-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Vg2teUmPERxMltGQoGC5hB9kwsIzTxgxu/eOTKZVfS4sp+Sqs7Bjx8f/dN7HhT4n Hl5ahcSyPQ20YJPjiry34g== 0000950144-96-001349.txt : 19960401 0000950144-96-001349.hdr.sgml : 19960401 ACCESSION NUMBER: 0000950144-96-001349 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 18 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960329 SROS: CSX SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GRACE W R & CO /NY/ CENTRAL INDEX KEY: 0000042872 STANDARD INDUSTRIAL CLASSIFICATION: CHEMICALS & ALLIED PRODUCTS [2800] IRS NUMBER: 133461988 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-03720 FILM NUMBER: 96541279 BUSINESS ADDRESS: STREET 1: ONE TOWN CENTER RD CITY: BOCA RATON STATE: FL ZIP: 33486-1010 BUSINESS PHONE: 4073622000 FORMER COMPANY: FORMER CONFORMED NAME: GRACE W R & CO /CT/ DATE OF NAME CHANGE: 19900423 10-K 1 W.R. GRACE FORM 10-K 12-31-95 1 =============================================================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------ FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1995 Commission file number 1-3720 W. R. GRACE & CO. Incorporated under the Laws of the I.R.S. Employer Identification No. State of New York 13-3461988 ONE TOWN CENTER ROAD, BOCA RATON, FLORIDA 33486-1010 407/362-2000 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NAME OF EACH EXCHANGE ON TITLE OF EACH CLASS WHICH REGISTERED ------------------- ------------------------- Common Stock, $1 par value } New York Stock Exchange, Inc. Common Stock Purchase Rights } Chicago Stock Exchange, Incorporated 7-3/4% Notes Due 2002 } (issued by W. R. Grace & Co.-Conn., } New York Stock Exchange, Inc. a wholly owned subsidiary) and } related Guarantees } SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None 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 and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in the Proxy Statement incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. --- The aggregate market value of W. R. Grace & Co. voting stock held by nonaffiliates was approximately $6.0 billion at February 1, 1996. At March 1, 1996, 98,038,423 shares of W. R. Grace & Co. Common Stock, $1 par value, were outstanding. DOCUMENTS INCORPORATED BY REFERENCE
Document Where Incorporated ---------------------------------------- ------------------ Proxy Statement for Annual Meeting to be held May 10, 1996 (specified portions) Part III ================================================================================
2 TABLE OF CONTENTS
Page ---- PART I Item 1. Business ........................................................... 1 Introduction ..................................................... 1 Strategic Restructuring and Other Growth Initiatives .................................................... 1 Description of Business .......................................... 5 Discontinued Operations .......................................... 13 Research Activities .............................................. 16 Environmental, Health and Safety Matters ......................... 17 Item 2. Properties ......................................................... 18 Item 3. Legal Proceedings .................................................. 18 Item 4. Submission of Matters to a Vote of Security Holders .......................................................... 32 Executive Officers .......................................................... 32 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters .............................................. 33 Item 6. Selected Financial Data ............................................ 35 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ............................................ 35 Item 8. Financial Statements and Supplementary Data ........................ 35 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ............................................. 35 PART III Item 10. Directors and Executive Officers of the Registrant ....................................................... 35 Item 11. Executive Compensation ............................................. 36 Item 12. Security Ownership of Certain Beneficial Owners and Management ............................................ 36 Item 13. Certain Relationships and Related Transactions ..................................................... 36 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ............................................. 36 Signatures .................................................................. 43 Financial Supplement ........................................................ F-1
3 PART I ITEM 1. BUSINESS. INTRODUCTION W. R. Grace & Co., through its subsidiaries, is primarily engaged in the packaging and specialty chemicals businesses on a worldwide basis. It has classified its other businesses as discontinued operations, the most significant of which are its health care and cocoa businesses. As used in this Report, the term "Company" refers to W. R. Grace & Co., a New York corporation, and the term "Grace" refers to the Company and/or one or more of its subsidiaries. Grace's principal executive offices are located at One Town Center Road, Boca Raton, Florida 33486-1010, and its telephone number is 407/362-2000. At year-end 1995, Grace had approximately 21,200 full-time employees worldwide in its continuing operations (approximately 21,100 in discontinued operations). Grace's Consolidated Financial Statements for the three years in the period ended December 31, 1995 ("Consolidated Financial Statements"), and certain other financial information included in the Company's 1995 Annual Report to Shareholders, are set forth in the Financial Supplement to this Report and incorporated by reference herein. Information concerning the sales and revenues, pretax operating income and identifiable assets of Grace's continuing operations by geographic area for 1995, 1994 and 1993 is contained in Note 18 to the Consolidated Financial Statements in the Financial Supplement. STRATEGIC RESTRUCTURING AND OTHER GROWTH INITIATIVES Recent Strategic Initiatives. In mid-1995, Grace announced and began implementing plans to enhance shareholder value by strengthening its balance sheet and reducing costs. These objectives are being achieved through (a) the pending dispositions of Grace's health care business and water treatment and process chemicals business (discussed below); (b) the anticipated use of the proceeds from these transactions to substantially reduce indebtedness, to repurchase up to 20% of the Company's Common Stock, and to invest in Grace's core businesses; (c) a worldwide restructuring program to streamline processes and thereby reduce expenses by $100 million annually (with further actions being taken 4 to improve margins); and (d) the implementation of rigorous controls on working capital and capital spending. These plans are designed to make Grace a high-performance, high-value company focused on the strengths of its packaging and specialty chemicals businesses. Grace's core businesses are now packaging, catalysts and other silica-based products, construction products, and container and specialty polymer products. Each of these businesses is a market leader, offers high value-added products, employs leading technology and has global reach. In these businesses, Grace provides highly differentiated and superior products and services through investments in research and development, facilities that enable Grace to take advantage of expanding global market opportunities, and technology platforms capable of providing multiple products to satisfy customers' specific needs. Moreover, Grace has focused research and development spending on core businesses, fostered an exchange of technology among its product lines, and increased the level of process development directed at streamlining operations. In June 1995, the Company announced that its Board of Directors had approved a plan to spin off National Medical Care, Inc., Grace's principal health care subsidiary ("NMC"); as a result, Grace classified its health care business as a discontinued operation in the second quarter of 1995. Following NMC's receipt in October 1995 of five investigative subpoenas from the Office of the Inspector General of the United States Department of Health and Human Services (see "Legal Proceedings" below), the completion of the spin-off of NMC, originally expected in the 1995 fourth quarter, was delayed. In February 1996, Grace and Fresenius AG ("Fresenius") entered into a definitive agreement to combine NMC with Fresenius' worldwide dialysis business ("FWD") to create Fresenius Medical Care ("FMC"). As a result of the combination, FMC would acquire NMC, which would remain responsible for all liabilities arising out of the investigations of NMC, discussed below. However, Grace would retain certain health care assets, primarily a bioseparation sciences business and a health care services company (classified as discontinued operations), as well as other assets (including cash and marketable securities). The combination would follow a borrowing of approximately $2.3 billion by NMC, a tax-free distribution of the proceeds by NMC to Grace, and a tax-free distribution by the Company, with respect to each share of its Common Stock, of one share of a newly formed corporation holding all of Grace's businesses (principally its specialty chemicals businesses) other than NMC. As a result of the separation of Grace's specialty chemicals businesses from NMC and -2- 5 the subsequent combination of NMC and FWD, the holders of the Company's Common Stock would own 100% of the specialty chemicals company and 44.8% of FMC, and Fresenius and other shareholders would own 55.2% of FMC. The holders of the Company's Common Stock would also own preferred stock, the value of which would be linked to the performance of FMC. Completion of the various transactions is subject to customary conditions, including the approval of the shareholders of the Company and Fresenius; United States, German and European regulatory actions; and obtaining financing on satisfactory terms. Commitments for financing have been received (which commitments are subject to various conditions and have not been entered into), and it is expected that the various transactions will be completed by the third quarter of 1996. In March 1996, Grace announced that it had entered into a definitive agreement to sell its Dearborn water treatment and process chemicals business to Betz Laboratories, Inc. for $632 million. The transaction is expected to close in the second quarter of 1996. 1991 Strategy; Sale and Monetization of Noncore Businesses; Other Actions. The strategic initiatives described above reflect the further development of a corporate strategy announced in 1991. The major components of the strategy were to (a) focus on core businesses to accelerate profitable growth; (b) upgrade financial performance, principally by selling or monetizing noncore businesses, managing debt levels consistent with profitable growth opportunities, and reducing overhead; and (c) integrate corporate and operating unit functions through global product line management. Pursuant to this strategy, during the 1991-1995 period Grace disposed of most of its noncore businesses and investments, including its oil and gas, coal and energy services businesses; its printing products business; its specialty textiles business; its book, video and software distribution businesses; its remaining agricultural businesses; and various chemical businesses, including its organic chemicals and automotive materials businesses. Gross proceeds from these and other divestments totaled $2.15 billion in the 1991-1995 period. In 1992, Grace also monetized a portion of its cocoa and chocolate business by selling a 21% limited partnership interest in Grace Cocoa Associates, L.P., which owns this business and other assets, resulting in Grace's receipt of approximately $300 million in cash. Grace is actively pursuing the disposition of its cocoa business; during the fourth quarter of 1995, Grace revised the divestment plan for this business, focusing on the improvement of operating cash flow through the adoption of new strategies and a new global organizational structure, while simultaneously positioning the business for sale. As a result of -3- 6 these actions, Grace expects to complete the disposition of this business during 1996. As part of its 1991 corporate strategy, Grace also reorganized the management of its core businesses on the basis of global product lines. As a result of this reorganization, Grace is able to serve its multinational customers in all global regions, as well as tailor its product offerings to meet local preferences. Strategic Acquisitions and Other Growth Initiatives. To focus on core business growth, Grace has made strategic acquisitions directly related to its core businesses, totaling $190.4 million in the 1991-1995 period, including acquisitions intended to expand those businesses outside the United States. In 1992, Grace acquired the North American food service packaging business of Du Pont Canada. In 1993, Grace acquired the Katalistics fluid cracking catalyst additive business previously owned by a joint venture between Union Carbide Corporation and AlliedSignal Inc. In 1993, Grace also formed a 51%-owned joint venture with a large chemical and industrial concern headquartered in Volgograd, Russia, to produce flexible packaging for sale throughout the Commonwealth of Independent States; the joint venture began production in the third quarter of 1994. In 1994, Grace acquired the Schur Multiflex group of European flexible packaging businesses; construction chemicals businesses; and a small pollution control equipment producer. In addition, during 1994 Grace formed a 51%-owned joint venture with an Indian company to supply water treatment products and services in India. In 1995, Grace formed a 51%-owned joint venture in Malaysia to produce rigid plastic packaging products for sale throughout Southeast Asia; a 68%-owned joint venture with a Chinese packaging company to manufacture shrink films for sausage casings and to market Grace's packaging products and systems in China; a 51%-owned joint venture with a Russian company to produce container and closure sealants for sale throughout the Commonwealth of Independent States; and a 50%-owned joint venture with Engelhard Corporation to manufacture and market metal-based catalytic converters to the automotive industry. In early 1996, Grace agreed to form a joint venture to produce and market coatings, closures and can-sealing compounds in India. Although Grace intends to emphasize internal growth, it may also effect acquisitions, joint ventures and strategic alliances that afford synergies or other benefits necessary to fulfill strategic objectives of a core business (such as a key technology or opportunities for geographic expansion) or that provide a -4- 7 combination of a close fit with a core business with the potential for exceptional returns. See Notes 3, 5, 7, 12, 13 and 19 to the Consolidated Financial Statements and "Management's Discussion and Analysis of Results of Operations and Financial Condition" in the Financial Supplement for additional information. DESCRIPTION OF BUSINESS Grace's continuing operations consist principally of the development, manufacture and sale of packaging and specialty chemical products and systems. These products and systems serve highly specialized markets and represent an important or critical component (but a relatively small portion of the cost) of the end products in which they are used. Accordingly, competition tends to be based primarily on technological capability, customer service, product quality and, to a lesser extent, price. Grace's products and systems are marketed primarily through direct sales organizations. Through direct regular contact with its customers, Grace gains an in-depth knowledge of their businesses and anticipates and caters to their needs. Grace is often involved in the design of customers' production processes and thereafter serves as a supplier for such processes. The following is a description of the products and services provided by each of Grace's businesses. Packaging. Grace's packaging business ("Grace Packaging") provides high-performance total packaging systems on a worldwide basis, competing principally by providing superior quality products and services for specialized customer needs. The principal products and services provided by Grace Packaging are (a) flexible plastic packaging systems (including material, equipment and services) for a broad range of perishable foods such as fresh, smoked and processed meat products, cheese, poultry, prepared foods (including soups and sauces for restaurants and institutions), baked goods and produce; (b) shrink films used in packaging a variety of nonfood consumer and industrial products; (c) foam trays for supermarkets and poultry and other food processors; and (d) rigid plastic containers for dairy and other food and nonfood products. Grace Packaging competes through three product groups: flexible packaging (marketed extensively under the Cryovac(R) registered trademark), Formpac(TM) foam trays and Omicron(TM) rigid plastic containers. -5- 8 The Cryovac packaging products group developed and introduced flexible plastic vacuum shrink packaging to the food processing industry in the late 1940s, contributing to expanded food distribution and marketing by providing superior protection against decay-inducing bacteria and moisture loss. The market for Cryovac products has since expanded into the retail food market, and Cryovac packaging technology has also been introduced in nonfood applications for consumer merchandising of housewares, toys and compact discs, as well as for electronic and medical products. Cryovac flexible packaging products include shrink bags, shrink films, laminated films and films for medical bags and equipment. Shrink bags are multi-layered plastic bags that mold themselves to the exact shape of the product, forming a clear "second skin." Using sophisticated coextrusion technology, Cryovac shrink bags maximize barrier properties, optics, abuse resistance, shrinkability and seal strength. Cryovac shrink films are multi-layered shrinkable plastic films used to package a variety of food and nonfood consumer goods to protect against damage, preserve freshness and enhance marketability. Cryovac laminates are multi-layered, nonshrinkable and normally high-barrier flexible materials used for packaging perishable foods, shelf-stable products (nonrefrigerated foods, such as syrups, toppings and tomato paste) and various nonfood products. Grace's flexible packaging products differentiate themselves from competitive products by offering a combination of the following core competencies: (a) proprietary film processing technology; (b) resin technology, permitting the production of materials suited to specific customer needs; (c) packaging and food science expertise, providing better understanding of the interaction between packaging materials and packaged products; (d) complete systems support capability, providing a single source for customer needs; (e) a talented employee base that strives to anticipate, meet and exceed customer expectations; and (f) an effective sales and distribution network. Today, Grace Packaging is recognized as a worldwide leader in flexible packaging technology. Grace's technological leadership has spurred Grace Packaging's growth in several markets: in the rapidly expanding packaged fresh-cut produce market, Grace produces films that permit oxygen to pass through at various rates, thereby matching the varying respiration rates of different vegetables and permitting longer shelf life; in the fresh meat market, Grace's case-ready program reduces supermarkets' in-store production costs by allowing meat processors to centrally package meat products suitable for display; in the bone-in pork market, Grace's TBG(TM) packaging products have revolutionized the distribution of large subprimal cuts of pork by adding a film patch to certain sections -6- 9 of a high-abuse barrier bag to prevent bone punctures; and in the processed meats and poultry markets, Cryovac cook-in bags and laminates withstand high cooking temperatures, reducing the potential for contamination and retaining product shape, clarity and weight. Formpac manufactures and sells polystyrene foam prepackaging trays used by supermarkets and grocery stores to protect and display fresh meat, poultry and produce, as well as foam food service items such as hinged-lid containers used in institutional environments, by carry-out restaurants and by supermarkets for sale to retail customers. Formpac manufactures foam trays in a two-stage process consisting of the extrusion and thermoforming of polystyrene foam sheets. Although the majority of Formpac's customers are located in the eastern two-thirds of the United States, Formpac's proprietary technology has also been successfully used in certain packaging applications outside of the United States. Competition is based on service, price and product quality. Grace Packaging's Omicron business group produces rigid plastic packaging applications (primarily tubs for dairy products such as margarine and yogurt) in Australia. Omicron products use proprietary thermoforming technology, involving the controlled thinning and shaping of hot plastic sheets to increase strength and rigidity while minimizing weight. Grace is expanding the Omicron business into Southeast Asia through a 51%-owned joint venture formed in 1995 to produce rigid plastic packaging products in Malaysia. Grace Packaging's sales and revenues were $1.7 billion in 1995, $1.4 billion in 1994 and $1.3 billion in 1993. Approximately 51% of Grace Packaging's 1995 sales and revenues were generated in North America, 30% in Europe, 11% in Asia Pacific and the remainder in Latin America. At year-end 1995, Grace Packaging employed approximately 9,900 people in 28 production facilities (9 in North America, 8 in Europe, 6 in Asia Pacific and 5 in Latin America) and 79 sales offices, serving approximately 24,000 customers. Resins are the principal raw materials used by Grace Packaging. Although prices for ethylene-based resins can be volatile, there is currently an adequate worldwide supply of resins at generally stable prices. Further, Grace Packaging has typically been able to increase the sales prices of its products in response to increases in the prices of resins and other raw materials. In most cases, multiple sources of resins and other raw materials exist, with at least one source located in most global regions. -7- 10 Although sales and revenues tend to be slightly higher in the fourth quarter, seasonality is generally not significant to Grace Packaging. As a result of product introductions, marketing programs and improvements in global economic conditions, worldwide demand for Grace Packaging products grew at a rapid pace in 1994 and 1995, placing pressure on existing capacity. To address this matter, Grace Packaging has added capacity in all regions (including a shrink films manufacturing plant in Kuantan, Malaysia, that is expected to become operational in 1996). Catalysts and Other Silica-Based Products. This business ("Grace Davison") is composed of three principal product groups: refinery catalysts, polyolefin catalysts, and silica and zeolite adsorbents. These products apply silica, alumina and zeolite technology and are designed and manufactured to meet the varying specifications of such diverse customers as major oil refiners, plastics and chemical manufacturers and consumer products companies. Grace Davison's technological expertise provides a competitive edge, allowing Grace Davison to quickly design products that meet customer specifications, as well as to develop new products that expand its existing technology. For example, Grace estimates that 95% of its 1995 fluid cracking catalyst sales were attributable to products introduced in the last five years. Refinery catalysts include (a) fluid cracking catalysts used by petroleum refiners to convert crude oil into more valuable transportation fuels, such as gasoline and jet and diesel fuel, as well as other petroleum-based products, and (b) hydroprocessing catalysts that remove certain impurities (such as nitrogen, sulfur and heavy metals) from crude oil prior to the use of fluid cracking catalysts. Oil refining is a highly specialized discipline, demanding that products be tailored to meet local variations in crude oil and the refinery's changing operational needs. Grace Davison regularly works with most of the approximately 360 refineries in the world, helping to find the most appropriate catalyst formulations for the refiners' changing needs. Competition is based on technology, product performance, customer service and price. Grace believes it is one of the world leaders in refinery catalysts and the largest supplier of fluid cracking catalysts in North America and Europe. Grace Davison polyolefin catalysts and catalyst supports are essential components used in manufacturing nearly half of all high density and linear low density polyethylene resins, which are used in products such as plastic film, high-performance pipe and household containers. The polyolefin catalyst business is technology-intensive and focused on providing products specifically formulated to meet end-user applications. Manufacturers generally compete on a worldwide basis, and competition has intensified -8- 11 recently due to evolving technologies, particularly the use of metallocenes. Silica and zeolite adsorbents are used in a wide variety of industrial and consumer applications. Silicas are used in coatings as flatting agents (i.e., to reduce gloss), in plastics to improve handling, in toothpastes as thickeners and cleaners, in food to carry flavors and prevent caking, and in the purification of edible oils. Zeolite adsorbents are used between the two panes of insulated glass to adsorb moisture and in process applications to separate certain chemicals from mixtures. Competition is based on product performance, customer service and price. Grace Davison is planning to expand its silica business in the Asia Pacific region with a new plant in Kuantan, Malaysia, to open in 1996. Grace Davison's sales and revenues were $687 million in 1995, $610 million in 1994 and $572 million in 1993; approximately 52% of Grace Davison's 1995 sales and revenues were generated in North America, 37% in Europe, 10% in Asia Pacific and 1% in Latin America. At year-end 1995, Grace Davison employed approximately 2,700 people worldwide in nine facilities (six in the United States and one each in Canada, Germany and Brazil). Most raw materials used in the manufacture of Grace Davison products are available from multiple sources and, in some instances, are produced or supplied by Grace. Because of the diverse applications of products using Grace Davison technology and the geographic areas in which such products are used, seasonality does not have a significant effect on Grace Davison's businesses. Construction Products. Grace Construction Products ("Grace Construction") is a leading supplier of specialty materials to the worldwide construction industry. Grace Construction's products strengthen concrete, control corrosion, prevent water damage and protect structural steel against collapse due to fire. These include concrete admixtures, cement additives, waterproofing systems and fireproofing materials. In North America, Grace Construction also manufactures and distributes masonry block additives and products and vermiculite products used in construction and other industrial applications. Grace Construction's products are sold to a broad customer base, including cement manufacturers, ready-mixed and prestressed concrete producers, specialty subcontractors and applicators, masonry block manufacturers, building materials distributors and other industrial manufacturers. Grace Construction competes globally with several large construction materials suppliers and regionally and locally with numerous smaller competitors. Competition is based largely on -9- 12 price, product performance, proprietary technology and technical support and service. Grace Construction's customers are frequently local contractors and cement manufacturers; consequently, local suppliers are often able to compete effectively. Grace Construction's 1995 sales and revenues totaled $397 million (66% in North America, 17% in each of Europe and Asia Pacific and less than 1% in Latin America), versus $387 million and $333 million in 1994 and 1993, respectively. At year-end 1995, Grace Construction employed approximately 1,900 people at 57 production facilities (27 in North America, 11 in Southeast Asia, 7 in Australia/New Zealand, 7 in Europe, 4 in Latin America and 1 in Japan) and 70 sales offices worldwide. The raw materials used for manufacturing Grace Construction products are primarily commodities obtained from multiple sources, including commodity chemical producers, petroleum companies and paper manufacturers. In most instances, there are at least two alternative suppliers for each of the principal raw materials used by Grace Construction. However, the worldwide supply of calcium lignin, a wood pulping by-product used as a raw material in the production of concrete admixtures, has been decreasing as paper mills convert to new manufacturing processes. Grace Construction has secured short-term supplies of calcium lignin and is exploring new technologies to replace it in the future. The construction business is seasonal, influenced by weather conditions, and cyclical, in response to economic conditions and construction demand. Grace Construction seeks to increase profitability and minimize the impact of cyclical downturns in regional economies by introducing technically advanced, value-added products, expanding geographically and developing business opportunities in renovation construction markets. In addition, Grace Construction has implemented a lower cost structure by consolidating manufacturing operations in North America and through an extensive restructuring plan in Europe. Container and Specialty Polymer Products. Grace's container and specialty polymers business ("Grace Container") consists primarily of four product lines: container sealants, closure sealants, coatings for metal packaging, and specialty polymers. Container sealants are applied to food and beverage cans, as well as other rigid containers (such as industrial product containers and aerosol cans), to ensure a hermetic seal between the lid and the can body. Closure sealants are used to seal pry-off and twist-off metal crowns, as well as roll-on pilfer proof and plastic closures, for the glass/plastic container markets (primarily in beverage and food applications). Coatings are used in the manufacture of cans and closures to protect the metal against -10- 13 corrosion, to protect the contents against the influences of metal, to ensure proper adhesion of sealing compounds to metal surfaces, and to provide base coats for inks and for decorative purposes. Formulated engineered polymers are used in printed circuit board and component assembly in the electronics, electrical, automotive and defense industries, including surface mount and conductive adhesives, capacitor coatings, light-emitting diode encapsulants and conformal coatings. Grace Container is expanding its product offering through new technologies such as its oxygen-scavenging compound, which combines with closure sealants to extend shelf life by eliminating oxygen, and oxygen's effect on taste, from sealed beer and other beverage bottles. Grace Container sales and revenues were $357 million, $325 million and $306 million in 1995, 1994 and 1993, respectively. Its products are marketed internationally, with 34% of 1995 sales and revenues in Europe, 28% in each of North America and Asia Pacific and 10% in Latin America. At year-end 1995, Grace Container employed approximately 1,600 people at 30 production facilities (9 in Asia Pacific and 7 in each of North America, Europe and Latin America) and 57 sales offices worldwide. Competition is based on providing high-quality customer service at all customer sites, as well as on price and product quality and reliability. Although the raw materials used in Grace Container's operations, including resins, rubber and latices, are generally available from multiple sources, the prices of these raw materials experienced rapid escalation throughout most of 1995, negatively impacting Grace Container's gross margins; improvements are expected in 1996 as raw materials prices started to ease during the latter part of 1995. Although demand for container packaging and sealant products tends to increase slightly during the second and third quarters, the impact of such seasonality is not significant to Grace Container. Water Treatment. Grace's water treatment and process chemicals business ("Grace Dearborn") consists of water treatment and paper industry services business lines, which market the following products: (a) water treatment chemicals and support equipment to prevent corrosion, scale and microbiological growth in industrial utility waters, heating, cooling and steam generation applications, and industrial wastewater applications for clarification, sludge de-watering, odor control and water recycling; (b) process chemicals and support equipment to optimize and protect processing systems for the production of pulp and paper, refined petroleum products and petrochemicals, sugar and alcohol; (c) chemicals for the protection and cleaning of industrial cooking and sterilization equipment for canned foods; (d) paint detackification products to remove paint sludge from water wash paint spray systems; (e) chemicals and equipment for the treatment of process waters in the mining and processing of metal ores; and (f) chemicals and -11- 14 other products useful in servicing and maintaining vessels used in salt and fresh water. Grace Dearborn also provides consulting services related to its products and equipment. Grace Dearborn sales and revenues for 1995 totaled $399 million (41% in Europe, 37% in North America, 19% in Latin America and 3% in Asia Pacific). Sales and revenues for 1994 and 1993 were $363 million and $330 million, respectively. At year-end 1995, Grace Dearborn employed approximately 2,500 people at 23 manufacturing facilities (6 in each of Latin America and Asia Pacific, 5 in Europe, 4 in North America and 2 in South Africa) and 122 sales offices. The raw materials used in Grace Dearborn's business lines are readily available from multiple sources, generally at stable prices. The paper industry services business is affected by the cyclicality of the global paper market. The water treatment services business responds to (but is not adversely affected by) seasonal fluctuations, concentrating on boiler treatment in colder seasons and cooling system treatment in warmer seasons. The effects of seasonality are diminished by the geographic diversity of the markets served by Grace Dearborn. Grace Dearborn competes globally with several large companies and regionally and locally with numerous smaller companies. Competition is based primarily on technical service and product performance. In March 1996, Grace announced that it had entered into a definitive agreement to sell its Dearborn water treatment and process chemicals business to Betz Laboratories, Inc. for $632 million. The transaction is expected to close in the second quarter of 1996. Thermal and Emission Control Systems. Grace's thermal and emission control systems business ("Grace TEC Systems") is a developmental business that consists of four principal product groups: web processing products, industrial emission control products, mobile emission control products and specialty catalysts. These products are designed to customer specifications and are sold to a variety of industrial customers. Web processing products, consisting primarily of air flotation dryers and auxiliary equipment, are sold principally to the graphic arts, coating and converting markets. The industrial emission control products group manufactures volatile organic compound control equipment, including thermal, catalytic and regenerative oxidation systems. Demand for this equipment is driven principally by government regulations. The mobile emission control products group sells washcoat materials and specialty substrates. Washcoat materials are used by catalyst manufacturers to enhance the perfor- -12- 15 mance of catalytic converters sold to automotive original equipment manufacturers. Specialty catalysts are used to control volatile organic compounds, nitrogen oxides and carbon monoxide from a variety of sources. Competition for Grace TEC Systems' products is based primarily on system design, materials, technology, customer service, product performance and price. DISCONTINUED OPERATIONS In 1993 Grace classified its then remaining noncore businesses as discontinued operations, and in 1995 Grace classified its health care business as a discontinued operation. As discussed above (see "Strategic Restructuring and Other Growth Initiatives"), Grace has completed the sale and monetization of a substantial portion of its noncore businesses (although Grace remains subject to certain liabilities relating to those businesses). Grace's health care and cocoa businesses are the principal discontinued operations that have not yet been divested. Grace is actively pursuing the disposition of these two businesses and its other remaining discontinued operations and expects to complete their disposition in 1996. Following is a description of Grace's health care and cocoa businesses; see Notes 3, 5, 7, 12 and 13 to the Consolidated Financial Statements and "Management's Discussion and Analysis of Results of Operations and Financial Condition" in the Financial Supplement, and "Strategic Restructuring and Other Growth Initiatives" above, for additional information. Health Care. Grace's health care business is conducted primarily through NMC, which provides kidney dialysis services; manufactures and distributes products and equipment for dialysis treatment; performs clinical laboratory testing and other medical services; and provides home infusion, home respiratory therapy and home health services. NMC is the largest United States provider of kidney dialysis and related services to patients suffering from chronic kidney disease and has been actively expanding this business overseas. At December 31, 1995, NMC operated and/or managed 681 outpatient dialysis centers (574 in North America, 62 in Europe, 33 in Latin America and 12 in Asia Pacific); these centers, substantially all of which are leased, average approximately 5,600 square feet in size. NMC also provides inpatient acute dialysis services under contracts with hospitals in the United States (526 at December 31, 1995) and furnishes dialysis equipment and supplies to patients who elect home treatment. At December 31, 1995, NMC was treating ap- -13- 16 proximately 42,900 patients in the United States and 7,900 patients in other countries. Revenues from kidney dialysis services were $1.5 billion in 1995, $1.3 billion in 1994 and $1 billion in 1993. Since 1991, Grace has made numerous acquisitions relating to its health care business. These acquisitions, totaling $857 million plus 115,621 shares of the Company's Common Stock over the 1991-1995 period, included a United States provider of alternate-site infusion therapy and dialysis health care services, a United States provider of home infusion therapy services, regional United States providers of home infusion therapy services and home support nursing services, and numerous dialysis centers located primarily in the United States. NMC manufactures disposable bloodlines, dialysis concentrates, artificial kidneys (dialyzers) and dialysis machines for use in its dialysis centers and for sale to unaffiliated dialysis providers and home patients; distributes dialysis supplies and equipment and other medical products and supplies manufactured by others; and provides laboratory services for dialysis and other patients in the United States and Portugal. NMC also provides infusion and respiratory therapies and home health services to patients in their homes through a network of 105 United States locations (104 leased and 1 owned) in 34 states. Infusion therapy consists of the intravenous delivery of an expanding range of medications and nutritional preparations, such as chemotherapy, total parenteral nutrition, antibiotic therapy and drugs for pain management. Respiratory therapy consists of the delivery of oxygen and aerosolized drugs and the use of monitors, nebulizers and ventilators. In addition, NMC provides other home health services through 21 locations. NMC provides various ancillary medications and services to patients suffering from end-stage renal disease ("ESRD") at its dialysis centers, the most significant of which is the administration of erythropoietin ("EPO"). EPO is used to treat anemia, a medical complication frequently experienced by ESRD patients, and is administered to most of NMC's dialysis patients. Revenues from EPO accounted for approximately 13% of NMC's revenues in 1995. EPO is produced by a single manufacturer, and any interruption of supply could adversely affect NMC's business and results of operations. NMC's United States business is dependent on the continuation of Medicare and other third-party insurance coverage for dialysis and home care services and products. At such time as Medicare becomes a patient's primary payor for dialysis (generally, three months following commencement of treatment or, in the case of -14- 17 patients covered by employer-sponsored health insurance, 21 months after commencement of treatment) and/or home care products and services, Medicare currently reimburses suppliers of such services and products for approximately 80% of established fees or reasonable charges; the remaining 20% is paid by the patient and/or a non-Medicare insurance carrier. NMC estimates that, in 1995, Medicare, Medicaid and other governmental health care programs accounted for approximately 60% of NMC's revenues. The reimbursement rates under such programs, as well as the scope of their coverage, are subject to legislative change as a result of deficit reduction and other measures. Because in most cases the prices of dialysis services and products in the United States are directly or indirectly regulated by Medicare or other government payors, competition for patients is based primarily on quality and accessibility of service and referrals from physicians and hospitals. In addition, some states limit competition under laws that restrict the number of dialysis facilities within a geographic area based on need, as determined by state agencies. Competition in the home care business is also based on quality of service as well as price, and, where state laws do not impose limits on competition, there are no significant barriers to entering this business. Further, the rapid growth of managed care (a combination of financial incentives and management controls intended to direct patients to efficient providers in cost-effective settings) has resulted in greater emphasis on service costs for patients insured by third parties; therefore, cost efficiency is also a key element of competition in this market. Based upon its knowledge and understanding of the health care industry in general and of other providers of kidney dialysis and infusion therapy, as well as information obtained from publicly available sources, NMC believes that it is among the most cost-efficient of the companies in its field and that it is the leading United States supplier of dialysis services and a leading United States provider of infusion and respiratory therapies. In most countries other than the United States where NMC provides dialysis services, prices and the opening of new facilities are directly or indirectly regulated by governments, and competition is based primarily on the quality and availability of service and relationships with referring physicians. NMC believes there are adequate sources of supply for the raw materials and products used in its health care services and medical products businesses. At year-end 1995, NMC employed approximately 18,900 people full-time at its facilities worldwide. On February 4, 1996, Grace and Fresenius AG announced that they had entered into an agreement pursuant to which NMC would -15- 18 combine with Fresenius' worldwide dialysis business. See "Strategic Restructuring and Other Growth Initiatives" above for additional information. See "Legal Proceedings" below for information concerning certain lawsuits and government investigations and proceedings relating to NMC and Note 7 to Grace's Consolidated Financial Statements and "Management's Discussion and Analysis of Results of Operations and Financial Condition" in the Financial Supplement for additional information concerning NMC. Grace Cocoa. Grace's cocoa and chocolate business ("Grace Cocoa") produces high-quality intermediate cocoa and chocolate products for sale as ingredients to the bakery, confectionery, dairy and beverage industries. Cocoa liquor, cocoa butter and cocoa powder are sold internationally; coatings and intermediate chocolate products are sold to the European market; and intermediate chocolate products, primarily coatings and cookie drops, are sold to the North American market. Grace Cocoa competes primarily on the basis of superior service, product quality and reliability. Sales of cocoa and chocolate products were $798 million in 1995, $718 million in 1994 and $636 million in 1993. At year-end 1995, Grace Cocoa employed approximately 1,700 people at 9 production facilities (4 in each of Europe and North America and 1 in Asia Pacific) and 5 other offices worldwide. See "Strategic Restructuring and Other Growth Initiatives" above and Notes 7 and 13 to Grace's Consolidated Financial Statements for additional information concerning Grace Cocoa. RESEARCH ACTIVITIES Grace engages in research and development programs directed toward the development of new products and processes and the improvement of, and development of new uses for, existing products and processes. Research is carried out by product line laboratories in North America, Europe, Asia and Latin America and by the Corporate Research Division in Columbia, Maryland. The Research Division's activities focus on Grace's core product lines and include research in specialty polymers; water treatment; catalysis; construction materials; photopolymers; specialty packaging; and process engineering, principally involving the development of technologies to manufacture chemical specialties. Research and development expenses relating to continuing operations amounted to $121 million in 1995, $107 million in 1994 and $112 million in 1993 (including expenses incurred in funding -16- 19 external research projects). The amount of research and development expenses relating to government- and customer-sponsored projects (as opposed to projects sponsored by Grace) is not material. See "Management's Discussion and Analysis of Results of Operations and Financial Condition" in the Financial Supplement for additional information. ENVIRONMENTAL, HEALTH AND SAFETY MATTERS In constructing and operating its facilities, Grace incurs capital and operating expenditures relating to the protection of the environment, as well as costs to remediate properties. The following table sets forth Grace's expenditures in the past three years, and its estimated expenditures in 1996 and 1997, for (a) the operation and maintenance of environmental facilities and the disposal of hazardous and nonhazardous wastes with respect to continuing operations; (b) capital improvements to environmental control facilities relating to continuing operations; and (c) the remediation of sites:
