obtain or enforce any right or benefit
provided by this Agreement or in connection with any tax audit or
proceeding to the extent attributable to the application of Section 4999
of
-17-
<PAGE> 18
the Code to any payment or benefit provided hereunder). Such payments
shall be made at the later of the times specified in paragraph (i) above,
or within five days after your request for payment accompanied with such
evidence of fees and expenses incurred as the Company reasonably may
require.
(f) No Mitigation. You shall not be required to mitigate the amount
of any payment provided for in this Section 4 by seeking other employment or
otherwise, nor shall the amount of any payment or benefit provided for in this
Section 4 be reduced by any compensation earned by you as the result of
employment by another employer, by retirement benefits, by offset against any
amount claimed to be owing by you to the Company, or otherwise, except as
provided in Section 4(c)(iii) above.
(g) Retirement Benefits. In addition to all other amounts payable to
you under this Section 4, you shall be entitled to receive all benefits payable
to you under all Retirement Arrangements.
(h) Tax Advisor. Each calculation necessary to effectuate the
provisions of Section 4 shall be performed by the Tax Advisor within the
appropriate time periods specified herein for such calculation or, absent such
specification, prior to the date the Severance Payment is made to you pursuant
to Section 4(e) above. All issues with regard to those calculations that are not
specifically provided for by this Agreement shall be decided in a manner that
provides you with the greatest After-Tax Total Payment. Any determination by the
Tax Advisor shall be binding upon you and the Company.
5. Relationship to Other Agreements and Plans. To the extent that
any provision of any other agreement between Grace and you
-18-
<PAGE> 19
shall limit, qualify or be inconsistent with any provision of this Agreement,
then for the purposes of this Agreement (while this Agreement remains in effect)
the provision of this Agreement shall control and such provision of such other
agreement shall be deemed to have been superseded, and to be of no force or
effect, as if such other agreement had been formally amended to the extent
necessary to accomplish such purpose. The Severance Payment shall not be
considered to be compensation for the purpose of any Retirement Arrangements,
Insurance Plans or compensation plans of Grace.
6. Successors.
(a) Successors to the Company.
As of the date the Packaging Transaction occurs, the Successor
Corporation shall expressly assume and agree to perform this Agreement in the
same manner and to the same extent that the Company would have been required to
perform this Agreement if the Packaging Transaction had not taken place. The
Company shall also require any other successor (whether direct or indirect, by
purchase or merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company (either before or after the Packaging
Transaction) to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would have been required to
perform it if no such succession had taken place (provided that any corporation
or other entity that becomes the owner of the Company's packaging business as a
result of the Packaging Transaction, but not its other businesses, shall not be
regarded as a "successor" under this Section 6). Failure of the Company to
obtain such assumption and agreement prior to the effectiveness of any such
succession shall be a breach of this Agreement and shall entitle you
-19-
<PAGE> 20
to compensation from the Company in the same amount and on the same terms as you
would be entitled hereunder if you terminate your employment for Good Reason
following a Change in Control of the Company, except that for purposes of
implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the Date of Termination (provided you shall have
delivered a Notice of Termination to the Company). As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and/or any successor to
the Company's business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law or otherwise.
(b) Your Successors. This Agreement shall inure to the benefit of
and be enforceable by your personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If you
should die while any amount would still be payable to you hereunder if you had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to your devisee, legatee or
other designee or, if there is no such designee, to your estate.
7. Notices. Notices and all other communications provided for in
this Agreement shall be in writing and shall be deemed to have been duly given
when delivered or mailed by United States registered or certified mail, return
receipt requested, postage prepaid, addressed to the respective addresses set
forth on the first page of this Agreement, provided that all notices to the
Company shall be directed to the attention of the Board with a copy to the
Secretary of the Company, or to such other address as either party may have
-20-
<PAGE> 21
furnished to the other in writing in accordance herewith, except that notice of
change of address shall be effective only upon receipt.
8. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of New
York.
9. Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
10. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association. Such arbitration, whether commenced by you or the Company, shall be
conducted in either the city and state in which you reside, the city and state
in which the Company maintains its principal offices or the city and state in
which you were employed at the time the dispute or controversy arose, as
designated by you. Any arbitration pursuant to this provision shall be conducted
before an arbitrator to be selected by the Company from a list of three
arbitrators to be provided by you to the Company. All expenses, including
attorneys fees, which you incur as a result of the arbitration and/or the
dispute or controversy giving rise to the arbitration shall be paid directly by
the Company. In the event that you are entitled to, or believe that you are
entitled to, compensation pursuant to Section 4, the Company shall pay you such
compensation unless and until directed to cease such payments pursuant to an
award issued in accordance with this Section. Judgment may be entered on an
award issued pursuant to this Section in any court of competent
-21-
<PAGE> 22
jurisdiction. In the event that the Company seeks to stay an arbitration sought
under this Section 10, it shall post a bond, or provide similar security, in an
amount equal to any unpaid compensation which is due you, or claimed to be due
you, pursuant to Section 4.
