<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 1998
Commission File Number 1-13953
W. R. GRACE & CO.
Delaware 65-0773649
(State of Incorporation) (I.R.S. Employer
Identification No.)
One Town Center Road
Boca Raton, Florida 33486-1010
(561) 362-2000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days.
Yes No X
75,895,888 shares of Common Stock, $.01 par value, were outstanding at May 1,
1998.
<PAGE>
W. R. GRACE & CO. AND SUBSIDIARIES
Table of Contents
Page No.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statement of Operations I - 1
Consolidated Statement of Cash Flows I - 2
Consolidated Balance Sheet I - 3
Consolidated Statement of Shareholders' Equity I - 4
Notes to Consolidated Financial Statements I - 5 to
I - 14
Item 2. Management's Discussion and Analysis of Results of I - 15 to
Operations and Financial Condition I - 23
Part II. Other Information
Item 1. Legal Proceedings II - 1
Item 4. Submission of Matters to a Vote of Security Holders II - 2
Item 6. Exhibits and Reports on Form 8-K II - 3
As used in this Report, the term "Company" refers to W. R. Grace & Co. (a
Delaware corporation formerly named "Grace Specialty Chemicals, Inc."), and the
term "Grace" refers to the Company and/or one or more of its subsidiaries and,
in certain cases, their respective predecessors.
<PAGE>
<TABLE>
PART 1. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
W. R. Grace & Co. and Subsidiaries Three Months Ended
Consolidated Statement of Operations (Unaudited) March 31,
- ----------------------------------------------------------------------------------------------------------
In millions, except per share amounts 1998 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sales and revenues...................................................... $ 340.8 $ 361.8
Other income............................................................ 7.8 5.8
-------- -------
Total............................................................... 348.6 367.6
-------- -------
Cost of goods sold and operating expenses............................... 209.6 223.0
Selling, general and administrative expenses............................ 80.6 86.6
Depreciation and amortization........................................... 21.8 23.5
Interest expense and related financing costs............................ 6.8 6.4
Research and development expenses....................................... 10.4 10.6
-------- -------
Total............................................................... 329.2 350.1
-------- -------
Income from continuing operations before income taxes............... 19.4 17.5
Provision for income taxes.............................................. 7.6 6.4
-------- -------
Income from continuing operations................................... 11.8 11.1
(Loss)/income from discontinued operations.............................. (2.6) 35.3
-------- -------
Income before extraordinary item.................................... 9.2 46.4
Extraordinary item - loss from extinguishment of debt, net of tax....... (35.2) --
-------- -------
Net (loss)/income................................................... $ (26.0) $ 46.4
======== =======
- ----------------------------------------------------------------------------------------------------------
Basic earnings per share:
Continuing operations............................................... $ .16 $ .15
Net (loss)/income................................................... $ (.35) $ .62
Diluted earnings per share:
Continuing operations............................................... $ .15 $ .14
Net (loss)/income................................................... $ (.32) $ .60
Dividends declared per common share..................................... $ -- $ .125
- ----------------------------------------------------------------------------------------------------------
</TABLE>
The Notes to Consolidated Financial Statements are integral parts of
these statements.
I - 1
<PAGE>
<TABLE>
W. R. Grace & Co. and Subsidiaries Three Months Ended
Consolidated Statement of Cash Flows (Unaudited) March 31,
- ----------------------------------------------------------------------------------------------------------
In millions 1998 1997
- ----------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
<S> <C> <C>
Income from continuing operations before income taxes................... $ 19.4 $ 17.5
Reconciliation to cash used for operating activities:
Depreciation and amortization....................................... 21.8 23.5
Changes in assets and liabilities, excluding effect of businesses
acquired/divested and foreign currency exchange:
Increase in notes and accounts receivable, net................... (28.0) (22.2)
Increase in inventories.......................................... (3.2) (14.0)
Proceeds from asbestos-related insurance settlements............. 13.8 25.1
Payments made for asbestos-related litigation settlements,
judgments and defense costs................................... (167.8) (23.9)
Decrease in accounts payable..................................... (13.1) (35.4)
Other............................................................ (102.7) (66.5)
-------- -------
Net pretax cash used for operating activities
of continuing operations.......................................... (259.8) (95.9)
Net pretax cash provided by operating activities of discontinued
operations.......................................................... 21.2 56.2
-------- -------
Net pretax cash used for operating activities....................... (238.6) (39.7)
Income taxes paid....................................................... (20.2) (7.1)
-------- -------
Net cash used for operating activities.............................. (258.8) (46.8)
-------- -------
INVESTING ACTIVITIES
Capital expenditures.................................................... (16.7) (49.8)
Net investing activities of discontinued operations..................... (14.3) (70.6)
Net proceeds from divestments........................................... -- 518.1
Other ................................................................. .5 (2.1)
-------- -------
Net cash (used for)/provided by investing activities................ (30.5) 395.6
-------- -------
FINANCING ACTIVITIES
Dividends paid.......................................................... -- (9.2)
Repayments of borrowings having original maturities in excess of
three months........................................................ (5.4) (1.3)
Increase in borrowings having original maturities in excess of
three months........................................................ -- 4.4
Net repayments of borrowings having original maturities of
three months or less................................................ (326.4) (5.4)
Exercise of stock options............................................... 41.9 9.2
Net financing activities of discontinued operations..................... 1,256.6 --
Purchase of treasury stock.............................................. -- (335.9)
-------- -------
Net cash provided by/(used for) financing activities................ 966.7 (338.2)
-------- -------
Effect of exchange rate changes on cash and cash equivalents............ (.9) (2.0)
-------- -------
Increase in cash and cash equivalents............................... $ 676.5 $ 8.6
======== =======
- ----------------------------------------------------------------------------------------------------------
</TABLE>
The Notes to Consolidated Financial Statements are integral parts of
these statements.
I - 2
<PAGE>
W. R. Grace & Co. and Subsidiaries
Consolidated Balance Sheet (Unaudited)
<TABLE>
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
March 31, December 31,
Dollars in millions, except par value 1998 1997
- ----------------------------------------------------------------------------------------------------------
ASSETS
Current Assets
<S> <C> <C>
Cash and cash equivalents............................................... $ 724.1 $ 47.6
Notes and accounts receivable, net...................................... 378.4 353.1
Inventories............................................................. 131.9 129.6
Net assets of discontinued operations................................... 8.0 1,424.0
Deferred income taxes................................................... 239.2 209.6
Other current assets.................................................... 17.7 11.6
-------- --------
Total Current Assets................................................ 1,499.3 2,175.5
Properties and equipment, net of accumulated depreciation and
amortization of $807.1 (1997 - $789.4).............................. 651.0 663.3
Goodwill, less accumulated amortization of $6.6 (1997 - $5.8)........... 42.5 42.9
Asbestos-related insurance receivable................................... 205.5 215.9
Deferred income taxes................................................... 233.8 238.1
Other assets............................................................ 434.6 437.3
-------- --------
Total Assets........................................................ $3,066.7 $3,773.0
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term debt......................................................... $ 706.3 $ 413.6
Accounts payable........................................................ 94.2 106.5
Income taxes............................................................ 134.1 175.6
Other current liabilities............................................... 529.2 662.0
-------- --------
Total Current Liabilities........................................... 1,463.8 1,357.7
Long-term debt.......................................................... 33.0 658.7
Deferred income taxes................................................... 20.1 20.2
Noncurrent liability for asbestos-related litigation.................... 594.8 619.4
Other liabilities....................................................... 663.3 649.1
-------- --------
Total Liabilities................................................... 2,775.0 3,305.1
-------- --------
Commitments and Contingencies
Shareholders' Equity
Common stock issued, par value $.01..................................... .8 .7
Paid in capital......................................................... 393.7 563.4
Retained earnings....................................................... -- 108.3
Deferred compensation trust............................................. (.9) (5.7)
Accumulated other comprehensive loss.................................... (101.9) (198.8)
-------- --------
Total Shareholders' Equity.......................................... 291.7 467.9
-------- --------
Total Liabilities and Shareholders' Equity.......................... $3,066.7 $3,773.0
======== ========
- ----------------------------------------------------------------------------------------------------------
</TABLE>
The Notes to Consolidated Financial Statements are integral parts of
these statements.
I - 3
<PAGE>
W. R. Grace & Co. and Subsidiaries
Consolidated Statement of Shareholders' Equity (Unaudited)
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------
Accumulated Total
Deferred Other Share-
Common Paid in Retained Compensation Treasury Comprehensive holders' Comprehensive
In millions Stock Capital Earnings Trust Stock Loss Equity Income/(loss)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996... $ .8 $ 524.1 $ 172.6 $ -- $ (.5) $ (64.6) $ 632.4 $ --
Net income................... -- -- 46.4 -- -- -- 46.4 46.4
Dividends paid............... -- -- (9.2) -- -- -- (9.2) --
Issuance/delivery of shares under
stock plans.............. -- 9.3 -- -- .9 -- 10.2 --
Purchase of common stock..... -- -- -- -- (335.9) -- (335.9) --
Foreign currency translation
adjustment............... -- -- -- -- -- (33.1) (33.1) (33.1)
------ ------- --------- ------- ------- -------- -------- --------
Balance, March 31, 1997...... $ .8 $ 533.4 $ 209.8 $ -- $(335.5) $ (97.7) $ 310.8 $ 13.3
====== ======= ========= ======= ======= ======== ======== ========
Balance, December 31, 1997... $ .7 $ 563.4 $ 108.3 $ (5.7) $ -- $ (198.8) $ 467.9 $ --
Net loss..................... -- -- (26.0) -- -- -- (26.0) (26.0)
Separation of Packaging Business -- (233.8) (82.3) .5 -- 119.2 (196.4) --
Issuance/delivery of shares under
stock plans.............. .1 64.1 -- .1 -- -- 64.3 --
Reclassification of assets in
deferred compensation trust -- -- -- 4.2 -- -- 4.2 --
Foreign currency translation
adjustment............... -- -- -- -- -- (12.4) (12.4) (12.4)
Minimum pension liability
adjustment............... -- -- -- -- -- (9.9) (9.9) (9.9)
------ ------- --------- ------- ------- -------- -------- --------
Balance, March 31, 1998...... $ .8 $ 393.7 $ -- $ (.9) $ -- $ (101.9) $ 291.7 $ (48.3)
====== ======= ========= ======= ======= ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Notes to Consolidated Financial Statements are integral parts of
these statements.
I - 4
<PAGE>
W. R. Grace & Co. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share)
1. CHANGE IN ORGANIZATION AND BASIS OF PRESENTATION
Grace is primarily engaged in specialty chemicals businesses on a worldwide
basis. These businesses (Specialty Chemicals Businesses) consist of catalysts
and silica-based products (Grace Davison), specialty construction chemicals and
building materials (Grace Construction Products) and container sealants and
coatings (Darex Container Products). Grace also owns businesses and investments
involved in health care services, the development of bioartificial organs and
other products and services. Grace has classified certain other businesses as
discontinued operations.
Packaging Business Transaction
On March 31, 1998, a predecessor of the Company (Old Grace) completed a
transaction in which Grace's former flexible packaging business (Packaging
Business) was combined with Sealed Air Corporation (Sealed Air). Old Grace
effected this transaction by transferring the Specialty Chemicals Businesses to
the Company, distributing the shares of the Company's common stock to Old
Grace's shareholders on a one-for-one basis (Spin-off) and merging a subsidiary
of Old Grace with Sealed Air (Merger). Immediately following the combination,
the Company changed its name to "W. R. Grace & Co." and Old Grace changed its
name to "Sealed Air Corporation" (New Sealed Air).
For further information, see Old Grace's Joint Proxy Statement/Prospectus dated
February 13, 1998, the Company's Information Statement dated February 13, 1998,
Notes 1 and 3 to the Consolidated Financial Statements in Old Grace's Annual
Report on Form 10-K for 1997 (1997 10-K), and Note 3 below.
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
1997 10-K. Such 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 are of a normal recurring nature. Certain amounts in the
consolidated financial statements for prior periods have been reclassified to
conform to the current period's basis of presentation and as required with
respect to discontinued operations.
The results of operations for the interim period ended March 31, 1998 are not
necessarily indicative of the results of operations for the year ending December
31, 1998.
For periods prior to the date of classification of a business as a discontinued
operation, balance sheet information relating to the business is not
reclassified under the caption "Net assets of discontinued operations."
Accordingly, "Net pretax cash provided by operating activities of discontinued
operations" excludes the effects of changes in working capital of discontinued
operations prior to their classification as such. The net investing and
financing activities of discontinued operations represent cash flows of
discontinued operations subsequent to the respective dates of such
classifications.
I - 5
<PAGE>
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 expects that it will be named
as a defendant in additional asbestos-related lawsuits in the future. Grace was
a defendant in approximately 39,000 asbestos-related lawsuits at March 31, 1998
(18 involving claims for property damage and the remainder involving
approximately 87,300 claims for personal injury), as compared to approximately
40,600 lawsuits at December 31, 1997 (18 involving claims for property damage
and the remainder involving approximately 96,900 claims for personal injury).
Property Damage Litigation
Through March 31, 1998, 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 196
property damage cases were settled for a total of $573.6. Property damage case
activity for the three months ended March 31, 1998 was as follows:
- -------------------------------------------------------------------------------
Cases outstanding, December 31, 1997........................ 18
New cases filed............................................. 1
Settlements................................................. (1)
---
Cases outstanding, March 31, 1998....................... 18
===
- -------------------------------------------------------------------------------
Personal Injury Litigation
Through March 31, 1998, approximately 13,000 asbestos personal injury lawsuits
involving 29,700 claims were dismissed without payment of any damages or
settlement amounts (primarily on the basis that Grace products were not
involved), and approximately 42,600 lawsuits involving 102,500 claims were
disposed of (through settlements and judgments) for a total of $316.9. Personal
injury claim activity for the three months ended March 31, 1998 was as follows:
- --------------------------------------------------------------------------------
Claims outstanding, December 31, 1997....................... 96,933
New claims.................................................. 4,048
Settlements................................................. (13,296)
Dismissals.................................................. (335)
Judgments................................................... (2)
-------
Claims outstanding, March 31, 1998...................... 87,348
=======
- --------------------------------------------------------------------------------
Asbestos-Related Liability
Based upon and subject to the factors discussed in Note 2 to the Consolidated
Financial Statements in the 1997 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 March 31, 1998 and
December 31, 1997:
- --------------------------------------------------------------------------------
March 31, December 31,
1998 (1) 1997 (1)
- ----------------------------------------------------------------------------
Current liability for asbestos-related litigation (2)... $ 93.3 $236.5
Noncurrent liability for asbestos-related litigation.... 594.8 619.4
------- ------
Total asbestos-related liability.................... $ 688.1 $855.9
======= ======
- ----------------------------------------------------------------------------
(1) Reflects property damage and personal injury cases and claims pending at
March 31, 1998 and December 31, 1997, as well as personal injury claims
expected to be filed through 2002. See discussion below.
(2) Included in "Other current liabilities" in the Consolidated Balance Sheet.