(a) (b) (c) Operation of Facilities and Capital Waste Disposal Improvements Remediation -------------- ------------ ----------- (in millions) 1993 $41 $19 $44 1994 36 22 31 1995 44 15 31 1996 (est.) 45 20 30 1997 (est.) 47 17 20
Such expenditures have not had, and are not expected to have, a material effect on Grace's other capital expenditures or on its earnings or competitive position. See Note 12 to the Consolidated Financial Statements and "Management's Discussion and Analysis of Results of Operations and Financial Condition" in the Financial Supplement. With the goal of continuously improving its environment, health and safety ("EHS") performance, Grace established its Commitment to Care(TM) initiative (based on the Responsible Care(R) program of the Chemical Manufacturers Association) in 1994 as the program under which all Grace EHS activities are to be implemented. -17- 20 To the extent applicable, Commitment to Care extends the basic elements of Responsible Care to all Grace locations worldwide, embracing specific objectives in the key areas of product stewardship, employee health and safety, community awareness and emergency response, distribution, process safety and pollution prevention. In 1995 (following completion of the first year of the implementation of the Commitment to Care program), Grace conducted a survey of facilities worldwide to determine the program's results. The survey showed significant progress toward Grace's goal of implementing the program in all Grace facilities. See Item 3 of this Report for information concerning environmental proceedings to which Grace is a party and "Management's Discussion and Analysis of Results of Operations and Financial Condition" in the Financial Supplement for additional information concerning environmental matters. ITEM 2. PROPERTIES. Grace operates manufacturing and other types of plants and facilities (including office and other service facilities) throughout the world, some of which are shared by two or more of Grace's product lines. Grace considers its major operating properties to be in good operating condition and suitable for their current use. Although Grace believes that, after taking planned expansion into account, the productive capacity of its plants and other facilities is generally adequate for current operations and foreseeable growth, it conducts ongoing, long-range forecasting of its capital requirements to assure that additional capacity will be available when and as needed (see information regarding Grace's capital expenditures in "Management's Discussion and Analysis of Results of Operations and Financial Condition" and on page F-27 of the Financial Supplement). Accordingly, Grace does not anticipate that its operations or income will be materially affected by the absence of available capacity. Additional information regarding Grace's properties is set forth in Item 1 above and in Notes 1, 9 and 12 to the Consolidated Financial Statements in the Financial Supplement. ITEM 3. LEGAL PROCEEDINGS. Asbestos Litigation. Grace is a defendant in lawsuits relating to previously sold asbestos-containing products and anticipates that it will be named as a defendant in additional asbestos-related -18- 21 lawsuits in the future. Grace was a defendant in approximately 40,800 asbestos-related lawsuits at year-end 1995 (47 involving claims for property damage and the remainder involving approximately 92,400 claims for personal injury), as compared to approximately 38,700 lawsuits at year-end 1994 (65 involving claims for property damage and the remainder involving approximately 67,900 claims for personal injury). In most of these lawsuits, Grace is one of many defendants. The plaintiffs in property damage lawsuits generally seek, among other things, to have the defendants absorb the cost of removing, containing or repairing the asbestos-containing materials in the affected buildings. Through year-end 1995, 129 asbestos property damage cases were dismissed with respect to Grace without payment of any damages or settlement amounts; judgments were entered in favor of Grace in 10 cases (excluding cases settled following appeals of judgments in favor of Grace and a case in which the plaintiff was granted a new trial on appeal); Grace was held liable for a total of $74.7 million in 7 cases (2 of which are on appeal); and 177 property damage suits and claims were settled for a total of $421.8 million. Included in the asbestos property damage lawsuits pending against Grace and others at year-end 1995 were the following class actions: (1) a Pennsylvania state court action (Prince George Center, Inc. v. U.S. Gypsum Company, et al., Court of Common Pleas of Philadelphia County), certified in 1992, covering all commercial buildings in the United States leased in whole or in part to the United States government on or after May 30, 1986; (2) an action, conditionally certified by the United States Court of Appeals for the Fourth Circuit in 1993 and pending in the United States District Court for the District of South Carolina, covering all public and private colleges and universities in the United States whose buildings contain asbestos materials (Central Wesleyan College, et al. v. W. R. Grace, et al.); and (3) a purported class action (Anderson Memorial Hospital, et al. v. W. R. Grace & Co., et al.), filed in 1992 in the Court of Common Pleas for Hampton County, South Carolina, on behalf of all entities that own, in whole or in part, any building containing asbestos materials manufactured by Grace or one of the other named defendants, other than buildings subject to the class action lawsuits described above and any building owned by the federal or any state government. In December 1995, Grace entered into an agreement to settle the claims under Prince George Center, Inc. v. U.S. Gypsum Company, et al. The terms of the settlement agreement (which is subject to judicial review and approval after class members have an opportunity to be heard) are not expected to have a significant effect on Grace's consolidated results of operations or financial position. In July -19- 22 1994, the claims of most class members in Anderson Memorial Hospital, et al., v. W. R. Grace & Co., et al. were dismissed due to a ruling that a South Carolina statute prohibits nonresidents from pursuing claims in the South Carolina state courts with respect to buildings located outside the state. The plaintiffs have requested that the court reconsider its decision. In August 1994, Grace entered into an agreement to settle In re: Asbestos School Litigation, a nationwide class action brought in 1983 in the United States District Court for the Eastern District of Pennsylvania on behalf of all public and private elementary and secondary schools in the United States that contain friable asbestos materials (other than schools that "opted out" of the class). The terms of the settlement agreement (which were approved by the District Court in September 1995) are not expected to have a significant effect on Grace's consolidated results of operations or financial position. The remaining asbestos lawsuits pending at year-end 1995 involved claims for personal injury. Through year-end 1995, approximately 10,100 personal injury lawsuits involving 24,500 claims were dismissed with respect to Grace without payment of any damages or settlement amounts (primarily on the basis that Grace products were not involved), and approximately 23,700 such suits involving 29,600 claims were disposed of for a total of $109 million (see "Insurance Litigation" below). However, as a result of various trends (including the insolvency of other former asbestos producers and cross-claims by co-defendants in asbestos personal injury lawsuits), the costs incurred in disposing of such lawsuits in the past may not be indicative of the costs of disposing of such lawsuits in the future. In 1991, the Judicial Panel on Multi-District Litigation consolidated in the United States District Court for the Eastern District of Pennsylvania, for pre-trial purposes, all asbestos personal injury cases pending in the federal courts, including approximately 7,000 cases then pending against Grace; 3,600 new cases involving 7,200 claims against Grace have subsequently been added to the consolidated cases. To date, no action has been taken by the court handling the consolidated cases that would indicate whether the consolidation will affect Grace's cost of disposing of these cases or its defense costs. Grace's ultimate exposure with respect to its asbestos-related lawsuits and claims will depend on the extent to which its insurance will cover damages for which it may be held liable, amounts paid in settlement and litigation costs. As discussed below under "Insurance Litigation," a May 1994 decision of the U.S. Court of Appeals for the Second Circuit limited the amount of insurance -20- 23 coverage available with respect to property damage lawsuits and claims. Because Grace's insurance covers both property damage and personal injury lawsuits and claims, the May 1994 decision has had the concomitant effect of reducing the insurance coverage available with respect to Grace's asbestos personal injury lawsuits and claims. However, in Grace's opinion, it is probable that recoveries from its insurance carriers, along with other funds, will be available to satisfy the property damage and personal injury lawsuits and claims pending at year-end 1995, as well as personal injury lawsuits and claims expected to be filed through 1998. Consequently, Grace believes that the resolution of its asbestos-related litigation will not have a material adverse effect on its consolidated results of operations or financial position. See "Insurance Litigation" below and Note 2 to the Consolidated Financial Statements in the Financial Supplement for additional information. Environmental Proceedings. Grace (together with other companies) has been designated a "potentially responsible party" ("PRP") by the United States Environmental Protection Agency ("EPA") with respect to absorbing the costs of investigating and remediating pollution at various sites. At year-end 1995, proceedings were pending with respect to approximately 30 sites as to which Grace has been designated a PRP. Federal law provides that all PRPs may be held jointly and severally liable for the costs of investigating and remediating a site. Grace is also conducting investigatory and remediation activities at sites under the jurisdiction of state and/or local authorities. In addition, in 1989, Hatco Corporation ("Hatco"), which purchased the assets of a Grace chemical business in 1978, instituted a lawsuit against Grace in the United States District Court for the District of New Jersey (Hatco Corporation v. W. R. Grace & Co.-Conn.) seeking recovery of cleanup costs for waste allegedly generated at a New Jersey facility during the period of Grace's ownership. Grace subsequently filed a lawsuit against its insurance carriers seeking indemnity against any damages assessed against Grace in the underlying lawsuit, as well as defense costs. In decisions rendered during 1993, the District Court ruled that Grace is responsible for a substantial portion of Hatco's costs. In July 1995, the United States Court of Appeals for the Third Circuit reversed the decisions of the District Court and remanded the lawsuit to the District Court for further proceedings. Specifically, the Court of Appeals (a) reversed the District Court's ruling that Grace is responsible for a substantial portion of Hatco's costs and (b) ruled that in the remand proceeding the burden of proof would be on Hatco to establish that it had not released Grace from the asserted liabilities. In an earlier -21- 24 decision, the District Court had resolved, in a manner favorable to Grace, certain legal issues regarding Grace's right to insurance coverage; however, the ultimate liability of Grace's insurance carriers will be determined at trial, should a trial be necessary after the remand proceedings described above. Remediation costs, and Grace's share, if any, of such costs, will be determined once ongoing site investigations are completed and a remediation plan is approved by the State of New Jersey. As a result of the above factors, the amount that Grace may be required to pay to Hatco, if any (which Grace expects will be partially offset by recoveries from insurance carriers), cannot be reliably estimated at this time. In November 1995, Grace received a letter from the United States Department of Energy ("DOE") inquiring as to Grace's willingness to contribute to the continued cleanup of a former Grace property located in Wayne, New Jersey. The letter asserted that Grace has a legal duty to pay for the site's cleanup and that the total cost of cleanup may exceed $100 million. The operations conducted by Grace at the Wayne site (from 1955 to 1970) included work done on radioactive materials under contract with the United States government for the "Manhattan Project" and with the United States Atomic Energy Commission. In 1975, the United States Nuclear Regulatory Commission inspected the site, concluded that it was decontaminated in accordance with applicable regulations and released it for unrestricted use. In 1984, pursuant to a request from the DOE, Grace transferred the Wayne property to the DOE and made a cash payment as a contribution towards the DOE's cleanup efforts at the site, which was acknowledged by the DOE as fulfilling any obligation Grace had to contribute to DOE's cleanup effort. As a result of these transactions, Grace believes it has no further obligation to contribute to the DOE's cleanup activities. In March 1993, an action was filed in the United States District Court for the Southern District of Texas against Grace Drilling Company, a subsidiary of the Company the business and assets of which have since been sold, and several other defendants, for alleged violations of the Clean Water Act and the Rivers and Harbors Act (U.S. v. Fina Oil and Chemical Co., et al.). The government alleges that seagrasses and seabeds around a drilling rig operated by Fina Oil and Chemical Co. were damaged in connection with the placing, servicing and removal of the rig. The government is seeking injunctive relief requiring the defendants to restore the damaged areas and to compensate for temporary loss of the seagrass habitat, as well as civil penalties of up to $25,000 per day of violation and attorneys' fees. Grace is also a party to other proceedings involving federal, state and/or local government agencies and private parties -22- 25 regarding Grace's compliance with environmental laws and regulations. These proceedings are not expected to result in significant sanctions or in any material liability. As a voluntary participant in the EPA Toxic Substances Control Act Compliance Audit Program, Grace agreed to undertake a corporate-wide audit of compliance with Section 8 of such Act and to pay a stipulated civil penalty for each study or report that EPA alleges should have been, but was not, submitted to the EPA as required under such Section. Although final review of the audit is not complete, Grace believes it will be required to pay the EPA penalties aggregating from $250,000 to $400,000 for information discovered in the course of the audit. In addition, Grace has voluntarily reported to the EPA violations of certain notification and related requirements under such Act, and penalties may be assessed against Grace in connection therewith; however, the amount of such penalties cannot be determined at this time. Grace believes that the liabilities for environmental remediation costs that have been recorded in the Consolidated Financial Statements are adequate. In addition, Grace is presently involved in litigation with its insurance carriers seeking to hold them responsible for certain amounts for which Grace may be held liable with respect to such costs. The outcome of such litigation, as well as the amounts of any recoveries that Grace may receive in connection therewith, is presently uncertain. For further information, see Note 12 to the Consolidated Financial Statements and "Management's Discussion and Analysis of Results of Operations and Financial Condition" in the Financial Supplement. Insurance Litigation. Grace is involved in litigation with certain insurance carriers with respect to asbestos-related claims and environmental liabilities. Its asbestos-related insurance actions consist of a case styled Maryland Casualty Co. v. W. R. Grace & Co., pending in the United States District Court for the Southern District of New York; Dayton Independent School District v. United States Mineral Products Company, et al., pending in the United States District Court for the Eastern District of Texas; Independent School District No. 197, et al. v. W. R. Grace & Co. and Accident & Casualty Insurance Co., et al., pending in the First Judicial District in Minnesota; The County of Hennepin v. Central National Insurance Company, et al., pending in the Fourth Judicial District in Minnesota; Ecolab, Inc. v. Central National Insurance Co., pending in the District Court for Ramsey County, Minnesota; and American Employers' Insurance Co., American Re-Insurance Co., Commercial Union Insurance Co., and Unigard Security Insurance Co. v. W. R. Grace & Co., Continental Casualty Co., and Maryland Casualty Co., which is pending in the New York state courts; Grace's insurance actions relating to environmental liabilities consist of -23- 26 Maryland Casualty Co. v. W. R. Grace & Co., pending in the United States District Court for the Southern District of New York; and Hatco Corp. v. W. R. Grace & Co.-Conn., pending in the United States District Court for the District of New Jersey. The relief sought by Grace in these actions would provide insurance to partially offset Grace's estimated exposure with respect to the actions' subject matter, including amounts previously expended by Grace to defend claims and satisfy judgments and settlements (see Note 2 to the Consolidated Financial Statements in the Financial Supplement). The factual bases underlying these actions are the nature of the underlying asbestos-related and environmental claims, the language of the insurance policies sold by the carriers to Grace and the drafting history of those policies. In 1991 (in an asbestos-related case involving Maryland Casualty Co.), the United States District Court for the Southern District of New York determined that coverage for property damage is triggered by the "discovery of damage" during the period covered by the relevant policy. In September 1993, the United States Court of Appeals for the Second Circuit reversed the District Court's ruling as to a "discovery of damage" trigger for such claims and, instead, ruled that coverage for these claims is triggered based on the date of installation of asbestos-containing materials. In January 1994, the United States Court of Appeals for the Second Circuit granted Grace's petition for a rehearing concerning the September 1993 decision, and in May 1994, the Court issued a new decision confirming its September 1993 decision. As a result, Grace recorded net noncash charges totaling $300 million after taxes in 1993 and 1994 to reflect the reduction in asbestos property damage insurance coverage. Subsequently, the Second Circuit refused to rehear its decision, and the United States Supreme Court denied Grace's petition for a writ of certiorari with respect to that decision. In 1991 and 1994, a Mississippi court held that certain of Grace's excess insurance carriers are obligated to defend and indemnify Grace, determining that, for purposes of insurance coverage, damage to buildings from asbestos-containing products occurs at the time such products are put in place and that the damage continues as long as the building contains the products (referred to as a "continuous trigger"); Grace subsequently settled with each of the insurance carriers, and an appeal of the Mississippi court's decision was dismissed. In 1992, the Minnesota court referred to above reached a similar decision in interpreting Grace's insurance policies. In January 1994, the Minnesota court entered judgment against certain of Grace's carriers in the amount of $14.2 million, but that judgment was reversed by the Minnesota Court of Appeals in January 1995. After the Minnesota Supreme Court -24- 27 denied review of this decision, the parties agreed to settlements in 1995 and early 1996. Prior to 1993, Grace received payments totaling $97.7 million from insurance carriers, the majority of which represented the aggregate remaining obligations owed to Grace by those carriers for primary-level insurance coverage written for the period June 30, 1962 through June 30, 1987. In 1993 and 1994, Grace settled with insurance carriers for a total of $300.2 million (portions of which were paid or will be paid in subsequent years) in reimbursement for amounts expended by Grace in connection with asbestos-related litigation. In 1995, Grace settled with a primary-level insurer for $100 million, and with other insurers for a total of $200.3 million, including future payments of approximately $70 million. As a result of these settlements, insurance litigations were dismissed as to the primary-level product liability insurance coverage previously sold by the relevant insurers to Grace; however, litigations continue as to certain excess-level carriers. In a 1995 settlement included in the amounts set forth above, Grace settled with an affiliated group of excess-level carriers that had agreed to a settlement in 1993, had made a series of payments under that agreement and had subsequently notified Grace that it would no longer honor the agreement. Pursuant to the 1995 settlement, the group of carriers paid Grace $44 million in 1995, and agreed to make additional payments totaling $60.2 million in 1996 and 1997. Pursuant to a settlement with another group of carriers, Grace received $26.8 million in 1995 and $9.7 million in early 1996. Grace will also continue to receive payments under these agreements based on future cash outflows for asbestos-related litigation and claims; such payments are estimated to represent approximately $237.3 million of the asbestos-related receivable of $321.2 million at December 31, 1995. See Note 2 to the Consolidated Financial Statements and "Management's Discussion and Analysis of Results of Operations and Financial Condition" in the Financial Supplement for additional information. Fumed Silica Plant Litigation. In 1993, Grace initiated legal action in the Belgian courts against the Flemish government to recover losses resulting from the closing of Grace's fumed silica plant in Puurs, Belgium. Grace is seeking damages in excess of four billion Belgian francs (approximately $135.5 million at the December 29, 1995 exchange rate), plus interest and lost profits. This claim was dismissed at the trial court level and is now being appealed by Grace. The trial court also determined that Grace should repay approximately 239 million Belgian francs (approximately $8.1 million at the December 29, 1995 exchange rate) plus -25- 28 interest to the Flemish government for previously received investment grants; this decision is also being appealed by Grace. Also pending is an arbitration involving the engineering company that was responsible for the design and construction of the fumed silica plant. The outcome of this proceeding may affect the action filed against the Flemish government. Shareholder Litigation. Commencing in March 1995, five lawsuits were brought against the Company and members of its Board of Directors (as well as J. P. Bolduc, who resigned as President and Chief Executive Officer and a director of the Company in March 1995) in New York State Supreme Court, New York County. These lawsuits were consolidated in the case entitled Weiser, et al. v. Grace, et al. The consolidated amended complaint in this lawsuit, which purports to be a derivative action (i.e., an action brought on behalf of the Company), alleges, among other things, that the individual defendants breached their fiduciary duties to the Company (a) by providing J. Peter Grace, Jr. (the Chairman and a director of the Company until his death in April 1995) with certain compensation arrangements upon his voluntary retirement as the Company's Chief Executive Officer in 1992 and (b) by approving Mr. Bolduc's severance arrangements, and that Messrs. Grace and Bolduc breached their fiduciary duties by accepting such benefits and payments. The lawsuit seeks unspecified damages, the cancellation of all allegedly improper agreements, the cancellation of the non-employee director retirement plan, the return of all remuneration paid to the present and former directors who are defendants while they were in breach of their fiduciary duties to the Company, an award of attorneys' and experts' fees and costs and such other relief as the Court may deem appropriate. In March 1996, two purported shareholder derivative class actions were filed in New York State Supreme Court, New York County, against the Company and Albert J. Costello, the Company's Chairman, President and Chief Executive Officer, alleging that the defendants breached their fiduciary duties to the Company's shareholders by failing to investigate and consider fully a proposal by Hercules, Incorporated to acquire or merge with Grace (Izes, etc. v. W. R. Grace & Company, et al. and Polikoff, etc. v. W. R. Grace & Company, et al.). The lawsuits seek injunctive relief ordering defendants to carry out their fiduciary duties by considering and evaluating such proposal, unspecified monetary damages, costs and counsel fees and such other relief as the Court deems proper. Securities and Exchange Commission Investigation. The Company has been notified that the Securities and Exchange Commission has issued a formal order of investigation with respect to the -26- 29 Company's prior disclosures regarding benefits and retirement arrangements provided to J. Peter Grace, Jr., and certain matters relating to J. Peter Grace III, a son of J. Peter Grace, Jr. The Company is cooperating fully with the investigation. NMC - OIG Investigation. On October 17, 1995, NMC received five investigative subpoenas from the Office of the Inspector General of the United States Department of Health and Human Services ("OIG"). The subpoenas call for the production of extensive documents relating to various aspects of NMC's business. A letter accompanying the subpoenas stated that they had been issued in conjunction with an investigation being conducted by the OIG, the United States Attorney for the District of Massachusetts and others, concerning possible violations of federal laws relating to health care payments and reimbursements. The five subpoenas cover the following areas: (a) NMC's corporate management, personnel and employees, organizational structure, financial information and internal communications; (b) NMC's dialysis services business, principally medical director contracts and compensation; (c) NMC's treatment of credit balances resulting from overpayments received under the Medicare ESRD program and its payment of supplemental medical insurance premiums on behalf of indigent patients; (d) NMC's LifeChem laboratory business, including documents relating to testing procedures, marketing, customers, competition and certain overpayments totaling approximately $4.9 million that were received by LifeChem from the Medicare program with respect to laboratory services rendered between 1989 and 1993; and (e) NMC's Homecare Division and, in particular, information concerning the intradialytic parenteral nutrition ("IDPN") business, including billing practices related to various services, equipment and supplies and payments made to third parties as compensation for administering IDPN therapy. NMC is cooperating with the OIG investigation and has made, and is expected to continue to make, extensive production of documents and information in response to the subpoenas. The results of the investigation and its impact, if any, cannot be predicted at this time. In the event that a U.S. government agency believes that any wrongdoing has occurred, civil and/or criminal proceedings could be instituted, and if any such proceedings were to be instituted and the outcome were unfavorable, NMC could be subject to fines, penalties and damages or could become excluded from government reimbursement programs. Any such result could have a material adverse effect on NMC's financial position or the results of operations of NMC and Grace. Under the terms of the proposed transaction with Fresenius AG described above under "Strategic Restructuring and Other Growth -27- 30 Initiatives," any liability arising as a result of the OIG investigation would remain the responsibility of NMC. NMC - OBRA 93 Litigation. The Omnibus Budget Reconciliation Act of 1993 ("OBRA 93") affected the payment of benefits under Medicare and employer health plans for certain eligible ESRD patients. In July 1994, the Health Care Financing Administration ("HCFA") issued an instruction to Medicare claims processors to the effect that Medicare benefits for the patients affected by OBRA 93 would be subject to a new 18-month "coordination of benefits" period. This instruction had a positive impact on NMC's dialysis revenues because, during the 18-month coordination of benefits period, the patient's employer health plan was responsible for payment, which was generally at a rate higher than that provided under Medicare. In April 1995, HCFA issued a new instruction, reversing its original instruction in a manner that would substantially diminish the positive effect of the initial instruction on NMC's dialysis business. Under the new instruction, no 18-month coordination of benefits period would arise, and Medicare would remain the primary payor. HCFA further proposed that its new instruction be effective retroactive to August 1993, the effective date of OBRA 93. Consequently, NMC may be required to refund payments received from employer health plans for services provided after August 1993 under HCFA's original instruction and to re-bill Medicare for the same services, which would result in a cumulative reduction of net revenues to NMC totaling approximately $120 million as of December 31, 1995. Effective July 1, 1995, NMC ceased to recognize the incremental revenue realized under the original instruction, which has resulted in a material reduction in NMC's operating earnings in comparison to prior periods in which NMC recognized such incremental revenue. However, NMC continued to bill the employer health plans as primary payors through December 31, 1995, at which time NMC commenced billing Medicare for the patients affected by OBRA 93. In May 1995, NMC filed suit in the United States District Court for the District of Columbia seeking a declaratory judgment with respect to HCFA's instructions relating to OBRA 93 (National Medical Care, Inc., et al. v. Shalala). In June 1995, the court granted NMC's motion for a preliminary injunction to preclude HCFA from retroactively enforcing its new instruction. The litigation is continuing with respect to NMC's request to permanently enjoin HCFA's new instruction, both retroactively and prospectively. While there can be no assurance that a permanent injunction will be issued, NMC believes that it will ultimately prevail in its claim that the retroactive reversal by HCFA of its original instruction -28- 31 relating to OBRA 93 was impermissible under applicable law. If HCFA's revised instruction is upheld, NMC's business, financial position and results of operations would be materially adversely affected, particularly if the revised instruction is applied retroactively. NMC - IDPN Proceedings. NMC administers IDPN therapy to chronic dialysis patients who suffer from severe gastrointestinal malfunctions. Since late 1993, Medicare claims processors have applied medical coverage interpretations in a manner that has sharply reduced the number of IDPN claims approved for payment as compared to prior periods. NMC believes that the reduction in IDPN claims currently being paid by Medicare represents an unauthorized policy coverage change. Accordingly, NMC and other IDPN providers are pursuing various administrative and legal remedies, including administrative appeals, to address this reduction. In November 1995, NMC filed a complaint in the United States District Court for the Middle District of Pennsylvania (NMC Homecare, Inc. v. Shalala) seeking a declaratory judgment and injunctive relief to prevent the implementation of this policy coverage change. NMC management believes that its IDPN claims are consistent with published Medicare coverage guidelines and ultimately will be approved for payment. Such claims represent substantial accounts receivable of NMC, amounting to $93 million as of December 31, 1995, and currently increasing at the rate of approximately $5 million per month. If NMC is unable to collect its IDPN receivable, or if IDPN coverage is reduced or eliminated, depending on the amount of the receivable that is not collected and/or the nature of the coverage change, NMC's business, financial position and results of operations could be materially adversely affected. As previously reported, in May 1995 the Medicare claims processors circulated a draft coverage policy which, if implemented in the form proposed, would have limited or precluded continued coverage of parenteral and enteral nutrition ("PEN") therapies, including IDPN therapy. In March 1996, NMC received a copy of a revised final version of the new coverage policy, which is expected to become effective for services billed on and after July 1, 1996. While the new policy permits continued coverage of IDPN and other PEN therapies, and while the potential impact of the new policy is subject to further analysis, NMC believes that the new policy would make it substantially more difficult to qualify patients for future coverage by, among other things, requiring certain patients to undergo onerous and/or invasive tests in order to qualify for coverage. NMC, together with other interested parties, plans to seek to effect certain changes in the new policy, and NMC is considering changes to its patient qualification procedures in -29- 32 order to comply with the policy. However, if NMC is unable to achieve changes in the new policy, if physicians and patients fail to accept the new qualification procedures and/or if patients fail to qualify under such procedures, the policy could significantly reduce the number of patients eligible for Medicare coverage of IDPN and other PEN therapies, which would have a material adverse effect on NMC's financial position and results of operations. NMC - Import Alerts. In 1993, the United States Food and Drug Administration ("FDA") issued import alerts with respect to (a) hemodialysis bloodlines manufactured at NMC's facility in Reynosa, Mexico and (b) hemodialyzers manufactured in NMC's Dublin, Ireland facility. Products subject to FDA import alerts may not enter the United States until the FDA approves the quality assurance systems of the facility at which such products are manufactured. In January 1994, NMC entered into a consent decree providing that the importation of bloodlines and hemodialyzers could resume upon certification by NMC that the relevant facility complies with FDA regulations and successful completion of an FDA inspection to verify such compliance. The consent decree also required NMC to certify, and be inspected for, compliance with applicable FDA manufacturing requirements at all of its United States manufacturing facilities. NMC submitted all required certifications for its United States and non-United States facilities in accordance with the timetable specified in the consent decree, and the bloodline import alert was lifted in March 1994. The Dublin hemodialyzer import alert was lifted in December 1995. No fines or penalties have been imposed on NMC as a result of the FDA's actions or in connection with the consent decree. NMC - Grand Jury Investigations. NMC has received multiple subpoenas from a federal grand jury in the District of New Jersey investigating, among other things, (a) NMC's efforts to persuade the United States Food and Drug Administration to lift a January 1991 import hold issued with respect to NMC's Dublin, Ireland facility, (b) whether NMC sold defective products, (c) the manner in which NMC handled customer complaints and (d) the development of a new dialyzer product line. Grace has also received two subpoenas relating to this investigation. NMC and Grace have made extensive document production in response to these subpoenas and have fully cooperated with the grand jury in response to these subpoenas. In February 1996, the United States Attorney for the District of New Jersey notified NMC that it is a target of the New Jersey grand jury investigation, insofar as it relates to possible violations of federal criminal law in connection with efforts to affect the January 1991 import hold referred to above; the material element of the import hold was lifted in 1992. -30- 33 In addition, in December 1994, a subsidiary of NMC received a subpoena from a federal grand jury in the Eastern District of Virginia investigating the contractual relationships between subsidiaries of NMC that provide dialysis services and third parties that provide medical directorship and related services to those subsidiaries. NMC has made document production in response to this subpoena. The outcome of these investigations and their impact, if any, on NMC's business, financial condition and results of operations cannot be predicted at this time. Shareholder Actions relating to NMC. In 1995, nine purported class action lawsuits were brought against the Company and certain of its officers and directors in various federal courts. These lawsuits are being consolidated in the case entitled Murphy, et al. v. W. R. Grace & Co., et al., which is pending in the United States District Court for the Southern District of New York. The first amended class action complaint in this lawsuit, which purports to be a class action on behalf of all persons and entities who purchased the Company's publicly traded securities during the period from March 13, 1995 through October 17, 1995, generally alleges that the defendants concealed information, and issued misleading public statements and reports, concerning NMC's financial position and business prospects, a proposed spin-off of NMC and the matters that are the subject of the investigations described above in "NMC - - OIG Investigation" and "NMC - Grand Jury Investigations," in violation of federal securities laws. The lawsuit seeks unspecified damages, attorneys' and experts' fees and costs and such other relief as the Court deems proper. In October 1995, a purported derivative lawsuit was filed in the United States District Court for the Southern District of Florida, Northern Division, against the Company, certain of its directors and its former President and Chief Executive Officer, alleging that such individuals breached their fiduciary duties by failing to properly supervise the activities of NMC in the conduct of its business (Bennett v. Bolduc, et al.). In December 1995, the plaintiff in this action filed a new action, based on similar allegations, in the United States District Court for the Southern District of New York (Bennett v. Bolduc, et al.). The Florida action has been dismissed in favor of the action filed in the Southern District of New York. A second action making similar allegations was filed in October 1995 in New York State Supreme Court, New York County (Bauer v. Bolduc, et al.). The Company has been advised that this action will be dismissed or stayed in favor of the Bennett action, which has been consolidated, for discovery purposes only, with the Murphy action described above. The com- -31- 34 plaint in the Bennett action seeks unspecified damages, attorneys' and experts' fees and costs and such other relief as the Court deems proper. In February 1996, a purported class action was filed in New York State Supreme Court, New York County, against the Company, certain of its directors and a former director, alleging that the defendants breached their fiduciary duties in connection with the Company's agreement to combine NMC with Fresenius AG's worldwide dialysis business, as described in Item 1 above under "Strategic Restructuring and Other Growth Initiatives" (Rosman v. W. R. Grace & Co., et al.). The lawsuit seeks injunctive relief ordering defendants to carry out their fiduciary duties and preventing or rescinding the transaction or any related transactions with Fresenius AG, unspecified monetary damages, an award of attorneys' and experts' fees and costs and such other relief as the Court may deem just and proper. See Note 7 to the Consolidated Financial Statements for additional information concerning litigation involving NMC. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. This Item is inapplicable, as no matters were submitted to a vote of the Company's security holders during the fourth quarter of 1995. EXECUTIVE OFFICERS The Company's current executive officers are listed below. Executive officers are elected to serve until the following annual meeting of the Company's Board of Directors; the next such meeting is scheduled to be held on May 10, 1996.