11. General. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing and signed by you and such officer as may be specifically designated by
the Board or its Compensation, Employee Benefits and Stock Incentive Committee
or any successor to such Committee. No waiver by either party hereto at any time
of any breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time.
No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement.
The section and subsection headings contained in this Agreement are
for convenient reference only, and shall not in any way affect the meaning or
interpretation of this Agreement.
Any payments provided for hereunder shall be paid net of any
applicable withholding required under federal, state, local or foreign law. The
obligations of the Company under Section 4 shall survive the expiration of the
term of this Agreement.
12. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
-22-
<PAGE> 23
If this letter sets forth our agreement on the subject matter hereof, kindly
sign and return to the Secretary of the Company the enclosed copy of this letter
which will then constitute our agreement on this subject. By your signing this
Agreement, you agree that, as of the date hereof, this Agreement supersedes any
and all prior agreements between you and the Company setting forth your
severance benefits in the event of a Change in Control of the Company.
Sincerely,
W. R. GRACE & CO.
By___________________________________
Chairman, President and
Chief Executive Officer
Grace Specialty Chemicals, Inc. hereby agrees to assume and perform
this Agreement, effective upon the consummation of the Packaging Transaction
(as defined herein).
GRACE SPECIALTY CHEMICALS, INC.
By___________________________________
Chairman, President and
Chief Executive Officer
Agreed to __________, 1997
___________________________
Name: ____________________
-23-
<PAGE> 1
W. R. GRACE & CO. ("COMPANY")
NONSTATUTORY STOCK OPTION
Under the W. R. Grace & Co. 1996 Stock Incentive Plan ("Plan")
Granted To: ALBERT J. COSTELLO
Date of Grant: March 5, 1997
Expiration Date: March 4, 2007
In accordance with the Plan (a copy of which is attached), you have
been granted an Option to purchase 42,300 shares of the Company's Common Stock
("Option") upon the following terms and conditions:
(1) The purchase price is $54.125 per share.
(2) Subject to the other provisions hereof and the Plan, this Option shall
become exercisable as follows:
14,100 shares on March 6, 1998
14,100 shares on March 6, 1999
14,100 shares on March 6, 2000,
except that it shall become exercisable in full upon the occurrence of any of
the events specified in section 3(g)(iii) of the Employment Agreement dated May
1, 1995 between you and the Company, as such Agreement may be amended from time
to time.
Once exercisable, an installment may be exercised at any time, in whole or in
part, until the expiration or termination of this Option.
(3) This Option shall not be treated as an Incentive Stock Option (as such
term is defined in the Plan.)
(4) This Option may be exercised only by serving written notice on the
Treasurer of the Company or his designee. The purchase price shall be paid in
cash or, with the permission of the Company (which may be subject to certain
conditions), in shares of Common Stock or in a combination of cash and such
shares (see section 6(a) of the Plan).
(5) Neither this Option nor any right thereunder nor any interest therein
may be assigned or transferred by you, except by will or the laws of descent and
distribution. This Option is exercisable during your lifetime only by you. If
you cease to serve the Company or a Subsidiary (as defined in the Plan), this
Option shall terminate as provided in section 6(d) of the Plan, subject,
however, to the following:
THIS DOCUMENT CONSTITUTES PART OF A
PROSPECTUS COVERING SECURITIES THAT
HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. 81078
<PAGE> 2
- 2 -
(a) In the event you should become incapacitated or die and
neither you nor your legal representative(s) or other
person(s) entitled to exercise this Option exercise this
Option to the fullest extent possible on or before its
termination, the Company shall pay you, your legal
representative(s) or such other person(s), as the case may be,
an amount of money equal to the Fair Market Value (as defined
under the Plan) of any shares remaining subject to this Option
on the last date it could have been exercised, less the
aggregate purchase price of such shares.