I - 6
<PAGE>
Asbestos-Related Insurance Receivable
Grace previously purchased insurance policies with respect to its
asbestos-related lawsuits and claims. Activity in Grace's notes receivable from
insurance carriers and asbestos-related insurance receivable during the three
months ended March 31, 1998 was as follows:
- ----------------------------------------------------------
Notes Receivable
<TABLE>
<S> <C>
Notes receivable from insurance carriers at December 31, 1997, net of discount of $4.8 (1)..... $ 31.3
Proceeds received under asbestos-related insurance settlements................................. (2.2)
Current year amortization of discount.......................................................... .6
---------
Notes receivable from insurance carriers at March 31, 1998, net of discount of $4.2 (2).... $ 29.7
---------
Insurance Receivable
Asbestos-related insurance receivable at December 31, 1997 (3)................................. $ 282.4
Proceeds received under asbestos-related insurance settlements................................. (11.6)
---------
Asbestos-related insurance receivable at March 31, 1998 (4)................................ $ 270.8
---------
Total amounts due from insurance carriers.................................................. $ 300.5
=========
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Classified in the December 31, 1997 Consolidated Balance Sheet as $13.3 in
"Notes and accounts receivable, net" and $18.0 in "Other assets."
(2) Classified in the March 31, 1998 Consolidated Balance Sheet as $13.5 in
"Notes and accounts receivable, net" and $16.2 in "Other assets."
(3) $66.5 of the asbestos-related insurance receivable at December 31, 1997 is
classified in "Notes and accounts receivable, net" in the December 31, 1997
Consolidated Balance Sheet.
(4) $65.3 of the asbestos-related insurance receivable at March 31, 1998 is
classified in "Notes and accounts receivable, net" in the March 31, 1998
Consolidated Balance Sheet.
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 March 31, 1998, 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 1997 10-K.
3. DISCONTINUED OPERATIONS
Packaging Business Transaction
As discussed in Note 1 above, the Spin-off and the Merger were completed on
March 31, 1998. Prior to the Spin-off and the Merger, Old Grace and a Packaging
Business subsidiary borrowed approximately $1,258.8 (inclusive of $2.2 of bank
fees) and made a cash transfer of approximately $1,256.6 to Grace, which used
the transferred funds to repay substantially all of Grace's debt (see Note 5).
The borrowed funds are shown as a net financing activity of discontinued
operations in the Consolidated Statement of Cash Flows. In the Merger and a
related recapitalization, for each Old Grace common share outstanding at the
close of trading on March 31, 1998, each shareholder received .536 shares of New
Sealed Air common stock and .475 shares of New Sealed Air convertible preferred
stock. Upon the completion of the Spin-off and the Merger, the shareholders of
Old Grace owned (a) 100% of the Specialty Chemicals Businesses (through their
ownership of 100% of the Company's outstanding shares) and (b) approximately 63%
of New Sealed Air, on a fully diluted basis.
I - 7
<PAGE>
The Packaging Business transaction resulted in an adjustment to shareholders'
equity of $196.4, representing Grace's investment in the Packaging Business less
the $1,258.8 of borrowings discussed above. See the Consolidated Statement of
Shareholders' Equity in this Report for a reconciliation of the changes in
shareholders' equity for the three-month period ended March 31, 1998.
For further information, see Old Grace's Joint Proxy Statement/Prospectus dated
February 13, 1998, the Company's Information Statement dated February 13, 1998
and Notes 1 and 3 to the Consolidated Financial Statements in the 1997 10-K.
Sale of Cocoa Business
In February 1997, Grace sold its cocoa business to Archer-Daniels-Midland
Company for total proceeds of $485.5 (including debt assumed by the buyer). The
pretax and after-tax effects of the divestment were charged against previously
established reserves.
Financial Information for Discontinued Operations
Results of the Packaging Business for the quarters ended March 31, 1998 and 1997
were as follows:
<TABLE>
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
Three Months Ended March 31,
1998 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sales and revenues.................................................... $ 431.2 $ 422.7
---------- ----------
Income from operations before taxes (1)............................... $ 6.2 $ 56.2
Income tax provision.................................................. 8.8 20.9
---------- ----------
(Loss)/income from discontinued packaging operations (1).......... $ (2.6) $ 35.3
---------- ----------
Basic (loss)/earnings per share from discontinued operations.......... $ (.04) $ .47
Diluted (loss)/earnings per share from discontinued operations........ $ (.04) $ .46
- ---------------------------------------------------------------------------------------------------------
(1) Reflects allocated interest expense of $13.3 ($8.7 after-tax) for the three
months ended March 31, 1998 and $14.4 ($9.1 after-tax) for the three months
ended March 31, 1997, based on the ratio of the net assets of the Packaging
Business compared to Grace's total capital. Results for the three months
ended March 31, 1998 also include $32.6 ($28.3 after-tax) of costs related
to the Packaging Business transaction and $8.4 ($5.5 after-tax) for a
related pension plan curtailment loss.
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The operating results of Grace's cocoa business and other discontinued
operations have been charged against previously established reserves and
therefore are not reflected in the above results.
The net assets of Grace's discontinued operations (excluding intercompany
assets) at March 31, 1998 were as follows:
<PAGE>
<TABLE>
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
March 31,
1998
- ----------------------------------------------------------------------------------------------------------
<S> <C>
Current assets.................................................................. $ 6.6
Properties and equipment, net................................................... 3.6
Other assets.................................................................... .2
----------
Total assets................................................................ $ 10.4
----------
Current liabilities............................................................. $ 2.2
Other liabilities............................................................... .2
----------
Total liabilities........................................................... $ 2.4
----------
Net assets of discontinued operations....................................... $ 8.0
----------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
For additional information, see Note 3 to the Consolidated Financial
Statements in the 1997 10-K.
I - 8
<PAGE>
4. OTHER BALANCE SHEET ITEMS
<TABLE>
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
March 31, December 31,
1998 1997
- ----------------------------------------------------------------------------------------------------------
INVENTORIES
<S> <C> <C>
Raw materials.......................................................... $ 48.9 $ 47.9
In process............................................................. 10.3 10.3
Finished products...................................................... 80.3 78.8
General merchandise.................................................... 19.7 20.2
Less: Adjustment of certain inventories to a
last-in/first-out (LIFO) basis.................................... (27.3) (27.6)
--------- ---------
$ 131.9 $ 129.6
========= =========
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
OTHER ASSETS
Prepaid pension costs.................................................. $ 233.3 $ 245.2
Intangible asset - pension............................................. 18.5 --
Deferred charges....................................................... 51.9 60.4
Long-term receivables, less allowance of $22.6 (1997 - $16.1).......... 42.4 48.4
Long-term investments.................................................. 59.0 56.4
Notes receivable from insurance carriers, net of discount of
$1.9 (1997 - $2.3)................................................. 16.2 18.0
Other.................................................................. 13.3 8.9
--------- ---------
$ 434.6 $ 437.3
========= =========
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
OTHER CURRENT LIABILITIES
Reserves for divested businesses....................................... $ 165.2 $ 123.5
Liability for asbestos-related litigation.............................. 93.3 236.5
Reserve for debt extinguishment........................................ 62.9 --
Accrued compensation................................................... 42.8 121.9
Restructuring reserves................................................. 32.2 35.6
Environmental reserves................................................. 27.6 38.8
Accrued interest....................................................... 11.8 22.5
Other.................................................................. 93.4 83.2
--------- ---------
$ 529.2 $ 662.0
========= =========
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
OTHER LIABILITIES
Other postretirement benefits.......................................... $ 215.8 $ 214.8
Environmental reserves................................................. 178.5 191.4
Pension benefits....................................................... 127.1 91.0
Deferred compensation.................................................. 33.3 58.4
Long-term self-insurance reserves...................................... 29.5 31.6
Other.................................................................. 79.1 61.9
--------- ---------
$ 663.3 $ 649.1
========= =========
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
I - 9
<PAGE>
5. EXTRAORDINARY ITEM
As discussed in Notes 1 and 3 above, Grace received a cash transfer of $1,256.6
in connection with the Spin-off and Merger. Grace used the transferred funds to
repay substantially all of its debt. On March 31, 1998, Grace used $600 of the
cash transfer to repay bank borrowings. On April 1, 1998, Grace repaid $611.3
principal amount of 8.0% Notes Due 2004, 7.4% Notes Due 2000, and 7.75% Notes
Due 2002 (collectively, Notes), pursuant to a tender offer that expired on March
27, 1998; consequently, the $611.3 principal amount was classified as short-term
debt at March 31, 1998. On April 1, 1998, Grace also repaid $3.5 principal
amount of the Medium-Term Notes, Series A (MTNs) and $6.0 of sundry
indebtedness; both amounts were classified as short-term debt at March 31, 1998.
As a result of this extinguishment of debt, Grace incurred a pretax charge of
$56.3 ($35.2 after-tax, or a basic loss per share of $.47 or a diluted loss per
share of $.43) for premiums paid in excess of the Notes' principal amounts and
other costs incurred in connection with the purchase of the Notes and MTNs
(including the costs of settling related interest rate swap agreements). These
costs are presented as an extraordinary item in the Consolidated Statement of
Operations in this Report.
At March 31, 1998 and December 31, 1997, the Company's short-term and long-term
debt was as follows:
<TABLE>
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
March 31, December 31,
1998 1997
- ----------------------------------------------------------------------------------------------------------
SHORT-TERM DEBT
<S> <C> <C>
Bank borrowings..................................................... $ 79.4 $ 370.2
Commercial Paper.................................................... -- 34.0
8.0% Notes Due 2004................................................. 270.3 --
7.4% Notes Due 2000................................................. 223.9 --
7.75% Notes Due 2002................................................ 117.1 --
Medium-Term Notes, Series A......................................... 3.5 --
Current maturities of long-term debt................................ -- .5
Other short-term borrowings......................................... 6.1 8.9
Sundry indebtedness................................................. 6.0 --
-------- --------
$ 706.3 $ 413.6
======== ========
LONG-TERM DEBT
8.0% Notes Due 2004................................................. $ 5.7 $ 276.0
7.4% Notes Due 2000................................................. 24.8 248.7
7.75% Notes Due 2002................................................ 1.9 119.0
Medium-Term Notes, Series A......................................... -- 8.5
Sundry indebtedness................................................. .6 6.5
-------- --------
$ 33.0 $ 658.7
======== ========
- ----------------------------------------------------------------------------------------------------------
</TABLE>
I - 10
<PAGE>
6. SHAREHOLDERS' EQUITY
The Company is authorized to issue 300,000,000 shares of common stock. Of the
common stock unissued at March 31, 1998, approximately 18,864,000 shares (giving
effect to the adjustment discussed in Note 7 below) 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 as 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.
During the first quarter of 1997, Old Grace substantially completed the share
repurchase program initiated in 1996 by acquiring 6,306,300 additional shares of
common stock for $335.9. Prior to year-end 1997, Old Grace retired all of its
treasury stock using the cost method.
In April 1998, the Company's Board of Directors approved a program to repurchase
up to 20% of the Company's outstanding shares in the open market. The program is
expected to be executed over time, depending on market conditions and other
factors.
In 1997, Old Grace established a trust to fund certain deferred employee
incentive compensation and nonemployee director compensation and benefits; the
trust has been continued by the Company. Prior to the transactions discussed in
Notes 1 and 3, the trust held only shares of Old Grace. Subsequent to the
transactions, the trust held shares of common stock of the Company (classified
as a component of Shareholders' Equity in the Consolidated Balance Sheet) and
New Sealed Air common and convertible preferred stock (classified as a component
of "Other assets" in the Consolidated Balance Sheet). The trust held 72,097
shares of the Company's common stock, 38,644 shares of New Sealed Air common
stock and 34,246 shares of New Sealed Air convertible preferred stock at March
31, 1998 and 71,476 shares of Old Grace common stock at December 31, 1997.
For additional information, see Note 12 to the Consolidated Financial Statements
in the 1997 10-K.
7. STOCK INCENTIVE PLANS
As described in Note 14 to the Consolidated Financial Statements in the 1997
10-K, stock options have been granted under the Company's stock incentive plans.
In connection with the transactions described in Notes 1 and 3 above, all
outstanding options (other than those held by employees of the Packaging
Business) became options to purchase the Company's common stock, and the number
of shares covered by and purchase prices of such options were adjusted to
I - 11
<PAGE>
preserve their economic value; the options held by employees of the Packaging
Business became options to purchase common stock of New Sealed Air and were
similarly adjusted. The following table sets forth information concerning
outstanding options to purchase the Company's common stock, as so adjusted:
- --------------------------------------------------------------------------------
Average
Number Exercise
of Shares Price
- --------------------------------------------------------------------------------
Balance at December 31, 1997, as adjusted...... 20,266,927 $8.11
Options exercised.............................. (5,774,738) 7.28
Options terminated or canceled................. (1,776,231) 9.83
----------
Balance at March 31, 1998...................... 12,715,958 8.33
----------
- --------------------------------------------------------------------------------
At March 31, 1998, options covering 9,555,712 shares were exercisable and
6,000,000 shares were available for additional grants. Options outstanding at
March 31, 1998 expire on various dates through June 2007.
8. PENSION PLANS
The transactions described in Notes 1 and 3 above required the Company to split
certain pension plans and recognize a net curtailment loss for other plans. In
accordance with Statement of Financial Accounting Standards (SFAS) No. 88,
"Employers' Accounting for Settlements and Curtailments of Defined Benefit Plans
and for Termination Benefits," the Company recognized a net loss of $8.4 for the
three months ended March 31, 1998 in connection with these actions. The loss is
comprised of the following in relation to active employees of the Packaging
Business: (a) a $9.8 curtailment loss from the immediate recognition of prior
service costs, (b) an $11.6 loss related to a contractual termination benefit
and (c) a $13.0 curtailment gain from the decrease in the projected benefit
obligation. This net loss is included in "(Loss)/income from discontinued
operations" in the Consolidated Statement of Operations in this Report.
9. EARNINGS PER SHARE
The following table reconciles the numerators and denominators used in
calculating basic and diluted earnings per share from continuing operations for
the three months ended March 31, 1998 and 1997:
- --------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------
NUMERATOR:
Income from continuing operations......................... $ 11.8 $ 11.1
------ ------
DENOMINATOR:
Weighted average common shares - basic calculation........ 75.1 75.3
Effect of dilutive securities:
Employee stock options................................ 6.5 2.4
------ ------
Weighted average common shares - diluted calculation...... 81.6 77.7
====== ======
BASIC EARNINGS PER SHARE.................................. $ .16 $ .15
====== ======
DILUTED EARNINGS PER SHARE................................ $ .15 $ .14
====== ======
- --------------------------------------------------------------------------------
I - 12
<PAGE>
10. BUSINESS SEGMENT INFORMATION
The table below presents information related to Grace's business segments for
the three months ended March 31, 1998 and 1997. Grace has restated pretax
operating results for all periods presented to exclude previously allocated
corporate expenses from the results of each business segment.