Name and Age Office First Elected ------------ ------ ------------- R. H. Beber (62) Executive Vice President 05/10/93 and General Counsel 09/01/91 Robert J. Bettacchi (53) Vice President 02/01/90 Albert J. Costello (60) Chairman 05/10/95 President and Chief 05/01/95 Executive Officer Larry Ellberger (48) Senior Vice President 07/06/95
-32- 35 Constantine L. Hampers (63) Executive Vice President 06/06/91 Peter D. Houchin (48) Senior Vice President and 08/03/95 Chief Financial Officer James R. Hyde (57) Senior Vice President 07/06/95 J. Gary Kaenzig, Jr. (51) Senior Vice President 10/05/95 Donald H. Kohnken (61) Executive Vice President 12/07/89 Fred Lempereur (58) Senior Vice President 02/06/92 Ian Priestnell (51) Vice President 02/06/92
All the above executive officers have been actively engaged in Grace's business for the past five years, other than Mr. Costello, who served as chairman of the board and chief executive officer of American Cyanamid Company from April 1993 to December 1994 and as president of American Cyanamid Company from 1991 through March 1993; Mr. Ellberger, who was a corporate vice president and director of corporate development and planning from October 1991 until 1995, and prior to that vice president, industrial and performance products division, of American Cyanamid Company; and Mr. Houchin, who was chief executive officer of Gulfstream Land & Development prior to joining Grace in October 1991. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Except as provided below, the information called for by this Item appears in the Financial Supplement under the heading "Financial Summary" opposite the caption "Other Statistics - Common shareholders of record" (page F-28); under the heading "Quarterly Summary and Statistical Information - Unaudited" opposite the captions "Dividends declared per common share" and "Market price of common stock" (page F-26); and in Note 14 to the Consolidated Financial Statements (page F-22). Each share of the Company's Common Stock has an attendant Common Stock Purchase Right ("Right"). The Rights are not and will not become exercisable unless and until certain events occur (as described below). Until such events occur, the Rights will automatically trade with the Common Stock and separate certificates for -33- 36 the Rights will not be distributed. The Rights will become exercisable on the tenth business day (or such later business day as may be fixed by the Company's Board of Directors) after a person or group (a) becomes an "interested shareholder," as defined in Section 912 of the New York Business Corporation Law (generally, a beneficial owner of 20% or more of the outstanding voting stock), or (b) commences a tender offer or exchange offer that would result in such person or group becoming an interested shareholder. The Rights will not have any voting power at any time. When the Rights become exercisable, each Right will initially entitle the holder to buy from the Company one share of Common Stock for $87.50, subject to adjustment in certain cases ("purchase price"). If, at any time after the Rights become exercisable, (a) the Company is involved in a merger or other business combination in which (i) the Company is not the surviving corporation or (ii) any of the Common Stock is changed or converted into or exchanged for stock or other securities of any other person or cash or other property, or (b) 50% of the Company's assets, cash flow or earning power is sold, each Right will entitle the holder to buy a number of shares of common stock of the acquiring company having a market value equal to twice the purchase price. Alternatively, each right not owned by a person who becomes an interested shareholder would become exercisable for Common Stock (or other consideration) having a market value equal to twice the purchase price. The Rights may be redeemed by the Company at $.025 per Right (payable in cash, Common Stock or any other form of consideration deemed appropriate by the Board) at any time through the tenth business day (or such later business day as may be fixed by the Board) after a public announcement that a person or group has become an interested shareholder; this right of redemption may be reinstated if all interested shareholders reduce their holdings to 10% or less of the outstanding Common Stock. The Rights will expire in January 1997. In connection with its authorization of the proposed transaction with Fresenius (see "Strategic Restructuring and Other Growth Initiatives" above), the Company's Board of Directors authorized the amendment of the Rights so as to prevent the Rights from becoming exercisable as a result of such transaction and the other transactions contemplated thereby. The Rights may be further amended either before or after they become exercisable. However, the basic economic terms of the Rights (such as the purchase and redemption prices and the expiration date) cannot be changed. -34- 37 ITEM 6. SELECTED FINANCIAL DATA. The information called for by this Item appears under the heading "Financial Summary" (page F-28 of the Financial Supplement) and in Notes 6, 7, 10 and 17 to the Consolidated Financial Statements (pages F-13, F-15, F-19 and F-24 of the Financial Supplement). In addition, Exhibit 12 to this Report (page F-37 of the Financial Supplement) contains the ratio of earnings to fixed charges and combined fixed charges and preferred stock dividends for Grace for the years 1991-1995. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The information called for by this Item appears on pages F-29 to F-34 of the Financial Supplement. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. See the Index to Consolidated Financial Statements and Financial Statement Schedule and Exhibits on page F-1 of the Financial Supplement. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. This item is inapplicable, as no such changes or disagreements have occurred. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Except for information regarding the Company's executive officers (see pages 32 and 33), the information called for by this Item is incorporated in this Report by reference to the definitive Proxy Statement for the Company's 1996 Annual Meeting of Shareholders, except for information not deemed to be "soliciting material" or "filed" with the Securities and Exchange Commission ("SEC"), information subject to Regulations 14A or 14C under the Securities Exchange Act of 1934 ("Exchange Act") or information subject to the liabilities of Section 18 of the Exchange Act. -35- 38 ITEM 11. EXECUTIVE COMPENSATION. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information called for by Items 11, 12 and 13 is incorporated in this Report by reference to the definitive Proxy Statement for the Company's 1996 Annual Meeting of Shareholders, except for information not deemed to be "soliciting material" or "filed" with the SEC, information subject to Regulations 14A or 14C under the Exchange Act or information subject to the liabilities of Section 18 of the Exchange Act. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS OF FORM 8-K. Financial Statements and Schedules. See the Index to Consolidated Financial Statements and Financial Statement Schedule and Exhibits on page F-1 of the Financial Supplement. Reports on Form 8-K. The Company filed two Reports on Form 8-K during the fourth quarter of 1995. On October 16, 1995, the Company filed a Report on Form 8-K relating to (a) the Company's declaration of a quarterly cash dividend at a rate lower than that previously in effect and (b) a program to repurchase up to 10 million shares of the Company's Common Stock in open market or private transactions from time to time. The Company filed a Report on Form 8-K on October 27, 1995 concerning the receipt of five investigative subpoenas by NMC, as well as lawsuits relating to NMC, as further described in Item 3, "Legal Proceedings." On February 6, 1996, the Company filed a Report on Form 8-K relating to an agreement to combine NMC with Fresenius AG's dialysis business, as further discussed in Item 1 above under "Strategic Restructuring and Other Growth Initiatives." The Company filed a Report on Form 8-K on February 13, 1996, relating to (a) the announcement of 1995 fourth quarter and full year results and (b) the Company's receipt of a letter indicating that NMC is a target of a federal grand jury investigation, as further described in Item 3, "Legal Proceedings." On March 6, 1996, the -36- 39 Company filed a Report on Form 8-K announcing the resignation of Thomas L. Gossage from its Board of Directors. The Company also filed a Report on Form 8-K on March 27, 1996, relating to the agreement to sell Grace's water treatment and process chemicals business to Betz Laboratories, Inc., as further discussed in Item 1 above under "Strategic Restructuring and Other Growth Initiatives." Exhibits. The exhibits to this Report are listed below. Other than exhibits that are filed herewith, all exhibits listed below are incorporated herein by reference. Exhibits indicated by an asterisk (*) are the management contracts and compensatory plans, contracts or arrangements required to be filed as exhibits to this Report.
Exhibit Where Located - --------------------------------- --------------------- Agreement and Plan of Reorga- Exhibit 2 to Form 8-K nization, dated as of February 4, (filed 2/6/96) 1996, between W. R. Grace & Co. and Fresenius AG (including, as exhibits thereto, the Distribu- tion Agreement, dated as of February 4, 1996, between W. R. Grace & Co., Fresenius AG and W. R. Grace & Co.-Conn., and the Contribution Agreement, dated as of February 4, 1996, among W. R. Grace & Co., Fresenius AG, Steril Pharma GmbH and W. R. Grace & Co.-Conn.) Grace Dearborn Worldwide Purchase Exhibit 99.2 to Form 8-K and Sale Agreement, dated as of (filed 3/27/96) March 11, 1996, between W. R. Grace & Co.-Conn. and Betz Laboratories, Inc. Certificate of Incorporation of Exhibit 3 to Form 8-K W. R. Grace & Co., as amended (filed 6/9/88) By-laws of W. R. Grace & Co., as Exhibit 3.02 to Form 10-K amended (filed 3/31/95) Indenture dated as of Septem- Exhibit 4.2 to Form 10-K ber 29, 1992 among W. R. Grace (filed 3/26/93) & Co.-Conn., W. R. Grace & Co. and Bankers Trust Company
-37- 40 Indenture dated as of January Exhibit 4.4 to Form 10-K 28, 1993 among W. R. Grace (filed 3/26/93) & Co.-Conn., W. R. Grace & Co. and Bank of New York (successor to NationsBank of Georgia, N.A.) 364-Day Credit Agreement, dated Exhibit 4.1 to Form 10-Q as of September 1, 1994, among (filed 11/10/94) W. R. Grace & Co.-Conn., W. R. Grace & Co., the several banks parties thereto and Chemical Bank, as agent for such banks Credit Agreement, dated as of Exhibit 4.2 to Form 10-Q September 1, 1994, among W. R. (filed 11/10/94) Grace & Co.-Conn., W. R. Grace & Co., the several banks parties thereto and Chemical Bank, as agent for such banks First Amendment, dated as of Exhibit 4.05 to Form 10-K December 28, 1994, to the 364- (filed 3/31/95) Day Credit Agreement dated as of September 1, 1994 First Amendment, dated as of Exhibit 4.06 to Form 10-K December 28, 1994, to the (filed 3/31/95) Credit Agreement dated as of September 1, 1994 Second Amendment, dated as of Filed herewith December 31, 1995, to the 364- Day Credit Agreement dated as of September 1, 1994 Second Amendment, dated as of Filed herewith December 31, 1995, to the Credit Agreement dated as of September 1, 1994 Credit Agreement, dated as of Filed herewith December 29, 1995, among W. R. Grace & Co.-Conn., W. R. Grace & Co., the several banks parties thereto and Chemical Bank, as agent for such banks
-38- 41 First Amendment, dated as of Filed herewith December 31, 1995, to the Credit Agreement dated as of December 29, 1995 Amended and Restated Rights Exhibit to Amendment on Agreement dated as of June 7, Form 8 to Application for 1990 between W. R. Grace & Co. Registration on Form 8-B and Manufacturers Hanover Trust (filed 6/19/90) Company W. R. Grace & Co. Executive Exhibit 19(f) to Form Salary Protection Plan, as 8-K (filed 6/9/88)* amended W. R. Grace & Co. 1981 Stock Filed herewith* Incentive Plan, as amended W. R. Grace & Co. 1986 Stock Filed herewith* Incentive Plan, as amended W. R. Grace & Co. 1989 Stock Filed herewith* Incentive Plan, as amended W. R. Grace & Co. 1994 Stock Filed herewith* Incentive Plan, as amended W. R. Grace & Co. 1994 Stock Filed herewith* Retainer Plan for Nonemployee Directors, as amended Forms of Stock Option Agreements Exhibit 10(h) to Form 10-K (filed 3/28/92)* Forms of Restricted Share Award Exhibit 10(i) to Form 10-K Agreements (filed 3/28/92)* Information Concerning W. R. Pages 8-13 and 29-33 of Grace & Co. Incentive Compen- Proxy Statement sation Program, Deferred (filed 4/10/95)* Compensation Program and Long-Term Incentive Program W. R. Grace & Co. Retirement Exhibit 10(o) to Form Plan for Outside Directors, as 10-K (filed 3/28/92)* amended
-39- 42 Employment Agreement dated Exhibit 10(x) to Form as of April 1, 1991 between 10-K (filed 3/28/92)* W. R. Grace & Co.-Conn. and Constantine L. Hampers, as amended Housing Loan Agreement dated Exhibit 10(q) to Form as of August 1, 1987 between 10-K (filed 3/29/88); W. R. Grace & Co. and J. P. Exhibit 19(i) to Form Bolduc, related Amendment and 8-K (filed 6/9/88)* Assignment dated May 10, 1988 Employment Agreement dated Exhibit 10.13 to Form August 1, 1993 between J. P. 10-K (filed 3/28/94)* Bolduc and W. R. Grace & Co. Retirement Agreement between Exhibit 10.23 to Form 10-K W. R. Grace & Co. and J. Peter (filed 3/26/93)* Grace dated December 21, 1992 Executive Severance Agreement Exhibit 10.26 to Form 10-K dated September 1, 1992 (filed 3/26/93)* between W. R. Grace & Co. and Constantine L. Hampers Form of Executive Severance Exhibit 10.28 to Form 10-K Agreement between W. R. Grace (filed 3/26/93)* & Co. and others Consulting Agreement Exhibit 10.29 to Form 10-K dated June 1, 1992 between (filed 3/26/93)* W. R. Grace & Co. and Kamsky Associates, Inc. Incentive Compensation Agreement Exhibit 10.30 to Form 10-K dated June 1, 1992 between (filed 3/26/93)* National Medical Care, Inc. and Kamsky Associates, Inc. Consulting Agreement dated as of Exhibit 10.23 to Form 10-K December 1993 between National (filed 3/31/95)* Medical Care, Inc. and Virginia A. Kamsky Amendment to Consulting Agreement, Exhibit 10.1 to Form 10-Q dated as of May 1, 1995, among (filed 5/12/95)* National Medical Care, Inc., Virginia A. Kamsky and Southeast Asia Markets, Inc.
-40- 43 W. R. Grace & Co. Supplemental Exhibit 10.25 to Form 10-K Executive Retirement Plan, as (filed 3/28/94)* amended Agreement dated March 1, 1995 Exhibit 10.27 to Form 10-K between W. R. Grace & Co. and (filed 3/31/95)* Jean-Louis Greze Letter Agreement dated February Filed herewith* 12, 1996 between W. R. Grace & Co. and Jean-Louis Greze Letter Agreement dated June 15, Filed herewith* 1995 between W. R. Grace & Co. and Dr. F. Peter Boer Letter Agreement dated July 31, Filed herewith* 1995 between W. R. Grace & Co. and Brian J. Smith and letter dated August 9, 1995 from W. R. Grace & Co. to Brian J. Smith Agreements dated March 2 and Exhibit 10.28 to Form 10-K March 7, 1995 between J. P. (filed 3/31/95)* Bolduc and W. R. Grace & Co. Agreement dated April 1, 1991 Exhibit 10.29 to Form 10-K between National Medical Care, (filed 3/31/95)* Inc. and Constantine L. Hampers Employment Agreement dated as Exhibit 10.1 to Form 10-Q of May 1, 1995 between the (filed 8/14/95)* Company and Albert J. Costello Weighted Average Number of Filed herewith Shares and Earnings Used in (in Financial Supplement Per Share Computations to 10-K) Computation of Ratio of Earnings Filed herewith to Fixed Charges and Combined (in Financial Supplement Fixed Charges and Preferred to 10-K) Stock Dividends Selected Portions of the 1995 Filed herewith Annual Report to Shareholders (in Financial Supplement of W. R. Grace & Co. to 10-K) List of Subsidiaries of Filed herewith W. R. Grace & Co.
-41- 44 Consent of Independent Accoun- Filed herewith tants (in Financial Supplement to 10-K) Powers of Attorney Filed herewith Letter of Intent dated Exhibit 99.01 to Form 10-K November 5, 1993 between (filed 3/31/95) W. R. Grace & Co. and J. Peter Grace III, as amended Agency Agreement dated Exhibit 99.02 to Form 10-K June 13, 1994 between HSC (filed 3/31/95) Holding Co., Inc. and Grace Hotel Services Corporation Letter Agreement dated Exhibit 99.03 to Form 10-K December 14, 1994 among HSC (filed 3/31/95) Holding Co., Inc., Grace Hotel Services Corporation and W. R. Grace & Co. Services Agreement dated Exhibit 99.04 to Form 10-K November 10, 1994 between HSC (filed 3/31/95) Holding Co., Inc. and Grace Hotel Services Corporation Settlement Agreement, dated as Filed herewith of January 26, 1996, among HSC Hospitality, Inc. (f/k/a HSC Holding Co., Inc.), Grace Hotel Services Corporation and W. R. Grace & Co. Consulting Agreement dated as Filed herewith of December 1, 1995 between W. R. Grace & Co. and Gordon J. Humphrey
-42- 45 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. W. R. GRACE & CO. By /s/ P. D. Houchin -------------------------- P. D. Houchin (Senior Vice President and Chief Financial Officer) Date: March 29, 1996 Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 29, 1996.