(6) If you are or become an employee of a Subsidiary, the Company's
obligations hereunder shall be contingent on the Subsidiary's agreement that (a)
the Company may administer this Plan on its behalf and, (b) upon the exercise of
this Option, the Subsidiary will purchase from the Company the shares subject to
the exercise at their Fair Market Value on the date of exercise, such shares to
be then transferred by the Subsidiary to you upon your payment of the purchase
price to the Subsidiary. Where appropriate, such approval and agreement of the
Subsidiary shall be indicated by its signature below. The provisions of this
paragraph and the obligations of the Subsidiary so undertaken may be waived by
the Company, in whole or in part, at any time or from time to time.
(7) The Plan is hereby incorporated by reference. Terms defined in the
Plan shall have the same meaning herein. This Option is granted subject to the
Plan and shall be construed in conformity with the Plan.
W. R. GRACE & CO.
By_________________
P. J. Hamilton
Senior Vice President, Human Resources
Approved and Agreed to:*
________________________________
(Name of Subsidiary)
By______________________________
(Authorized Officer)
RECEIPT ACKNOWLEDGED:
_____________________
* This will be completed only if you are or become an employee of a
Subsidiary.
<PAGE> 1
GRACE SPECIALTY CHEMICALS, INC., a Delaware corporation
U.S. SUBSIDIARIES
<TABLE>
<CAPTION>
SUBSIDIARY NAME STATE OF NOTES
INCORPORATION
- -------------------------------------------------------------------------------
<S> <C> <C>
A-1 Bit & Tool Co., Inc. DE
- -------------------------------------------------------------------------------
Alewife Boston Ltd. MA
- -------------------------------------------------------------------------------
Alewife Land Corporation MA
- -------------------------------------------------------------------------------
Amicon, Inc. DE
- -------------------------------------------------------------------------------
CCHP, Inc. DE
- -------------------------------------------------------------------------------
Circe Biomedical, Inc. DE
- -------------------------------------------------------------------------------
Coalgrace, Inc. DE
- -------------------------------------------------------------------------------
Coalgrace II, Inc. DE
- -------------------------------------------------------------------------------
Construction Products Dubai, Inc. DE
- -------------------------------------------------------------------------------
Creative Food 'N Fun Company DE
- -------------------------------------------------------------------------------
Darex Puerto Rico, Inc DE
- -------------------------------------------------------------------------------
Del Taco Restaurants, Inc. DE
- -------------------------------------------------------------------------------
Dewey and Almy Company MA
- -------------------------------------------------------------------------------
Ecarg, Inc. NJ
- -------------------------------------------------------------------------------
E & C Liquidating Corp. DE
- -------------------------------------------------------------------------------
Five Alewife Boston Ltd. MA
- -------------------------------------------------------------------------------
GC Holding Inc. DE
- -------------------------------------------------------------------------------
G C Limited Partners I, Inc. DE
- -------------------------------------------------------------------------------
G C Management, Inc. DE
- -------------------------------------------------------------------------------
GEC Management Corporation DE
- -------------------------------------------------------------------------------
GN Holdings, Inc. DE 6
- -------------------------------------------------------------------------------
GPC Thomasville Corp. DE
- -------------------------------------------------------------------------------
Gloucester New Communities Company, Inc. NJ
- -------------------------------------------------------------------------------
Grace A-B Inc. DE
- -------------------------------------------------------------------------------
Grace A-B II Inc. DE
- -------------------------------------------------------------------------------
Grace Asia Pacific, Inc. DE
- -------------------------------------------------------------------------------
Grace Chemicals, Inc. DE
- -------------------------------------------------------------------------------
Grace Chemical Company of Cuba IL 5
- -------------------------------------------------------------------------------
Grace Collections, Inc. DE
- -------------------------------------------------------------------------------
Grace Communications, Inc. DE
- -------------------------------------------------------------------------------
Grace Culinary Systems, Inc. MD
- -------------------------------------------------------------------------------
Grace Drilling Company DE
- -------------------------------------------------------------------------------
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
SUBSIDIARY NAME STATE OF NOTES
INCORPORATION
- -------------------------------------------------------------------------------
<S> <C> <C>
Grace Energy Corporation DE
- -------------------------------------------------------------------------------
Grace Environmental, Inc. DE
- -------------------------------------------------------------------------------
Grace Europe, Inc. DE
- -------------------------------------------------------------------------------