<TABLE>
- -----------------------------------------------------------------------------------------------------------
<CAPTION>
1998 1997
- -----------------------------------------------------------------------------------------------------------
SALES AND REVENUES
<S> <C> <C>
Grace Davison............................................... $ 176.2 $ 174.6
Grace Construction Products................................. 103.3 103.0
Darex Container Products.................................... 61.3 66.1
--------- ---------
Total.......................................................... $ 340.8 $ 343.7
========= =========
PRETAX OPERATING INCOME
Grace Davison............................................... $ 24.4 $ 21.9
Grace Construction Products................................. 4.8 5.1
Darex Container Products.................................... 6.7 6.6
--------- ---------
Total.......................................................... $ 35.9 $ 33.6
========= =========
- -----------------------------------------------------------------------------------------------------------
The sales and revenues and pretax operating income of Grace's business segments
for the three months ended March 31, 1998 and 1997 are reconciled below to
amounts presented in the Consolidated Statement of Operations.
- -----------------------------------------------------------------------------------------------------------
1998 1997
- -----------------------------------------------------------------------------------------------------------
Sales and revenues - operating segments........................ $ 340.8 $ 343.7
Other.......................................................... -- 18.1 (1)
--------- ---------
Total sales and revenues................................... $ 340.8 $ 361.8
========= =========
- -----------------------------------------------------------------------------------------------------------
Pretax operating income - operating segments................... $ 35.9 $ 33.6
Pretax operating income - divested businesses.................. -- 2.6 (1)
Interest expense and related financing costs................... (6.8) (6.4)
Interest income................................................ 1.1 4.7
Corporate expenses............................................. (10.0) (15.8)
Other operating activity....................................... (1.0) .2
Other, net..................................................... .2 (1.4)
--------- ---------
Income from continuing operations before income taxes....... $ 19.4 $ 17.5
========= =========
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Consists primarily of Grace's specialty polymers business, divested in May
1997.
I - 13
<PAGE>
11. COMPREHENSIVE INCOME/(LOSS)
In the first quarter of 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income," which requires the reporting of changes in equity
resulting from certain transactions and economic events, other than changes
reflected in the Consolidated Statement of Operations; the measure of these
changes is referred to as "other comprehensive income/(loss)." The tables below
present the pretax, tax and after-tax components of the Company's other
comprehensive loss for the three months ended March 31, 1998 and the components
of the accumulated other comprehensive loss at March 31, 1998:
<TABLE>
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
Pretax Tax After-
Amount Benefit Tax Amount
------ ------- ----------
<S> <C> <C> <C>
Foreign currency translation adjustments...................... $ (12.4) $ -- $ (12.4)
Minimum pension liability adjustments......................... (15.2) 5.3 (9.9)
-------- --------- --------
Other comprehensive loss...................................... $ (27.6) $ 5.3 $ (22.3)
======== ========= ========
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Minimum Accumulated
Foreign Pension Other
Currency Liability Comprehensive
Translation Adjustment (Loss)/Income
----------- ---------- -------------
Balance, December 31, 1997.................................... $ (198.8) $ -- $ (198.8)
Current period change......................................... 106.8 (9.9) 96.9
--------- --------- ---------
Balance, March 31, 1998....................................... $ (92.0) $ (9.9) $ (101.9)
========= ========= =========
- ----------------------------------------------------------------------------------------------------------
</TABLE>
12. SUBSEQUENT EVENT
On April 2, 1998, Grace entered into a definitive agreement to acquire the
Crosfield business of Imperial Chemical Industries PLC for $455.0 in cash.
Crosfield is a major producer of various silica, silicate and zeolite products,
as well as hydroprocessing and specialty catalysts. Crosfield, which will be
integrated with Grace Davison, had 1997 sales of approximately $270.0. The
completion of the acquisition is subject to various conditions, including
customary governmental approvals, and is expected to take place in mid-1998.
I - 14
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
REVIEW OF OPERATIONS
OVERVIEW
For the first quarter of 1998, sales and revenues of Grace's operating business
segments (Grace Davison, Grace Construction Products and Darex Container
Products) decreased .8% compared to the first quarter of 1997, and total sales
and revenues decreased 5.8% compared to the first quarter of 1997. Pretax income
from continuing operations for the first quarter of 1998 was $19.4 million, a
10.9% increase compared to the 1997 first quarter. Excluding currency
translation, sales and revenues of Grace's operating business segments increased
5.0% and pretax income from continuing operations increased 29.7% over the 1997
quarter; weakened currencies in certain Asia Pacific countries accounted for
most of the unfavorable currency translation variance. In connection with the
adoption of SFAS No. 131, Grace has restated pretax operating results for all
periods presented to exclude previously allocated corporate expenses from the
results of each operating business segment; for further information, see Note 18
to the Consolidated Financial Statements in the 1997 10-K.
<TABLE>
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
PRETAX OPERATING RESULTS - CONTINUING OPERATIONS Three Months Ended March 31,
(In millions) 1998 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sales and revenues - operating business segments....................... $ 340.8 $ 343.7
Sales and revenues - other (1)......................................... -- 18.1
-------- --------
Total sales and revenues........................................... $ 340.8 $ 361.8
======== ========
Operating income before divested business.............................. $ 35.9 $ 33.6
Operating income - divested business (1)............................... -- 2.6
-------- --------
Operating income................................................... $ 35.9 $ 36.2
Other expenses
Interest expense and related financing costs (2).................... (6.8) (6.4)
Corporate expenses (3).............................................. (10.0) (15.8)
Other, net.......................................................... .3 3.5
-------- --------
Income from continuing operations.................................. $ 19.4 $ 17.5
======== ========
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Consists primarily of Grace's specialty polymers business, divested in May
1997.
(2) Interest expense and related financing costs are not reflected in operating
income from continuing operations because significant financing decisions
are centralized at the corporate level.
(3) Reflects general corporate overhead.
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 1997 10-K.
I - 15
<PAGE>
SALES AND REVENUES
<TABLE>
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
SALES AND REVENUES - Operating Business Segments Three Months Ended March 31, % Change
(In millions) 1998 1997 1998 vs. 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Grace Davison............................................... $176.2 $174.6 .9%
Grace Construction Products................................. 103.3 103.0 .3
Darex Container Products.................................... 61.3 66.1 (7.3)
------ ------
Sales and revenues - operating business segments......... $340.8 $343.7 (.8)%
====== ======
- ----------------------------------------------------------------------------------------------------------
</TABLE>
GRACE DAVISON
Grace Davison sales increased .9% in the first quarter of 1998 compared to the
first quarter of 1997. This increase was attributable to a volume increase
estimated at 13.6%, largely offset by unfavorable currency translation estimated
at 6.3% and an unfavorable price/mix variance estimated at 6.4%. The following
discussion of Grace Davison sales excludes the effect of currency translation.
Fluid cracking catalyst (FCC) sales were 13.0% higher in the 1998 quarter than
the 1997 quarter, reflecting volume increases (primarily in North America and
Asia Pacific) and price/mix variances. North American sales volumes were higher
as a result of strong demand for refined products and high refinery utilization
rates; in addition, FCC additive sales were higher due to increased demand for
polypropylenes, which use additives to optimize their yields. FCC volumes in
Asia Pacific increased as a result of strong sales in China, reflecting market
growth resulting from the technical performance of Grace Davison FCCs. Volumes
in Europe were essentially flat as a result of turnarounds of several major
refineries. Favorable price/mix variances were caused by an increase in the
average selling price of FCCs in North America, reflecting price stabilization
that began in the latter part of 1997. The price/mix variance in Europe was
unfavorable due to price competition that started to abate in late 1997.
Silica/adsorbent sales were 2.8% higher in the first quarter of 1998 compared to
the first quarter of 1997, primarily due to volume increases in most market
segments in Europe, partially offset by unfavorable price/mix variances, also in
Europe. These higher volumes resulted from improving economic conditions in
Germany, expansion into new regions (Russia, South Africa and the Middle East)
and market share increases due to new product introductions in the
anti-corrosion and paper markets. The volume increase was partially offset by
lower sales of beer gels in Latin America due to lower consumption rates and
increased taxes on beverages in Brazil. Unfavorable price/mix variances in
Europe were primarily caused by price erosion as a result of competitive market
conditions in the insulated glass sieves business.
Polyolefin catalyst sales increased 26.2% in the first quarter of 1998 compared
to the 1997 period as a result of volume increases in all geographic regions
(especially Asia Pacific) and favorable price/mix variances in all geographic
regions except North America, where price/mix was flat as compared to the
prior-year quarter. These increases were due to higher Asia Pacific sales of
Magnapore (a premium, high-margin specialty catalyst), strong acceptance of a
conventional catalyst used in dairy resin applications, the continued strength
of the plastics industry and growth of two of Grace Davison's major customers.
However, this high-growth pace is expected to slow due to the continuing
financial difficulties in the Asia Pacific region.
I - 16
<PAGE>
GRACE CONSTRUCTION PRODUCTS
Grace Construction Products sales and revenues increased .3% in the first
quarter of 1998 over the first quarter of 1997. A volume increase estimated at
5.7% was offset by unfavorable variances in currency translation and price/mix
estimated at 4.1% and 1.3%, respectively. The following discussion of Grace
Construction Products sales excludes the effect of currency translation.
Sales of specialty construction chemicals increased 12.5% in the first quarter
of 1998 over the first quarter of 1997, mainly as a result of volume increases
in North America and Europe. In North America, volumes benefited from the
continued strength of the construction market, as well as from market
penetration of new and existing value-added concrete admixtures and market gains
in concrete products. In Europe, volume increases in concrete products and
cement additives reflected greater market acceptance of value-added concrete
admixtures, milder weather compared to the 1997 first quarter, increased cement
production at a major customer in Italy, and the accretive effect of a second
quarter 1997 acquisition in Spain. In Asia Pacific, volumes decreased as a
result of economic weakness in Southeast Asia, offset in part by a favorable
volume variance in Australia. To lessen the effect of the economic disruption in
the region, Grace Construction Products intends to continue to focus market
penetration efforts on the area's stronger economies and to search for local raw
material sources to counteract currency weakness.
Sales of specialty building materials decreased 5.0% in the first quarter of
1998 compared to the first quarter of 1997, primarily due to the economic
downturn in Asia Pacific. In the region's most troubled economies, volumes
declined due to the cancellation or delay of construction projects. As a result,
competition has intensified in the region's more stable economies, negatively
affecting pricing and volume. Sales of fireproofing products in North America
were also lower than in the 1997 first quarter due to the timing of certain
high-rise steel construction projects. However, based on orders placed to date,
an upturn in fireproofing sales is expected in the second quarter.
DAREX CONTAINER PRODUCTS
Darex Container Products sales decreased 7.3% in the first quarter of 1998
versus the first quarter of 1997. This decrease was primarily attributable to
the negative effect of currency translation, estimated at 7.6%. Excluding
currency translation, sales in the first quarter of 1998 were essentially flat
quarter-to-quarter. The following discussion of Darex Container Products sales
excludes the effect of currency translation.
Container sealant sales increased 2.1% in the first quarter of 1998 as compared
to the same period in 1997, primarily due to volume increases in Europe and
price/mix and volume increases in North America, partially offset by volume
decreases in Latin America and Asia Pacific. European can sealant volume grew
due to the addition of two customers, coupled with increased demand from two
existing customers, partially offset by the decision by two other customers to
produce their own closure sealants. North American volumes increased in the
beer/beverage market due to low customer inventory and a warm winter. These
factors, coupled with price increases initiated at the beginning of the year,
resulted in significant growth in North American can sealant sales. Latin
American volumes were adversely impacted by Brazil's poor economic conditions,
which significantly reduced demand in the canned food and beer/beverage markets.
Beer/beverage sales in Japan were down slightly due to unusually cold weather,
which was partially offset by increased demand and competitive gains in the
Philippines and China.
I - 17
<PAGE>
Coatings sales increased 6.8% in the first quarter of 1998 over the 1997 period,
driven mainly by volume increases in Latin America and Asia Pacific, partially
offset by lower sales in Europe. Competitive gains in Mexico and Venezuela,
coupled with Venezuelan beer/beverage producers' sales promotions, favorably
increased volumes in Latin America. Significant competitive gains were achieved
during the 1998 quarter in the Philippines due to Darex Container Products'
ability to meet technical requirements specified by customers. In addition,
modest competitive gains were achieved in Thailand (due to competitive pricing
facilitated by local purchasing of raw materials at lower cost) and in China and
Vietnam (due to new customers). Lower volumes in Europe were primarily due to
the April 1997 divestment of a small niche segment of the coatings business.
OPERATING RESULTS
For operating business segment disclosure, Grace has charged each operating
business segment with only those expenses that are directly attributable to its
businesses. Expenses related to corporate activities are discussed below under
"Corporate Activities."
<TABLE>
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
OPERATING INCOME - Operating Business Segments Three Months Ended March 31, % Change
(In millions) 1998 1997 1998 vs. 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Grace Davison............................................... $24.4 $21.9 11.4%
Grace Construction Products................................. 4.8 5.1 (5.9)
Darex Container Products.................................... 6.7 6.6 1.5
----- -----
Operating income - operating business segments........... $35.9 $33.6 6.8%
===== =====
- ----------------------------------------------------------------------------------------------------------
</TABLE>
GRACE DAVISON
Grace Davison's pretax operating income for the first three months of 1998
increased 11.4% compared to the same period in 1997 (22.4% excluding currency
translation). The increase resulted primarily from improved FCC manufacturing
efficiencies in North America and Europe, cost reduction programs implemented in
1997 and favorable raw material purchase prices for FCCs in North America due to
a program to consolidate suppliers and maximize volume discounts. Polyolefin
catalyst results also improved as a result of higher Asia Pacific sales of
Magnapore. Partially offsetting these improvements were slightly higher selling
expenses due to sales incentives, increased technical service, laboratory
charges and export commissions to support sales in Latin America and Japan, and
higher silica/adsorbent and polyolefin advertising costs in North America.
Research and development (R&D) costs increased slightly as a result of a new
silica/adsorbent sub-micron gel pilot plant and other research activities
relative to the comparable period in 1997.
GRACE CONSTRUCTION PRODUCTS
Grace Construction Products' pretax operating income decreased 5.9% in the first
quarter of 1998 compared to the first quarter of 1997, mainly due to a $1.0
million charge for workforce reductions in the European waterproofing
manufacturing and sales organizations, the majority of which was paid during the
first quarter. The benefits of these reductions are expected to fully offset
this charge by year-end 1998. Excluding currency translation, pretax operating
income in the first quarter of 1998 decreased 9.8% compared to the first quarter
of 1997, as the negative effects of currency translation on Grace Construction
Products sales and revenues discussed above were
I - 18
<PAGE>
more than offset by the favorable effects of currency translation on expenses.
Gross margin percentage improved moderately compared to the 1997 first quarter,
reflecting improvements in manufacturing processes, production rates and
material costs, as well as market penetration of new higher-margin products.