Signature Title --------- ----- A. J. Costello* President and Director (Principal Executive Officer)
E. W. Duffy* T. A. Holmes* } H. A. Eckmann* P. S. Lynch* } M. A. Fox* R. C. Macauley* } Directors J. W. Frick* J. E. Phipps* } C. L. Hampers* E. J. Sullivan* }
/s/ P. D. Houchin Senior Vice President - ------------------------- (Principal Financial Officer and (P. D. Houchin) Acting Principal Accounting Officer) ____________ * By signing his name hereto, Robert B. Lamm is signing this document on behalf of each of the persons indicated above pursuant to powers of attorney duly executed by such persons and filed with the Securities and Exchange Commission. By /s/ Robert B. Lamm --------------------------------- Robert B. Lamm (Attorney-in-Fact) -43- 46 FINANCIAL SUPPLEMENT W. R. GRACE & CO. ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1995 47 FINANCIAL SUPPLEMENT TO ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1995 W. R. GRACE & CO. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE AND EXHIBITS
PAGE --------- Report of Independent Certified Public Accountants on Financial Statement Schedule........................................................................ F-2 Consent of Independent Certified Public Accountants............................... F-2 Report of Independent Certified Public Accountants................................ F-3 Consolidated Statement of Operations for the three years in the period ended December 31, 1995............................................................... F-4 Consolidated Statement of Cash Flows for the three years in the period ended December 31, 1995............................................................... F-5 Consolidated Balance Sheet at December 31, 1995 and 1994.......................... F-6 Consolidated Statement of Shareholders' Equity for the three years in the period ended December 31, 1995......................................................... F-7 Notes to Consolidated Financial Statements........................................ F-8-F-25 Quarterly Summary and Statistical Information -- Unaudited........................ F-26 Capital Expenditures, Net Fixed Assets and Depreciation and Lease Amortization.... F-27 Financial Summary................................................................. F-28 Management's Discussion and Analysis of Results of Operations and Financial Condition....................................................................... F-29 Financial Statement Schedule Schedule VIII-Valuation and Qualifying Account and Reserves..................... F-35 Exhibit 11: Weighted Average Number of Shares and Earnings Used in Per Share Computations.................................................................... F-36 Exhibit 12: Computation of Ratio of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Stock Dividends........................................... F-37
The financial data listed above appearing in this Financial Supplement are incorporated by reference herein. The Financial Statement Schedule should be read in conjunction with the Consolidated Financial Statements and Notes thereto. Financial statements of 50%- or less-owned persons and other persons accounted for by the equity method have been omitted as provided in Rule 3-09 of Securities and Exchange Commission Regulation S-X. Financial Statement Schedules not included have been omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or Notes thereto. F-1 48 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Shareholders and Board of Directors of W. R. Grace & Co. Our audits of the consolidated financial statements referred to in our report dated January 31, 1996 appearing on page 50 of the 1995 Annual Report to Shareholders of W. R. Grace & Co. (which report and consolidated financial statements are included in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedule listed on page F-1 in the Index to Consolidated Financial Statements and Financial Statement Schedule and Exhibits of this Form 10-K. In our opinion, this Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ PRICE WATERHOUSE LLP PRICE WATERHOUSE LLP Ft. Lauderdale, Florida January 31, 1996 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectuses constituting parts of the Registration Statements on Form S-3 (Nos. 33-51041, 33-50983 and 33-25962) and Form S-8 (Nos. 33-7504, 33-15182, 33-27960, 33-54201, 33-54203 and 33-59041) of W. R. Grace & Co. of our report dated January 31, 1996 appearing on page 50 of the 1995 Annual Report to Shareholders, which report is included at page F-3 of this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedule, which appears above. /s/ PRICE WATERHOUSE LLP PRICE WATERHOUSE LLP Ft. Lauderdale, Florida March 29, 1996 F-2 49 MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING Management is responsible for the preparation, as well as the integrity and objectivity, of the consolidated financial statements and other financial information included in this report. Such financial information has been prepared in conformity with generally accepted accounting principles and accordingly includes certain amounts that represent management's best estimates and judgments. For many years, management has maintained internal control systems to assist it in fulfilling its responsibility for financial reporting, including careful selection of personnel; segregation of duties; formal business, accounting and reporting policies and procedures; and an internal audit function. While no system can ensure elimination of all errors and irregularities, Grace's systems, which are reviewed and modified in response to changing conditions, have been designed to provide reasonable assurance that assets are safeguarded, policies and procedures are followed and transactions are properly executed and reported. The concept of reasonable assurance is based on the recognition that there are limitations in all systems and that the cost of such systems should not exceed the benefits to be derived. The Audit Committee of the Board of Directors, which is comprised of directors who are neither officers nor employees of nor consultants to Grace, meets regularly with Grace's senior financial personnel, internal auditors and independent certified public accountants to review audit plans and results as well as the actions taken by management in discharging its responsibilities for accounting, financial reporting and internal control systems. The Audit Committee reports its findings, and recommends the selection of independent certified public accountants, to the Board of Directors. Grace's management, internal auditors and independent certified public accountants have direct and confidential access to the Audit Committee at all times. The independent certified public accountants are engaged to conduct the audits of and render a report on the consolidated financial statements in accordance with generally accepted auditing standards. These standards require a review of the systems of internal controls and tests of transactions to the extent considered necessary by the independent certified public accountants for purposes of supporting their opinion as set forth in their report. Albert J. Costello Peter D. Houchin Chairman, President and Senior Vice President Chief Executive Officer and Chief Financial Officer REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS PRICE WATERHOUSE LLP January 31, 1996 One East Broward Boulevard Ft. Lauderdale, FL 33301 TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF W. R. GRACE & CO. In our opinion, the consolidated financial statements appearing on pages F-4 through F-25 of this report present fairly, in all material respects, the financial position of W. R. Grace & Co. and subsidiaries (Grace) at December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. These financial statements are the responsibility of Grace's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. Price Waterhouse LLP F-3 50 CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------ W. R. Grace & Co. and Subsidiaries CONSOLIDATED STATEMENT OF OPERATIONS - ------------------------------------------------------------------------------
Dollars in millions, except per share amounts 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------- Sales and revenues .................................................................. $3,665.5 $3,218.2 $2,895.5 Other income (Note 4) ............................................................... 41.9 42.6 57.8 -------- -------- -------- Total ........................................................................... 3,707.4 3,260.8 2,953.3 -------- -------- -------- Cost of goods sold and operating expenses ........................................... 2,243.7 1,900.8 1,746.7 Selling, general and administrative expenses ........................................ 905.6 773.6 673.1 Depreciation and amortization ....................................................... 186.3 165.0 153.5 Interest expense and related financing costs (Note 10) .............................. 71.3 49.5 42.9 Research and development expenses ................................................... 120.6 106.8 111.5 Corporate expenses previously allocated to health care operations ................... 37.8 37.1 37.4 Restructuring costs and asset impairments (Note 5) .................................. 179.5 -- -- Provision relating to asbestos-related liabilities and insurance coverage (Note 2) .. 275.0 316.0 159.0 -------- -------- -------- Total ........................................................................... 4,019.8 3,348.8 2,924.1 -------- -------- -------- (Loss)/income from continuing operations before income taxes ........................ (312.4) (88.0) 29.2 (Benefit from)/provision for income taxes (Note 6) .................................. (115.8) (46.6) 10.1 -------- -------- -------- (Loss)/income from continuing operations ............................................ (196.6) (41.4) 19.1 (Loss)/income from discontinued operations (Note 7) ................................. (129.3) 124.7 6.9 -------- -------- -------- Net (loss)/income ................................................................... $ (325.9) $ 83.3 $ 26.0 ======== ======== ======== (Loss)/earnings per share: Continuing operations ........................................................... $ (2.05) $ (.45) $ .20 Net (loss)/earnings ............................................................. $ (3.40) $ .88 $ .28 Fully diluted (loss)/earnings per share: Continuing operations ........................................................... $ - (1)$ - (1)$ .20 Net (loss)/earnings ............................................................. $ - (1)$ .88 $ .28 - -------------------------------------------------------------------------------------------------------------------
The Notes to Consolidated Financial Statements, pages F-8 to F-25, are integral parts of these statements. (1) Not presented as the effect is anti-dilutive. F-4 51 CONSOLIDATED STATEMENT OF CASH FLOWS - --------------------------------------------------------------------------------
Dollars in millions 1995 1994 1993 - --------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES (Loss)/income from continuing operations before income taxes ...................... $ (312.4) $ (88.0) $ 29.2 Reconciliation to cash provided by operating activities: Depreciation and amortization ................................................. 186.3 165.0 153.5 Provision relating to asbestos-related liabilities and insurance coverage ..... 275.0 316.0 159.0 Noncash charge relating to restructuring costs and asset impairments .......... 159.9 -- -- Changes in assets and liabilities, excluding effect of businesses acquired/divested and foreign exchange: Increase in notes and accounts receivable, net ............................ (44.7) (159.5) (103.2) Increase in inventories ................................................... (62.1) (43.4) (50.5) Net (payments for)/proceeds from settlements of interest rate agreements .. -- (4.0) 67.9 Proceeds from asbestos-related insurance settlements ...................... 257.3 138.6 74.6 Payments made for asbestos-related litigation settlements, judgments and defense costs ............................................................ (160.3) (198.6) (177.7) (Decrease)/increase in accounts payable ................................... (48.3) 10.3 50.1 Other ..................................................................... (21.0) 74.5 (173.9) -------- ------- ------- Net pretax cash provided by operating activities of continuing operations ......... 229.7 210.9 29.0 Net pretax cash provided by operating activities of discontinued operations ....... 114.2 328.6 316.8 -------- ------- ------- Net pretax cash provided by operating activities .................................. 343.9 539.5 345.8 Income taxes paid ................................................................. (236.9) (86.0) (102.7) -------- ------- ------- Net cash provided by operating activities ......................................... 107.0 453.5 243.1 -------- ------- ------- INVESTING ACTIVITIES (1) Capital expenditures .............................................................. (537.6) (444.6) (309.6) Businesses acquired in purchase transactions, net of cash acquired and debt assumed (37.4) (276.9) (306.6) Increase in net assets of discontinued operations ................................. (295.2) (32.9) (43.1) Net proceeds from divestments ..................................................... 56.7 583.9 464.8 Net proceeds from sale/leaseback transactions ..................................... -- -- 27.2 Proceeds from disposals of assets ................................................. 17.9 34.0 15.4 Other ............................................................................. (6.0) 34.9 -- -------- ------- ------- Net cash used for investing activities ............................................ (801.6) (101.6) (151.9) -------- ------- ------- FINANCING ACTIVITIES (2) Dividends paid .................................................................... (112.6) (132.0) (128.4) Repayments of borrowings having original maturities in excess of three months ..... (68.1) (141.2) (512.6) Increase in borrowings having original maturities in excess of three months ....... 148.5 535.1 373.0 Net increase in/(repayments of) borrowings having original maturities of less than three months. ....................................................... 414.9 (605.8) 155.7 Stock options exercised ........................................................... 164.1 20.9 21.0 Increase/(decrease) in net financing activities of discontinued operations ........ 120.8 .2 (15.5) Other ............................................................................. (11.9) -- .9 -------- ------- ------- Net cash provided by/(used for) financing activities .............................. 655.7 (322.8) (105.9) -------- ------- ------- Effect of exchange rate changes on cash and cash equivalents ...................... 1.2 1.6 (.5) -------- ------- ------- (Decrease)/increase in cash and cash equivalents .................................. (37.7) 30.7 (15.2) -------- ------- ------- Cash and cash equivalents, beginning of year ...................................... 78.3 47.6 62.8 -------- ------- ------- Cash and cash equivalents, end of year ............................................ $ 40.6 $ 78.3 $ 47.6 ======== ======= ======= - ---------------------------------------------------------------------------------------------------------------
The Notes to Consolidated Financial Statements, pages F-8 to F-25, are integral parts of these statements. (1) See Note 3 to the Consolidated Financial Statements for supplemental information relating to noncash investing activities. (2) See Notes 3 and 10 to the Consolidated Financial Statements for supplemental information relating to noncash financing activities. F-5 52 CONSOLIDATED BALANCE SHEET
- ------------------------------------------------------------------------------------------- Dollars in millions, except par value December 31, 1995 1994 - ------------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash and cash equivalents ............................................. $ 40.6 $ 78.3 Notes and accounts receivable, net (Note 8) ........................... 596.8 975.7 Inventories (Note 8) .................................................. 491.9 514.2 Net assets of discontinued operations (Note 7) ........................ 323.7 335.6 Deferred income taxes ................................................. 206.1 295.4 Other current assets .................................................. 22.2 29.7 -------- -------- TOTAL CURRENT ASSETS ............................................... 1,681.3 2,228.9 Properties and equipment, net (Note 9) ................................ 1,736.1 1,730.1 Goodwill, less accumulated amortization of $20.6 (1994 - $71.8) ....... 111.8 672.5 Net assets of discontinued operations - health care (Note 7) .......... 1,435.3 -- Asbestos-related insurance receivable (Note 2) ........................ 321.2 512.6 Deferred income taxes ................................................. 386.6 115.7 Other assets (Note 8) ................................................. 625.3 970.8 -------- -------- TOTAL ASSETS ....................................................... $6,297.6 $6,230.6 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Short-term debt (Note 10) ............................................. $ 638.3 $ 430.9 Accounts payable ...................................................... 339.2 433.7 Income taxes .......................................................... 103.3 197.0 Other current liabilities ............................................. 836.4 872.9 Minority interest (Note 13) ........................................... 297.0 297.0 -------- -------- TOTAL CURRENT LIABILITIES .......................................... 2,214.2 2,231.5 Long-term debt (Note 10) .............................................. 1,295.5 1,098.8 Other liabilities ..................................................... 789.0 690.9 Deferred income taxes ................................................. 44.8 92.5 Noncurrent liability for asbestos-related litigation (Note 2) ......... 722.3 612.4 -------- -------- TOTAL LIABILITIES .................................................. 5,065.8 4,726.1 -------- -------- COMMITMENTS AND CONTINGENCIES (Notes 2, 7, 10 and 12) SHAREHOLDERS' EQUITY (Note 14) Preferred stocks, $100 par value ...................................... 7.4 7.4 Common stock, $1 par value; 300,000,000 shares authorized; outstanding at December 31: 1995 - 97,375,000; 1994 - 94,083,000 .. 97.4 94.1 Paid in capital ....................................................... 459.8 308.8 Retained earnings ..................................................... 709.0 1,147.5 Cumulative translation adjustments .................................... (39.4) (53.3) Treasury stock, 53,000 common shares, at cost ......................... (2.4) -- -------- -------- TOTAL SHAREHOLDERS' EQUITY ......................................... 1,231.8 1,504.5 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ......................... $6,297.6 $6,230.6 ======== ======== - -------------------------------------------------------------------------------------------
The Notes to Consolidated Financial Statements, pages F-8 to F-25, are integral parts of these statements. F-6 53
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY - ------------------------------------------------------------------------------------------------------ Dollars in millions 1995 1994 1993 - ------------------------------------------------------------------------------------------------------ PREFERRED STOCKS Balance, beginning of year ............................................ $ 7.4 $ 7.4 $ 7.5 Other ................................................................. -- -- (.1) --------- -------- -------- Balance, end of year .................................................. 7.4 7.4 7.4 --------- -------- -------- COMMON STOCK Balance, beginning of year ............................................ 94.1 93.5 89.9 Conversion of notes and debentures .................................... -- -- 2.8 Stock options and awards .............................................. 3.3 .6 .7 Acquisition ........................................................... -- -- .1 --------- -------- -------- Balance, end of year .................................................. 97.4 94.1 93.5 --------- -------- -------- PAID IN CAPITAL Balance, beginning of year ............................................ 308.8 287.8 151.4 Conversion of notes and debentures .................................... -- -- 109.7 Stock options and awards .............................................. 151.1 20.5 22.9 Acquisition ........................................................... -- -- 3.7 Other ................................................................. (.1) .5 .1 --------- -------- -------- Balance, end of year .................................................. 459.8 308.8 287.8 --------- -------- -------- RETAINED EARNINGS Balance, beginning of year ............................................ 1,147.5 1,196.2 1,298.6 Net (loss)/income ..................................................... (325.9) 83.3 26.0 Dividends paid ........................................................ (112.6) (132.0) (128.4) --------- -------- -------- Balance, end of year .................................................. 709.0 1,147.5 1,196.2 --------- -------- -------- CUMULATIVE TRANSLATION ADJUSTMENTS Balance, beginning of year ............................................ (53.3) (67.3) (2.4) Translation adjustments ............................................... 13.9 14.0 (64.9) --------- -------- -------- Balance, end of year .................................................. (39.4) (53.3) (67.3) --------- -------- -------- TREASURY STOCK Balance, beginning of year ............................................ -- -- -- Purchases of common stock ............................................. (12.1) -- -- Shares issued under stock option plans ................................ 9.7 -- -- --------- -------- -------- Balance, end of year .................................................. (2.4) -- -- --------- -------- -------- TOTAL SHAREHOLDERS' EQUITY ............................................ $1,231.8 $1,504.5 $1,517.6 ======== ======== ======== - ------------------------------------------------------------------------------------------------------
The Notes to Consolidated Financial Statements, pages F-8 to F-25, are integral parts of these statements. F-7 54 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Dollars in millions, except per share amounts - -------------------------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING AND FINANCIAL REPORTING POLICIES - -------------------------------------------------------------------------------- W. R. Grace & Co., through its subsidiaries, is primarily engaged in the packaging and specialty chemicals businesses on a worldwide basis. W. R. Grace & Co. has classified its other businesses as discontinued operations, the most significant of which are its health care and cocoa businesses. As used in these notes to the consolidated financial statements, the term "Company" refers to W. R. Grace & Co., a New York corporation, and the term "Grace" refers to the Company and/or one or more of its subsidiaries. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Grace and majority-owned companies. Intercompany transactions and balances are eliminated in consolidation. Investments in affiliated companies (20%-50% owned) are accounted for under the equity method. RECLASSIFICATIONS Certain amounts in the prior years' consolidated financial statements and related notes have been reclassified to conform to the current year's presentation and as required with respect to discontinued operations. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities (including disclosed amounts of contingent assets and liabilities) at the date of the consolidated financial statements and the reported revenues and expenses during the reporting period. Actual amounts could differ from those estimates. CASH EQUIVALENTS Cash equivalents consist of highly liquid instruments with maturities of three months or less when purchased. The recorded amounts approximate fair value because of the short maturities of these investments. INVENTORIES Inventories are stated at the lower of cost or market. The methods used to determine cost include first-in/first-out and, for substantially all U.S. chemical inventories, last-in/first-out. Market values for raw and packaging materials are based on current cost and, for other inventory classifications, on net realizable value. PROPERTIES AND EQUIPMENT Properties and equipment are stated at the lower of cost or net realizable value. Depreciation of properties and equipment is generally computed using the straight-line method over the estimated useful lives of the assets. Interest is capitalized in connection with major project expenditures and amortized, generally on a straight-line basis, over the estimated useful lives of the assets. Fully depreciated assets are retained in properties and equipment and related accumulated depreciation accounts until they are removed from service. In the case of disposals, assets and related depreciation are removed from the accounts and the net amount, less any proceeds from disposal, is charged or credited to income. GOODWILL Goodwill arises from certain purchase transactions and is amortized using the straight-line method over appropriate periods not exceeding 40 years. IMPAIRMENT Grace has adopted Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." In accordance with this Statement, Grace reviews long-lived assets and related goodwill for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable. INCOME TAXES Grace uses an asset and liability approach for the accounting and financial reporting of income taxes. FOREIGN CURRENCY TRANSLATION Foreign currency transactions and financial statements (except for those relating to countries with highly inflationary economies) are translated into U.S. dollars at current exchange rates, except that revenues, costs and expenses are translated at average exchange rates during each reporting period. The financial statements of subsidiaries located in countries with highly inflationary economies must be remeasured as if the functional currency were the U.S. dollar. The remeasurement creates translation adjustments that are reflected in net income. Allocations for income taxes included in the translation adjustments account in shareholders' equity were not significant. F-8 55 FINANCIAL INSTRUMENTS Grace enters into interest rate agreements and foreign exchange forward and option contracts to manage exposure to fluctuations in interest and foreign currency exchange rates. The cash differentials paid or received on interest rate agreements are accrued and recognized as adjustments to interest expense. Gains and losses realized upon settlement of these agreements (recorded as other liabilities and other assets, respectively) are deferred and either amortized to interest expense over a period relevant to the agreement if the underlying hedged instrument remains outstanding, or recognized immediately if the underlying hedged instrument is settled. Cash flows related to the agreements are classified as operating activities in the Consolidated Statement of Cash Flows, consistent with the interest payments on the underlying debt. Gains and losses on foreign currency forward and option contracts offset gains and losses resulting from the underlying transactions. Gains and losses on contracts that hedge specific foreign currency commitments are deferred and recorded in net income in the period in which the related transaction is consummated. Gains and losses on contracts that hedge net investments in foreign subsidiaries are recorded in the cumulative translation adjustments account in shareholders' equity. EARNINGS PER SHARE Primary earnings per share are computed on the basis of the weighted average number of common shares outstanding. Fully diluted earnings per share assume the issuance of common stock equivalents related to employee stock options and, prior to 1994, the conversion of convertible debt (with an increase in net income for the after-tax interest savings). - ------------------------------------------------------------------------------- 2. ASBESTOS AND RELATED INSURANCE LITIGATION - ------------------------------------------------------------------------------- Grace is a defendant in lawsuits relating to previously sold asbestos-containing products and anticipates that it will be named as a defendant in additional asbestos-related lawsuits in the future. Grace was a defendant in approximately 40,800 asbestos-related lawsuits at December 31, 1995 (47 involving claims for property damage and the remainder involving approximately 92,400 claims for personal injury), as compared to approximately 38,700 lawsuits at December 31, 1994 (65 involving claims for property damage and the remainder involving approximately 67,900 claims for personal injury). PROPERTY DAMAGE LITIGATION The plaintiffs in property damage lawsuits generally seek, among other things, to have the defendants absorb the cost of removing, containing or repairing the asbestos-containing materials in the affected buildings. Through December 31, 1995, 129 asbestos property damage cases were dismissed with respect to Grace without payment of any damages or settlement amounts; judgments were entered in favor of Grace in 10 cases (excluding cases settled following appeals of judgments in favor of Grace and a case in which the plaintiff was granted a new trial on appeal); Grace was held liable for a total of $74.7 in 7 cases (2 of which are on appeal); and 177 property damage suits and claims were settled for a total of $421.8. Included in the asbestos property damage lawsuits pending against Grace and others at year-end 1995 was a class action, conditionally certified by the U.S. Court of Appeals for the Fourth Circuit in 1993 and pending in a U.S. District Court in South Carolina, covering all public and private colleges and universities in the U.S. whose buildings contain asbestos materials. In July 1994, a South Carolina state court judge dismissed the claims of most class members from another purported nationwide class action asbestos property damage lawsuit. In his ruling, the judge held that a South Carolina statute prohibits nonresidents from pursuing claims in the South Carolina state courts with respect to buildings located outside the state. The plaintiffs have requested that the court reconsider its decision. In December 1995, Grace entered into an agreement to settle a Pennsylvania state court action, certified as a class action in 1992, covering all commercial buildings in the U.S. leased in whole or in part to the U.S. government on or after May 30, 1986. The terms of the settlement agreement (which is subject to judicial review and approval after class members have an opportunity to be heard) are not expected to have a significant effect on Grace's consolidated results of operations or financial position. PERSONAL INJURY LITIGATION Through December 31, 1995, approximately 10,100 asbestos personal injury lawsuits involving 24,500 claims were dismissed with respect to Grace without payment of any damages or settlement amounts (primarily on the basis that Grace products were not involved), and approximately 23,700 such suits involving 29,600 claims were disposed of for a total of $109.0. ASBESTOS-RELATED LIABILITY Subject to the factors discussed below, Grace estimates that its probable liability with respect to the defense and disposition of asbestos property damage and personal injury lawsuits and claims pending at December 31, 1995 and 1994 (and, in the case of the 1995 estimate, personal injury lawsuits and claims expected to be filed through 1998), is as follows: F-9 56
- ------------------------------------------------------------------------------- December 31, 1995 1994 - ------------------------------------------------------------------------------- Current liability for asbestos-related litigation (1) .. $100.0 $100.0 Noncurrent liability for asbestos-related litigation ... 722.3 612.4 ------ ------ Total asbestos-related liability ..................... $822.3 $712.4 - --------------------------------------------------------------------------------
(1) Included in "Other current liabilities" in the Consolidated Balance Sheet. In the fourth quarter of 1995, Grace recorded a noncash pretax charge of $260.0 ($169.0 after-tax) for asbestos-related liabilities, primarily to reflect the estimated costs to defend against and dispose of personal injury claims expected to be filed through 1998; Grace believes that it now has adequate experience to reasonably estimate the number of personal injury claims to be filed through 1998 and the costs of defending against and disposing of these claims. Other components of the 1995 provision include increases in the estimated costs of defending against and disposing of certain property damage cases pending at year-end 1995 and personal injury lawsuits and claims filed during 1995. While personal injury cases and claims are generally similar to each other (differing only in the type of asbestos-related illness allegedly suffered by the plaintiff), Grace's estimated liability for such cases and claims is influenced by numerous variables that are difficult to predict (including the insolvency of other former asbestos producers, cross-claims by co-defendants, the rate at which new cases and claims are filed and the defense and disposition costs associated with these cases and claims). Consequently, actual costs may vary from any estimate. For these reasons, Grace believes that it is not possible to reasonably estimate the number of cases and claims to be filed after 1998 or the costs of defending against and disposing of such cases and claims. Each property damage case is unique in that the age, type, size and use of the building, and the difficulty of asbestos abatement, if necessary, vary from structure to structure; thus, the amounts involved in prior dispositions of property damage cases are not necessarily indicative of the amounts that may be required to dispose of such cases in the future. In addition, in property damage cases, information regarding product identification on a building-by-building basis (i.e., whether or not Grace products were actually used in the construction of the building), the age, type, size and use of the building, the jurisdictional history of prior cases and the court in which the case is pending provide the only meaningful guidance as to potential future costs. However, much of this information is not yet available in some of the property damage cases currently pending against Grace. Accordingly, it is not possible to estimate with precision the costs of defending against and disposing of these cases. Further, Grace believes that the number of property damage cases to be filed in the future and the costs associated with these filings are not estimable. ASBESTOS-RELATED INSURANCE RECEIVABLE Grace's ultimate exposure with respect to its asbestos-related lawsuits and claims will depend on the extent to which its insurance will cover damages for which it may be held liable, amounts paid in settlement and litigation costs. The following table shows Grace's total estimated insurance recoveries in reimbursement for past and estimated future payments to defend against and dispose of asbestos-related litigation and claims:
- -------------------------------------------------------------------------------------------------------------- December 31, 1995 1994 - -------------------------------------------------------------------------------------------------------------- Notes receivable from insurance carriers - current, net of discounts of $4.3 in 1995 (1) ..... $ 62.0 $127.0 Notes receivable from insurance carriers - noncurrent, net of discounts of $7.3 in 1995 (2) .. 56.4 60.0 Asbestos-related insurance receivable ........................................................ 321.2 512.6 ------ ------ Total amounts due from insurance carriers ................................................ $439.6 $699.6 ====== ====== - --------------------------------------------------------------------------------------------------------------