Grace Germany Holdings, Inc. DE
- -------------------------------------------------------------------------------
Grace H-G Inc. DE
- -------------------------------------------------------------------------------
Grace H-G II Inc. DE
- -------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------
W. R. Grace Land Corporation NY
- -------------------------------------------------------------------------------
W. R. Grace & Co.-Conn. CT 4
- -------------------------------------------------------------------------------
Gracoal, Inc. DE
- -------------------------------------------------------------------------------
Gracoal II, Inc. DE
- -------------------------------------------------------------------------------
Guanica-Caribe Land Development
Corporation DE
- -------------------------------------------------------------------------------
Hanover Square Corporation DE
- -------------------------------------------------------------------------------
Homco International, Inc. DE
- -------------------------------------------------------------------------------
Ichiban Chemical Co., Inc. DE
- -------------------------------------------------------------------------------
L B Realty, Inc. DE
- -------------------------------------------------------------------------------
Monolith Enterprises, Incorporated DC
- -------------------------------------------------------------------------------
Monroe Street, Inc. DE
- -------------------------------------------------------------------------------
Southern Oil, Resin & Fiberglass, Inc. FL
- -------------------------------------------------------------------------------
Water Street Corporation DE
- -------------------------------------------------------------------------------
Woolwich Sewer Company, Inc. NJ
- -------------------------------------------------------------------------------
Woolwich Water Co., Inc. NJ
- -------------------------------------------------------------------------------
</TABLE>
<PAGE> 3
NON-U.S. SUBSIDIARIES
<TABLE>
<CAPTION>
Country Subsidiary Name Notes
- -------------------------------------------------------------------------------
<S> <C> <C>
Argentina W. R. Grace Argentina S.A.
WRG Argentina, S.A. 2
- -------------------------------------------------------------------------------
Australia Grace Australia Pty Ltd
- -------------------------------------------------------------------------------
Belgium Grace N.V.
Grace Silica N.V.
- -------------------------------------------------------------------------------
Brazil Grace Brasil S.A.
PEADCO-Engenharia, Comercio Industria Ltda.
International Holdings Ltda.
- --------------------------------------------------------------------------------
Canada GEC Divestment Corporation Ltd.
W. R. Grace Finance (NRO) Ltd.
Grace Canada, Inc.
- --------------------------------------------------------------------------------
Cayman Islands Grace Davison China, Inc.
- --------------------------------------------------------------------------------
Chile Grace Quimica Compania Limitada
- --------------------------------------------------------------------------------
Colombia Grace Colombia, S.A.
W R G Colombia S.A. 2
- --------------------------------------------------------------------------------
Cuba Envases Industriales y Comerciales, S.A. 5
Papelera Camagueyana, S.A. 5
- --------------------------------------------------------------------------------
Denmark Grace (Denmark) A/S
- --------------------------------------------------------------------------------
France W. R. Grace SAS
- --------------------------------------------------------------------------------
Germany A-1 Bit & Tool Co. G.m.b.H.
Chomerics G.m.b.H.
EAP Akustic GmbH
Emerson & Cuming G.m.b.H. 1
Grace Darex GmbH
Grace G.m.b.H.
- --------------------------------------------------------------------------------
Greece Grace Hellas E.P.E.
- --------------------------------------------------------------------------------
Hong Kong W. R. Grace Southeast Asia Holdings Limited
W. R. Grace (Hong Kong) Limited
- --------------------------------------------------------------------------------
India W. R. Grace & Co. (India) Private Limited
- --------------------------------------------------------------------------------
Indonesia P. T. Grace Specialty Chemicals Indonesia
- --------------------------------------------------------------------------------
Ireland Amicon Ireland Limited
Trans-Meridian Insurance (Dublin) Ltd.
Grace Construction Products (Ireland) Limited
- --------------------------------------------------------------------------------
Italy W. R. Grace (Italiana) S.p.A.
- --------------------------------------------------------------------------------
Japan Grace Japan Kabushiki Kaisha
- --------------------------------------------------------------------------------
Korea Grace Korea Inc.
- --------------------------------------------------------------------------------
Malaysia W. R. Grace (Malaysia) Sendiran Berhad
- --------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 4
<TABLE>
<CAPTION>
Country Subsidiary Name Notes
- -------------------------------------------------------------------------------
<S> <C> <C>
W. R. Grace Specialty Chemicals (Malaysia)
Sdn. Bhd.
- --------------------------------------------------------------------------------
Mexico Grace Container, S. A. de C. V.
W. R. Grace Holdings, S. A. de C. V.
- --------------------------------------------------------------------------------
Netherlands Amicon B.V.
Denac Nederland B.V.