DAREX CONTAINER PRODUCTS
Darex Container Products' pretax operating income increased 1.5% in the first
quarter of 1998 versus the first quarter of 1997 (11.1% excluding currency
translation), due mainly to lower operating expenses resulting from productivity
improvements. Total gross margin experienced a .3% decline in the first quarter
of 1998 versus the first quarter of 1997, primarily due to growth in low-margin
products. Headcount reductions in all regions except North America, cost
reductions due to the consolidation of R&D sites, and lower depreciation
contributed to the overall reduction in total operating expenses.
CORPORATE ACTIVITIES
Corporate expenses of $10.0 million for the first quarter of 1998 decreased
36.7% compared to the first quarter of 1997, primarily due to the restructuring
activities undertaken in connection with the Packaging Business transaction (see
Notes 1 and 3 to the interim consolidated financial statements in this Report),
additional cost containment efforts initiated in 1997 and the decision to
terminate, on a prospective basis, the long-term incentive compensation program
(LTIP). In the future, stock incentives are expected to be the sole component of
long-term incentive compensation.
STATEMENT OF OPERATIONS
INTEREST EXPENSE AND RELATED FINANCING COSTS
Interest expense and related financing costs for continuing operations of $6.8
million in the first quarter of 1998 increased 6.3% compared to the same period
in 1997. Including amounts allocated to discontinued operations, interest
expense and related financing costs during the three months ended March 31, 1998
remained relatively flat compared to the three months ended March 31, 1997, as
lower average debt levels were entirely offset by an increase in short-term
interest rates.
See "Financial Condition: Liquidity and Capital Resources" below for further
information on borrowings.
INCOME TAXES
Grace's effective tax rates were 38.9% in the first quarter of 1998 and 36.7% in
the first quarter of 1997. The higher effective tax rate in the 1998 quarter
resulted primarily from higher taxes on foreign operations.
I - 19
<PAGE>
DISCONTINUED OPERATIONS
PACKAGING BUSINESS
As discussed in Notes 1 and 3 to the interim consolidated financial statements
in this Report, the Spin-off and Merger were completed on March 31, 1998. The
following table compares the results of operations of the Packaging Business for
the 1998 first quarter to results of operations for the 1997 first quarter:
Three Months Ended March 31,
(In millions) 1998 1997
- ----------------------------------------------------------------------------
Sales and revenues...................... $ 431.2 $ 422.7
========= =========
Operating income (1).................... $ 60.5 $ 70.6
========= =========
- ----------------------------------------------------------------------------
(1) Does not include interest expense allocated to the Packaging Business of
$13.3 for the three months ended March 31, 1998 and $14.4 for the three
months ended March 31, 1997. Results for the three months ended March 31,
1998 also exclude $32.6 of costs related to the Packaging Business
transaction and $8.4 for a related pension plan curtailment loss.
In the first quarter of 1998, sales and revenues of the Packaging Business
increased 2.0% compared to the 1997 period. The increase resulted from volume
increases estimated at 7%, which were partially offset by the negative effect of
currency translation, estimated at 5%. Acquisitions completed after March 31,
1997 accounted for an estimated 24% of the overall sales increase in the first
quarter of 1998. Excluding the effects of acquisitions and currency translation,
1998 first quarter bag sales increased 6%, laminate sales increased 14% and film
sales increased 3% over the 1997 quarter.
Pretax operating income of the Packaging Business decreased 14.3% in the first
quarter of 1998 compared to 1997, as the increase in sales discussed above was
more than fully offset by higher manufacturing costs as a result of higher
depreciation and other expenses related to capital expenditures made in prior
years, as well as higher product introduction costs. Additionally, first quarter
1998 pretax operating income was negatively impacted by expenses relating to a
program to reschedule workforce hours at a facility in the United Kingdom. These
higher manufacturing expenses were partially offset by lower research and
development expenses.
COCOA
In February 1997, Grace sold its cocoa business to Archer-Daniels-Midland
Company for total proceeds of $485.5 million (including debt assumed by the
buyer). The pretax and after-tax effects of the divestment have been charged
against previously established reserves.
I - 20
<PAGE>
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
Grace's continuing operating activities used net pretax cash of $259.8 million
in the first quarter of 1998, compared to $95.9 million in the first quarter of
1997. After giving effect to the net pretax cash provided by operating
activities of discontinued operations and payments of income taxes, the net cash
used by operating activities was $258.8 million in the first three months of
1998 compared to $46.8 million for the same period in 1997. The increase from
the first quarter of 1997 was primarily due to the expenditure of $154.0 million
for the defense and disposition of asbestos-related litigation, net of amounts
received from settlements with certain insurance carriers in connection with
such litigation, as compared to the net cash inflow of $1.2 million for
asbestos-related litigation in the first quarter of 1997.
Investing activities used $30.5 million of cash in the first quarter of 1998 as
compared to cash provided by investing activities of $395.6 million in the first
quarter of 1997. The decrease in cash from investing activities was primarily
due to the receipt of net proceeds from divestments in the first quarter of 1997
(most of which related to the divestment of the cocoa business), partially
offset by a reduction in net investing activities of discontinued operations.
Grace made capital expenditures of $16.7 million in the three months ended March
31, 1998, primarily related to the Grace Davison business. Grace anticipates
that total 1998 capital expenditures will not exceed $110.0 million, all of
which will be directed towards its operating business segments.
Net cash provided by financing activities in the first quarter of 1998 was
$966.7 million, primarily reflecting the cash transfer of $1,256.6 million
received in connection with the Packaging Business transaction (as discussed
below and in Notes 1 and 3 to the interim consolidated financial statements in
this Report) and proceeds from the exercise of employee stock options, partially
offset by net repayments of borrowings.
In connection with the Packaging Business transaction, Grace received $1,256.6
million in cash, which was used to repay substantially all of its debt. On March
31, 1998, Grace used $600 million of the cash transfer to repay bank borrowings.
On April 1, 1998, Grace repaid $611.3 million principal amount of Notes pursuant
to a tender offer that expired on March 27, 1998; consequently, the $611.3
million principal amount was classified as short-term debt at March 31, 1998. On
April 1, 1998, Grace also repaid $3.5 million principal amount of MTNs and $6.0
million of sundry indebtedness. As a result of this extinguishment of debt,
Grace incurred an after-tax charge of $35.2 million for premiums paid in excess
of the Notes' principal amounts and other costs related to the purchase of the
Notes and MTNs (including the costs of settling related interest rate swap
agreements). These costs are presented as an extraordinary item in the
Consolidated Statement of Operations in this Report.
At March 31, 1998, 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.
These facilities also supported the issuance of commercial paper and bank
borrowings, of which $79.4 million was outstanding at March 31, 1998. In May
1998, Grace expects to enter into two new credit facilities (replacing the
current facilities) totaling $850.0 million, consisting of $600.0 million under
a 364-day facility expiring in May 1999 and $250.0 million under a long-term
facility expiring in May 2003.
I - 21
<PAGE>
Grace has targeted a ratio of debt to EBITDA (earnings before interest, taxes
and depreciation and amortization) of less than 1.0, although Grace will
continue to have the flexibility to exceed this target as business needs
dictate. Subsequent to the repayment of debt on April 1, 1998 (as discussed
above), the debt to EBITDA ratio for the twelve months ended April 1, 1998 was
estimated at .73, including the effect of classifying the Packaging Business as
a discontinued operation.
During the first quarter of 1997, Old Grace substantially completed the share
repurchase program initiated in 1996 by acquiring 6,306,300 additional shares of
its common stock for $335.9 million. Prior to year-end 1997, Old Grace retired
all of its treasury stock using the cost method. In April 1998, the Company's
Board of Directors approved a program to purchase up to 20% of the Company's
outstanding shares in the open market. The program is expected to be financed
through borrowings and the Company's cash flow, and will be executed over time,
depending on market conditions and other factors.
Grace believes that cash flows generated from future operations and committed
borrowing facilities will be sufficient to meet its cash requirements for the
foreseeable future.
CROSFIELD ACQUISITION
On April 2, 1998, Grace entered into a definitive agreement to acquire the
Crosfield business of Imperial Chemical Industries PLC for $455.0 million in
cash. Crosfield is a major producer of various silica, silicate and zeolite
products, as well as hydroprocessing and specialty catalysts. Crosfield, which
will be integrated with Grace Davison, had 1997 sales of approximately $270.0
million. The completion of the acquisition is subject to various conditions,
including customary governmental approvals, and is expected to take place in
mid-1998. Grace expects to finance the acquisition with borrowings.
ASBESTOS-RELATED MATTERS
In the first quarter of 1998, Grace paid $154.0 million for the defense and
disposition of asbestos-related property damage and personal injury litigation
(including payments made under a property damage settlement and a block
settlement of personal injury claims effected in 1997), net of amounts received
under settlements with insurance carriers. Although the total amount to be paid
in 1998 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 $170 million (pretax)
in 1998 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 asbestos personal
injury claims in Texas state courts. Although the rate of filing of new asbestos
claims in Texas has declined since the enactment of this legislation, the effect
of this legislation on Grace's ultimate exposure with respect to its
asbestos-related cases and claims cannot be predicted with certainty.
I - 22
<PAGE>
In December 1997, Grace and the U.S. Department of Energy's Brookhaven National
Laboratory announced the development of a new product capable of dissolving
asbestos in installed fireproofing material previously produced by Grace without
diminishing the existing fire-resistive performance of the fireproofing material
on columns and beams. It is anticipated that the new product will create
significant cost savings in comparison to current asbestos abatement techniques.
The new product is expected to be commercially available in 1998. Grace is not
yet able to determine the effect of the new product on Grace's exposure with
respect to its property damage litigation cases.
See Note 2 to the interim consolidated financial statements in this Report for
further information concerning asbestos-related lawsuits and claims.
ENVIRONMENTAL MATTERS
There were no significant developments relating to environmental liabilities for
the three months ended March 31, 1998.
In April 1998, Grace reached a settlement with the federal government relating
to a site in Wayne, New Jersey. Under the terms of the settlement, which remains
subject to court approval, Grace will pay approximately $32 million in
settlement of claims by the U.S. Army Corps of Engineers, the U.S. Environmental
Protection Agency and the U.S. Departments of Energy and the Interior. Grace has
paid $19 million of this amount into an escrow account and will pay the
remaining $13 million over the next two years. All amounts paid and to be paid
in the settlement are being charged against previously established reserves.
For additional information relating to environmental liabilities, see Note 11 to
the Consolidated Financial Statements in the 1997 10-K.
YEAR 2000 COMPUTER SYSTEMS COMPLIANCE
There were no significant developments relating to Year 2000 computer systems
compliance in the first quarter of 1998.
For additional information relating to Year 2000 computer systems compliance,
see "Management's Discussion and Analysis of Results of Operations and Financial
Condition -- Year 2000 Computer Systems Compliance" and Note 17 to the
Consolidated Financial Statements in the 1997 10-K.
I - 23
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
(a) Note 2 to the interim consolidated financial statements in Part I of
this Report is incorporated herein by reference.
(b) Reference is made to the section entitled "Environmental Proceedings"
in Item 3 ("Legal Proceedings") of the 1997 10-K for information concerning a
proceeding regarding a former Grace property located in Wayne, New Jersey. In
April 1998, Grace reached a settlement with the federal government relating to
the property. Under the terms of the settlement, which remains subject to court
approval, Grace will pay approximately $32 million in settlement of claims by
the U.S. Army Corps of Engineers, the U.S. Environmental Protection Agency and
the U.S. Departments of Energy and the Interior. Grace has paid $19 million of
this amount into an escrow account and will pay the remaining $13 million over
the next two years. All amounts paid and to be paid in the settlement are being
charged against previously established reserves.
(c) Reference is made to the section entitled "Claims Relating to NMC" in
Item 3 ("Legal Proceedings") of the 1997 10-K for information concerning the
settlement of a lawsuit entitled Murphy, et al. v. W. R. Grace & Co., et al., a
purported derivative action entitled Bennett v. Bolduc, et al., and a derivative
action entitled Bauer v. Bolduc, et al. The settlement described in the 1997
10-K received court approval in March 1998 and the actions have been terminated.
II-1
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
On March 20, 1998, Old Grace held a special meeting of stockholders
("Special Meeting"). At the Special Meeting, Old Grace's stockholders voted on:
(a) the approval and adoption of (i) the Agreement and Plan of Merger,
dated as of August 14, 1997, among Old Grace, Sealed Air Corporation and a
wholly owned subsidiary of Old Grace and the agreements that are exhibits
thereto, as supplemented or modified from time to time, and (ii) the
reorganization, merger and other transactions contemplated thereby,
including (A) the spin-off of the Company to Old Grace stockholders, (B)
certain amendments to the Amended and Restated Certificate of Incorporation
of Old Grace, (C) the recapitalization of Old Grace common stock and (D)
the issuance of Old Grace common stock to Sealed Air stockholders in the
merger; and
(b) an amendment to Old Grace's Amended and Restated Certificate of
Incorporation repealing certain provisions that require a supermajority
vote by Old Grace stockholders to amend or repeal.
II-2
<PAGE>
The following sets forth the results of voting at the Special Meeting:
VOTES*
---------------------------------------------
MATTER FOR AGAINST ABSTENTIONS
- ------ ---------- ------- -----------
Agreement and
Plan of Merger 56,826,611 363,379 238,984
Amendment to
Amended and
Restated Certificate
of Incorporation** 56,562,225 617,026 249,722
- ---------------------------
* There were no broker non-votes on any matter.