(1) Included in "Notes and accounts receivable, net" in the Consolidated Balance Sheet. (2) Included in "Other assets" in the Consolidated Balance Sheet. At December 31, 1995, settlements with certain insurance carriers provided for the future receipt by Grace of $130.0, which Grace has recorded as notes receivable (both current and noncurrent) of $118.4, after discounts. In 1995, Grace received a total of $257.3 pursuant to settlements with insurance carriers in reimbursement for monies previously expended by Grace in connection with asbestos-related litigation; of this amount, $127.0 was received pursuant to settlements entered into in 1993 and 1994, which had previously been classified as notes receivable. During 1995, Grace settled with an affiliated group of carriers that had agreed to a settlement in 1993, had made a series of payments under that agreement and had subsequently notified Grace that it would no longer honor the agreement. Pursuant to the 1995 settlement, the group of carriers paid Grace $44.0 in 1995 and agreed to make additional payments totalling $60.2 in 1996 and 1997 (which Grace has recorded as notes receivable, after discounts, of $54.5). Pursuant to a settlement with another group of carriers, Grace received $26.8 in 1995 and expects to receive an additional payment of $9.7 in 1996. Under both settlements, Grace will continue to receive payments based on future cash outflows for asbestos-related litigation and claims; such payments are estimated to represent approximately $237.3 of the asbestos-related receivable of $321.2 at December 31, 1995. F-10 57 As a result of these settlements and a reassessment of its insurance receivable, Grace recorded a noncash net pretax charge of $15.0 ($9.7 after-tax) during the fourth quarter of 1995 to reflect a reduction in the receivable, primarily due to lower than anticipated settlements with insurance carriers and a discount on notes receivable in connection with prior settlements, partially offset by an increase in expected future reimbursements of costs to defend against and dispose of property damage cases pending at year-end 1995 and personal injury claims to be filed through 1998. INSURANCE LITIGATION Grace continues to seek to recover from its excess insurers the balance of the payments it has made with respect to asbestos-related litigation. As part of this effort, Grace continues to be involved in litigation with certain of its insurance carriers (having previously settled with certain primary and excess carriers, as discussed above). For the period October 1962 through June 1985 -- the most relevant period for asbestos-related litigation -- Grace purchased, on an annual basis, as much as eight levels of excess insurance coverage. (In general, excess policies provide that when claims paid exhaust coverage at one level, the insured may seek payment from the carriers at the next higher level.) For that 23-year period, the first six levels of excess insurance available from the insurance companies that Grace believes to be solvent (based primarily upon reports from a leading independent insurance rating service) provide nominal coverage of approximately $1,200.0 (including the amounts reflected in the receivable discussed above). However, (a) a portion of the personal injury lawsuits and claims pending at year-end 1995 and expected to be filed against Grace through 1998 will likely relate to periods for which no excess coverage is available; and (b) even where such excess coverage is available, the number of personal injury lawsuits and claims expected to be filed against Grace in the future is not expected to be sufficient to result in significant payments under such coverage. Further, as a result of the May 1994 decision of the U.S. Court of Appeals for the Second Circuit, discussed below, a significant portion of the nominal excess coverage is not available in connection with property damage lawsuits. In addition, $142.0 of the $1,200.0 relates to excess coverage written by a group of insurance carriers that, while currently solvent, has experienced financial difficulties in recent years. This group of carriers settled with Grace in 1995 (as discussed above). The asbestos-related receivable of $321.2 at December 31, 1995 includes $54.7 to be paid by this group; management believes this amount is fully collectible. As previously reported, in September 1993 the U.S. Court of Appeals for the Second Circuit ruled that, under New York law (which governs a significant portion of the policies that provide Grace's asbestos-related insurance coverage), such coverage is triggered based on the date of installation of asbestos-containing materials. As a result of this decision (which had the effect of reducing the amount of insurance coverage available to Grace with respect to asbestos property damage litigation and claims), Grace recorded a noncash pretax charge of $475.0 ($300.0 after-tax) in the 1993 third quarter. Grace reversed $316.0 ($200.0 after-tax) of the pretax charge in the 1993 fourth quarter after the court withdrew its September 1993 decision and agreed to rehear the case, but reinstated the $316.0 pretax charge ($200.0 after-tax) in the second quarter of 1994, when the court issued a new decision confirming its September 1993 decision. Because Grace's insurance covers both property damage and personal injury lawsuits and claims, the May 1994 decision has had the concomitant effect of reducing the insurance coverage available with respect to Grace's asbestos personal injury lawsuits and claims. However, in Grace's opinion, it is probable that recoveries from its insurance carriers (including amounts reflected in the receivable discussed above), along with other funds, will be available to satisfy the personal injury and property damage lawsuits and claims pending at December 31, 1995, as well as personal injury lawsuits and claims expected to be filed through 1998. Consequently, Grace believes that the resolution of its asbestos-related litigation will not have a material adverse effect on its consolidated results of operations or financial position. - ------------------------------------------------------------------------------- 3. ACQUISITIONS AND DIVESTMENTS - ------------------------------------------------------------------------------- ACQUISITIONS During 1995, Grace made acquisitions totalling $260.8 (inclusive of cash acquired and debt assumed), all of which involved cash purchases of kidney dialysis centers and medical imaging facilities by National Medical Care, Inc. (NMC), Grace's principal health care subsidiary. Acquisitions in the first quarter of 1995, prior to the classification of NMC as a discontinued operation (see Note 7), totalled $41.1 (inclusive of cash acquired and debt assumed). Acquisitions by NMC subsequent to the first quarter of 1995 are presented as an investing activity and are included in "Increase in net assets of discontinued operations" in the Consolidated Statement of Cash Flows. In 1994, Grace made acquisitions totalling $351.7 (inclusive of cash acquired and debt assumed), primarily in health care. Grace acquired Home Nutritional Services, Inc. for approximately $131.8 (inclusive of cash and assumed debt totalling $30.4) and acquired kidney dialysis centers and other health care businesses during 1994 for an aggregate of approximately $145.3 in cash. 1994 acquisitions also included construction chemicals businesses and a European flexible packaging business. In 1993, Grace acquired Home Intensive Care, Inc. for approximately $129.0 in cash and acquired other health care businesses for an aggregate of $115.0 in cash and $3.8 in common stock. Additionally, during 1993 Grace acquired Latin America's largest water treatment business for approximately $57.6 in cash. F-11 58 DIVESTMENTS During 1995, Grace realized gross proceeds of $58.8 (inclusive of debt assumed by the buyers) from divestments, including payments received in connection with divestments completed in prior years. The operations divested in 1995 consisted of three small units of Grace's construction products business, the composite materials business (previously classified as a discontinued operation), Grace's transportation services business and various investments. In 1994, Grace realized gross proceeds of $646.2 (inclusive of debt assumed by the buyers) from divestments, including payments received in connection with divestments completed in prior years. Substantially all of the businesses divested during 1994 had previously been classified as discontinued operations. Divestment proceeds received in 1994 included $42.8 for Grace's remaining interest in The Restaurant Enterprises Group, Inc. (REG). In 1993, Grace completed the sale of substantially all of its oil and gas operations, as well as certain corporate investments, all of which had previously been classified as discontinued operations. Other noncore businesses divested during 1993 included a 50% interest in a Japanese chemical operation and a food industry hygiene services business for approximately $31.4 and $11.2, respectively. See Note 7 for a discussion of divestment activity related to discontinued operations. - ------------------------------------------------------------------------------- 4. OTHER INCOME - -------------------------------------------------------------------------------
1995 1994 1993 - ------------------------------------------------------------------------------- Interest income ............................. $15.8 $1.3 $22.6 Equity in earnings of affiliated companies .. .2 2.1 .6 Gains on sales of investments ............... 3.1 27.3 22.9 Other, net .................................. 22.8 11.9 11.7 ----- ----- ----- $41.9 $42.6 $57.8 ===== ===== ===== - -------------------------------------------------------------------------------
Interest income in 1995 and 1993 includes $9.8 and $20.0, respectively, relating to the settlement of prior years' Federal income tax returns. Gains on sales of investments include a 1994 gain of $27.0 on the sale of Grace's remaining interest in REG and a 1993 gain of $21.7 on the sale of a 50% interest in a Japanese chemical operation (see Note 3). Other, net in 1995 includes a $5.4 gain on the sale of Grace's transportation services business. - ------------------------------------------------------------------------------- 5. RESTRUCTURING COSTS AND ASSET IMPAIRMENTS - ------------------------------------------------------------------------------- RESTRUCTURING COSTS During the third quarter of 1995, Grace began implementing a worldwide restructuring program aimed at streamlining processes and reducing general and administrative expenses, factory administration costs and noncore corporate research and development expenses. The program is expected to be substantially completed by the end of 1996. In the third and fourth quarters of 1995, Grace recorded pretax charges totalling $44.3 and $91.7 ($27.2 and $61.9 after-tax), respectively, comprised of $77.4 for employee termination benefits; $13.4 for plant closure and related costs, including lease termination costs; $15.5 for prior business exits and related costs; $20.8 for asset writedowns; and $8.9 for other costs. The $77.4 for employee termination benefits primarily represents severance pay and other benefits associated with the elimination of approximately 1,000 positions worldwide; more than 50% of the total cost reductions will come from corporate staff functions worldwide. Through December 31, 1995, Grace recorded approximately $25.4 in costs against its 1995 restructuring reserve, of which $19.6 represented cash expenditures and $5.8 represented the noncash effects of asset writedowns and losses on asset sales. The $19.6 of cash expenditures were comprised of $13.0 in partial payments of employee termination benefits for over 500 employees, $3.0 for consulting services to develop the restructuring program, and $3.6 of other costs. ASSET IMPAIRMENTS During 1995, Grace determined that, due to various events and changes in circumstances (including the worldwide restructuring program described above), certain long-lived assets and related goodwill were impaired. As a result, in the fourth quarter of 1995, Grace recorded a $43.5 pretax charge ($29.0 after-tax), the majority of which related to assets that will continue to be held and used in Grace's continuing operations; the charge included no significant individual components. Grace determined the amount of the charge based on various valuation techniques, including discounted cash flow, replacement cost and net realizable value for assets to be disposed of. F-12 59 - -------------------------------------------------------------------------------- 6. INCOME TAXES - -------------------------------------------------------------------------------- Grace applies SFAS No. 109, "Accounting for Income Taxes," which uses an asset and liability approach requiring the recognition of deferred tax assets and liabilities with respect to the expected future tax consequences of events that have been recorded in the consolidated financial statements and tax returns. If it is more likely than not that all or a portion of a deferred tax asset will not be realized, a valuation allowance must be recognized. The components of (loss)/income from continuing operations before income taxes and the related (benefit from)/provision for domestic and foreign taxes are as follows:
- --------------------------------------------------------------------------- 1995 1994 1993 - --------------------------------------------------------------------------- Domestic ................................ $ (424.0) $ (181.7) $ (70.5) Foreign ................................. 111.6 93.7 99.7 -------- --------- ------- $ (312.4) $ (88.0) $ 29.2 ======== ========= ======= Federal income taxes: Current ................................ $ 34.3 $ (80.9) $ (.6) Deferred ............................... (160.0) (6.4) (30.5) State and local income taxes - current .. .7 1.9 3.0 Foreign income taxes: Current ................................ 61.0 44.0 39.8 Deferred ............................... (51.8) (5.2) (1.6) -------- --------- ------- $ (115.8) $ (46.6) $ 10.1 ======== ========= ======= - ---------------------------------------------------------------------------
The components of (loss)/income from consolidated operations before income taxes and the related (benefit from)/provision for domestic and foreign taxes are as follows:
- ---------------------------------------------------------------------------------------------------------------- 1995 1994 1993 - ---------------------------------------------------------------------------------------------------------------- Domestic ............................................................................ $ (480.5) $ 44.3 $ (4.6) Foreign ............................................................................. 72.7 94.8 95.9 -------- ------ ------- $ (407.8) $139.1 $ 91.3 ======== ====== ======= Federal income taxes: Current ......................................................................... $ 105.6 $ 25.3 $ 114.9 Deferred ........................................................................ (226.3) (34.8) (147.4) State and local income taxes - current .............................................. 21.7 21.8 32.7 Foreign income taxes: Current ......................................................................... 68.5 49.1 44.4 Deferred ........................................................................ (51.4) (5.6) 20.7 -------- ------ ------- $ (81.9) $ 55.8 $ 65.3 ======== ====== ======= - ----------------------------------------------------------------------------------------------------------------
The components of consolidated (benefit from)/provision for taxes are as follows:
- ---------------------------------------------------------------------------------------------------------------- 1995 1994 1993 - ---------------------------------------------------------------------------------------------------------------- Continuing operations ............................................................ $ (115.8) $(46.6) $ 10.1 Discontinued operations: Operations .................................................................... 82.6 102.4 77.5 Loss on disposals of operations................................................ (48.7) -- (22.3) -------- ------ ------- $ (81.9) $ 55.8 $ 65.3 ======== ====== ======= - ----------------------------------------------------------------------------------------------------------------
F-13 60 At December 31, 1995 and 1994, deferred tax assets and liabilities consisted of the following items:
- ----------------------------------------------------------------------------------------------------------------------- 1995 1994 - ----------------------------------------------------------------------------------------------------------------------- Reserves not yet deductible for tax purposes ...................................................... $223.6 $254.4 Provision relating to net asbestos-related expenses ............................................... 219.4 36.2 Research and development expenses ................................................................. 115.8 107.3 Postretirement benefits other than pensions ....................................................... 88.9 93.3 State deferred taxes .............................................................................. 70.1 37.5 Pension and insurance reserves .................................................................... 35.2 14.8 Capitalized inventory costs and inventory reserves ................................................ 11.9 15.3 Net operating loss carryforwards .................................................................. 47.1 54.4 Tax credit carryforwards .......................................................................... 27.2 49.0 Other ............................................................................................. 43.9 54.4 ------ ------ Total deferred tax assets ..................................................................... 883.1 716.6 ------ ------ Depreciation and amortization ..................................................................... 112.6 167.4 Prepaid pension cost .............................................................................. 104.8 72.3 Other ............................................................................................. 20.1 21.3 ------ ------ Total deferred tax liabilities ................................................................ 237.5 261.0 ------ ------ Valuation allowance for deferred tax assets ....................................................... 97.7 137.0 ------ ------ Net deferred tax assets ....................................................................... $547.9 $318.6 ====== ======
The valuation allowance shown above arises from uncertainty as to the realization of certain deferred tax assets, including U.S. tax credit carryforwards, state and local net operating loss carryforwards and net deferred tax assets. As a result of the favorable resolution of an audit, the valuation allowance on net operating loss carryforwards in foreign jurisdictions was reversed in 1995. Based upon anticipated future results, Grace has concluded, after consideration of the valuation allowance, that it is more likely than not that the remaining balance of the net deferred tax assets will be realized. At December 31, 1995, there were $25.3 of tax credit carryforwards with expiration dates primarily through 1996 and $1.9 of tax credit carryforwards with no expiration. Additionally, there were state and local and foreign net operating loss carryforwards with a tax benefit of $47.1 and various expiration dates. The U.S. Federal corporate tax rate reconciles to the effective tax rate for continuing operations as follows:
- -------------------------------------------------------------------------------------------------- 1995 1994 1993 - -------------------------------------------------------------------------------------------------- U.S. Federal corporate tax rate ........................................ (35.0)% (35.0)% 35.0% Increase/(decrease) in tax rate resulting from: Nontaxable income/nondeductible expenses .............................. (.7) (1.4) (29.5) Basis difference on sale of investment ................................ -- (10.5) -- State and local income taxes, net of U.S. Federal income tax benefit .. .2 1.5 6.8 U.S. and foreign taxes on foreign operations .......................... 9.8 .3 75.0 Utilization of general business credits ............................... (.5) (9.1) (18.5) Impact of U.S. and foreign tax rate changes on deferred taxes ......... -- -- (25.2) Valuation allowance for deferred tax assets ........................... (14.4) -- (2.8) Other, net ............................................................ 3.5 1.2 (6.2) ------- ------- ------ Effective tax rate ..................................................... (37.1)% (53.0)% 34.6% ======= ======= ====== - --------------------------------------------------------------------------------------------------
U.S. and foreign taxes have not been provided on approximately $256.1 of undistributed earnings of certain foreign subsidiaries, as such earnings are expected to be retained indefinitely by such subsidiaries for reinvestment. The distribution of these earnings would result in additional foreign withholding taxes of approximately $14.9 and additional U.S. Federal income taxes to the extent they are not offset by foreign tax credits. It is not practicable to estimate the total tax liability that would be incurred upon such a distribution. F-14 61 - -------------------------------------------------------------------------------- 7. DISCONTINUED OPERATIONS - -------------------------------------------------------------------------------- HEALTH CARE In June 1995, the Company announced that its Board of Directors had approved a plan to spin off NMC. As a result, Grace classified its health care business as a discontinued operation in the second quarter of 1995 and, accordingly, NMC's operations are included in "(Loss)/income from discontinued operations" in the Consolidated Statement of Operations. Following NMC's receipt in October 1995 of five investigative subpoenas from the Office of the Inspector General of the U.S. Department of Health and Human Services (OIG), as discussed below, the completion of the spin-off of NMC, originally expected in the 1995 fourth quarter, was delayed. In February 1996, Grace and Fresenius AG (Fresenius) entered into a definitive agreement to combine NMC with Fresenius' worldwide dialysis business (FWD) to create Fresenius Medical Care (FMC). As a result of the combination, FMC would acquire NMC, which would remain responsible for all liabilities arising out of the investigations, discussed below. However, Grace would retain certain health care assets, primarily a bioseparation sciences business, a health care services company and other assets (including cash and marketable securities). The combination would follow a borrowing of approximately $2.3 billion by NMC, a tax-free distribution of the proceeds by NMC to Grace, and a tax-free distribution by the Company, with respect to each share of its Common Stock, of one share of a newly formed corporation holding all of Grace's businesses (principally its specialty chemicals businesses) other than NMC. As a result of the separation of Grace's specialty chemicals businesses from NMC and the subsequent combination of NMC and FWD, the holders of the Company's Common Stock would own 100% of the specialty chemicals company and 44.8% of FMC, and Fresenius and other shareholders would own 55.2% of FMC. The holders of the Company's Common Stock would also own preferred stock, the value of which would be linked to the performance of FMC. Completion of the various transactions is subject to customary conditions, including the approval of the shareholders of the Company and Fresenius; U.S., German and European regulatory actions; and obtaining financing on satisfactory terms. Commitments for financing have been received, and it is expected that the various transactions will be completed by the third quarter of 1996. OIG Investigative Subpoenas In October 1995, NMC received five investigative subpoenas from the OIG. The subpoenas call for the production of extensive documents relating to various aspects of NMC's business. A letter accompanying the subpoenas stated that they had been issued in conjunction with an investigation being conducted by the OIG, the U.S. Attorney for the District of Massachusetts and others, concerning possible violations of Federal laws relating to health care payments and reimbursements. The five subpoenas cover the following areas: (a) NMC's corporate management, personnel and employees, organizational structure, financial information and internal communications; (b) NMC's dialysis services business, principally medical director contracts and compensation; (c) NMC's treatment of credit balances resulting from overpayments received under the Medicare end stage renal disease (ESRD) program and its payment of supplemental medical insurance premiums on behalf of indigent patients; (d) NMC's LifeChem laboratory business, including documents relating to testing procedures, marketing, customers, competition and certain overpayments totalling approximately $4.9 that were received by LifeChem from the Medicare program with respect to laboratory services rendered between 1989 and 1993; and (e) NMC's Homecare Division and, in particular, information concerning the intradialytic parenteral nutrition (IDPN) business described below, including billing practices related to various services, equipment and supplies and payments made to third parties as compensation for administering IDPN therapy. The results of the investigation and its impact, if any, cannot be predicted at this time. In the event that a U.S. government agency believes that any wrongdoing has occurred, civil and/or criminal proceedings could be instituted, and if any such proceedings were to be instituted and the outcome were unfavorable, NMC could be subject to fines, penalties and damages or could become excluded from government reimbursement programs. Any such result could have a material adverse effect on NMC's financial position or the results of operations of NMC and Grace. OBRA 93 The Omnibus Budget Reconciliation Act of 1993 (OBRA 93) affected the payment of benefits under Medicare and employer health plans for certain eligible ESRD patients. In July 1994, the Health Care Financing Administration (HCFA) issued an instruction to Medicare claims processors to the effect that Medicare benefits for the patients affected by OBRA 93 would be subject to a new 18-month "coordination of benefits" period. This instruction had a positive impact on NMC's dialysis revenues because, during the 18-month coordination of benefits period, the patient's employer health plan was responsible for payment, which was generally at a rate higher than that provided under Medicare. In April 1995, HCFA issued a new instruction, reversing its original instruction in a manner that would substantially diminish the positive effect of the initial instruction on NMC's dialysis business. Under the new instruction, no 18-month coordination of benefits period would arise, and Medicare would remain the primary payor. HCFA further proposed that its new instruction be effective retroactive to August 1993, the effective date of OBRA 93. Consequently, NMC may be required to refund payments F-15 62 received from employer health plans for services provided after August 1993 under HCFA's original instruction and to re-bill Medicare for the same services, which would result in a cumulative reduction of net revenues to NMC totalling approximately $120.0 as of December 31, 1995. Effective July 1, 1995, NMC ceased to recognize the incremental revenue realized under the original instruction, which has resulted in a material reduction in NMC's operating earnings in comparison to prior periods in which NMC recognized such incremental revenue. However, NMC continued to bill the employer health plans as primary payors through December 31, 1995, at which time NMC commenced billing Medicare for the patients affected by OBRA 93. In May 1995, NMC filed suit in the U.S. District Court for the District of Columbia seeking a declaratory judgment with respect to HCFA's instructions relating to OBRA 93. In June 1995, the court granted NMC's motion for a preliminary injunction to preclude HCFA from retroactively enforcing its new instruction. The litigation is continuing with respect to NMC's request to permanently enjoin HCFA's new instruction, both retroactively and prospectively. While there can be no assurance that a permanent injunction will be issued, NMC believes that it will ultimately prevail in its claim that the retroactive reversal by HCFA of its original instruction relating to OBRA 93 was impermissible under applicable law. If HCFA's revised instruction is upheld, NMC's business, financial position and results of operations would be materially adversely affected, particularly if the revised instruction is applied retroactively. IDPN Therapy NMC administers IDPN therapy to chronic dialysis patients who suffer from severe gastrointestinal malfunctions. Since late 1993, Medicare claims processors have applied medical coverage interpretations in a manner that has sharply reduced the number of IDPN claims approved for payment as compared to prior periods. NMC believes that the reduction in IDPN claims currently being paid by Medicare represents an unauthorized policy coverage change. Accordingly, NMC and other IDPN providers are pursuing various administrative and legal remedies, including administrative appeals, to address this reduction. In November 1995, NMC filed a complaint in the U.S. District Court for the Middle District of Pennsylvania seeking a declaratory judgment and injunctive relief to prevent the implementation to this policy coverage change. NMC management believes that its IDPN claims are consistent with published Medicare coverage guidelines and ultimately will be approved for payment. Such claims represent substantial accounts receivable of NMC, amounting to approximately $93.0 and $28.0 as of December 31, 1995 and 1994, respectively, and currently increasing at the rate of approximately $5.0 per month. If NMC is unable to collect its IDPN receivable, or if IDPN coverage is reduced or eliminated, depending on the amount of the receivable that is not collected and/or the nature of the coverage change, NMC's business, financial position and results of operations could be materially adversely affected. In addition, a current draft of a new coverage policy would limit or preclude continued coverage of IDPN therapy and thereby have a material adverse effect on NMC's financial position and results of operations. Other Legal Proceedings NMC has received multiple subpoenas from a Federal grand jury in the District of New Jersey investigating, among other things, NMC's efforts to persuade the U.S. Food and Drug Administration to lift a January 1991 import hold issued with respect to NMC's Dublin, Ireland facility, whether NMC sold defective products, the manner in which NMC handled customer complaints and the development of a new dialyzer product line. Grace has also received two subpoenas relating to this investigation. In February 1996, the U.S. Attorney for the District of New Jersey notified NMC that it is a target of the New Jersey grand jury investigation, insofar as it relates to possible violations of Federal criminal law in connection with efforts to affect the January 1991 import hold referred to above; the material element of the import hold was lifted in 1992. In addition, in December 1994, a subsidiary of NMC received a subpoena from a Federal grand jury in the Eastern District of Virginia investigating the contractual relationships between subsidiaries of NMC that provide dialysis services and third parties that provide medical directorship and related services to those subsidiaries. The outcome of these investigations and their impact, if any, on NMC's business, financial condition and results of operations cannot be predicted at this time. COCOA, BATTERY SEPARATORS AND ENGINEERED MATERIALS AND SYSTEMS In the second quarter of 1993, Grace classified as discontinued operations its cocoa business; its battery separators business; certain engineered materials businesses, principally its printing products, material technology and electromagnetic radiation control businesses (collectively, EMS); and other noncore businesses. At that time, a provision of $105.0 (net of an applicable tax benefit of $22.3) was recorded to reflect the losses expected on the divestment of these businesses. During the fourth quarter of 1995, Grace revised the divestment plan for its cocoa business. The revised plan focuses on the improvement of operating cash flow through the adoption of new strategies and a new global organizational structure, while simultaneously positioning the business for sale. Grace expects to implement the revised plan and to conclude the sale of its cocoa business by the fourth quarter of 1996. As a result of this revised divestment plan, recent trends and a reassessment of forecasts for all remaining discontinued operations, Grace recorded an additional provision of $151.3 (net of an applicable tax benefit of $48.7) related to its remaining discontinued operations, principally the cocoa business. F-16 63 During 1994, Grace sold its battery separators business and other EMS businesses for gross proceeds of $316.2, approximating prior estimates. In February 1995, Grace sold its composite materials business for gross proceeds of $3.0, leaving its microwave business as the only unsold EMS business. GRACE ENERGY In 1994, Grace sold substantially all of its interests in Colowyo Coal Company (Colowyo), Grace's only remaining significant energy operation, for proceeds of $218.3, including $192.8 of proceeds from a nonrecourse financing secured by a portion of the revenues from certain long-term coal contracts. Grace retained a limited partnership interest in Colowyo, entitling it to share in the revenues from these coal contracts. In 1993, Grace sold substantially all of its oil and gas operations for net cash proceeds of $386.0. The total proceeds received from these divestments approximated prior estimates. OTHER In 1994, Grace sold its animal genetics and Caribbean fertilizer operations for proceeds of $44.1. These and other businesses were classified as discontinued operations in 1993. In 1993, Grace completed the sale of its minority interests in Canonie Environmental Services Corporation and Grace-Sierra Horticultural Products Company for total proceeds of $41.3. Losses from Grace's discontinued operations, other than its discontinued health care operations, subsequent to their classification as such were $45.2, $14.2 and $54.6 in 1995, 1994 and 1993, respectively; these amounts have been charged against established reserves, including adjustments to those reserves in 1995. The sales and revenues and results of the discontinued health care operations for 1995, 1994 and 1993, and the 1993 sales and revenues and results of the other discontinued operations, prior to their classification as such, are as follows:
- ----------------------------------------------------------------------------------- 1995 1994 1993 - ----------------------------------------------------------------------------------- HEALTH CARE Sales and revenues ................................ $2,076.8 $1,875.1 $1,512.9 -------- -------- -------- Income from operations before taxes (1) ........... $ 104.6 $ 227.1 $ 192.0 Income tax provision .............................. 82.6 102.4 76.7 -------- -------- -------- Income from discontinued operations ............... $ 22.0 $ 124.7 $ 115.3 -------- -------- -------- - ----------------------------------------------------------------------------------- COCOA, BATTERY SEPARATORS AND EMS Sales and revenues ................................ $ -- $ -- $ 235.9 -------- -------- -------- Loss from operations before taxes (1) ............. $ -- $ -- $ (.9) Income tax provision .............................. -- -- (1.1) -------- -------- -------- Loss from discontinued operations ................. $ -- $ -- $ (2.0) -------- -------- -------- - ----------------------------------------------------------------------------------- OTHER Sales and revenues ................................ $ -- $ -- $ 14.4 -------- -------- -------- Loss from operations before taxes (1) ............. $ -- $ -- $ (1.7) Income tax benefit ................................ -- -- .3 -------- -------- -------- Loss from discontinued operations ................. $ -- $ -- $ (1.4) -------- -------- -------- Total operating results of discontinued operations .. $ 22.0 $ 124.7 $ 111.9 Net pretax loss on disposals of operations .......... (200.0) -- (127.3) Income tax benefit on disposals of operations ....... 48.7 -- 22.3 -------- -------- -------- Total (loss)/income from discontinued operations .... $ (129.3) $ 124.7 $ 6.9 ======== ======== ======== - -----------------------------------------------------------------------------------
(1) Reflects an allocation of interest expense based on the ratio of the net assets of the businesses classified as discontinued operations as compared to Grace's total capital. The above operating results include interest expense allocations of $93.5, $60.4 and $43.9 for 1995, 1994 and 1993, respectively. For financial reporting purposes, the assets, liabilities, results of operations and cash flows of Grace Cocoa Associates, L.P. (LP) (see Note 13) are included in Grace's consolidated financial statements as a component of discontinued operations, and the outside investors' interest in LP is reflected as a minority interest in the Consolidated Balance Sheet. F-17 64 The net assets of Grace's remaining discontinued operations (excluding intercompany assets) at December 31, 1995 are as follows:
HEALTH CARE COCOA OTHER TOTAL - ----------------------------------------------------------------------------------------- Current assets ....................................... $ 665.9 $280.4 $21.1 $ 967.4 Properties and equipment, net ........................ 399.3 193.8 21.9 615.0 Investments in and advances to affiliated companies .. -- -- 35.2 35.2 Other assets ......................................... 993.7 62.2 18.0 1,073.9 -------- ------ ----- -------- Total assets ...................................... $2,058.9 $536.4 $96.2 $2,691.5 -------- ------ ----- -------- Current liabilities .................................. $ 533.8 $193.1 $12.7 $ 739.6 Other liabilities .................................... 89.8 92.5 10.6 192.9 -------- ------ ----- -------- Total liabilities ................................. $ 623.6 $285.6 $23.3 $ 932.5 -------- ------ ----- -------- Net assets ........................................ $1,435.3 $250.8 $72.9 $1,759.0 ======== ====== ===== ======== - -----------------------------------------------------------------------------------------
8. OTHER BALANCE SHEET ITEMS
- ---------------------------------------------------------------------------------------------------------- 1995 1994 - ---------------------------------------------------------------------------------------------------------- NOTES AND ACCOUNTS RECEIVABLE Trade receivables, less allowances of $12.8 (1994 - $95.1) ............................... $488.5 $742.0 Notes receivable from insurance carriers - current, net of discounts of $4.3 in 1995 ..... 62.0 127.0 Other receivables, less allowances of $.1 (1994 - $.1) ................................... 46.3 106.7 ------ ------ $596.8 $975.7 ====== ====== - ---------------------------------------------------------------------------------------------------------- INVENTORIES Raw and packaging materials .............................................................. $137.1 $129.8 In process ............................................................................... 78.0 75.3 Finished products ........................................................................ 248.6 289.5 General merchandise ...................................................................... 76.6 62.7 Less: Adjustment of certain inventories to a last-in/first-out (LIFO) basis .............. (48.4) (43.1) ------ ------ $491.9 $514.2 ====== ====== - ---------------------------------------------------------------------------------------------------------- OTHER ASSETS Prepaid pension costs .................................................................... $245.8 $226.6 Patient relationships, less accumulated amortization of $117.2 in 1994 ................... -- 214.9 Deferred charges ......................................................................... 106.9 124.9 Long-term receivables, less allowances of $24.7 (1994 - $20.6) ........................... 83.5 92.3 Long-term investments .................................................................... 69.4 79.3 Notes receivable from insurance carriers - noncurrent, net of discounts of $7.3 in 1995 .. 56.4 60.0 Patents and licenses ..................................................................... 34.0 39.9 Investments in and advances to affiliated companies ...................................... 17.4 56.0 Other .................................................................................... 11.9 76.9 ------ ------ $625.3 $970.8 ====== ====== - ----------------------------------------------------------------------------------------------------------
During 1995 and 1994, Grace entered into agreements to sell up to $120.0 and $320.0, respectively, of interests in designated pools of trade receivables (excluding $180.0 in 1995 pertaining to the discontinued health care operations). At December 31, 1995 and 1994, $116.0 and $296.8, respectively, had been received pursuant to such sales (excluding $179.8 in 1995 pertaining to the discontinued health care operations); these amounts are reflected as reductions to trade accounts receivable. Under the terms of these agreements, new interests in trade receivables are sold as collections reduce previously sold trade receivables. While only interests in designated pools of trade receivables are sold, the entire designated pools are available as the sole recourse with respect to the interests sold. There is no further recourse to Grace, nor is Grace required to repurchase any of the trade receivables in the pools. The costs related to such sales are expensed as incurred and recorded as interest expense and related financing costs. There were no gains or losses on these transactions. Inventories valued at LIFO cost comprised 21.6% and 18.9% of total inventories at December 31, 1995 and 1994, respectively. The liquidation of prior years' LIFO inventory layers in 1995, 1994 and 1993 did not materially affect cost of goods sold in any of these years. F-18 65 - ------------------------------------------------------------------------------- 9. PROPERTIES AND EQUIPMENT - ------------------------------------------------------------------------------- 1995 1994 - ------------------------------------------------------------------------- Land ....................................... $ 44.1 $ 52.4 Buildings .................................. 595.5 698.3 Machinery, equipment and other ............. 1,967.1 2,080.2 Projects under construction ................ 548.2 397.4 --------- --------- Properties and equipment, gross ........... 3,154.9 3,228.3 Accumulated depreciation and amortization .. (1,418.8) (1,498.2) --------- --------- Properties and equipment, net ............. $ 1,736.1 $ 1,730.1 ========= ========= - -------------------------------------------------------------------------
Interest costs are incurred in connection with the financing of certain assets prior to placing them in service. Interest costs capitalized in 1995, 1994 and 1993 were $21.3, $9.4 and $7.4, respectively. Depreciation and lease amortization expense relating to properties and equipment amounted to $170.4, $158.0 and $146.3 in 1995, 1994 and 1993, respectively. Grace's rental expense for operating leases amounted to $25.7, $28.8 and $34.3 in 1995, 1994 and 1993, respectively. See Note 12 for information regarding contingent rentals. At December 31, 1995, minimum future payments for operating leases are: - ------------------------------------------------------------------------- 1996 .......................... $ 28.0 1997 .......................... 22.6 1998 .......................... 19.0 1999 .......................... 15.4 2000 .......................... 14.5 Later years ................... 26.8 ------ Total minimum lease payments .. $126.3 ====== - -------------------------------------------------------------------------
- ------------------------------------------------------------------------- The above minimum lease payments reflect sublease income of $11.6 per year for 1996 through 2000 and a total of $28.0 in later years. - ------------------------------------------------------------------------- 10. DEBT - ------------------------------------------------------------------------- 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------- SHORT-TERM DEBT Bank borrowings (6.2% weighted average interest rate at year-end 1995) (1) ................................ $ 295.3 $ -- Current maturities of long-term debt ...................................................................... 22.2 166.6 Other short-term borrowings (2) ........................................................................... 320.8 264.3 -------- -------- $ 638.3 $ 430.9 ======== ======== LONG-TERM DEBT Commercial paper (6.2% and 6.0% weighted average interest rates at year-end 1995 and 1994, respectively) (1) $ 45.7 $ 5.5 Bank borrowings (6.2% and 5.8% weighted average interest rates at year-end 1995 and 1994, respectively) (1) 304.3 103.5 8.0% Notes Due 2004 (3) ................................................................................... 300.0 300.0 7.4% Notes Due 2000 (4) ................................................................................... 287.0 300.0 7.75% Notes Due 2002 (5) .................................................................................. 131.0 150.0 6.5% Notes Due 1995 (6) ................................................................................... -- 150.0 Term Loan Agreement (6.3% weighted average interest rate at year-end 1995) (7) ............................ 30.0 -- Medium-Term Notes, Series A (6.9% weighted average interest rate at year-end 1995 and 1994) (8) ........... 128.5 128.5 Sundry indebtedness with various maturities through 2002 .................................................. 91.2 127.9 -------- -------- 1,317.7 1,265.4 Less current maturities of long-term debt ................................................................. 22.2 166.6 -------- -------- $1,295.5 $1,098.8 ======== ======== Full-year weighted average interest rate on total debt (9) ................................................ 7.8% 5.8% - -------------------------------------------------------------------------------------------------------------------------------
F-19 66 (1) Under bank revolving credit agreements in effect at year-end 1995, Grace may borrow up to $950.0 at interest rates based upon the prevailing prime, Federal funds and/or Eurodollar rates. Of that amount, $600.0 is available under short-term facilities, with $350.0 expiring on August 29, 1996 and $250.0 expiring on September 30, 1996; and $350.0 is available under a long-term facility expiring on September 1, 1999. These agreements also support the issuance of commercial paper and bank borrowings, $645.3 of which was outstanding at December 31, 1995 (included in Short-Term and Long-Term Debt above). At December 31, 1995, the aggregate amount of net unused and unreserved borrowings under the short-term and long-term facilities was $304.7. Grace's ability to borrow under the current facilities is subject to compliance with various covenants, including maintenance of ratios of total debt to total capitalization and interest coverage. (2) Represents borrowings under various lines of credit and other miscellaneous borrowings, primarily of non-U.S. subsidiaries. (3) During the third quarter of 1994, Grace sold $300.0 of 8.0% Notes Due 2004 at an initial public offering price of 99.794% of par, to yield 8.03%. Interest is payable semiannually, and the Notes may not be redeemed prior to maturity. (4) During the first quarter of 1993, Grace sold at par $300.0 of 7.4% Notes Due 2000. Interest is payable semiannually, and the Notes may not be redeemed prior to maturity; however, Grace has repurchased Notes from time to time in response to unsolicited offers received through banks and brokers. (5) During the third quarter of 1992, Grace sold at par $150.0 of 7.75% Notes Due 2002. Interest is payable semiannually, and the Notes may not be redeemed prior to maturity; however, Grace has repurchased Notes from time to time in response to unsolicited offers received through banks and brokers. (6) During the fourth quarter of 1992, Grace sold $150.0 of 6.5% Notes Due 1995 at an initial public offering price of 99.758% of par, to yield 6.59%. The Notes were paid at maturity in the fourth quarter of 1995. (7) During the second quarter of 1995, Grace entered into a three-year term loan agreement with a maturity date of April 24, 1998. The agreement provides for interest at a Eurodollar floating rate, with interest payable semiannually. (8) During the second quarter of 1994, Grace entered into an agreement providing for the issuance and sale from time to time of its Medium-Term Notes, Series A (MTNs), with an aggregate issue price of up to $300.0. The MTNs may bear interest at either fixed or floating rates and have maturity dates more than nine months from their respective dates of issuance. Interest on each fixed rate MTN is payable semiannually, and interest on each floating rate MTN is payable as established at the time of issuance. (9) Computation includes interest expense allocated to discontinued operations. Payment of a majority of Grace's borrowings may be accelerated, and its principal borrowing agreements terminated, upon the occurrence of a default under certain Grace borrowings. Scheduled maturities of long-term debt outstanding at December 31, 1995 are: 1996 - $22.2; 1997 - $113.2; 1998 - $46.4; 1999 - $351.2; 2000 - $350.3; and thereafter - $434.4. Interest expense, excluding related financing costs and amounts allocated to discontinued operations, for 1995, 1994 and 1993 amounted to $53.3, $30.9 and $33.7, respectively. Including amounts allocated to discontinued operations, interest payments made in 1995, 1994 and 1993, excluding related financing costs, amounted to $183.1, $101.8 and $109.0, respectively. A registration statement that became effective in 1994 covers $750.0 of debt and/or equity securities that may be sold from time to time. At December 31, 1995, $321.5 (including up to $171.5 of MTNs) remain available under the registration statement. - -------------------------------------------------------------------------------- 11. FINANCIAL INSTRUMENTS - ------------------------------------------------------------------------------- LONG-TERM DEBT/INTEREST RATE AGREEMENTS To manage exposure to changes in interest rates, Grace enters into interest rate agreements, most of which have the effect of converting fixed-rate debt into variable-rate debt based on the London Interbank Offered Rate. At December 31, 1995 and 1994, the notional amounts of Grace's interest rate swaps consist of the following: $1,219.5 and $1,013.5, respectively, which convert fixed-rate debt into variable-rate debt; and $626.0 and $1,200.0, respectively, which convert variable-rate debt into fixed-rate debt. Notional amounts do not quantify risk or represent assets or liabilities of Grace, but are used in the calculation of cash settlements under the agreements. Grace's debt and interest rate management objective is to reduce its cost of funding over the long term, considering economic conditions and their potential impact on Grace. The strategy emphasizes improving liquidity by developing and maintaining access to a variety of long-term and short-term capital markets. Grace enters into standard interest rate swaps that have readily identifiable impacts on interest cost and are characterized by broad market liquidity. Grace is not a party to leveraged interest rate agreements. During 1995 and 1994, Grace realized (negative)/positive cash flows of $(16.5) and $10.0, respectively, from interest rate agreements. Realized gains and losses on interest rate agreements are amortized to interest expense over a period relevant to the agreement (1 - 10 years); at December 31, 1995 and 1994, unamortized net gains were $31.7 and $43.0, respectively. At December 31, 1995 and 1994, Grace would have been required to pay $32.5 and $118.1, respectively, to retire these agreements. The maturities and notional amounts of the swaps closely match underlying debt instruments. This will result in the changes in the fair value of swaps being substantially offset by changes in the fair value of the debt. FAIR VALUE OF FINANCIAL INSTRUMENTS At December 31, 1995 and 1994, the recorded value of financial instruments such as cash, short-term investments, trade receivables and payables and short-term debt approximated their fair values, based on the short-term maturities and floating rate characteristics F-20 67 of these instruments. Additionally, the recorded value of both long-term investments and receivables approximated fair values. At December 31, 1995 and 1994, the fair value of long-term debt was $1,361.1 and $1,212.1, respectively. Fair value is determined based on expected future cash flows (discounted at market interest rates), quotes from financial institutions and other appropriate valuation methodologies. Grace does not hold or issue financial instruments for trading purposes. FOREIGN CURRENCY CONTRACTS Grace conducts business in a wide variety of currencies and consequently enters into foreign exchange forward and option contracts to manage its exposure to fluctuations in foreign currency exchange rates. These contracts generally involve the exchange of one currency for another at a future date. At December 31, 1995 and 1994, Grace had notional principal amounts of approximately $45.5 and $10.0, respectively, in contracts to buy or sell foreign currency in the future. The recorded values at December 31, 1995 and 1994, which approximated fair value based on exchange rates at December 31, 1995 and 1994, were not significant. CREDIT RISK Grace is exposed to credit risk to the extent of potential nonperformance by counterparties on financial instruments. The counterparties to Grace's interest rate swap agreements and currency exchange contracts comprise a diversified group of major financial institutions, all of which are rated investment grade. Credit risk is further reduced by bilateral netting agreements between Grace and its counterparties. As of December 31, 1995, Grace's credit exposure was insignificant and limited to the fair value stated above; Grace believes the risk of incurring losses due to credit risk is remote. MARKET RISK Exposure to market risk on financial instruments results from fluctuations in interest and currency rates during the periods in which the contracts are outstanding. The mark-to-market valuations of interest rate, foreign currency agreements and of associated underlying exposures are closely monitored at all times. Grace uses portfolio sensitivities and stress tests to monitor risk. Overall financial strategies and the effects of using derivatives are reviewed periodically. - -------------------------------------------------------------------------------- 12. COMMITMENTS AND CONTINGENT LIABILITIES - -------------------------------------------------------------------------------- Grace is the named tenant or guarantor with respect to certain leases entered into by previously divested businesses. The leases, some of which extend through the year 2015, have future minimum lease payments aggregating $121.6 (including leases assigned to the previously divested Hermans business having future minimum lease payments of $14.6), offset by $119.8 of future minimum rental income from tenants and subtenants. In addition, Grace is the named tenant or guarantor with respect to leases entered into by a previously divested home center business that had been rejected in bankruptcy. These leases have future minimum lease payments of $47.0, fully offset by $48.5 of future minimum rental income from tenants and subtenants. Grace is also contingently liable with respect to leases entered into by REG's subsidiaries. After undergoing a reorganization in 1993, REG (now named Family Restaurants, Inc.) has agreed to indemnify Grace with respect to these leases. At December 31, 1995, these leases have future minimum lease payments of $64.2, fully offset by future minimum rental income from tenants and subtenants. Grace believes that the risk of significant loss from the above lease obligations is remote, except that Grace may incur losses relating to the Hermans and REG leases as the result of recent developments. The likelihood and amounts of these losses cannot be reasonably estimated. In addition, Grace is liable for other expenses (primarily property taxes) relating to the above leases; these expenses are paid by the tenants and subtenants. Grace is subject to loss contingencies resulting from environmental laws and regulations that, among other things, impose obligations to remove or mitigate the effects on the environment of the disposal or release of substances at various sites. Grace accrues for anticipated costs associated with investigatory and remediation efforts where an assessment has indicated that a loss is probable and can be reasonably estimated. At December 31, 1995, Grace's liability for environmental investigatory and remediation costs related to continuing and discontinued operations totalled approximately $280.3, as compared to $216.0 at December 31, 1994. The principal reason for this increase is a change in the estimated costs of remediation at former manufacturing sites. In 1995 and 1994, periodic provisions were recorded for environmental and plant closure expenses, which include the costs of future environmental investigatory and remediation activities. Additionally, in the fourth quarter of 1995 and first quarter of 1994, Grace recorded pretax provisions of $77.0 and $40.0 ($50.0 and $26.0 after-tax), respectively, principally to provide for future costs related to remediation activities required at former manufacturing sites. These provisions are included in the Consolidated Statement of Operations as part of cost of goods sold and operating expenses. In 1995, 1994 and 1993, Grace incurred costs of $31.3, $30.8 and $44.4, respectively, to remediate its environmentally impaired sites. These amounts have been charged against the previously established reserves. Future cash outlays for remediation costs are expected to total $30.0 in 1996 and $20.0 in 1997. Grace considers its current reserves to be adequate to cover its environmental liabilities. Additionally, Grace's classification between F-21 68 current and noncurrent liabilities with respect to its environmental reserves is considered appropriate in relation to expected future cash outlays. Grace's environmental liabilities are reassessed whenever circumstances become better defined and/or remediation efforts and their costs can be better estimated. The measurement of the liability is evaluated quarterly based on currently available information, including the progress of remedial investigation at each site, the current status of discussions with regulatory authorities regarding the method and extent of remediation at each site, and the apportionment of costs among potentially responsible parties. As some of these issues are decided (the outcome of which is subject to various uncertainties) and/or new sites are assessed and costs can be reasonably estimated, Grace will continue to review and analyze the need for adjustments to the recorded accruals. See Note 7 for a discussion of commitments and contingent liabilities pertaining to NMC. - -------------------------------------------------------------------------------- 13. MINORITY INTEREST - -------------------------------------------------------------------------------- Minority interest consists of a limited partnership interest in LP. The total capital of LP at December 31, 1995 was approximately $1,488.0. LP's assets consist of Grace Cocoa's worldwide cocoa and chocolate business, long-term notes and demand loans due from various Grace entities and guaranteed by the Company and its principal operating subsidiary, and cash. Grace had $347.0 of borrowings from LP at December 31, 1995. Four Grace entities serve as general partners of LP and own general partnership interests totalling 79.03% in LP; the sole limited partner of LP, which initially acquired its interest in LP in exchange for a $300.0 cash capital contribution ($297.0 of which was funded by outside investors), owns a 20.97% limited partnership interest in LP. LP is a separate and distinct legal entity from each of the Grace entities and has separate assets, liabilities, business functions and operations. For financial reporting purposes, the assets, liabilities, results of operations and cash flows of LP are included in Grace's consolidated financial statements as a component of discontinued operations and the outside investors' interest in LP is reflected as a minority interest. - -------------------------------------------------------------------------------- 14. SHAREHOLDERS' EQUITY - -------------------------------------------------------------------------------- The weighted average number of shares of common stock outstanding during 1995 was 95,822,000 (1994 - 93,936,000; 1993 - 91,461,000). The Company is authorized to issue 300,000,000 shares of common stock. Of the common stock unissued at December 31, 1995, approximately 7,655,000 shares were reserved for issuance pursuant to stock options and other stock incentives. In addition, at December 31, 1995, approximately 105,084,000 shares were reserved for issuance under Common Stock Purchase Rights (Rights). A Right is issued for each outstanding share of common stock; the Rights are not and will not become exercisable unless and until certain events occur, and at no time will the Rights have any voting power. Preferred stocks authorized, issued and outstanding are:
Par Value of Shares as of December 31, 1995 Shares Outstanding ---------------------------------------------------- ----------------------------- Authorized In Out- and Issued Treasury standing 1995 1994 1993 ------------------- ------------------- ---------- ------ ------------- ------ 6% Cumulative (1) 40,000 3,540 36,460 $3.6 $3.6 $3.6 8% Cumulative Class A (2) 50,000 33,644 16,356 1.6 1.6 1.6 8% Noncumulative Class B (2) 40,000 18,423 21,577 2.2 2.2 2.2 ------ --------- ------ $7.4 $7.4 $7.4 ====== ========= ====== - --------------------------------------------------------------------------------
(1) 160 votes per share. (2) 16 votes per share. Dividends paid on the preferred stocks amounted to $.5 in each of 1995, 1994 and 1993. The Certificate of Incorporation also authorizes 5,000,000 shares of Class C Preferred Stock, $1 par value, none of which has been issued. - -------------------------------------------------------------------------------- 15. STOCK INCENTIVE PLANS - -------------------------------------------------------------------------------- Stock options are granted under the Company's stock incentive plans. Each option has an exercise price equal to the fair market value of the Company's Common Stock on the date of grant. Options become exercisable at the time or times determined by the Compensation Committee and may have terms of up to ten years and one month. F-22 69 Changes in outstanding common stock options are summarized below:
- -------------------------------------------------------------------------------------------------------------- 1995 1994 1993 --------------------- ------------------------- ------------------------- AVERAGE Average Average NUMBER EXERCISE Number Exercise Number Exercise OF SHARES PRICE of Shares Price of Shares Price - -------------------------------------------------------------------------------------------------------------- Balance at beginning of year .... 7,612,888 $38.08 6,965,304 $36.48 6,365,187 $35.09 Options granted ................. 1,704,150 46.66 1,358,900 42.27 1,461,425 38.00 ----------- --------- --------- 9,317,038 8,324,204 7,826,612 Options exercised ............... (3,551,123) 38.30 (606,444) 29.21 (683,255) 25.89 Options terminated or canceled .. (71,719) 42.27 (104,872) 37.33 (178,053) 40.13 ----------- --------- --------- Balance at end of year .......... 5,694,196 40.45 7,612,888 38.08 6,965,304 36.48 =========== ========= ========= - --------------------------------------------------------------------------------------------------------------
At December 31, 1995, options covering 4,172,391 shares (1994 - 5,633,761; 1993 - 5,056,256) were exercisable and 1,913,163 shares (1994 - 3,547,094; 1993 - 1,804,122) were available for additional grants. Currently outstanding options expire on various dates between February 1996 and July 2005. Grace will adopt the disclosure requirements of SFAS No. 123, "Accounting for Stock-Based Compensation" in 1996. However, Grace anticipates that it will continue to follow the measurement provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," as permitted by SFAS No. 123. - -------------------------------------------------------------------------------- 16. PENSION PLANS - -------------------------------------------------------------------------------- Grace maintains defined benefit pension plans covering employees of certain units who meet age and service requirements. Benefits are generally based on final average salary and years of service. Grace funds its U.S. pension plans in accordance with Federal laws and regulations. Non-U.S. pension plans are funded under a variety of methods because of differing local laws and customs and therefore cannot be summarized. Approximately 60% of U.S. and non-U.S. plan assets at December 31, 1995 were common stocks, with the remainder primarily fixed income securities. Pension cost/(benefit) is comprised of the following components:
- --------------------------------------------------------------------------------------------------------------------- 1995 1994 1993 -------------------- ---------------- --------------------- U.S. NON-U.S. U.S. Non-U.S. U.S. Non-U.S. - --------------------------------------------------------------------------------------------------------------------- Service cost on benefits earned during the year .... $ 14.6 $ 10.5 $ 19.8 $ 13.4 $ 12.7 $ 9.5 Interest cost on benefits earned in prior years .... 50.6 21.4 46.9 19.3 33.8 17.1 Actual (return)/loss on plan assets ................ (132.3) (52.0) 16.9 10.6 (101.7) (56.7) Deferred loss/(gain) on plan assets ................ 71.1 26.2 (84.6) (37.4) 55.1 36.0 Amortization of net gains and prior service costs .. (.8) (.8) (7.1) (1.6) (4.9) (1.7) ------- ------ ------ ------ ------- ------ Net pension cost/(benefit) ......................... $ 3.2 $ 5.3 $ (8.1) $ 4.3 $ (5.0) $ 4.2 ======= ====== ====== ====== ======= ====== - ---------------------------------------------------------------------------------------------------------------------
The funded status of these plans was as follows:
- --------------------------------------------------------------------------------------------------------------------- U.S. NON-U.S. - --------------------------------------------------------------------------------------------------------------------- ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED ACCUMULATED BENEFITS ACCUMULATED BENEFITS BENEFITS EXCEED ASSETS BENEFITS EXCEED ASSETS ------------- -------------- ------------- ------------- 1995 1994 1995 1994 1995 1994 1995 1994 - --------------------------------------------------------------------------------------------------------------------- Actuarial present value of benefit obligation: Vested........................................... $679.6 $536.2 $ 52.0 $ 39.0 $133.5 $114.2 $ 67.5 $ 57.2 ------ ------ ------ ------ ------ ------ ------ ------ Accumulated benefit obligation................... $680.4 $540.8 $ 52.0 $ 39.0 $133.9 $115.3 $ 75.1 $ 64.4 ------ ------ ------ ------ ------ ------ ------ ------ Total projected benefit obligation............... $710.0 $596.3 $ 55.7 $ 40.4 $189.4 $158.5 $ 92.4 $ 81.8 Plan assets at fair value........................ 795.8 751.6 -- -- 302.5 255.8 7.3 12.5 ------ ------ ------ ------ ------ ------ ------ ------ Plan assets in excess of/(less than) projected benefit obligation............................... 85.8 155.3 (55.7) (40.4) 113.1 97.3 (85.1) (69.3) Unamortized net (gain)/loss at initial adoption.. (73.7) (89.5) 4.9 5.6 (6.3) (8.4) 4.5 4.6 Unamortized prior service cost................... 41.7 13.0 16.3 18.3 3.6 4.0 -- -- Unrecognized net loss/(gain)..................... 97.6 62.3 8.6 1.1 (16.0) (7.4) (3.2) (5.6) ------ ------ ------ ------ ------ ------ ------ ------ Prepaid/(accrued) pension cost................... $151.4 $141.1 $(25.9) $(15.4) $ 94.4 $ 85.5 $(83.8) $(70.3) ====== ====== ====== ====== ====== ====== ====== ====== - ---------------------------------------------------------------------------------------------------------------------
F-23 70 The following significant assumptions were used in 1995, 1994 and 1993:
- ------------------------------------------------------------------------------------------------------------------------------------ 1995 1994 1993 -------------------- -------------------- -------------------- U.S. NON-U.S. U.S. Non-U.S. U.S. Non-U.S. - ------------------------------------------------------------------------------------------------------------------------------------ Discount rate at December 31, ...................... 7.25% 5.1 - 11.6% 8.5% 5.0 - 12.0% 7.5% 4.5 - 9.2% Expected long-term rate of return .................. 9.0 6.0 - 10.5 9.0 6.0 - 10.5 9.0 6.0 - 10.5 Rate of compensation increase ...................... 4.5 4.0 - 7.5 5.5 4.0 - 7.5 5.5 3.5 - 7.5 - ------------------------------------------------------------------------------------------------------------------------------------
Grace's Retirement Plan for Salaried Employees (Plan) contains provisions under which the Plan would automatically terminate in the event of a change in control of the Company, and Plan benefits would be secured through the purchase of annuity contracts. Upon such termination, a portion of the Plan's excess assets would be placed in an irrevocable trust to fund various employee benefit plans and arrangements of Grace, and any balance would be returned to Grace. During 1995, Grace approved a cost-of-living increase, effective January 1, 1996, for retirees under the Plan and Grace's Retirement Plan for Hourly Employees of Canadian subsidiaries. - -------------------------------------------------------------------------------- 17. OTHER POSTRETIREMENT BENEFIT PLANS - -------------------------------------------------------------------------------- Grace provides certain other postretirement health care and life insurance benefits for retired employees of specified U.S. units. These retiree medical and life insurance plans provide various levels of benefits to employees (depending on their date of hire) who retire from Grace after age 55 with at least 10 years of service. The plans are currently unfunded. Grace applies SFAS No. 106, which requires the accrual method of accounting for the future costs of postretirement health care and life insurance benefits over the employees' years of service. Grace pays the costs of postretirement benefits as they are incurred. Included in other liabilities as of December 31, 1995 and 1994 are the following:
- ----------------------------------------------------------------------------- 1995 1994 - ----------------------------------------------------------------------------- Accumulated postretirement benefit obligation: Retirees ..................................... $209.0 $192.6 Fully eligible participants .................. 15.2 12.1 Active ineligible participants ............... 34.4 26.3 ------ ------ Accumulated postretirement benefit obligation .. 258.6 231.0 Unrecognized net loss ........................ (54.9) (28.5) Unrecognized prior service benefit ........... 44.3 48.6 ------ ------ Accrued postretirement benefit obligation ...... $248.0 $251.1 ====== ====== - -----------------------------------------------------------------------------
Net periodic postretirement benefit cost for the years ended December 31, 1995, 1994 and 1993 is comprised of the following components:
- ---------------------------------------------------------------------------------------- 1995 1994 1993 - ---------------------------------------------------------------------------------------- Service cost .................................................... $ 1.6 $ 2.1 $ 2.2 Interest cost on accumulated postretirement benefit obligation .. 18.3 16.2 13.2 Amortization of net loss ........................................ .2 1.2 .2 Amortization of prior service benefit ........................... (4.3) (4.3) (4.5) ----- ----- ----- Net periodic postretirement benefit cost ........................ $15.8 $15.2 $11.1 ===== ===== ===== - ----------------------------------------------------------------------------------------
During 1992, Grace's retiree medical plans were amended to increase cost sharing by employees retiring after January 1, 1993. This amendment decreased the accumulated postretirement benefit obligation by $44.3 at December 31, 1995 and will be amortized over an average remaining future service life of approximately 11 years. Medical care cost trend rates were projected at 10.7% in 1995, declining to 6.0% through 2003 and remaining level thereafter. A one percentage point increase in each year's assumed medical care cost trend rate, holding all other assumptions constant, would increase the annual net periodic postretirement benefit cost by $2.5 and the accumulated postretirement benefit obligation by $20.2. The discount rates at December 31, 1995, 1994 and 1993 were 7.25%, 8.5% and 7.5%, respectively. Effective January 1, 1994, Grace adopted SFAS No. 112, "Employers' Accounting for Postemployment Benefits," which requires accrual accounting for nonaccumulating postemployment benefits. Grace's primary postemployment obligation is for disabled workers' medical benefits. These are currently included in accrued postretirement costs under SFAS No. 106. The adoption of SFAS No. 112 did not have a material effect on Grace's results of operations or financial position. F-24 71 - -------------------------------------------------------------------------------- 18. GEOGRAPHIC AREA INFORMATION - -------------------------------------------------------------------------------- The table below presents information related to Grace's specialty chemicals segment (its only industry segment) by geographic area for the years 1995 - -1993.