Storm van Bentem & Kluyver B.V. 1
W. R. Grace B.V.
- --------------------------------------------------------------------------------
Netherlands Antilles W. R. Grace N.V.
- --------------------------------------------------------------------------------
New Zealand Grace New Zealand Limited
- --------------------------------------------------------------------------------
People's Republic Grace China Ltd.
of China
- --------------------------------------------------------------------------------
Philippines W. R. Grace (Philippines) Inc.
- --------------------------------------------------------------------------------
Poland Grace Poland Sp. z.O.O.
- --------------------------------------------------------------------------------
Russia Darex CIS LLC
- --------------------------------------------------------------------------------
Singapore W. R. Grace (Singapore) Private Limited
- --------------------------------------------------------------------------------
South Africa W. R. Grace Africa (Pty.) Limited
- --------------------------------------------------------------------------------
Spain Grace, S.A.
Teroson Espanola, S.L. 3
- --------------------------------------------------------------------------------
Sweden Grace AB
Grace Sweden AB 3
- --------------------------------------------------------------------------------
Taiwan W. R. Grace Taiwan Inc.
- --------------------------------------------------------------------------------
Thailand W. R. Grace (Thailand) Ltd. 3
- --------------------------------------------------------------------------------
United Kingdom A.A. Consultancy & Cleaning Company Limited 3
Cormix Limited 3
Borndear 1 Limited 3
Borndear 2 Limited 3
Darex UK Limited
Emerson & Cuming (Trading) Ltd. 3
Emerson & Cuming (UK) Ltd. 3
Grace Construction Products Ltd.
Grace Multiflex U.K. Ltd.
Servicised Ltd. 3
W. R. Grace Limited
- --------------------------------------------------------------------------------
Venezuela Grace Venezuela, S.A.
Inversiones GSC, S.A. 1
- --------------------------------------------------------------------------------
</TABLE>
4
<PAGE> 5
U.S. AND NON-U.S. NOTES
1 In liquidation
2 Inactive
3 Dormant, assets sold
4 Owned by W. R. Grace & Co.
5 Assets and business expropriated by Cuban Government
6 Owned 95% by W. R. Grace & Co.-Conn.
7 Name to be changed after Sealed Air transaction - "Cryovac" to be removed
from name.
5
<PAGE> 6
PARTNERSHIPS & JOINT VENTURES
A/O Grace Kriz
a Russia joint venture, owned 20% by W. R. Grace SAS, 31% by W. R.
Grace Limited and 49% by A/O Kriz
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
Cross Country Staffing
a Delaware general partnership, owned 64% by CCHP, Inc. and 36% by MRA
Staffing Systems, Inc.
Dearborn I.E.I. Ltd.
an India joint venture, owned 51% by W. R. Grace & Co.-Conn. and 49% by
Ion Exchange India
Emirates Chemicals LLC
a Dubai LLC, owned 49% Construction Products Dubai, Inc., 51% Sheikh
Hasher Maktoum Juma Al Maktoum
G C Associates
a Delaware general partnership, the partners of which are W. R. Grace &
Co.-Conn., GC Holding, Inc., G C Management, Inc. and G C Ventures
G C Ventures
a Delaware general partnership, the partners of which are G C Limited
Partners I, Inc. and W. R. Grace & Co.-Conn.
Grace Offshore Turnkey
a Texas partnership, owned 50% by Grace Offshore Company
Grace Yapi Kimyasallari Sanayi ve Ticaret A.S.
a Turkish joint venture, owned 50% by Construction Products Dubai, Inc.
and 50% by Sezai Turkes Feyzi Akkaya Holding A.S.
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
6
<PAGE> 7
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.
Paramont Coal Company
a Virginia partnership, owned 50% by Grace PAR Corporation
7
<PAGE> 8
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%
- ---------------------------------------------------------------------------------------------------
Colowyo Coal Company L.P. Delaware 1
- ---------------------------------------------------------------------------------------------------
Denka Grace K.K. Japan 45%
- ---------------------------------------------------------------------------------------------------
GKA Company Limited Hong Kong 25%
- ---------------------------------------------------------------------------------------------------
Noxso Corporation Virginia 23.1%
- ---------------------------------------------------------------------------------------------------
Tarpon Investors, L.P. Delaware 20% 2
- ---------------------------------------------------------------------------------------------------
</TABLE>
Notes:
1 Limited Partnership interests are owned by Gracoal, Inc. and Gracoal II,
Inc.
2 Limited partnership interest owned by Grace Tarpon Investors, Inc.
8