** Required affirmative vote of 80% of Old Grace's outstanding shares for
approval; however, only 76.8% of Old Grace's shares were represented at
the meeting.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. The following are being filed as exhibits to this Report:
-- First Amendment, dated as of February 17, 1998, to the 364-Day
Credit Agreement, dated as of May 16, 1997, among W. R. Grace &
Co.-Conn., W. R. Grace & Co., Grace Specialty Chemicals, Inc., the
several banks parties thereto, and The Chase Manhattan Bank, as
administrative agent for such banks
-- First Amendment, dated as of February 17, 1998, to the Credit
Agreement, dated as of May 16, 1997, among W. R. Grace & Co.-Conn.,
W. R. Grace & Co., Grace Specialty Chemicals, Inc., the several
banks parties thereto, and The Chase Manhattan Bank, as
administrative agent for such banks
II-3
<PAGE>
-- Amendment dated April 14, 1998 to Employment Agreement, dated as
of May 1, 1995, between W. R. Grace & Co. and Albert J. Costello,
as amended
-- Amendment dated April 14, 1998 to Employment Agreement dated
May 15, 1995 between W. R. Grace & Co. and Larry Ellberger
-- Form of Restricted Share Award Agreements dated April 7, 1998
-- W. R. Grace & Co. 1996 Stock Incentive Plan, as amended
-- Forms of Stock Option Agreements
-- Option Agreement between W. R. Grace & Co. and Albert J. Costello,
dated April 1, 1998
-- computation of ratio of earnings to fixed charges and combined fixed
charges and preferred stock dividends
-- financial data schedule
(b) Reports on Form 8-K. The following Reports on Form 8-K were filed
during the first quarter and to date during the second quarter of 1998:
Date of Filing Disclosure(s)
-------------- -------------
February 9, 1998 Announcement of 1997 fourth quarter and full year
results of Old Grace
April 8, 1998 Announcement of the closing of the Spin-off and
Merger; announcement of the numbers of shares received
by Old Grace stockholders as a result of the Spin-off
and Merger and related transactions; announcement that
Grace had entered into a
II-4
<PAGE>
definitive agreement to acquire the Crosfield
business of Imperial Chemical Industries PLC;
announcement that the Company's Board of Directors
had approved a program to purchase up to 20% of the
outstanding shares of the Company's common stock;
and announcement that the Company is continuing a
strategic review of its Darex Container Products
unit
May 11, 1998 Announcement of 1998 first quarter results
II-5
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
W. R. GRACE & CO.
---------------------
(Registrant)
Date: May 15, 1998 By /s/ Kathleen A. Browne
----------------------
Kathleen A. Browne
Vice President and Controller
(Principal Accounting Officer)
II-6
<PAGE>
W. R. Grace & Co.
Quarterly Report on Form 10-Q
for the quarter ended March 31, 1998
EXHIBIT INDEX
Exhibit No. Description
4.1 First Amendment, dated as of February 17, 1998, to the
364-Day Credit Agreement, dated as of May 16, 1997, among
W. R. Grace & Co.-Conn., W. R. Grace & Co., Grace
Specialty Chemicals, Inc., the several banks parties
thereto, and The Chase Manhattan Bank, as administrative
agent for such banks
4.2 First Amendment, dated as of February 17, 1998, to the
Credit Agreement, dated as of May 16, 1997, among W. R.
Grace & Co.-Conn., W. R. Grace & Co., Grace Specialty
Chemicals, Inc., the several banks parties thereto, and
The Chase Manhattan Bank, as administrative agent for such
banks
10.1 Amendment dated April 14, 1998 to Employment Agreement, dated as
of May 1, 1995, between W. R. Grace & Co. and Albert J. Costello,
as amended
10.2 Amendment dated April 14, 1998 to Employment Agreement dated
May 15, 1995 between W. R. Grace & Co. and Larry Ellberger
10.3 Form of Restricted Share Award Agreements dated April 7, 1998
10.4 W. R. Grace & Co. 1996 Stock Incentive Plan, as amended
10.5 Forms of Stock Option Agreements
10.6 Option Agreement between W. R. Grace & Co. and Albert J. Costello,
dated April 1, 1998
12 Computation of ratio of earnings to fixed charges and combined fixed
charges and preferred stock dividends
27 Financial Data Schedule
<PAGE>
EXHIBIT 4.1
FIRST AMENDMENT
FIRST AMENDMENT, dated as of February 17, 1998 (this "Amendment"), to
the 364-Day Credit Agreement, dated as of May 16, 1997 (the "Credit
Agreement"), among W. R. Grace & Co.-Conn., a Connecticut corporation (the
"Company"), W. R. Grace & Co., a Delaware corporation and sole shareholder of
the Company ("Grace Delaware"), Grace Specialty Chemicals, Inc. a Delaware
corporation ("New Grace"), the several banks from time to time parties to the
Credit Agreement (the "Banks"), and The Chase Manhattan Bank, a New York
banking corporation, as administrative agent for the Banks thereunder (in such
capacity, the "Administrative Agent").
W I T N E S S E T H :
WHEREAS, New Grace is wholly-owned by Grace Delaware and pursuant to
this Amendment will become a party to the Credit Agreement and a guarantor
under Section 12 of the Credit Agreement to the same extent Grace Delaware is a
guarantor, and will upon completion of the Packaging Transaction (as
hereinafter defined) replace Grace Delaware as guarantor;
WHEREAS, in connection with the Packaging Transaction (as hereinafter
defined) (i) New Grace will become the sole shareholder of the Company, (ii)
the Company will transfer its packaging business to another subsidiary of Grace
Delaware and (iii) Grace Delaware will spin off New Grace (together with the
Company) to Grace Delaware's shareholders;
WHEREAS, the Company has requested the Banks to, among other things,
consent to the Packaging Transaction on the terms and subject to the conditions
set forth herein;
NOW THEREFORE, in consideration of the premises herein contained and
for other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto hereby agree as follows:
I.
DEFINITIONS
Unless otherwise defined herein, terms defined in the Credit Agreement
and used herein shall have the meanings given to them in the Credit Agreement.
<PAGE>
ARTICLE II.
CREDIT AGREEMENT AMENDMENTS
2.1 Definitions. (a) Subsection 1.1 of the Credit Agreement is hereby
amended by deleting the definition of "Loan Parties" in its entirety and by
adding the following new definitions to such subsection in correct alphabetical
order:
`Cryovac': Cryovac, Inc., a Delaware corporation and subsidiary of the
Company, together with its subsidiaries.
`Grace Delaware': W.R. Grace & Co., a Delaware corporation and sole
shareholder of the Company.
`Loan Parties': the collective reference to the Company, the other
Borrowers, Grace Delaware and New Grace.
`New Grace': Grace Specialty Chemicals, Inc., a Delaware corporation.
`Packaging Transaction': the transaction in which all of the following
steps occur: (a) the Company will transfer its packaging business to
Cryovac, (b) Grace Delaware and Cryovac will enter into new bank borrowings
of approximately $1,200,000 and the proceeds will be transferred to the
Company, (c) the Company will distribute the stock of Cryovac to Grace
Delaware, (d) Grace Delaware will contribute the stock of the Company to
New Grace, and (e) Grace Delaware will distribute to its public
shareholders the stock of New Grace.
`Parent': Grace Delaware, until such time as Grace Delaware in
connection with the Packaging Transaction no longer directly or indirectly
owns all of the stock of the Company, and thereafter, New Grace, except
that for purposes of Section 12, the term Parent shall include New Grace
and, until the Release Date, Grace Delaware.
`Release Date': the date on which the Administrative Agent executes
the release contemplated by subsection 13.16.
2.2 Miscellaneous. Section 13 of the Credit Agreement is hereby
amended by adding the following new paragraph to the end of such Section:
"13.16 Release of Grace Delaware. Promptly after the completion of the
Packaging Transaction, the Administrative Agent, on behalf of the
Administrative Agent and the Banks, shall, upon receipt of the written
request of the Parent or Grace Delaware, execute an acknowledgment that
Grace Delaware is released from all its obligations under this Agreement
(including, without limitation, its obligations under the Parent Guarantee)
provided that the Administrative Agent shall have received a certificate
dated the date of such request executed by a Responsible Officer of each of
2
<PAGE>
New Grace and the Company to the effect that (a) each of the
representations and warranties made by each of the Loan Parties (other than
Grace Delaware) in or pursuant to Sections 6.1, 6.2, 6.3, 6.5, 6.9, 6.10,
6.11, 6.12 and 6.13 of this Agreement is true and correct in all material
respects as of the date of such certificate as if made on and as of such
date and (b) no Default or Event of Default has occurred and is continuing
on the date of such certificate after giving effect to the Packaging
Transaction."
ARTICLE III.
CREDIT AGREEMENT WAIVERS
3.1 Waiver of Covenants. The Banks and the Administrative Agent hereby
waive compliance by the Loan Parties with the provisions of subsection 9.1,
9.2, 9.3 and 9.4 of the Credit Agreement, solely insofar as the steps taken in
connection with the Packaging Transaction might otherwise be deemed to result
in a breach of any of the covenants contained in those subsections; provided
that the Banks and the Administrative Agent shall only waive compliance by the
Loan Parties with the provisions of subsection 9.1 of the Credit Agreement with
respect to the fiscal quarter ending March 31, 1998 and only then if such
subsection would be breached because step (b) of the Packaging Transaction
would have occurred in the fiscal quarter ending March 31, 1998 and step (e) of
the Packaging Transaction would have occurred in the fiscal quarter ending June
30, 1998.
3.2 Waiver of Certain Defaults. The Banks and the Administrative Agent
hereby agree that the waivers contained in Section 3.1 of this Amendment shall
have effect for purposes of Section 8.2(b), Section 10(c) and Section 10(d) of
the Credit Agreement, and hereby waive application of the provisions of Section
10(i) of the Credit Agreement solely insofar as the steps taken in connection
with the Packaging Transaction might otherwise be deemed to result in a default
under Section 10(i).
ARTICLE IV.
MISCELLANEOUS
4.1 Effectiveness. This Amendment shall become effective on the
condition that (a) the Administrative Agent shall have received counterparts
hereof, duly executed and delivered by the Company, Grace Delaware, New Grace
and the Banks, (b) the Administrative Agent shall have received a legal opinion
of counsel to the Company, Grace Delaware and New Grace in form and substance
acceptable to the Administrative Agent, and (c) no Default or Event of Default
shall have occurred and be continuing on the date hereof after giving effect to
this Amendment. The date on which all of the above conditions are met shall be
the date of effectiveness of this Amendment (the "Effective Date").
4.2 New Grace. By signing this Amendment, all of the parties hereto
hereby: (i) acknowledge that as of the Effective Date, New Grace will be a
party to the Credit Agreement, as modified hereby, and, as such, will be bound
by the terms and provisions
3
<PAGE>
thereof as if an original party thereto, and (ii) acknowledge and agree that,
commencing with the Effective Date, Grace Delaware and New Grace will be
jointly and severally bound as guarantors under Section 12 of the Credit
Agreement, until Grace Delaware is released in accordance with Section 13.16 of
the Credit Agreement.
4.3 Continuing Effect of Credit Agreement. This Amendment shall not
constitute an amendment, consent or waiver of any other provision of the Credit
Agreement not expressly referred to herein and, except as provided herein,
shall not be construed as an amendment, consent or waiver to any further or
future action on the part of the Loan Parties that would require a consent or
waiver of the Administrative Agent and/or any of the Banks. Except as expressly
consented to and waived hereby, the provisions of the Credit Agreement are and
shall remain in full force and effect.
4.4 Counterparts. This Amendment may be executed by one or more of the
parties to this Amendment on any number of separate counterparts, and all of
such counterparts taken together shall be deemed to constitute one and the same
instrument. In addition, this Amendment may be delivered by facsimile
transmission of the relevant signature pages thereof.
4.5 GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
4.6 Expenses. The Company agrees to pay or reimburse the
Administrative Agent for all of its out-of-pocket costs and expenses incurred
in connection with the preparation, negotiation and execution of this
Amendment, including, without limitation, the fees and disbursements of counsel
to the Administrative Agent.
4.7 Section Headings. The section headings used in this Amendment are
for convenience of reference only and are not to affect the construction hereof
or be taken into consideration in the interpretation hereof.
4.8 Severability. Any provision of this Amendment which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction, in any such case so
long as the economic or legal substance of the transactions provided for herein
is not affected in any manner adverse to any party.
[The remainder of this page has intentionally been left blank.]
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered in New York, New York by their proper and duly
authorized officers as of the day and year first above written.
W. R. GRACE & CO.-CONN.
By:
--------------------------------
Title: Senior Vice President
W. R. GRACE & CO.
By:
--------------------------------
Title: Senior Vice President
GRACE SPECIALTY CHEMICALS, INC.
By:
--------------------------------
Title: Senior Vice President
<PAGE>
THE CHASE MANHATTAN BANK, as
Administrative Agent and as a Bank
By:
--------------------------------
Title:
NATIONSBANK, N.A. (SOUTH)
By:
--------------------------------
Title:
ABN AMRO BANK N.V., NEW YORK BRANCH
By:
--------------------------------
Title:
By:
--------------------------------
Title:
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By:
--------------------------------
Title:
BANK OF NEW YORK
By:
--------------------------------
Title:
<PAGE>
THE BANK OF NOVA SCOTIA
By:
--------------------------------
Title:
BARCLAYS BANK PLC
By:
--------------------------------
Title:
CITIBANK, N.A.
By:
--------------------------------
Title:
COMMERZBANK AG, ATLANTA AGENCY
By:
--------------------------------
Title:
CREDIT LYONNAIS ATLANTA AGENCY
By:
--------------------------------
Title:
<PAGE>
CREDIT SUISSE FIRST BOSTON
By:
--------------------------------
Title:
By:
--------------------------------
Title:
DRESDNER BANK AG, NEW YORK AND
GRAND CAYMAN BRANCHES
By:
--------------------------------
Title:
By:
--------------------------------
Title:
FIRST UNION NATIONAL BANK OF FLORIDA
By:
--------------------------------
Title:
MARINE MIDLAND BANK
By:
--------------------------------
Title:
<PAGE>
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK
By:
--------------------------------
Title:
UNION BANK OF SWITZERLAND - NEW YORK
By:
--------------------------------
Title:
By:
--------------------------------
Title:
<PAGE>
EXHIBIT 4.2
FIRST AMENDMENT
FIRST AMENDMENT, dated as of February 17, 1998 (this "Amendment"), to
the Credit Agreement, dated as of May 16, 1997 (the "Credit Agreement"), among
W. R. Grace & Co.-Conn., a Connecticut corporation (the "Company"), W. R. Grace
& Co., a Delaware corporation and sole shareholder of the Company ("Grace
Delaware"), Grace Specialty Chemicals, Inc. a Delaware corporation ("New
Grace"), the several banks from time to time parties to the Credit Agreement
(the "Banks"), and The Chase Manhattan Bank, a New York banking corporation, as
administrative agent for the Banks thereunder (in such capacity, the
"Administrative Agent").
W I T N E S S E T H :
WHEREAS, New Grace is wholly-owned by Grace Delaware and pursuant to
this Amendment will become a party to the Credit Agreement and a guarantor
under Section 12 of the Credit Agreement to the same extent Grace Delaware is a
guarantor, and will upon completion of the Packaging Transaction (as
hereinafter defined) replace Grace Delaware as guarantor;
WHEREAS, in connection with the Packaging Transaction (as hereinafter
defined) (i) New Grace will become the sole shareholder of the Company, (ii)
the Company will transfer its packaging business to another subsidiary of Grace
Delaware and (iii) Grace Delaware will spin off New Grace (together with the
Company) to Grace Delaware's shareholders;
WHEREAS, the Company has requested the Banks to, among other things,
consent to the Packaging Transaction on the terms and subject to the conditions
set forth herein;
NOW THEREFORE, in consideration of the premises herein contained and
for other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto hereby agree as follows:
ARTICLE I.
DEFINITIONS
Unless otherwise defined herein, terms defined in the Credit Agreement
and used herein shall have the meanings given to them in the Credit Agreement.
<PAGE>
ARTICLE II.
CREDIT AGREEMENT AMENDMENTS
2.1 Definitions. (a) Subsection 1.1 of the Credit Agreement is hereby
amended by deleting the definition of "Loan Parties" in its entirety and by
adding the following new definitions to such subsection in correct alphabetical
order:
`Cryovac': Cryovac, Inc., a Delaware corporation and subsidiary of the
Company, together with its subsidiaries.
`Grace Delaware': W.R. Grace & Co., a Delaware corporation and sole
shareholder of the Company.