United Asia Latin States Canada Europe Pacific America Total - --------------------------------------------------------------------------------------------- Sales and revenues .................. 1995 $1,693 $128 $1,147 $445 $253 $3,666 1994 1,558 121 955 366 218 3,218 1993 1,432 123 852 307 182 2,896 Pretax operating (loss)/income (1) .. 1995 (120) 23 39 62 10 14 1994 (133) 9 69 56 20 21 1993 23 7 38 44 13 125 Identifiable assets (2) ............. 1995 2,031 101 998 411 246 3,787 1994 1,796 83 905 308 208 3,300 1993 2,042 81 720 243 154 3,240 - ---------------------------------------------------------------------------------------------
Pretax operating income and total identifiable assets for the specialty chemicals segment are reconciled below to income from continuing operations before income taxes and consolidated total assets, respectively, as presented in the Consolidated Statement of Operations and the Consolidated Balance Sheet. Grace allocates to its specialty chemicals segment general corporate overhead expenses, general corporate research expenses and certain other income and expense items that can be identified with specialty chemicals operations. - --------------------------------------------------------------------------------
1995 1994 1993 - --------------------------------------------------------------------------------------------------------- Pretax operating income - specialty chemicals segment (1) ....................... $ 14 $ 21 $ 125 Interest expense and related financing costs .................................... (71) (50) (43) Corporate restructuring costs and asset impairments/other activities ............ (122) -- -- Provisions relating to environmental liabilities at former manufacturing sites .. (77) (40) -- Provision for corporate governance .............................................. (30) -- -- Gain on sale of remaining interest in REG ....................................... -- 27 -- Corporate expenses previously allocated to health care operations (3) ........... (38) (37) (37) Other income/(expenses), net .................................................... 12 (9) (16) ------ ------ ------ (Loss)/income from continuing operations before income taxes .................... $ (312) $ (88) $ 29 ====== ====== ====== - --------------------------------------------------------------------------------------------------------- Identifiable assets - specialty chemicals segment (2) ........................... $3,787 $3,300 $3,240 General corporate assets (4) .................................................... 752 860 811 Discontinued operations' net assets ............................................. 1,759 2,071 2,058 ------ ------ ------ Total assets .................................................................... $6,298 $6,231 $6,109 ====== ====== ======
- -------------------------------------------------------------------------------- (1) Includes (a) 1995, 1994 and 1993 pretax provisions of $275, $316 and $159, respectively, relating to asbestos-related liabilities and insurance coverage (see Note 2 for further information); and (b) a 1995 pretax charge of $98 relating to restructuring costs, asset impairments and other costs (see Note 5 for further information). (2) Includes asbestos-related receivables and settlements due from insurance carriers, net of discounts, of $321 and $118, respectively, in 1995; $513 and $187, respectively, in 1994; and $962 and $114, respectively, in 1993. (3) These costs will not be assumed by NMC following the completion of its proposed separation from Grace, and it is expected that these costs will be eliminated. (4) General corporate assets consist principally of deferred tax assets, prepaid pension costs, and corporate receivables and investments. - -------------------------------------------------------------------------------- 19. SUBSEQUENT EVENTS - -------------------------------------------------------------------------------- As more fully discussed in Note 7, in February 1996, Grace and Fresenius entered into a definitive agreement to combine NMC with Fresenius' worldwide dialysis business. The transaction is expected to be completed by the third quarter of 1996. In March 1996, Grace announced that it had entered into a definitive agreement to sell its Grace Dearborn water treatment and process chemicals business to Betz Laboratories, Inc. for $632.0. The transaction is expected to be completed in the second quarter of 1996. F-25 72 - -------------------------------------------------------------------------------- QUARTERLY SUMMARY AND STATISTICAL INFORMATION Unaudited - dollars in millions, except per share - --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------- QUARTER ENDED 1Q 2Q 3Q 4Q - ------------------------------------------------------------------------------------------------------- 1995 Total sales and revenues ................... $ 853.4 $ 932.3 $ 946.4 $ 933.4 Cost of goods sold and operating expenses .. 500.9 550.7 566.0 626.1 Net income/(loss) .......................... 47.5(3) 78.7 21.7(4) (473.8)(5) Earnings/(loss) per share: (1) Net earnings/(loss) .................... $ .50 $ .83 $ .22 $ (4.87) Fully diluted earnings per share: Net earnings/(loss) .................... $ .49 $ .80 $ .22 $ -- (6) Dividends declared per common share ........ $ .35 $ .35 $ .35 $ .125 Market price of common stock: (2) High ................................... $54 1/2 $65 1/8 $71 1/4 $66 1/4 Low .................................... 38 1/2 51 3/8 61 9/16 54 3/4 Close .................................. 53 1/4 61 3/8 66 3/4 59 1/8 - ------------------------------------------------------------------------------------------------------- 1994 (7) Total sales and revenues ................... $ 675.4 $ 782.9 $ 815.5 $ 944.4 Cost of goods sold and operating expenses .. 437.8 464.5 475.0 523.5 Net income/(loss) .......................... 38.2(8) (134.3)(9) 76.0 103.4 Earnings/(loss) per share: (1) Net earnings/(loss) .................... $ .41 $ (1.43) $ .81 $ 1.10 Fully diluted earnings per share: Net earnings/(loss) .................... $ .40 $ -- (6) $ .80 $ 1.09 Dividends declared per common share ........ $ .35 $ .35 $ .35 $ .35 Market price of common stock: (2) High ................................... $46 1/2 $ 43 $42 3/8 $41 1/8 Low .................................... 40 3/8 39 38 1/4 36 Close .................................. 41 1/4 39 7/8 41 1/2 38 5/8 - -------------------------------------------------------------------------------------------------------
(1) Per share results for the four quarters differ from full-year per share results, as a separate computation of earnings per share is made for each quarter presented. (2) Principal market: New York Stock Exchange. (3) Includes a $12.5 charge for matters relating to corporate governance. (4) Includes a $27.1 charge for restructuring costs; a $6.1 charge for matters relating to corporate governance; and a $33.5 charge to the discontinued health care operations, primarily relating to asset impairments. (5) Includes a $178.7 provision relating to asbestos-related liabilities and insurance coverage; a $50.0 provision for environmental liabilities; a $116.9 charge for restructuring costs, asset impairments and other items; a $151.3 provision for other discontinued operations; and a $68.9 charge to the discontinued health care operations, primarily relating to asset impairments and other items. (6) Not presented as the effect is anti-dilutive. (7) Certain amounts have been reclassified to conform to the 1995 presentation. (8) Includes a $27.0 gain on the sale of Grace's remaining interest in The Restaurant Enterprises Group, Inc. (REG), offset by a $26.0 provision, primarily for environmental liabilities. (9) Includes a $200.0 reinstatement of a provision relating to asbestos-related insurance coverage. F-26 73 - ------------------------------------------------------------------------------------------------------------- CAPITAL EXPENDITURES, NET FIXED ASSETS AND DEPRECIATION AND LEASE AMORTIZATION Dollars in millions - -------------------------------------------------------------------------------------------------------------
Depreciation and Capital Expenditures (1) Net Fixed Assets Lease Amortization (2) ------------------------ -------------------------- --------------------- 1995 1994 1993 1995 1994 1993 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------- OPERATING GROUP Specialty chemicals .......... $459 $329 $209 $1,581 $1,262 $1,049 $155 $144 $135 General corporate ............ 49 30 21 155 144 128 15 14 11 ---- ---- ---- ------ ------ ------ ---- ---- ---- Total continuing operations .. 508 359 230 1,736 1,406 1,177 170 158 146 Discontinued operations ...... 30 86 80 -- 324 277 -- -- -- ---- ---- ---- ------ ------ ------ ---- ---- ---- Total ........................ $538 $445 $310 $1,736 $1,730 $1,454 $170 $158 $146 ==== ==== ==== ====== ====== ====== ==== ==== ==== - ------------------------------------------------------------------------------------------------------------- GEOGRAPHIC LOCATION United States and Canada ..... $246 $202 $126 $ 869 $ 714 $ 608 $ 75 $ 77 $ 74 Europe ....................... 100 75 57 441 382 321 59 51 46 Other areas .................. 113 52 26 271 166 120 21 16 15 ---- ---- ---- ------ ------ ------ ---- ---- ---- Subtotal ..................... 459 329 209 1,581 1,262 1,049 155 144 135 General corporate ............ 49 30 21 155 144 128 15 14 11 ---- ---- ---- ------ ------ ------ ---- ---- ---- Total continuing operations .. 508 359 230 1,736 1,406 1,177 170 158 146 Discontinued operations ...... 30 86 80 -- 324 277 -- -- -- ---- ---- ---- ------ ------ ------ ---- ---- ---- Total ........................ $538 $445 $310 $1,736 $1,730 $1,454 $170 $158 $146 ==== ==== ==== ====== ====== ====== ==== ==== ==== - -------------------------------------------------------------------------------------------------------------
(1) Excludes capital expenditures of discontinued operations subsequent to their classification as such. (2) Certain 1994 and 1993 amounts have been reclassified to conform to the 1995 presentation. F-27 74
- --------------------------------------------------------------------------------------------------------------------------------- FINANCIAL SUMMARY (1) Dollars in millions, except per share amounts - --------------------------------------------------------------------------------------------------------------------------------- 1995 1994 1993 1992 1991 - --------------------------------------------------------------------------------------------------------------------------------- STATEMENT OF OPERATIONS Sales and revenues ............................................ $3,665.5 $3,218.2 $2,895.5 $3,061.8 $3,326.2 Cost of goods sold and operating expenses ..................... 2,243.7 1,900.8 1,746.7 1,871.8 2,027.9 Depreciation and amortization ................................. 186.3 165.0 153.5 164.5 178.3 Interest expense and related financing costs .................. 71.3 49.5 42.9 49.4 73.7 Research and development expenses ............................. 120.6 106.8 111.5 105.2 102.0 (Loss)/income from continuing operations before income taxes................................................. (312.4) (88.0) 29.2 81.3 256.5 (Benefit from)/provision for income taxes ..................... (115.8) (46.6) 10.1 79.9 99.1 Income from continuing operations before special items (2) .... 194.7 157.6 119.1 146.5 153.9 (Loss)/income from continuing operations ...................... (196.6) (41.4) 19.1 1.4 157.4 (Loss)/income from discontinued operations (3) ................ (129.3) 124.7 6.9 (105.9) 61.2 Cumulative effect of accounting changes ....................... -- -- -- (190.0) -- Net (loss)/income ............................................. (325.9) 83.3 26.0 (294.5) 218.6 - --------------------------------------------------------------------------------------------------------------------------------- FINANCIAL POSITION Current assets ................................................ $1,681.3 $2,228.9 $2,077.6 $2,091.4 $1,990.0 Current liabilities ........................................... 2,214.2 2,231.5 1,992.6 1,639.6 1,622.1 Properties and equipment, net ................................. 1,736.1 1,730.1 1,454.1 1,707.9 2,558.2 Total assets .................................................. 6,297.6 6,230.6 6,108.6 5,598.6 6,007.1 Total debt .................................................... 1,933.8 1,529.7 1,706.1 1,819.2 2,259.4 Shareholders' equity - common stock ........................... 1,224.4 1,497.1 1,510.2 1,537.5 2,017.7 - --------------------------------------------------------------------------------------------------------------------------------- DATA PER COMMON SHARE Earnings from continuing operations before special items (2) .. $ 2.03 $ 1.68 $ 1.30 $ 1.63 $ 1.76 (Loss)/earnings from continuing operations .................... (2.05) (.45) .20 .01 1.80 Cumulative effect of accounting changes ....................... -- -- -- (2.12) -- Net (loss)/earnings ........................................... (3.40) .88 .28 (3.29) 2.50 Dividends ..................................................... 1.175 1.40 1.40 1.40 1.40 Book value .................................................... 12.57 15.91 16.16 17.10 22.77 Average common shares outstanding (thousands) ................. 95,822 93,936 91,461 89,543 87,236 - --------------------------------------------------------------------------------------------------------------------------------- OTHER STATISTICS Dividends paid on common stock ................................ $ 112.1 $ 131.5 $ 127.9 $ 125.4 $ 122.0 Capital expenditures .......................................... 537.6 444.6 309.6 398.4 447.0 % Total debt to total capital ................................. 61.1% 50.4% 52.9% 54.1% 52.7% Common shareholders of record ................................. 19,496 18,501 19,358 20,869 21,949 Common stock price range ..................................... 71 1/4-38 1/2 46 1/2-36 41 1/4-34 5/8 45-32 40 3/4-23 3/8 Number of employees - continuing operations (thousands) ....... 21.2 20.6 20.4 20.0 21.5 - --------------------------------------------------------------------------------------------------------------------------------- (1) Certain prior year amounts have been reclassified to conform to the 1995 presentation. (2) Income from continuing operations before special items reconciles to (loss)/income from continuing operations as follows: 1995 1994 1993 1992 1991 -------- ------- ------- ------- ------ Income from continuing operations before special items .... $ 194.7 $ 157.6 $ 119.1 $ 146.5 $153.9 Special items (after-tax): Provision for corporate governance ....................... (18.6) -- -- -- -- Gain on sale of remaining interest in REG ................ -- 27.0 -- -- -- Restructuring costs and asset impairments/other activities (144.0) -- -- -- -- Provisions for environmental liabilities at former manufacturing sites ................................... (50.0) (26.0) -- -- -- Provision relating to a fumed silica plant ............... -- -- -- (140.0) -- Postretirement benefits prior to plan amendments ......... -- -- -- (5.1) -- Strategic restructuring gain ............................. -- -- -- -- 3.5 Provisions relating to asbestos-related liabilities and insurance coverage ................................ (178.7) (200.0) (100.0) -- -- -------- ------- ------- ------- ------ (Loss)/income from continuing operations .................. $ (196.6) $ (41.4) $ 19.1 $ 1.4 $157.4 ======== ======= ======= ======= ======
The special items included in the foregoing table have also been excluded in determining earnings per common share from continuing operations before special items. (3) Includes income of $22.0, $124.7 and $115.3 in 1995, 1994 and 1993, respectively, from the discontinued health care operations. 1995 health care results reflect special charges totalling $102.4, relating to asset impairments of $83.6, the phase-out of certain of Grace's health care research programs of $5.6, additional costs associated with Grace's long-term incentive programs applicable to NMC of $4.8, changes in accounting estimates of $1.8 and other items totalling $6.6. F-28 75 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION REVIEW OF OPERATIONS OVERVIEW Sales and revenues increased 14% in 1995 over 1994, as compared to an increase of 11% in 1994 over 1993. (Loss)/income from continuing operations was $(196.6) million, $(41.4) million and $19.1 million in 1995, 1994 and 1993, respectively. These results reflected (a) 1995, 1994 and 1993 pretax provisions of $275.0 million, $316.0 million and $159.0 million ($178.7 million, $200.0 million and $100.0 million after-tax), respectively, relating to asbestos-related liabilities and insurance coverage (see "Financial Condition: Asbestos-Related Matters" below and Note 2 to the Consolidated Financial Statements for further information); (b) 1995 and 1994 pretax provisions of $77.0 million and $40.0 million ($50.0 million and $26.0 million after-tax), respectively, relating to environmental liabilities (see "Financial Condition: Environmental Matters" below for further information); (c) a 1995 pretax charge of $220.0 million ($144.0 million after-tax) relating to restructuring costs, asset impairments and other costs (see "Statement of Operations: Restructuring Costs, Asset Impairments and Other Costs" below for further information); (d) a 1995 pretax charge of $30.0 million ($18.6 million after-tax) relating to corporate governance matters; and (e) a 1994 gain of $27.0 million (pre- and after-tax) on the sale of Grace's remaining interest in The Restaurant Enterprises Group, Inc. Excluding these provisions and charges from all years, income from continuing operations in 1995 increased 24%, to $194.7 million, as compared to 1994, and in 1994 increased 32%, to $157.6 million, over 1993. Income from continuing operations reflects corporate expenses of $37.8 million, $37.1 million and $37.4 million in 1995, 1994 and 1993, respectively, previously allocated to the discontinued health care operations. These expenses will not be assumed by National Medical Care, Inc. (NMC), Grace's principal health care subsidiary, following completion of its proposed separation from Grace, and it is expected that these costs will be eliminated. See below for additional information regarding the proposed separation of NMC from Grace and Grace's cost management efforts. For all periods presented, the Consolidated Statement of Operations has been restated to reflect the classification of certain businesses as discontinued operations, as discussed in Note 7 to the Consolidated Financial Statements. SPECIALTY CHEMICALS Operating Results - 1995 Compared to 1994 As noted above, sales and revenues increased 14% in 1995 as compared to 1994, reflecting favorable volume, price/product mix and currency translation variances estimated at 7%, 4% and 3%, respectively. All product lines experienced improved volumes in 1995. Packaging volume increases reflected higher sales of bags and films in all regions, and higher sales of laminates in all regions other than Latin America. Volume increases in catalysts and other silica-based products reflected higher sales in all regions, especially refinery catalysts in Asia Pacific and Europe, and silica/adsorbent products in Europe and Asia Pacific. Container volume increases were due to increased sales of specialty polymers and can sealing products in Asia Pacific, and coating products in Latin America. Volume increases in water treatment reflected higher paper industry process chemicals sales in Europe and North America caused by market share gains, as well as higher water treatment chemicals sales in Latin America. Construction products experienced volume increases, primarily in Asia Pacific, due to increased construction activity, partially offset by volume decreases in both fire protection products in North America (due to a small market share loss) and waterproofing products in Europe and North America. Operating income before taxes (which excludes for all years the items discussed in the second paragraph of "Overview" above) increased by 15% in 1995 as compared to 1994. North American results in 1995 improved, reflecting strong growth in packaging due to the volume increases noted above (especially in bags). However, this was partially offset by reduced profitability in refinery catalysts, as North American refiners continued to experience low margins. The narrow spread between light and heavy crude oil prices led customers to crack higher quality light crude rather than heavy crude oil (which requires more catalysts). In addition, water treatment chemicals in North America experienced lower profitability due to ongoing market consolidations. European results in 1995 improved significantly versus 1994, primarily in packaging, reflecting volume increases caused by an economic recovery that revitalized key markets, partially offset by unfavorable results in construction waterproofing products due to higher material costs and a slowdown in the nonresidential construction market. European results also benefited from the absence of costs incurred in 1994 to streamline European packaging, water treatment and container operations. In Asia Pacific, favorable results were achieved versus 1994, primarily in refinery catalysts and silica/adsorbent and construction products (due to the volume increases noted above), partially offset by higher operating costs incurred to increase market share in the region. Latin American 1995 results declined slightly versus 1994, primarily due to the effect of inflation indexation on wage and employee benefit costs in the Brazilian water treatment operations, partially offset by increased profitability in packaging due to improved volumes and in container products due to market share gains in coating products. The above results reflect the allocation of corporate overhead and corporate research expenses; corporate interest and financing costs and nonallocable expenses are not reflected in the results of specialty chemicals. F-29 76 Operating Results - 1994 Compared to 1993 Sales and revenues increased by 11%, and operating income before taxes increased by 19%, in 1994 as compared to 1993. The increase in sales and revenues reflected favorable volume, price/product mix and currency translation variances estimated at 9%, 1% and 1%, respectively. Volume increases were experienced by all core product lines. North American results in 1994 were positively affected by strong growth in construction and packaging, mainly due to the volume increases, partially offset by reduced profitability in refinery catalysts due to volume decreases as a result of customers' use of higher quality crude oil and an increase in customer maintenance shutdowns. European results in 1994 improved significantly versus 1993, primarily due to improvements in refinery and polyolefin catalysts and construction products (due to the volume increases), partially offset by costs associated with streamlining European operations. In Asia Pacific, favorable results were achieved versus 1993, primarily due to volume increases in refinery and polyolefin catalysts and container products. Latin American 1994 results improved versus 1993, primarily due to increased profitability in packaging (due to increased volumes in bags, films and laminates). Latin American results also benefited from improved economic conditions in Brazil; however, this was partially offset by the devaluation of the Mexican peso in late 1994. STATEMENT OF OPERATIONS OTHER INCOME See Note 4 to the Consolidated Financial Statements for information relating to other income. INTEREST EXPENSE AND RELATED FINANCING COSTS Excluding amounts allocated to discontinued operations (as discussed in Note 7 to the Consolidated Financial Statements), interest expense and related financing costs of $71.3 million in 1995 increased 44% versus 1994. Including amounts allocated to discontinued operations, interest expense and related financing costs increased 50% in 1995 over 1994, to $164.8 million, primarily due to higher average effective short-term interest rates and higher debt levels. Grace's debt and interest rate management objectives are to reduce its cost of funding over the long term, considering economic conditions and their potential impact on Grace, and to improve liquidity by developing and maintaining access to a variety of long-term and short-term capital markets. To manage its exposure to changes in interest rates, Grace enters into interest rate agreements; during 1995, most of these agreements effectively converted fixed-rate debt into variable-rate debt. These agreements have readily identifiable impacts on interest cost and are characterized by broad market liquidity. See Note 11 to the Consolidated Financial Statements for further information on interest rate agreements. See "Financial Condition: Liquidity and Capital Resources" below and Note 10 to the Consolidated Financial Statements for information on borrowings. RESEARCH AND DEVELOPMENT EXPENSES Research and development spending increased 13% in 1995 versus 1994. Research and development spending continues to be directed toward Grace's core specialty chemicals businesses. As discussed below, during 1995 Grace undertook a worldwide restructuring program, including a study of company-wide research and development expenses. Certain actions have already been taken based on this study, including the shutdown of Grace's Japan research center and the phase-out of certain research programs related to noncore operations. RESTRUCTURING COSTS, ASSET IMPAIRMENTS AND OTHER COSTS Restructuring Costs As discussed in Note 5 to the Consolidated Financial Statements, during the third quarter of 1995, Grace began implementing a worldwide restructuring program aimed at streamlining processes and reducing general and administrative expenses, factory administration costs and noncore corporate research and development expenses. The program is expected to be substantially completed by the end of 1996. In the third and fourth quarters of 1995, Grace recorded pretax charges totalling $44.3 million and $91.7 million ($27.2 million and $61.9 million after-tax), respectively, comprised of $77.4 million for employee termination benefits; $13.4 million for plant closure and related costs, including lease termination costs; $15.5 million for prior business exits and related costs; $20.8 million for asset writedowns; and $8.9 million for other costs. The $77.4 million for employee termination benefits primarily represents severance pay and other benefits associated with the elimination of approximately 1,000 positions worldwide; more than 50% of the total cost reductions will come from corporate staff functions worldwide. Grace expects to implement additional cost reductions and efficiency improvements beyond those discussed above, as its businesses further evaluate and reengineer their operations. These reductions and efficiencies are expected in areas such as purchasing, logistics, working capital management and manufacturing. F-30 77 Asset Impairments During 1995, Grace determined that, due to various events and changes in circumstances (including the worldwide restructuring program described above), certain long-lived assets and related goodwill were impaired. As a result, in the fourth quarter of 1995, Grace recorded a $43.5 million pretax charge ($29.0 million after-tax), the majority of which related to assets that will continue to be held and used in Grace's continuing operations; the charge included no significant individual components. Grace determined the amount of the charge based on various valuation techniques, including discounted cash flow, replacement cost and net realizable value for assets to be disposed of. Other Costs Also, in the fourth quarter of 1995, Grace recorded pretax charges totalling $40.5 million ($25.9 million after-tax) relating to the writedown of corporate assets ($27.0 million) and working capital assets ($13.5 million). These amounts are included in "Cost of goods sold and operating expenses" in the Consolidated Statement of Operations. INCOME TAXES Grace's effective tax rates were (37.1)%, (53.0)% and 34.6% in 1995, 1994 and 1993, respectively. Excluding the items discussed in the second paragraph of "Review of Operations: Overview" above, Grace's effective tax rates were 32.8%, 34.6% and 36.7% in 1995, 1994 and 1993, respectively. The lower effective tax rate in 1995, as compared to 1994, was largely due to the reversal of the valuation allowance on foreign net operating losses and lower state income taxes, partially offset by higher taxes on foreign operations. The lower effective tax rate in 1994, as compared to 1993, was largely due to lower taxes on foreign operations. Grace has recognized a valuation allowance relating to uncertainty as to the realization of certain deferred tax assets, including U.S. tax credit carryforwards, state and local net operating loss carryforwards and net deferred tax assets. As a result of the favorable resolution of an audit, the valuation allowance on net operating loss carryforwards in foreign jurisdictions was reversed in 1995. Based upon anticipated future results, Grace has concluded, after consideration of the valuation allowance, that it is more likely than not that the remaining balance of the net deferred tax assets will be realized. See Note 6 to the Consolidated Financial Statements for further information on income taxes. DISCONTINUED OPERATIONS HEALTH CARE In June 1995, the Company announced that its Board of Directors had approved a plan to spin off NMC. As a result, Grace classified its health care business as a discontinued operation in the second quarter of 1995 and, accordingly, NMC's operations are included in "(Loss)/income from discontinued operations" in the Consolidated Statement of Operations. Following NMC's receipt in October 1995 of five investigative subpoenas from the Office of the Inspector General of the U.S. Department of Health and Human Services (OIG), as discussed below, the completion of the spin-off of NMC, originally expected in the 1995 fourth quarter, was delayed. In February 1996, Grace and Fresenius AG (Fresenius) entered into a definitive agreement to combine NMC with Fresenius' worldwide dialysis business (FWD) to create Fresenius Medical Care (FMC). As a result of the combination, FMC would acquire NMC, which would remain responsible for all liabilities arising out of the investigations, discussed below. However, Grace would retain certain health care assets, primarily a bioseparation sciences business, a health care services company and other assets (including cash and marketable securities). The combination would follow a borrowing of approximately $2.3 billion by NMC, a tax-free distribution of the proceeds by NMC to Grace, and a tax-free distribution by the Company, with respect to each share of its Common Stock, of one share of a newly formed corporation holding all of Grace's businesses (principally its specialty chemicals businesses) other than NMC. As a result of the separation of Grace's specialty chemicals businesses from NMC and the subsequent combination of NMC and FWD, the holders of the Company's Common Stock would own 100% of the specialty chemicals company and 44.8% of FMC, and Fresenius and other shareholders would own 55.2% of FMC. The holders of the Company's Common Stock would also own preferred stock, the value of which would be linked to the performance of FMC. Completion of the various transactions is subject to customary conditions, including the approval of the shareholders of the Company and Fresenius; U.S., German and European regulatory actions; and obtaining financing on satisfactory terms. Commitments for financing have been received, and it is expected that the various transactions will be completed by the third quarter of 1996. Operating Results - 1995 Compared to 1994 Health care sales and revenues for 1995 increased by 11% over 1994, due to increases of 13%, 3% and 10%, respectively, in kidney dialysis services, home health care and medical products operations. The increase in kidney dialysis services reflects acquisitions in 1995 and 1994, and the increase in home health care reflects the full-year ownership of Home Nutritional Services, Inc., a national provider of home infusion therapy services acquired in April 1994. The number of centers providing dialysis and related services increased 15%, from 590 at December 31, 1994 to 681 at December 31, 1995 (574 in North America, 62 in Europe, 33 in Latin America and 12 in Asia Pacific). F-31 78 Operating income before taxes in 1995 increased 10%, to $315.6 million, as compared to 1994, excluding 1995 pretax charges totalling $117.5 million ($102.4 million after-tax). These pretax charges are comprised of (a) asset impairments of $84.3 million ($83.6 million after-tax); (b) the phase-out of certain of Grace's health care research programs of $8.8 million ($5.6 million after-tax); (c) changes in accounting estimates totalling $8.7 million ($1.8 million after-tax); (d) additional costs associated with Grace's long-term incentive programs applicable to NMC of $8.3 million ($4.8 million after-tax); and (e) other items totalling $7.4 million ($6.6 million after-tax). Health care results reflect the allocation of Grace's health care-related research expenses; however, corporate interest and financing costs allocated to the health care business are not reflected in operating income before taxes. These allocations are not necessarily indicative of the costs that would be incurred by the health care business on a stand-alone basis. The 1995 asset impairments totalling $84.3 million pretax, referred to above, are comprised of: (a) NMC's investment in a German dialysis machine manufacturing operation - $39.8 million (pre- and after-tax); (b) NMC's investment in a dialyzer development operation in Ireland - $16.6 million (pre- and after-tax); (c) Grace's investment in a health care services company - $26.2 million (pre- and after-tax); and (d) other items of $1.7 million pretax ($1.0 million after-tax). Operating Results - 1994 Compared to 1993 Sales and revenues for 1994 increased by 24% over 1993, due to increases of 28% and 47%, respectively, in kidney dialysis services and home health care operations, partially offset by a decrease of 7% in medical products revenues. The decrease in medical products operations reflects a decline in bloodline sales resulting from warning letters and import alerts issued by the U.S. Food and Drug Administration (FDA) in the second quarter of 1993. Operating income before income taxes for 1994 increased 23%, to $287.5 million, over 1993, reflecting the continued growth of all health care businesses, as well as improvements in cost controls, operating efficiencies and capacity utilization. These favorable results were partially offset by the costs of improving and expanding quality assurance systems for medical products manufacturing operations, as a result of the FDA warning letters and import alerts. Other Significant Health Care Matters In October 1995, NMC received five investigative subpoenas from the OIG. The subpoenas call for the production of extensive documents relating to various aspects of NMC's business. A letter accompanying the subpoenas stated that they had been issued in conjunction with an investigation being conducted by the OIG, the U.S. Attorney for the District of Massachusetts and others concerning possible violations of Federal laws relating to health care payments and reimbursements. The results of the investigation and its impact, if any, cannot be predicted at this time. In the event that any government agency believes that wrongdoing related to the investigation has occurred, civil and/or criminal proceedings could be instituted, and if any such proceedings were to be instituted and the outcome were unfavorable, NMC could be subject to fines, penalties and damages or could become excluded from government reimbursement programs. Any such result could have a material adverse effect on NMC's financial position or the results of operations of NMC and Grace. NMC's business, financial position and results of operations could also be materially adversely affected by (a) an adverse outcome in the pending litigation concerning the implementation of certain provisions of the Omnibus Budget Reconciliation Act of 1993 relating to the coordination of benefits between Medicare and employer health plans in the case of certain dialysis patients; (b) an adverse outcome in the pending challenge by NMC of changes effected by Medicare in approving reimbursement claims relating to the administration of intradialytic parenteral nutrition (IDPN) therapy; or (c) the adoption of pending Medicare proposals to change IDPN coverage prospectively. See Note 7 to the Consolidated Financial Statements for additional information relating to the above matters. COCOA AND OTHER BUSINESSES In the second quarter of 1993, Grace classified as discontinued operations its cocoa business; its battery separators business; certain engineered materials businesses, principally its printing products, material technology and electromagnetic radiation control businesses (collectively, EMS); and other noncore businesses. At that time, a provision of $105.0 million (net of an applicable tax benefit of $22.3 million) was recorded to reflect the losses expected on the divestment of these businesses. During the fourth quarter of 1995, Grace revised the divestment plan for its cocoa business. As a result of this revised divestment plan, recent trends and a reassessment of forecasts for all remaining discontinued operations, Grace recorded an additional provision of $151.3 million (net of an applicable tax benefit of $48.7 million) related to its remaining discontinued operations, principally the cocoa business. See Note 7 to the Consolidated Financial Statements for additional information relating to the above matters. F-32 79 FINANCIAL CONDITION LIQUIDITY AND CAPITAL RESOURCES During 1995, the net pretax cash provided by Grace's continuing operating activities was $229.7 million, versus $210.9 million in 1994. The increase was primarily due to net cash inflows of $97.0 million in 1995 from settlements with certain insurance carriers for asbestos-related litigation, net of amounts paid for the defense and disposition of asbestos-related litigation (see discussion below), as compared to the net outflow of $60.0 million for asbestos-related litigation in 1994. However, the 1995 increase was offset by an increase in the use of operating working capital. After giving effect to the net pretax cash provided by operating activities of discontinued operations (including an increase in the use of operating working capital by NMC in 1995) and increased payments of income taxes (attributable to taxable income resulting from settlements of asbestos-related litigation, as well as audit adjustments to prior years' Federal income tax returns), the net cash provided by operating activities was $107.0 million in 1995 versus $453.5 million in 1994. Investing activities used $801.6 million of cash in 1995, largely reflecting capital expenditures of $537.6 million (more than 75% of which relates to Grace's packaging and catalyst and other silica-based businesses) and the acquisition of dialysis centers and medical products facilities for a total of $37.4 million in the first quarter of 1995. Also, investing activities of discontinued operations for 1995 used $295.2 million, primarily reflecting the classification of the health care segment as a discontinued