`Loan Parties': the collective reference to the Company, the other
Borrowers, Grace Delaware and New Grace.
`New Grace': Grace Specialty Chemicals, Inc., a Delaware corporation.
`Packaging Transaction': the transaction in which all of the following
steps occur: (a) the Company will transfer its packaging business to
Cryovac, (b) Grace Delaware and Cryovac will enter into new bank borrowings
of approximately $1,200,000 and the proceeds will be transferred to the
Company, (c) the Company will distribute the stock of Cryovac to Grace
Delaware, (d) Grace Delaware will contribute the stock of the Company to
New Grace, and (e) Grace Delaware will distribute to its public
shareholders the stock of New Grace.
`Parent': Grace Delaware, until such time as Grace Delaware in
connection with the Packaging Transaction no longer directly or indirectly
owns all of the stock of the Company, and thereafter, New Grace, except
that for purposes of Section 12, the term Parent shall include New Grace
and, until the Release Date, Grace Delaware.
`Release Date': the date on which the Administrative Agent executes
the release contemplated by subsection 13.16.
2.2 Miscellaneous. Section 13 of the Credit Agreement is hereby
amended by adding the following new paragraph to the end of such Section:
"13.16 Release of Grace Delaware. Promptly after the completion of the
Packaging Transaction, the Administrative Agent, on behalf of the
Administrative Agent and the Banks, shall, upon receipt of the written
request of the Parent or Grace Delaware, execute an acknowledgment that
Grace Delaware is released from all its obligations under this Agreement
(including, without limitation, its obligations under the Parent Guarantee)
provided that the Administrative Agent shall have received a certificate
dated the date of such request executed by a Responsible Officer of each of
2
<PAGE>
New Grace and the Company to the effect that (a) each of the
representations and warranties made by each of the Loan Parties (other than
Grace Delaware) in or pursuant to Sections 6.1, 6.2, 6.3, 6.5, 6.9, 6.10,
6.11, 6.12 and 6.13 of this Agreement is true and correct in all material
respects as of the date of such certificate as if made on and as of such
date and (b) no Default or Event of Default has occurred and is continuing
on the date of such certificate after giving effect to the Packaging
Transaction."
ARTICLE III.
CREDIT AGREEMENT WAIVERS
3.1 Waiver of Covenants. The Banks and the Administrative Agent hereby
waive compliance by the Loan Parties with the provisions of subsection 9.1,
9.2, 9.3 and 9.4 of the Credit Agreement, solely insofar as the steps taken in
connection with the Packaging Transaction might otherwise be deemed to result
in a breach of any of the covenants contained in those subsections; provided
that the Banks and the Administrative Agent shall only waive compliance by the
Loan Parties with the provisions of subsection 9.1 of the Credit Agreement with
respect to the fiscal quarter ending March 31, 1998 and only then if such
subsection would be breached because step (b) of the Packaging Transaction
would have occurred in the fiscal quarter ending March 31, 1998 and step (e) of
the Packaging Transaction would have occurred in the fiscal quarter ending June
30, 1998.
3.2 Waiver of Certain Defaults. The Banks and the Administrative Agent
hereby agree that the waivers contained in Section 3.1 of this Amendment shall
have effect for purposes of Section 8.2(b), Section 10(c) and Section 10(d) of
the Credit Agreement, and hereby waive application of the provisions of Section
10(i) of the Credit Agreement solely insofar as the steps taken in connection
with the Packaging Transaction might otherwise be deemed to result in a default
under Section 10(i).
ARTICLE IV.
MISCELLANEOUS
4.1 Effectiveness. This Amendment shall become effective on the
condition that (a) the Administrative Agent shall have received counterparts
hereof, duly executed and delivered by the Company, Grace Delaware, New Grace
and the Banks, (b) the Administrative Agent shall have received a legal opinion
of counsel to the Company, Grace Delaware and New Grace in form and substance
acceptable to the Administrative Agent, and (c) no Default or Event of Default
shall have occurred and be continuing on the date hereof after giving effect to
this Amendment. The date on which all of the above conditions are met shall be
the date of effectiveness of this Amendment (the "Effective Date").
4.2 New Grace. By signing this Amendment, all of the parties hereto
hereby: (i) acknowledge that as of the Effective Date, New Grace will be a
party to the Credit Agreement, as modified hereby, and, as such, will be bound
by the terms and provisions
3
<PAGE>
thereof as if an original party thereto, and (ii) acknowledge and agree that,
commencing with the Effective Date, Grace Delaware and New Grace will be
jointly and severally bound as guarantors under Section 12 of the Credit
Agreement, until Grace Delaware is released in accordance with Section 13.16 of
the Credit Agreement.
4.3 Continuing Effect of Credit Agreement. This Amendment shall not
constitute an amendment, consent or waiver of any other provision of the Credit
Agreement not expressly referred to herein and, except as provided herein,
shall not be construed as an amendment, consent or waiver to any further or
future action on the part of the Loan Parties that would require a consent or
waiver of the Administrative Agent and/or any of the Banks. Except as expressly
consented to and waived hereby, the provisions of the Credit Agreement are and
shall remain in full force and effect.
4.4 Counterparts. This Amendment may be executed by one or more of the
parties to this Amendment on any number of separate counterparts, and all of
such counterparts taken together shall be deemed to constitute one and the same
instrument. In addition, this Amendment may be delivered by facsimile
transmission of the relevant signature pages thereof.
4.5 GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
4.6 Expenses. The Company agrees to pay or reimburse the
Administrative Agent for all of its out-of-pocket costs and expenses incurred
in connection with the preparation, negotiation and execution of this
Amendment, including, without limitation, the fees and disbursements of counsel
to the Administrative Agent.
4.7 Section Headings. The section headings used in this Amendment are
for convenience of reference only and are not to affect the construction hereof
or be taken into consideration in the interpretation hereof.
4.8 Severability. Any provision of this Amendment which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction, in any such case so
long as the economic or legal substance of the transactions provided for herein
is not affected in any manner adverse to any party.
[The remainder of this page has intentionally been left blank.]
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered in New York, New York by their proper and duly
authorized officers as of the day and year first above written.
W. R. GRACE & CO.-CONN.
By:
--------------------------------
Title: Senior Vice President
W. R. GRACE & CO.
By:
--------------------------------
Title: Senior Vice President
GRACE SPECIALTY CHEMICALS,
INC.
By:
--------------------------------
Title: Senior Vice President
<PAGE>
THE CHASE MANHATTAN BANK, as
Administrative Agent and as
a Bank
By:
--------------------------------
Title:
NATIONSBANK, N.A. (SOUTH)
By:
--------------------------------
Title:
ABN AMRO BANK N.V., NEW YORK
BRANCH
By:
--------------------------------
Title:
By:
--------------------------------
Title:
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION
By:
--------------------------------
Title:
BANK OF NEW YORK
By:
--------------------------------
Title:
<PAGE>
THE BANK OF NOVA SCOTIA
By:
--------------------------------
Title:
BARCLAYS BANK PLC
By:
--------------------------------
Title:
CITIBANK, N.A.
By:
--------------------------------
Title:
COMMERZBANK AG, ATLANTA AGENCY
By:
--------------------------------
Title:
CREDIT LYONNAIS ATLANTA AGENCY
By:
--------------------------------
Title:
<PAGE>
CREDIT SUISSE FIRST BOSTON
By:
--------------------------------
Title:
By:
--------------------------------
Title:
DRESDNER BANK AG, NEW YORK AND
GRAND CAYMAN BRANCHES
By:
--------------------------------
Title:
By:
--------------------------------
Title:
FIRST UNION NATIONAL BANK OF FLORIDA
By:
--------------------------------
Title:
MARINE MIDLAND BANK
By:
--------------------------------
Title:
<PAGE>
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK
By:
--------------------------------
Title:
UNION BANK OF SWITZERLAND - NEW YORK
By:
--------------------------------
Title:
By:
--------------------------------
Title:
<PAGE>
EXHIBIT 10.1
April 14, 1998
Mr. Albert J. Costello
W. R. Grace & Co.
One Town Center Road
Boca Raton, FL 33486-1010
Dear Al:
This letter amends your employment agreement, dated May 1, 1995
("Employment Agreement"), with W. R. Grace & Co., a New York corporation, which
was subsequently assigned to and assumed by W. R. Grace & Co., a Delaware
corporation renamed Sealed Air Corporation ("Old Grace"). The amendments
effected by this letter relate to the March 1998 separation of the flexible
packaging businesses ("Packaging") from Grace Specialty Chemicals, Inc., a
Delaware corporation renamed W. R. Grace & Co. ("New Grace").
As you know, in conjunction with the separation of Packaging from New
Grace, the contracts and obligations of Old Grace that related to the
non-Packaging businesses of Old Grace were assigned to, and assumed by, New
Grace. This letter confirms that your Employment Agreement was assigned to, and
assumed by, New Grace, effective upon consummation of such separation, on the
following terms:
<PAGE>
1. All references to "Company" in the Employment Agreement refer to New Grace
and any successor thereto.
2. Except as expressly set forth above (or by any other applicable amendments),
your Employment Agreement remains in full force and effect.
Please confirm your agreement with the foregoing by signing the
accompanying copy of this letter and returning it to Bob Lamm.
Sincerely,
Accepted and agreed to:
- ----------------------------------
Albert J. Costello
Date:
-----------------------------
<PAGE>
EXHIBIT 10.2
April 14, 1998
Mr. Larry Ellberger
W. R. Grace & Co.
One Town Center Road
Boca Raton, FL 33486
Dear Larry:
This letter amends the employment agreement, dated May 15, 1995
("Employment Agreement"), and the restricted stock award agreement, dated June
6, 1995 ("Restricted Stock Agreement"), between you and W. R. Grace & Co., a
New York corporation, which were subsequently assigned to and assumed by W. R.
Grace & Co., a Delaware corporation renamed Sealed Air Corporation ("Old
Grace"). The amendments effected by this letter relate to the March 1998
separation of the flexible packaging businesses ("Packaging") from Grace
Specialty Chemicals, Inc., a Delaware corporation renamed W. R. Grace & Co.
("New Grace").
As you know, in conjunction with the separation of Packaging from New
Grace, the contracts and obligations of Old Grace that related to the
non-Packaging businesses of Old Grace were assigned to, and assumed by, New
Grace. This letter confirms that the Employment Agreement and the Restricted
Stock Agreement were assigned to, and assumed by, New Grace, effective upon
consummation of such separation, on the following terms:
<PAGE>
1. All references to "W. R. Grace & Co.", "Company" or "Grace" in the
Employment Agreement and the Restricted Stock Agreement refer to New Grace and
any successor thereto.
2. Except as expressly set forth above (or by any other applicable amendments),
the Employment Agreement and the Restricted Stock Agreement remain in full
force and effect.
Please confirm your agreement with the foregoing by signing the
accompanying copy of this letter and returning it to Bob Lamm.
Sincerely,
Accepted and agreed to:
- ----------------------------------
Larry Ellberger
Date:
-----------------------------
<PAGE>
EXHIBIT 10.3
A. J. Costello
Chairman, President and Chief Executive Officer
CORPORATE HEADQUARTERS
GRACE
W. R. Grace & Co.
One Town Center Road
Boca Raton, FL 33486-1010
April 7, 1998
(Addressee)
Dear :
I am pleased to inform you that the Compensation Committee (the
"Committee") of the Board of Directors of W. R. Grace & Co. (sometimes called
the "Company"), at its meeting on April 1, 1998, granted you an award of
.......... shares of the Company's Common Stock, par value $.01 per share
("Common Stock"), under the W. R. Grace & Co. 1998 Stock Incentive Plan (the
"Plan"). This letter sets forth the terms on which such shares (sometimes
called the "Restricted Shares") are being issued to you.
1. The Restricted Shares are issued to you subject to the following
restrictions:
(a) As long as you are employed by the Company or a Subsidiary (as
defined in paragraph 10 below), you will not, except as otherwise specifically
required or permitted by this Agreement, sell, exchange, transfer, pledge,
hypothecate or otherwise dispose of any of the Restricted Shares, or any
interest therein, with respect to which the restrictions on transfer herein
imposed have not lapsed in accordance with paragraph 5 ("Non-vested Shares").
(b) In any of the following events, you shall return all Non-vested
Shares to the Company promptly upon the Company's written request:
THIS DOCUMENT CONSTITUTES PART OF A
PROSPECTUS COVERING SECURITIES THAT
HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933.
<PAGE>
- 2 -
(i) You shall at any time have disclosed to unauthorized persons trade
secrets, confidential information or data relative to the business of the
Company or Subsidiary.
(ii) You shall at any time have engaged in any activities, whether as
owner, stockholder, partner, officer or employee of a business, or otherwise,
that constitute competition with the Company or a Subsidiary, and you shall
continue such activities at any time after the expiration of a period of thirty
(30) days from the receipt by you of written notice from the Company to refrain
from doing so; provided, however, that competition shall not include your
ownership of less than 2% of any outstanding class of security listed on a
national securities exchange or traded over-the-counter.
(iii) You shall at any time have engaged in misconduct
(A) in the performance of your duties or
(B) in other activities relating to the business of the Company
or a Subsidiary.
(iv) You shall at any time have attempted to sell, exchange, transfer,
pledge, hypothecate or otherwise dispose of any Non-vested Shares, or any
interest herein, in violation of the terms of this Agreement.
(c) (i) The determination as to whether an event has occurred requiring the
return of any Non-vested Shares to the Company in accordance with this
paragraph 1 shall be made by the Committee in the reasonable exercise of its
discretion, and such determination of the Committee with respect thereto shall
in all respects be conclusive.
(ii) If you shall at any time be required to return any Non-vested
Shares to the Company pursuant to this paragraph 1 or any other provision of
this Agreement, you shall, from and after the effective date of such return, no
longer have any rights as a stockholder with respect to the Non-vested Shares
so required to be returned, or any interest therein, and, without limitation,
you shall, commencing with the next following record date, no longer be
entitled to receive dividends upon such Non-vested Shares and in the event that
for any reason you shall have received such dividends upon such Non-vested
Shares, you shall repay an amount equal to such dividends to the Company.
<PAGE>
- 3 -
(d) To evidence such restrictions, until such restrictions shall have
lapsed, the certificates for the Restricted Shares shall bear a legend, in form
and substance satisfactory to the Company's counsel, to the effect that they
were issued subject to, and may be sold or otherwise disposed of only in
accordance with, the terms of this Agreement.
2. Upon the issuance to you of the Restricted Shares, you shall for all
purposes be a stockholder of the Company with respect to the Restricted Shares
and shall have all rights of a holder of Common Stock with respect to such
shares (including the right to vote such shares at any meeting of holders of
Common Stock and the right to receive all dividends, if any, paid with respect
to such shares), subject only to the restrictions imposed by paragraph 1 of
this Agreement.
3. Under Section 83(b) of the Internal Revenue Code, you may, within 30 days
following the date of grant of the Restricted Shares, make an election that
would cause you to be taxed on an amount equal to the Fair Market Value (as
defined in the Plan) of such shares on the date of grant. In the absence of
such an election, you will be taxed, at the time or times of the lapse of the
restrictions on the Restricted Shares, on an amount equal to the Fair Market
Value at the time of the lapse of the Restricted Shares as to which the
restrictions have lapsed.
4. In the event that, as the result of a stock dividend, stock split,
recapitalization, merger, consolidation, reorganization, or other similar
event, you shall, as the owner of Restricted Shares, be entitled, under the
provisions of Section 8 of the Plan or otherwise, to new or additional or
different shares or securities, (a) such new or additional or different shares
or securities shall be deemed "Restricted Shares," (b) all the provisions of
this Agreement relating to restrictions and lapse of restrictions shall be
applicable thereto, and (c) the certificates or other instruments evidencing
such new or additional or different shares or securities shall bear the legend
referred to in
<PAGE>
- 4 -
paragraph 1(d). The foregoing restrictions shall apply to any fractional shares
resulting from any such event, or to any preemptive or other rights to purchase
securities to which you, as a holder of Restricted Shares, may become entitled
in connection with a public offering of Common Stock.
5. (a) The restrictions set forth in paragraph 1 above on the transfer of the
Restricted Shares shall lapse on April 2, 2001, subject to all provisions of
this Agreement then applicable.
(b) If your employment with the Company or a Subsidiary shall, while you
hold any Non-vested Shares, terminate for any reason other than death, total
disability, retirement at age 65 or later, or termination by the Company or a
Subsidiary not for cause (including termination not for cause following a
change in control of the Company), such Non-vested Shares shall be forfeited by
you. If your employment with the Company or a Subsidiary shall, while you hold
any Non-vested Shares, terminate by reason of death, total disability,
retirement at age 65 or later, or termination by the Company or a Subsidiary
not for cause (including termination not for cause following a change in
control of the Company), the restrictions on transfer applicable to such
Non-vested Shares shall lapse in their entirety as of the date of such
termination of employment. If your employment with the Company or a subsidiary
shall, while you hold any Non-vested Shares, terminate by reason of voluntary
retirement under a retirement plan of the Company or a Subsidiary prior to age
65 with the consent of the Committee, the restrictions on transfer applicable
to such Non-vested Shares shall lapse pro rata.
(c) If, as and when the restrictions lapse with respect to any Restricted
Shares pursuant to this paragraph 5, there will be delivered to you, promptly
upon your request, one or more certificates free of any legend for a like
number of shares in exchange for the certificate or certificates for such
Restricted Shares bearing the legend referred to in paragraph 2 of this
Agreement, subject to your payment of any tax required to be withheld in
connection with such lapse.
<PAGE>
- 5 -
6. Except as otherwise expressly required or permitted by this Agreement, no
right, benefit or interest in the Restricted Shares or under this Agreement
shall be subject to anticipation, alienation, sale, assignment, encumbrance,
charge, pledge or hypothecation.
7. (a) Nothing in paragraph 1 or elsewhere in this Agreement shall preclude a
transfer to your legal representatives following your death or a distribution
to the persons provided for in paragraph 7(b) (iii) or shall preclude you, upon
not less than thirty (30) days' advance written notice to the Company, from
transferring any Restricted Shares, or any interest therein,
(i) to one or more of your Immediate Family Members,
(ii) to a trust of which the beneficiary or beneficiaries of the
corpus or of the income, or both, is either yourself or one or more of your
Immediate Family Members, or both, or
(iii) to a corporation all of the stock of which is owned by you or
one or more of your Immediate Family Members, or both.
For the purpose of this provision, an "Immediate Family Member" shall be deemed
to be a spouse, child, stepchild, grandchild, parent, brother or sister or a
child of a brother or sister of yours, whether of the whole or half blood, and
whether or not the relationship arose by adoption.
(b) The term "Donee," as used in this Agreement, shall be deemed to mean
(i) the person, or collectively, all the persons (including a trust or
corporation), to whom a transfer or distribution permitted by paragraph 7(a)
has been made by you,
<PAGE>
- 6 -
(ii) your legal representatives following your death, and
(iii) the persons to whom Restricted Shares shall be distributed by
your legal representatives as the persons to whom they believe to be entitled
thereto under your will, or, in case of intestacy, under the laws relating to
intestacy.
(c) In case of any transfer or distribution to a Donee,
(i) the Restricted Shares so transferred or distributed shall continue
to be subject to all the restrictions and other provisions of this Agreement,
(ii) the certificates for the Restricted Shares so transferred or
distributed shall bear the legend referred to in paragraph 2 of this Agreement,
(iii) the Donee shall, with respect to the Restricted Shares so
transferred or distributed, have all the powers and shall be required to comply
with all the restrictions and other provisions of this Agreement requiring the
taking, or refraining from taking, of action to the same extent as you were
immediately prior to such transfer or distribution, except that the Donee need
not comply with the provisions of clauses (i), (ii), and (iii) of subparagraph
(b) of paragraph 1 (which shall, however, continue to apply to your conduct),
and
(iv) the Donee shall confirm in writing, in form and substance
satisfactory to the Company, that he or she agrees to be bound by the
restrictions and other provisions of this Agreement.
8. The Company may take such steps as it believes necessary or desirable to
obtain sufficient funds from you to pay all taxes, if any, required by law to
be withheld in respect of the Restricted Shares, including, but not limited to,
requiring payments to the
<PAGE>
- 7 -
Company by you or on your behalf and/or taking deductions from amounts payable
by the Company to you or on your behalf.
9. Nothing in this Agreement shall be construed to affect in any way the power
of the Company to terminate your employment at any time for any reason, with or
without cause.
10. As used in this Agreement, the term "Company or a Subsidiary" shall mean
the Company, its divisions and units, and all corporations or other forms of
business association of which shares (or other ownership interests) having 50%
or more of the voting power regularly entitled to vote for directors (or
equivalent management) or regularly entitled to receive 50% or more of the
dividends (or their equivalents) paid on the Common Stock (or its equivalent)
are owned or controlled, directly or indirectly, by the Company.
11. "Change in Control of the Company" shall be defined as set forth in section
2 of the Plan.
12. Each of the parties hereto agrees to execute and deliver all consents and
other instruments and to take all other actions deemed necessary or desirable
by counsel for the Company to carry out each term of this Agreement. Without
limiting the generality of the foregoing, you shall, if and when requested by
the Company, deposit any or all certificates for the Restricted Shares,
together with a stock power or other appropriate instrument of transfer
executed in blank, with a bank and under a deposit agreement approved by the
Company and, following such deposit, certificates for the Restricted Shares
shall no longer carry the legend referred to in paragraph 2 of this Agreement,
and new certificates shall be issued in place thereof, in which event, each of
the parties agrees to give such instructions and to deliver or refrain from
delivering such notices to the bank acting under such deposit agreement as may
be necessary to carry out each term of this Agreement, to the end that all
property deposited under such deposit
<PAGE>
- 8 -
agreement shall be paid, transferred, released or otherwise disposed of in
accordance with the terms of this Agreement and each obligation thereunder.
Each party recognizes that the other party has no adequate remedy at law for
breach of this Agreement and recognizes, consents and agrees that the other
party shall be entitled to an injunction or decree of specific performance
directed to the other party and to the bank acting under any such deposit
agreement requiring that the provisions of this Agreement be carried out.
13. (a) Any notice to the Company under or pursuant to this Agreement shall be
deemed to have been given if and when delivered in person to the Secretary of
the Company or if and when mailed by certified or registered mail to the
Secretary of the Company at the Company's offices at One Town Center Road, Boca
Raton, Florida, 33486, or such other address as the Company may from time to
time designate in writing by notice to you given pursuant to paragraph 13(b)
hereof.
(b) Any notice to you under or pursuant to this Agreement shall be deemed
to have been given if and when delivered to you in person or if and when mailed
by certified or registered mail to you at your address hereinabove given or
such other address as you may from time to time designate in writing by notice
to the Company given pursuant to paragraph 13(a) above.
14. Notwithstanding any remedy provided for in this Agreement, nothing in this
Agreement shall preclude the Company from taking any other action or enforcing
any other remedy available to the Company.
15. This Agreement has been executed pursuant to the Plan and is subject in all
respects to the Plan, and the Plan is hereby incorporated herein by reference.
16. This Agreement shall be binding upon and inure to the benefit of
(a) the Company, its successors and assigns, and
<PAGE>
- 9 -
(b) you, and to the extent applicable, each Donee.
17. This Agreement has been executed, and it and the Restricted Shares have
been or are to be delivered, in accordance with the laws of the State of
Delaware, the state in which the Company is incorporated, and the validity,
interpretation, performance and enforcement of this Agreement shall be governed
by the laws of the State of Delaware applicable to contracts made and performed
in such State.
Sincerely,
W. R. GRACE & CO.
/s/
Chairman, President and
Chief Executive Officer
Executed and agreed to:
- -----------------------------
Date:
------------------------
<PAGE>
EXHIBIT 10.4
W. R. GRACE & CO.
1996 STOCK INCENTIVE PLAN
1. Purposes. The purposes of this Plan are (a) to enable Key Persons
to have incentives related to Common Stock, (b) to encourage Key Persons to
increase their interest in the growth and prosperity of the Company and to
stimulate and sustain 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
<PAGE>
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.
Code: The Internal Revenue Code of 1986, as amended.
Committee: The Compensation, Employee Benefits and Stock Incentive
Committee of the Board of Directors of the Company or any other committee
designated by the Board of Directors to administer stock incentive and stock
option plans of the Company and the Subsidiaries generally or this Plan
specifically.
Common Stock: The common stock of the Company, par value $.01 per
share, or such other class of shares or other securities or property as may be
applicable pursuant to the provisions of section 8.
Company: W. R. Grace & Co., a Delaware corporation.
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
<PAGE>
applicable date, as reported in The Wall Street Journal or another newspaper of
general circulation, or, if no sales of shares of Common Stock were reported
for such date, for the next preceding date for which such sales were so
reported, or (b) the fair market value of a share of Common Stock determined in
accordance with any other reasonable method approved by the Committee.
Incentive Stock Option: A stock option that states that it is an
incentive stock option and that is intended to meet the requirements of Section
422 of the Code and the regulations thereunder applicable to incentive stock
options, as in effect from time to time.
issuance (or words of similar import): The issuance of authorized but
unissued Common Stock or the transfer of issued Common Stock held by the
Company or a Subsidiary.
Key Person: An employee of the Company or a Subsidiary who, in the
opinion of the Committee, has contributed or can contribute significantly to
the growth and successful operations of the Company or one or more
Subsidiaries. The grant of a Stock Incentive to an employee shall be deemed a
determination by the Committee that such person is a Key Person.
Nonstatutory Stock Option: An Option that is not an Incentive Stock
Option.
Option: An option granted under this Plan to purchase shares of Common
Stock.
Option Agreement: An agreement setting forth the terms of an Option.
Plan: The 1996 Stock Incentive Plan of the Company herein set forth,
as the same may from time to time be amended.
service: Service to the Company or a Subsidiary as an employee. "To
serve" has a correlative meaning.
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
<PAGE>
indirectly, by the Company, or any other entity designated as such by the Board
of Directors; provided, however, that in the case of an Incentive Stock Option,
the term "Subsidiary" shall mean a Subsidiary (as defined by the preceding
clause) that is also a "subsidiary corporation" as defined in Section 424(f) of
the Code and the regulations thereunder, as in effect from time to time.
3. Grants of Stock Incentives. (a) Subject to the provisions of this
Plan, the Committee may at any time and from time to time grant Stock
Incentives under this Plan to, and only to, Key Persons.
(b) The Committee may grant a Stock Incentive to be effective at a
specified future date or upon the future occurrence of a specified event. For
the purposes of this Plan, any such Stock Incentive shall be deemed granted on
the date it becomes effective. An agreement or other commitment to grant a
Stock Incentive that is to be effective in the future shall not be deemed the
grant of a Stock Incentive until the date on which such Stock Incentive becomes
effective.
(c) A Stock Incentive may be granted in the form of:
(i) a Stock Award, or
(ii) an Option, or
(iii) a combination of a Stock Award and an Option.
4. Stock Subject to this Plan. (a) Subject to the provisions of
paragraph (c) of this section 4 and the provisions of section 8, the maximum
number of shares of Common Stock that may be issued pursuant to Stock
Incentives granted under this Plan shall not exceed seven million (7,000,000).
(b) Authorized but unissued shares of Common Stock and issued shares
of Common Stock held by the Company or a Subsidiary, whether acquired
specifically for use under this Plan or otherwise, may be used for purposes of
this Plan.
(c) If any shares of Common Stock subject to a Stock Incentive shall
not be issued and shall cease to be issuable because of the termination, in
whole or in part, of such Stock Incentive or for any other reason, or if any
such shares shall, after issuance, be reacquired by the Company or a Subsidiary
from the recipient of such Stock Incentive, or from the estate of such
recipient, for any reason, such shares shall no longer be charged against the
limitation provided for in paragraph (a) of this section 4 and may again be
made subject to Stock Incentives.
(d) Of the total number of shares specified in paragraph (a) of this
section 4 (subject to adjustment as specified therein), during the term of this
Plan as defined in section 9, (i) no more than 10% may be subject to Options
granted to any one Key
<PAGE>
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.
(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
<PAGE>
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
<PAGE>
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
<PAGE>
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 re-acquire such shares or other securities or property,
shall in each case be equitably adjusted as determined by the Committee.
(b) In the event that there shall occur any spin-off or other
distribution of assets of the Company to its shareholders (including without
limitation an extraordinary dividend), (i) the number, kind and class of shares
or other securities or property that may be issued pursuant to Stock Incentives
thereafter granted, (ii) the number, kind and class of shares or other
securities or property that have not been issued under outstanding Stock
Incentives, (iii) the purchase price to be paid per share or other unit under
outstanding Stock Incentives, and (iv) the price to be paid per share or other
unit by the Company or a Subsidiary for shares or other securities or property
issued pursuant to Stock Incentives that are subject to a right of the Company
or a Subsidiary to re-acquire such shares or other securities or property,
shall in each case be equitably adjusted as determined by the Committee.
9. Term. This Plan shall be deemed adopted and shall become effective
on the date as of which it is approved by W. R. Grace & Co., a New York
corporation, as sole shareholder of the Company. No Stock Incentives shall be
granted under this Plan after the tenth anniversary of such date.
10. Administration. (a) This Plan shall be administered by the
Committee. No director shall be designated as or continue to be a member of the
Committee unless he shall at the time of designation and at all times during
service as a member of the Committee be an "outside director" within the
meaning of Section 162(m) of the Code.
<PAGE>
The Committee shall have full authority to act in the matter of selection of
Key Persons and in granting Stock Incentives to them and such other authority
as is granted to the Committee by this Plan. Notwithstanding any other
provision of this Plan, the Board of Directors may exercise any and all powers
of the Committee with respect to this Plan, except to the extent that the
possession or exercise of any power by the Board of Directors would cause any
Stock Incentive to become subject to, or to lose an exemption from, Section
162(m) of the Code or Section 16(b) of the Exchange Act.
(b) The Committee may establish such rules and regulations, not
inconsistent with the provisions of this Plan, as it deems necessary to
determine eligibility to be granted Stock Incentives under this Plan and for
the proper administration of this Plan, and may amend or revoke any rule or
regulation so established. The Committee may make such determinations and
interpretations under or in connection with this Plan as it deems necessary or
advisable. All such rules, regulations, determinations and interpretations
shall be binding and conclusive upon the Company, its Subsidiaries, its
shareholders and its directors, officers and employees, and upon their
respective legal representatives, beneficiaries, successors and assigns, and
upon all other persons claiming under or through any of them.
(c) Members of the Board of Directors and members of the Committee
acting under this Plan shall be fully protected in relying in good faith upon
the advice of counsel and shall incur no liability in the performance of their
duties, except as otherwise provided by applicable law.
11. General Provisions. (a) Nothing in this Plan or in any instrument
executed pursuant hereto shall confer upon any person any right to continue in
the service of the Company or a Subsidiary, or shall affect the right of the
Company or of a Subsidiary to terminate the service of any person with or
without cause.
(b) No shares of Common Stock shall be issued pursuant to a Stock
Incentive unless and until all legal requirements applicable to the issuance of
such shares have, in the opinion of counsel to the Company, been complied with.
In connection with any such issuance, the person acquiring the shares shall, if
requested by the Company, give assurances, satisfactory to counsel to the
Company, in respect of such matters as the Company or a Subsidiary may deem
desirable to assure compliance with all applicable legal requirements.
(c) No person (individually or as a member of a group), and no
beneficiary or other person claiming under or through him, shall have any
right, title or interest in or to any shares of Common Stock allocated or
reserved for the purposes of this Plan or subject to any Stock Incentive except
as to such shares of Common Stock, if any, as shall have been issued to him.
(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
<PAGE>
condition or understanding that the Subsidiary will transfer the shares to the
Key Person in accordance with the terms of the Stock Incentive.
(e) In the event the laws of a country in which the Company or a
Subsidiary has employees prescribe certain requirements for Stock Incentives to
qualify for advantageous tax treatment under the laws of that country
(including, without limitation, laws establishing options analogous to
Incentive Stock Options), the Committee, may, for the benefit of such
employees, amend, in whole or in part, this Plan and may include in such
amendment additional provisions for the purposes of qualifying the amended plan
and Stock Incentives granted thereunder under such laws; provided, however,
that (i) the terms and conditions of a Stock Incentive granted under such
amended plan may not be more favorable to the recipient than would be permitted
if such Stock Incentive had been granted under this Plan as herein set forth,
(ii) all shares allocated to or utilized for the purposes of such amended plan
shall be subject to the limitations of section 4, and (iii) the provisions of
the amended plan may restrict but may not extend or amplify the provisions of
sections 9 and 13.
(f) The Company or a Subsidiary may make such provisions as either may
deem appropriate for the withholding of any taxes that the Company or a
Subsidiary determines is required to be withheld in connection with any Stock
Incentive.
(g) Nothing in this Plan is intended to be a substitute for, or shall
preclude or limit the establishment or continuation of, any other plan,
practice or arrangement for the payment of compensation or benefits to
directors, officers or employees generally, or to any class or group of such
persons, that the Company or any Subsidiary now has or may hereafter put into
effect, including, without limitation, any incentive compensation, retirement,
pension, group insurance, stock purchase, stock bonus or stock option plan.
12. Acquisitions. If the Company or any Subsidiary should merge or
consolidate with, or purchase stock or assets or otherwise acquire the whole or
part of the business of, another entity, the Company, upon the approval of the
Committee, (a) may assume, in whole or in part and with or without
modifications or conditions, any stock incentives granted by the acquired
entity to its directors, officers, employees or consultants in their capacities
as such, or (b) may grant new Stock Incentives in substitution therefor. Any
such assumed or substitute Stock Incentives may contain terms and conditions
inconsistent with the provisions of this Plan (including the limitations set
forth in paragraph (d) of section 4), including additional benefits for the
recipient; provided, however, that if such assumed or substitute Stock
Incentives are Incentive Stock Options, such terms and conditions are permitted
under the plan of the acquired entity. For the purposes of any applicable plan
provision involving time or a date, a substitute Stock Incentive shall be
deemed granted as of the date of grant of the original stock incentive.
<PAGE>
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.
(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.
<PAGE>
EXHIBIT 10.5
W. R. GRACE & CO. ("COMPANY")
NONSTATUTORY STOCK OPTION
Under the W. R. Grace & Co. 1998 Stock Incentive Plan ("Plan")
Granted To:
Date of Grant: April 1, 1998
Expiration Date: March 31, 2008
In accordance with the Plan (a copy of which is attached), you have
been granted an Option to purchase shares of Common Stock, as defined in
the Plan ("Option"), upon the following terms and conditions:
(1) The purchase price is $19.4688 per share.
(2) Subject to the other provisions hereof, this Option shall become
exercisable as follows:
shares on April 2, 1999
shares on April 2, 2000
shares on April 2, 2001
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 and any right thereunder nor any interest
therein may be assigned or transferred by you, except by will or the laws of
descent and distribution. This Option is exercisable during your lifetime only
by you. If you cease to serve the Company or a Subsidiary (as defined in the
Plan), this Option shall terminate as provided in section 6(d) of the Plan,
subject, however, to the following:
THIS DOCUMENT CONSTITUTES PART OF A
PROSPECTUS COVERING SECURITIES THAT
HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933.
<PAGE>
- 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.
(b) Notwithstanding any provision of the Plan, in the event (i)
you voluntarily retire under a retirement plan of the
Company or a Subsidiary prior to the date on which the first
installment of this Option becomes exercisable and (ii) you
do not continue to serve the Company or a Subsidiary until
such date, this Option shall terminate as of the date you
cease to serve.
(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 /s/ A. J. Costello
---------------------------------
A. J. Costello, Chairman,
President and CEO
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>
W. R. GRACE & CO. ("COMPANY")
NONSTATUTORY STOCK OPTION
Under the W. R. Grace & Co. 1998 Stock Incentive Plan ("Plan")
Granted To:
Date of Grant: April 1, 1998
Expiration Date: March 31, 2008
In accordance with the Plan (a copy of which is attached), you have
been granted an Option to purchase shares of Common Stock, as defined in
the Plan ("Option"), upon the following terms and conditions:
(1) The purchase price is $19.4688 per share.
(2) Subject to the other provisions hereof, this Option shall become
exercisable as follows:
shares on April 2, 1999
shares on April 2, 2000
shares on April 2, 2001
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 and any right thereunder nor any interest
therein may be assigned or transferred by you, except by will or the laws of
descent and distribution. This Option is exercisable during your lifetime only
by you. If you cease to serve the Company or a Subsidiary (as defined in the
Plan), this Option shall terminate as provided in section 6(d) of the Plan,
subject, however, to the following:
THIS DOCUMENT CONSTITUTES PART OF A
PROSPECTUS COVERING SECURITIES THAT
HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933.
<PAGE>
- 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.
(b) Notwithstanding any provision of the Plan, you will have a
period of three years after your voluntary retirement under
a retirement plan of the Company or a Subsidiary during
which you may exercise this Option; however, only the
installment(s) that are otherwise exercisable on the date of
retirement may be exercised in the event of your voluntary
retirement. Any remaining installment(s) will be terminated.
(c) Notwithstanding any provision of the Plan, in the event (i)
you voluntarily retire under a retirement plan of the
Company or a Subsidiary prior to the date on which the first
installment of this Option becomes exercisable and (ii) you
do not continue to serve the Company or a Subsidiary until
such date, this Option shall terminate as of the date you
cease to serve.
(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 /s/ A. J. Costello
---------------------------------
A. J. Costello, Chairman,
President and CEO
Approved and Agreed to:*
- ----------------------------------
(Name of Subsidiary)
By RECEIPT ACKNOWLEDGED:
--------------------------------
(Authorized Officer)
-----------------------------------
* This will be completed only if you are or become an employee of a Subsidiary.
<PAGE>
EXHIBIT 10.6
W. R. GRACE & CO. ("COMPANY")
NONSTATUTORY STOCK OPTION
Under the W. R. Grace & Co. 1998 Stock Incentive Plan ("Plan")
Granted To: ALBERT J. COSTELLO
Date of Grant: April 1, 1998
Expiration Date: March 31, 2008
In accordance with the Plan (a copy of which is attached), you have
been granted an Option to purchase 100,000 shares of Common Stock, as defined
in the Plan ("Option"), upon the following terms and conditions:
(1) The purchase price is $19.4688 per share.
(2) Subject to the other provisions hereof and the Plan, this Option
shall become exercisable in full on the earlier of (a) the date of your
retirement under a retirement plan of the Company or a Subsidiary, or (b) April
2, 1999, except that it shall become exercisable in full upon the occurrence of
any of the events specified in section 3(g)(iii) of the Employment Agreement
dated May 1, 1995 between you and the Company, as such Agreement may be amended
from time to time.
Once exercisable, this Option may be exercised at any time, in whole
or in part, until its expiration or termination.
(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;
provided, however, that 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
THIS DOCUMENT CONSTITUTES PART OF A
PROSPECTUS COVERING SECURITIES THAT
HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933.
<PAGE>
- 2 -
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
---------------------------------
W. L. Monroe
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>
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>
Three Months Ended
Years Ended December 31,(c) March 31,
------------------------------------------------------ -----------------
<CAPTION>
1997(d) 1996(e) 1995(f) 1994(g) 1993(h) 1998 1997(c)
------- ------- ------- ------- ------- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net income/(loss) from continuing operations $ 88.2 $ 112.9 $ (324.8) $ (185.4) $ (106.7) $ 11.8 $ 11.1
Add/(deduct):
Provision for/(benefit from) income taxes 55.2 70.4 (192.4) (120.9) (55.5) 7.6 6.4
Income taxes of 50%-owned companies.... -- -- -- -- .1 -- --
Equity in unremitted (earnings)/losses
of less than 50%-owned companies..... (7.0) (.4) .8 (.6) (.5) (1.9) --
Interest expense and related financing costs,
including amortization of capitalized interest 87.6 160.8 179.8 138.5 122.7 21.4 20.0
Estimated amount of rental expense
deemed to represent the interest factor 6.9 8.4 8.5 10.1 11.3 1.8 1.6
------- ------- -------- -------- -------- ------ -------
Income/(loss) as adjusted................. $ 230.9 $ 352.1 $ (328.1) $ (158.3) $ (28.6) $ 40.7 $ 39.1
======= ======= ======== ======== ======== ====== =======
Combined fixed charges and preferred stock
dividends:
Interest expense and related financing costs,
including capitalized interest....... $ 92.4 $ 177.1 $ 195.5 $ 143.2 $ 122.8 $ 21.0 $ 24.5
Estimated amount of rental expense
deemed to represent the interest factor 6.9 8.4 8.5 10.1 11.3 1.8 1.6
------- ------- -------- -------- -------- ------ -------
Fixed charges............................. 99.3 185.5 204.0 153.3 134.1 22.8 26.1
Preferred stock dividend requirements(b).. -- .6 .5 .5 .8 -- --
------- ------- -------- -------- -------- ------ -------
Combined fixed charges and preferred
stock dividends........................ $ 99.3 $ 186.1 $ 204.5 $ 153.8 $ 134.9 $ 22.8 $ 26.1
======= ======= ======== ======== ======== ====== =======
Ratio of earnings to fixed charges..... 2.33 1.90 (i) (i) (i) 1.79 1.50
======= ======= ======== ======== ======== ====== =======
Ratio of earnings to combined fixed charges
and preferred stock dividends.......... 2.33 1.89 (i) (i) (i) 1.79 1.50
======= ======= ======== ======== ======== ====== =======
</TABLE>
(a) Grace's preferred stocks were retired in 1996; for additional
information, see Note 1 to the Consolidated Financial Statements in the
1996 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 based on
Grace's effective tax rate.
(c) Certain amounts have been restated to conform to the 1998 presentation.
(d) Includes a pretax gain of $103.1 on sales of businesses, offset by a
pretax provision of $47.8 for restructuring costs and asset
impairments.
(e) Includes a pretax gain of $326.4 on sales of businesses, offset by
pretax provisions of $229.1 for asbestos-related liabilities and
insurance coverage and $34.7 for restructuring costs and asset
impairments.
(f) Includes pretax provisions of $275.0 for asbestos-related liabilities
and insurance coverage; $151.3 relating to restructuring costs, asset
impairments and other activities; $77.0 for environmental liabilities
at former manufacturing sites; and $30.0 for corporate governance
activities.
(g) Includes a pretax provision of $316.0 relating to asbestos-related
liabilities and insurance coverage.
(h) Includes a pretax provision of $159.0 relating to asbestos-related
liabilities and insurance coverage.
(i) As a result of the losses incurred for the years ended December 31,
1995, 1994 and 1993, Grace was unable to fully cover the indicated
fixed charges.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> MAR-31-1998
<CASH> 724,100
<SECURITIES> 0
<RECEIVABLES> 383,200
<ALLOWANCES> 4,800
<INVENTORY> 131,900
<CURRENT-ASSETS> 1,499,300<F1>
<PP&E> 1,458,100
<DEPRECIATION> (807,100)
<TOTAL-ASSETS> 3,066,700<F1>
<CURRENT-LIABILITIES> 1,463,800
<BONDS> 0
0
0
<COMMON> 800
<OTHER-SE> 290,900
<TOTAL-LIABILITY-AND-EQUITY> 3,066,700
<SALES> 340,800<F2>
<TOTAL-REVENUES> 348,600
<CGS> 209,600
<TOTAL-COSTS> 209,600
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,800<F3>
<INCOME-PRETAX> 19,400
<INCOME-TAX> 7,600
<INCOME-CONTINUING> 11,800
<DISCONTINUED> (2,600)<F4>
<EXTRAORDINARY> (35,200)<F5>
<CHANGES> 0
<NET-INCOME> (26,000)
<EPS-PRIMARY> (.35)
<EPS-DILUTED> (.32)
<FN>
<F1> Includes net assets of discontinued operations of $8,000.
- -------------------------------------------------------------------------------
<F2> Excludes sales of $431,200 of the Packaging Business, which was
classified as a discontinued operation as of December 31, 1997.
----------------------------------------------------------------------
<F3> Excludes interest expense allocated to Grace's discontinued operations
of $13,300 ($8,700 after-tax).
----------------------------------------------------------------------
<F4> Includes pretax operating income of the Packaging Business of $60,500
($39,900 after-tax), allocated interest expense of $13,300 ($8,700
after-tax), costs related to the Packaging Business transaction of
$32,600 ($28,300 after-tax) and a related pension plan curtailment
loss of $8,400 ($5,500 after-tax).
----------------------------------------------------------------------
<F5> Reflects extraordinary loss on extinguishment of debt, net of tax.
- -------------------------------------------------------------------------------
</TABLE>