operation in the second quarter. Management anticipates that the level of capital expenditures in 1996 will approximate that of 1995. In 1995, Grace launched a $350.0 million global capital expansion program in its packaging product line, including $50.0 million to build a plant in Seneca, South Carolina to serve the fresh-cut produce market. In 1996, Grace is also scheduled to open new silica and packaging plants in Kuantan, Malaysia. Net cash provided by financing activities in 1995 was $655.7 million, primarily reflecting an increase in total debt from December 31, 1994 and the exercise of employee stock options, offset by the payment of $112.6 million of dividends. Total debt was $1,933.8 million at December 31, 1995, an increase of $404.1 million from December 31, 1994. Grace's total debt as a percentage of total capital (debt ratio) increased from 50.4% at December 31, 1994 to 61.1% at December 31, 1995, primarily due to the reduction in shareholders' equity (due to the charges discussed in the second paragraph of "Review of Operations: Overview" and "Statement of Operations: Discontinued Operations" above) and the increase in total debt. At December 31, 1995, the net assets of the discontinued health care segment included $226.7 million of debt. Grace expects to receive a substantial amount of cash in 1996 from the expected distribution by NMC (as discussed in "Statement of Operations: Discontinued Operations" above and Note 7 to the Consolidated Financial Statements), the sale of the Grace Dearborn water treatment and process chemicals business (see discussion below), and, to a lesser extent, funds generated by operations. Grace expects to apply a substantial portion of the cash proceeds generated by these transactions to the reduction of borrowings. Any net excess is expected to be applied to the repurchase of shares of the Company's Common Stock and selected strategic acquisitions that complement existing businesses. In the third quarter of 1995, Grace announced that its Board of Directors had authorized management to pursue options to maximize the value of its Grace Dearborn water treatment and process chemicals business. In March 1996, Grace announced that it had entered into a definitive agreement to sell Grace Dearborn to Betz Laboratories, Inc. for $632.0 million. The transaction is expected to be completed in the second quarter of 1996. In October 1995, in anticipation of the then pending spin-off of NMC, the Company's Board of Directors declared a quarterly cash dividend of 12.5 cents per share on the Company's Common Stock, a reduction from the previous quarterly cash dividend of 35 cents per share. At that time, the Board also approved a policy of paying dividends at a rate of 20% - 30% of the prior year's net earnings and authorized the repurchase of up to 10 million shares of the Company's Common Stock. In February 1996, after entering into the definitive agreement to combine NMC with FWD, the Board increased the number of shares that may be repurchased to 20% of the Company's outstanding Common Stock (see "Statement of Operations: Discontinued Operations" above and Note 7 to the Consolidated Financial Statements). ASBESTOS-RELATED MATTERS As reported in Note 2 to the Consolidated Financial Statements, Grace is a defendant in lawsuits relating to previously sold asbestos-containing products and is involved in related litigation with certain of its insurance carriers. In 1995, Grace received $97.0 million under settlements with certain insurance carriers, net of amounts paid for the defense and disposition of asbestos-related property damage and personal injury litigation. During the fourth quarter of 1995, Grace recorded a noncash pretax charge of $275.0 million ($178.7 million after-tax), primarily to reflect the estimated costs of defending against and disposing of personal injury lawsuits and claims expected to be filed through 1998. The balance sheet at December 31, 1995 includes a receivable due from insurance carriers, a portion of which is subject to litigation, of $321.2 million. Grace has also recorded notes receivable of $130.0 million ($118.4 million after discounts) for amounts to be received in 1996 to 1999 pursuant to settlement agreements previously entered into with certain insurance carriers. F-33 80 Although the amounts to be paid in 1996 in respect of asbestos-related lawsuits and claims cannot be precisely estimated, Grace expects that it will be required to expend approximately $40.0 million (pretax) in 1996 to defend against and dispose of such lawsuits and claims (after giving effect to payments to be received from certain insurance carriers, as discussed above and in Note 2 to the Consolidated Financial Statements). As indicated therein, the amounts reflected in the Consolidated Financial Statements with respect to the probable cost of defending against and disposing of asbestos-related lawsuits and claims and probable recoveries from insurance carriers represent estimates; neither the outcomes of such lawsuits and claims nor the outcomes of Grace's continuing litigations with certain of its insurance carriers can be predicted with certainty. ENVIRONMENTAL MATTERS Grace incurs costs to comply with environmental laws and regulations and to fulfill its commitment to industry initiatives and Grace standards. Worldwide expenses of continuing operations related to the operation and maintenance of environmental facilities and the disposal of hazardous and nonhazardous wastes totalled $43.5 million, $35.7 million and $40.7 million in 1995, 1994 and 1993, respectively. Such costs are estimated to be approximately $45.0 million and $47.0 million in 1996 and 1997, respectively. In addition, worldwide capital expenditures for continuing operations relating to environmental protection totalled $14.9 million in 1995, compared to $21.5 million and $19.3 million in 1994 and 1993, respectively. Capital expenditures to comply with environmental initiatives in future years are estimated to be $20.0 million and $17.0 million in 1996 and 1997, respectively. Grace has also incurred costs to remediate environmentally impaired sites. These costs were $31.3 million, $30.8 million and $44.4 million in 1995, 1994 and 1993, respectively. These amounts have been charged against previously established reserves. Future cash outlays for remediation costs are expected to total $30.0 million in 1996 and $20.0 million in 1997. Expenditures have been funded from internal sources of cash and are not expected to have a significant effect on liquidity. Grace accrues for anticipated costs associated with investigatory and remediation efforts relating to the environment in accordance with Statement of Financial Accounting Standards No. 5, "Accounting for Contingencies," which requires estimating the probability and amount of future costs. At December 31, 1995, Grace's liability for environmental investigatory and remediation costs related to continuing and discontinued operations totalled approximately $280.3 million, which amount does not take into account any discounting for future expenditures or possible future insurance recoveries. The measurement of the liability is evaluated quarterly based on currently available information. In 1995 and 1994, periodic provisions were recorded for environmental and plant closure expenses, which include the costs of future environmental investigatory and remediation activities. Additionally, in the fourth quarter of 1995 and first quarter of 1994, Grace recorded pretax provisions of $77.0 million and $40.0 million ($50.0 million and $26.0 million after-tax), respectively, principally to provide for future costs related to remediation activities required at former manufacturing sites. F-34 81 SCHEDULE VIII W. R. GRACE & CO. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (in millions)
For the Year 1995 Additions (deductions) --------------------- Charged Balance at (credited) to Balance beginning costs and Other, at end Description of period expenses net** of period ----------- --------- ---------- ----------- ---------- Valuation and qualifying accounts deducted from assets: Allowances for notes and accounts receivable................. $ 95.2 $ 131.2 $ (213.5) $ 12.9 ------------ ---------- ----------- ----------- Allowances for long-term receivables......................... $ 20.6 $ 3.7 $ .4 $ 24.7 ------------ ---------- ----------- ----------- Securities of divested businesses............................ $ 4.9 $ - $ (1.4) $ 3.5 ------------ ---------- ----------- ----------- Valuation allowance for deferred tax assets.................. $ 137.0 $ (32.0) $ (7.3) $ 97.7 ------------ ---------- ----------- ----------- Reserves: Foreign employee benefit obligations* ....................... $ 82.5 $ 10.6 $ 2.2 $ 95.3 ------------ ---------- ----------- ----------- Discontinued operations...................................... $ 239.3 $ 127.4 $ - $ 366.7 ------------ ---------- ----------- ----------- For the Year 1994 Additions (deductions) --------------------- Charged Balance at (credited) to Balance beginning costs and Other, at end Description of period expenses net** of period ----------- --------- ---------- ----------- ---------- Valuation and qualifying accounts deducted from assets: Allowances for notes and accounts receivable................. $ 50.3 $ 102.2 $ (57.3) $ 95.2 ------------ --------- --------- ----------- Allowances for long-term receivables......................... $ 13.4 $ 6.9 $ .3 $ 20.6 ------------ --------- --------- ----------- Securities of divested businesses............................ $ 161.2 $ - $ (156.3) $ 4.9 ------------ --------- --------- ----------- Valuation allowance for deferred tax assets.................. $ 129.7 $ - $ 7.3 $ 137.0 ------------ --------- --------- ----------- Reserves: Foreign employee benefit obligations* ....................... $ 64.4 $ 11.6 $ 6.5 $ 82.5 ------------ --------- --------- ----------- Discontinued operations ..................................... $ 132.1 $ 107.2 $ - $ 239.3 ------------ --------- --------- ----------- For the Year 1993 Additions (deductions) --------------------- Charged Balance at (credited) to Balance beginning costs and Other, at end Description of period expenses net** of period ----------- --------- ---------- ----------- ---------- Valuation and qualifying accounts deducted from assets: Allowances for notes and accounts receivable................. $ 39.3 $ 67.4 $ (56.4) $ 50.3 ------------ --------- --------- ----------- Allowances for long-term receivables......................... $ 8.4 $ 5.3 $ (.3) $ 13.4 ------------ --------- --------- ----------- Securities of divested businesses............................ $ 152.9 $ 8.3 $ - $ 161.2 ------------ --------- --------- ----------- Valuation allowance for deferred tax assets.................. $ 143.1 $ - $ (13.4) $ 129.7 ------------ --------- --------- ----------- Reserves: Foreign employee benefit obligations* ....................... $ 83.4 $ 12.2 $ (31.2) $ 64.4 ------------ --------- --------- ----------- Discontinued operations ..................................... $ 144.7 $ (12.6) $ - $ 132.1 ------------ --------- --------- -----------
* Represents legally mandated employee benefit obligations, primarily pension benefits, relating to Grace's operations in Europe. ** Consists of additions and deductions applicable to businesses acquired, disposals of businesses, bad debt write-offs, foreign currency translation, reclassifications (including the deconsolidation of amounts relating to discontinued operations) and miscellaneous other adjustments. F-35 82 Exhibit 11 W. R. GRACE & CO. AND SUBSIDIARIES WEIGHTED AVERAGE NUMBER OF SHARES AND EARNINGS USED IN PER SHARE COMPUTATIONS The weighted average number of shares of Common Stock outstanding were as follows:
(in thousands) ----------------------------------- 1995 1994 1993 -------- ----------- -------- Weighted average number of shares of Common Stock outstanding . . . . . . . . . . . . . . . . . 95,822 93,936 91,461 Conversion of convertible debt obligations . . . . . . . . . - - 46 Additional dilutive effect of outstanding options (as determined by the application of the treasury stock method) . . . . . . . . . . . . . . . . . . 2,189 659 680 ------ ------ ------ Weighted average number of shares of Common Stock outstanding assuming full dilution . . . . . 98,011 94,595 92,187 ====== ====== ======
(Loss)/income used in the computation of (loss)/earnings per share were as follows:
(in millions, except per share) ---------------------------------------- 1995 1994 1993 --------- ----------- --------- Net (loss)/income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (325.9) $ 83.3 $ 26.0 Dividends paid on preferred stocks . . . . . . . . . . . . . . . . . . . . . . (.5) (.5) (.5) --------- ----------- --------- (Loss)/income used in per share computation of earnings and in per share computation of earnings assuming full dilution . . . . . . $ (326.4) $ 82.8 $ 25.5 ========= =========== ========= (Loss)/earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . $ (3.40) $ .88 $ .28 (Loss)/earnings per share assuming full dilution . . . . . . . . . . . . . . . $ (3.33) $ .88 $ .28
F-36 83 EXHIBIT 12 W.R. GRACE & CO. AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (in millions, except ratios) (Unaudited)
Years Ended December 31, (b) ----------------------------------------------------------------- 1995(c) 1994(d) 1993(e) 1992(f) 1991 ------- ------- ------- ------- ------- Net (loss)/income from continuing operations.......... $ (196.6) $ (41.4) $ 19.1 $ 1.4 $ 157.4 Add (deduct): (Benefit from)/provision for income taxes ....... (115.8) (46.6) 10.1 79.9 99.1 Income taxes of 50%-owned companies ............ - - .1 2.1 1.5 Minority interest in income of majority-owned subsidiaries................... - - - - - Equity in unremitted losses/(earnings) of less than 50%-owned companies.............. .8 (.6) (.5) (2.0) (.9) Interest expense and related financing costs, including amortization of capitalized interest 179.8 138.5 122.7 162.7 209.6 Estimated amount of rental expense deemed to represent the interest factor....... 8.5 10.1 11.3 14.0 12.7 ------ ------- ------- ------- ------- (Loss)/income as adjusted............................ $ (123.3) $ 60.0 $ 162.8 $ 258.1 $ 479.4 ========= ======== ======= ======= ======= Combined fixed charges and preferred stock dividends: Interest expense and related financing costs, including capitalized interest................ $ 195.5 $ 143.2 $ 122.8 $ 176.3 $ 224.5 Estimated amount of rental expense deemed to represent the interest factor...... 9.1 10.1 11.3 14.0 12.7 -------- ------- ------- ------- ------- Fixed charges........................................ 204.6 153.3 134.1 190.3 237.2 Preferred stock dividend requirements(a)............. .5 .5 .8 .8 .9 -------- ------- ------- ------- ------- Combined fixed charges and preferred stock dividends................................. $ 205.1 $ 153.8 $ 134.9 $ 191.1 $ 238.1 ======== ======= ======== ======= ======= Ratio of earnings to fixed charges................... (g) (g) 1.21 1.36 2.02 ======== ======= ======== ======= ======= Ratio of earnings to combined fixed charges and preferred stock dividends....................... (g) (g) 1.21 1.35 2.01 ======== ======= ======== ======= =======
(a) For each period with an income tax provision, the preferred stock dividend requirements are increased to an amount representing the pretax earnings required to cover such requirements based on Grace's effective tax rate. (b) Certain amounts have been restated to conform to the 1995 presentation. (c) Includes pretax provisions of $275.0 for asbestos-related liabilities and insurance coverage; $220.0 relating to restructuring costs, asset impairments and other activities; $77.0 for environmental liabilities at former manufacturing sites; and $30.0 for corporate governance activities. (d) Includes a pretax provision of $316.0 relating to asbestos-related liabilities and insurance coverage. (e) Includes a pretax provision of $159.0 relating to asbestos-related liabilities and insurance coverage. (f) Includes a pretax provision of $140.0 relating to a fumed silica plant in Belgium. (g) As a result of the losses incurred for the years ended December 31, 1995 and 1994, Grace was unable to fully cover the indicated fixed charges. F-37 84 W. R. GRACE & CO. Annual Report on Form 10-K for the Fiscal Year Ended December 31, 1995 EXHIBIT INDEX
EXHIBIT NO. EXHIBIT WHERE LOCATED - ------- ------- ------------- 2.01 Agreement and Plan of Exhibit 2 to Form 8-K Reorganization, dated as (filed 2/6/96) of February 4, 1996, between W. R. Grace & Co. and Fresenius AG (including, as exhibits thereto, the Distri- bution Agreement, dated as of February 4, 1996, between W. R. Grace & Co., Fresenius AG and W. R. Grace & Co.-Conn., and the Contribution Agreement, dated as of February 4, 1996, among W. R. Grace & Co., Fresenius AG, Steril Pharma GmbH and W. R. Grace & Co.- Conn.) 2.02 Grace Dearborn Worldwide Exhibit 99.2 to Form Purchase and Sale Agreement, 8-K (filed 3/27/96) dated as of March 11, 1996, between W. R. Grace & Co.-Conn. and Betz Laboratories, Inc. 3.01 Certificate of Incorporation of Exhibit 3 to Form 8-K W. R. Grace & Co., as amended (filed 6/9/88) 3.02 By-laws of W. R. Grace & Co., as Exhibit 3.02 to Form amended 10-K (filed 3/31/95)
- ---------------- Other than exhibits that are filed herewith, all exhibits listed in this Exhibit Index are incorporated herein by reference. Exhibits indicated by an asterisk (*) are the management contracts and compensatory plans, contracts or arrangements required to be filed as exhibits to this Report. In accordance with paragraph (b)(4)(iii) of Item 601 of Regulation S-K, certain instruments relating to long-term debt are not being filed; W. R. Grace & Co. agrees to furnish a copy of any such instrument to the Securities and Exchange Commission upon request. 85 4.01 Indenture dated as of Septem- Exhibit 4.2 to Form 10-K ber 29, 1992 among W. R. Grace (filed 3/26/93) & Co.-Conn., W. R. Grace & Co. and Bankers Trust Company 4.02 Indenture dated as of January Exhibit 4.4 to Form 10-K 28, 1993 among W. R. Grace (filed 3/26/93) & Co.-Conn., W. R. Grace & Co. and Bank of New York (successor to NationsBank of Georgia, N.A.) 4.03 364-Day Credit Agreement, dated Exhibit 4.1 to Form 10-Q as of September 1, 1994, among (filed 11/10/94) W. R. Grace & Co.-Conn., W. R. Grace & Co., the several banks parties thereto and Chemical Bank, as agent for such banks 4.04 Credit Agreement, dated as of Exhibit 4.2 to Form 10-Q September 1, 1994, among W. R. (filed 11/10/94) Grace & Co.-Conn., W. R. Grace & Co., the several banks parties thereto and Chemical Bank, as agent for such banks 4.05 First Amendment, dated as of Exhibit 4.05 to Form 10-K December 28, 1994, to the 364- (filed 3/31/95) Day Credit Agreement dated as of September 1, 1994 4.06 First Amendment, dated as of Exhibit 4.06 to Form 10-K December 28, 1994, to the (filed 3/31/95) Credit Agreement dated as of September 1, 1994 4.07 Second Amendment, dated as of Filed herewith December 31, 1995, to the 364- Day Credit Agreement dated as of September 1, 1994 4.08 Second Amendment, dated as of Filed herewith December 31, 1995, to the Credit Agreement dated as of September 1, 1994
86 4.09 Credit Agreement, dated as of Filed herewith December 29, 1995, among W. R. Grace & Co.-Conn., W. R. Grace & Co., the several banks par- ties thereto and Chemical Bank, as agent for such banks 4.10 First Amendment, dated as of Filed herewith December 31, 1995, to the Credit Agreement dated as of December 29, 1995 4.11 Amended and Restated Rights Exhibit to Amendment on Agreement dated as of June 7, Form 8 to Application 1990 between W. R. Grace & Co. for Registration on and Manufacturers Hanover Trust Form 8-B (filed 6/19/90) Company 10.01 W. R. Grace & Co. Executive Exhibit 19(f) to Form Salary Protection Plan, as 8-K (filed 6/9/88)* amended 10.02 W. R. Grace & Co. 1981 Stock Filed herewith* Incentive Plan, as amended 10.03 W. R. Grace & Co. 1986 Stock Filed herewith* Incentive Plan, as amended 10.04 W. R. Grace & Co. 1989 Stock Filed herewith* Incentive Plan, as amended 10.05 W. R. Grace & Co. 1994 Stock Filed herewith* Incentive Plan, as amended 10.06 W. R. Grace & Co. 1994 Stock Filed herewith* Retainer Plan for Nonemployee Directors, as amended 10.07 Forms of Stock Option Agree- Exhibit 10(h) to Form ments 10-K (filed 3/28/92)* 10.08 Forms of Restricted Share Exhibit 10(i) to Form Award Agreements 10-K (filed 3/28/92)* 10.09 Information Concerning W. R. Pages 8-13 and 29-33 of Grace & Co. Incentive Compen- Proxy Statement sation Program, Deferred (filed 4/10/95)* Compensation Program and Long-Term Incentive Program
87 10.10 W. R. Grace & Co. Retirement Exhibit 10(o) to Form Plan for Outside Directors, as 10-K (filed 3/28/92)* amended 10.11 Employment Agreement dated Exhibit 10(x) to Form as of April 1, 1991 between 10-K (filed 3/28/92)* W. R. Grace & Co.-Conn. and Constantine L. Hampers, as amended 10.12 Housing Loan Agreement dated Exhibit 10(q) to Form as of August 1, 1987 between 10-K (filed 3/29/88); W. R. Grace & Co. and J. P. Exhibit 19(i) to Form Bolduc, related Amendment and 8-K (filed 6/9/88)* Assignment dated May 10, 1988 10.13 Employment Agreement dated Exhibit 10.13 to Form August 1, 1993 between J. P. 10-K (filed 3/28/94)* Bolduc and W. R. Grace & Co. 10.14 Retirement Agreement between Exhibit 10.23 to Form W. R. Grace & Co. and J. Peter 10-K (filed 3/26/93)* Grace dated December 21, 1992 10.15 Executive Severance Agreement Exhibit 10.26 to Form dated September 1, 1992 10-K (filed 3/26/93)* between W. R. Grace & Co. and Constantine L. Hampers 10.16 Form of Executive Severance Exhibit 10.28 to Form Agreement between W. R. Grace 10-K (filed 3/26/93)* & Co. and others 10.17 Consulting Agreement dated Exhibit 10.29 to Form June 1, 1992 between W. R. 10-K (filed 3/26/93)* Grace & Co. and Kamsky Associates, Inc. 10.18 Incentive Compensation Agree- Exhibit 10.30 to Form ment dated June 1, 1992 10-K (filed 3/26/93)* between National Medical Care, Inc. and Kamsky Associates, Inc. 10.19 Consulting Agreement dated as Exhibit 10.23 to Form of December 1993 between 10-K (filed 3/31/95)* National Medical Care, Inc. and Virginia A. Kamsky
88 10.20 Amendment to Consulting Agree- Exhibit 10.1 to Form 10-Q ment, dated as of May 1, 1995, (filed 5/12/95)* among National Medical Care, Inc., Virginia A. Kamsky and Southeast Asia Markets, Inc. 10.21 W. R. Grace & Co. Supplemental Exhibit 10.25 to Form Executive Retirement Plan, as 10-K (filed 3/28/94)* amended 10.22 Agreement dated March 1, 1995 Exhibit 10.27 to Form between W. R. Grace & Co. and 10-K (filed 3/31/95)* Jean-Louis Greze 10.23 Letter Agreement dated February Filed herewith* 12, 1996 between W. R. Grace & Co. and Jean-Louis Greze 10.24 Letter Agreement dated June 15, Filed herewith* 1995 between W. R. Grace & Co. and Dr. F. Peter Boer 10.25 Letter Agreement dated July 31, Filed herewith* 1995 between W. R. Grace & Co. and Brian J. Smith and letter dated August 9, 1995 from W. R. Grace & Co. to Brian J. Smith 10.26 Agreements dated March 2 and Exhibit 10.28 to Form March 7, 1995 between J. P. 10-K (filed 3/31/95)* Bolduc and W. R. Grace & Co. 10.27 Agreement dated April 1, Exhibit 10.29 to Form 1991 between National Medical 10-K (filed 3/31/95)* Care, Inc. and Constantine L. Hampers 10.28 Employment Agreement dated as Exhibit 10.1 to Form 10-Q of May 1, 1995 between the (filed 8/14/95)* Company and Albert J. Costello 11 Weighted Average Number of Filed herewith Shares and Earnings Used in (in Financial Supplement Per Share Computations to 10-K) 12 Computation of Ratio of Earn- Filed herewith ings to Fixed Charges and (in Financial Supplement Combined Fixed Charges and to 10-K) Preferred Stock Dividends
89 13 Selected Portions of the 1995 Filed herewith Annual Report to Shareholders (in Financial Supplement of W. R. Grace & Co. to 10-K) 21 List of Subsidiaries of Filed herewith W. R. Grace & Co. 23 Consent of Independent Accoun- Filed herewith tants (in Financial Supplement to 10-K) 24 Powers of Attorney Filed herewith 99.01 Letter of Intent dated Exhibit 99.01 to Form November 5, 1993 between 10-K (filed 3/31/95) W. R. Grace & Co. and J. Peter Grace III, as amended 99.02 Agency Agreement dated Exhibit 99.02 to Form June 13, 1994 between HSC 10-K (filed 3/31/95) Holding Co., Inc and Grace Hotel Services Corporation 99.03 Letter Agreement dated Exhibit 99.03 to Form December 14, 1994 among HSC 10-K (filed 3/31/95) Holding Co., Inc., Grace Hotel Services Corporation and W. R. Grace & Co. 99.04 Services Agreement dated Exhibit 99.04 to Form November 10, 1994 between HSC 10-K (filed 3/31/95) Holding Co., Inc. and Grace Hotel Services Corporation 99.05 Settlement Agreement, dated as Filed herewith of January 26, 1996, among HSC Hospitality, Inc. (f/k/a HSC Holding Co., Inc.), Grace Hotel Services Corporation and W. R. Grace & Co. 99.06 Consulting Agreement dated as Filed herewith of December 1, 1995 between W. R. Grace & Co. and Gordon J. Humphrey
EX-4.07 2 SECOND AMENDMENT 1 EXHIBIT 4.07 SECOND AMENDMENT SECOND AMENDMENT, dated as of December 31, 1995 (this "Amendment"), to the 364-Day Credit Agreement, dated as of September 1, 1994 (as amended, supplemented or otherwise modified prior to the date hereof, the "Credit Agreement"), among W. R. GRACE & CO.-CONN., a Connecticut corporation (the "Company"), W. R. GRACE & CO., a New York corporation ("Grace New York"), the banks parties thereto (the "Banks") and CHEMICAL BANK, a New York banking corporation, as agent (in such capacity the "Agent") for the Banks. W I T N E S S E T H : WHEREAS, the Company and Grace New York have requested the Agent and the Banks to agree to amend the Credit Agreement in certain respects as hereinafter set forth; and WHEREAS, the Agent and the Banks are willing to agree to such amendment, but only on the terms and subject to the conditions set forth in this Amendment; NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company, Grace New York, the Banks and the Agent hereby agree as follows: 1. Definitions. Unless otherwise defined herein, terms defined in the Credit Agreement are used herein as therein defined. 2. Amendment of Section 1. Section 1 of the Credit Agreement is hereby amended by deleting therefrom each reference to the phrase "asbestos property damage" in the definitions of "Consolidated Adjusted Net Worth" and "EBIT" and substituting therefore the phrase "asbestos related". 3. Effectiveness. This Amendment shall become effective upon receipt by the Agent of evidence satisfactory to the Agent that this Amendment has been executed and delivered by the Company, Grace New York and the Majority Banks. 4. No Other Amendments. Except as expressly amended hereby, the Credit Agreement and the other Loan Documents (if any) shall remain in full force and effect in accordance with their respective terms. 5. Counterparts. This Amendment may be executed by one or more of the parties hereto on any number of separate counterparts and all of said counterparts taken together shall be deemed to constitute one and the same instrument. 2 2 6. Applicable Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 3 3 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered as of the day and year first above written. W. R. GRACE & CO.-CONN. By:__________________________ Title: W. R. GRACE & CO. By:__________________________ Title: CHEMICAL BANK, as Agent By:__________________________ Title: 4 4 The undersigned Banks hereby consent and agree to the foregoing Amendment: CHEMICAL BANK By:____________________________ Title: ABN AMRO BANK N.V. By:____________________________ Title: By:____________________________ Title: BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By:____________________________ Title: THE BANK OF NOVA SCOTIA By:____________________________ Title: BARCLAYS BANK PLC By:____________________________ Title: 5 5 THE CHASE MANHATTAN BANK, N.A. By:____________________________ Title: COMMERZBANK AG, ATLANTA AGENCY By:____________________________ Title: By:____________________________ Title: CREDIT LYONNAIS ATLANTA AGENCY By:____________________________ Title: DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES By:____________________________ Title: By:____________________________ Title: THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED By:____________________________ Title: 6 6 MORGAN GUARANTY TRUST COMPANY OF NEW YORK By:____________________________ Title: NATIONSBANK OF FLORIDA, N.A. By:____________________________ Title: SWISS BANK CORPORATION-NEW YORK BRANCH By:____________________________ Title: By:____________________________ Title: UNION BANK OF SWITZERLAND By:____________________________ Title: By:____________________________ Title: EX-4.08 3 SECOND AMENDMENT 1 EXHIBIT 4.08 SECOND AMENDMENT SECOND AMENDMENT, dated as of December 31, 1995 (this "Amendment"), to the Credit Agreement, dated as of September 1, 1994 (as amended, supplemented or otherwise modified prior to the date hereof, the "Credit Agreement"), among W. R. GRACE & CO.-CONN., a Connecticut corporation (the "Company"), W. R. GRACE & CO., a New York corporation ("Grace New York"), the banks parties thereto (the "Banks") and CHEMICAL BANK, a New York banking corporation, as agent (in such capacity the "Agent") for the Banks. W I T N E S S E T H : WHEREAS, the Company and Grace New York have requested the Agent and the Banks to agree to amend the Credit Agreement in certain respects as hereinafter set forth; and WHEREAS, the Agent and the Banks are willing to agree to such amendment, but only on the terms and subject to the conditions set forth in this Amendment; NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company, Grace New York, the Banks and the Agent hereby agree as follows: 1. Definitions. Unless otherwise defined herein, terms defined in the Credit Agreement are used herein as therein defined. 2. Amendment of Section 1. Section 1 of the Credit Agreement is hereby amended by deleting therefrom each reference to the phrase "asbestos property damage" in the definitions of "Consolidated Adjusted Net Worth" and "EBIT" and substituting therefore the phrase "asbestos related". 3. Effectiveness. This Amendment shall become effective upon receipt by the Agent of evidence satisfactory to the Agent that this Amendment has been executed and delivered by the Company, Grace New York and the Majority Banks. 4. No Other Amendments. Except as expressly amended hereby, the Credit Agreement and the other Loan Documents (if any) shall remain in full force and effect in accordance with their respective terms. 5. Counterparts. This Amendment may be executed by one or more of the parties hereto on any number of separate counterparts and all of said counterparts taken together shall be deemed to constitute one and the same instrument. 2 2 6. Applicable Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 3 3 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered as of the day and year first above written. W. R. GRACE & CO.-CONN. By:__________________________ Title: W. R. GRACE & CO. By:__________________________ Title: CHEMICAL BANK, as Agent By:__________________________ Title: 4 4 The undersigned Banks hereby consent and agree to the foregoing Amendment: CHEMICAL BANK By:____________________________ Title: ABN AMRO BANK N.V. By:____________________________ Title: By:____________________________ Title: BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By:____________________________ Title: THE BANK OF NOVA SCOTIA By:____________________________ Title: BARCLAYS BANK PLC By:____________________________ Title: 5 5 THE CHASE MANHATTAN BANK, N.A. By:____________________________ Title: COMMERZBANK AG, ATLANTA AGENCY By:____________________________ Title: By:____________________________ Title: CREDIT LYONNAIS ATLANTA AGENCY By:____________________________ Title: DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES By:____________________________ Title: By:____________________________ Title: THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED By:____________________________ Title: 6 6 MORGAN GUARANTY TRUST COMPANY OF NEW YORK By:____________________________ Title: NATIONSBANK OF FLORIDA, N.A. By:____________________________ Title: SWISS BANK CORPORATION-NEW YORK BRANCH By:____________________________ Title: By:____________________________ Title: UNION BANK OF SWITZERLAND By:____________________________ Title: By:____________________________ Title: EX-4.09 4 CREDIT AGREEMENT 1 EXHIBIT 4.09 ================================================================================ CREDIT AGREEMENT AMONG W. R. GRACE & CO. - CONN., W. R. GRACE & CO., THE SEVERAL BANKS PARTIES HERETO and CHEMICAL BANK, AS AGENT DATED AS OF DECEMBER 29, 1995 ================================================================================ 2
TABLE OF CONTENTS Page SECTION 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Other Definitional Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 SECTION 2. AMOUNT AND TERMS OF COMMITMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 2.1 Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 2.2 Obligations of Borrowers; Revolving Credit Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 2.3 Procedure for Revolving Credit Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 SECTION 3. BILATERAL OPTION LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 3.1 Requests for Offers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 3.2 Reports to Agent; Determination of Dollar Equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 3.3 Judgment Currency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 3.4 Repayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 SECTION 4. BID LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 4.1 The Bid Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 4.2 Procedure for Bid Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 4.3 Repayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 4.4 Interest on Bid Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 4.5 Obligations of Borrowers; Bid Loan Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 SECTION 5. LOAN FACILITY COMMON PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 5.1 Interest Rates and Payment Dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 5.2 Facility Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 5.3 Termination or Reduction of Commitments; Change of Control Date . . . . . . . . . . . . . . . . . . . . . . 24 5.4 Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 5.5 Conversion and Continuation Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 5.6 Minimum Amounts of Eurodollar Tranches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 5.7 Computation of Interest and Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 5.8 Inability to Determine Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 5.9 Pro Rata Treatment and Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 5.10 Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 5.11 Requirements of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 5.12 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 5.13 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 SECTION 6. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 6.1 Corporate Existence; Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 6.2 Corporate Power, Authorization; Enforceable Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 6.3 No Legal Bar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 6.4 No Material Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 6.5 Ownership of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 6.6 Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 6.7 Disclosure of Contingent Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 6.8 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 6.9 Certain Federal Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
i 3
Page 6.10 No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 6.11 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 6.12 Investment Company Act; Other Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 6.13 Purpose of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 6.14 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 6.15 Principal Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 SECTION 7. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 7.1 Conditions to Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 7.2 Conditions to Each Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 SECTION 8. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 8.1 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 8.2 Certificates; Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 8.3 Payment of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 8.4 Conduct of Business and Maintenance of Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 8.5 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 8.6 Inspection of Property, Books and Records; Discussions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 8.7 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 8.8 Environmental Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 SECTION 9. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 9.1 Financial Condition Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 9.2 Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 9.3 Limitation on Fundamental Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 9.4 Limitation on Asset Transfers to Foreign Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 9.5 Limitation on Subordinated Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 SECTION 10. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 SECTION 11. THE AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 11.1 Appointment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 11.2 Delegation of Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 11.3 Exculpatory Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 11.4 Reliance by Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 11.5 Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 11.6 Non-Reliance on Agent and Other Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 11.7 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 11.8 Agent in Its Individual Capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 11.9 Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 SECTION 12. GUARANTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 12.1 Grace New York Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 12.2 Company Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 12.3 No Subrogation, Contribution, Reimbursement or Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 12.4 Amendments, etc., with respect to the Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 12.5 Guarantee Absolute and Unconditional . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 12.6 Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 12.7 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 SECTION 13. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 13.1 Amendments and Waivers; Replacement of Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
ii 4
Page 13.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 13.3 No Waiver; Cumulative Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 13.4 Survival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 13.5 Payment of Expenses and Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 13.6 Successors and Assigns; Participations; Purchasing Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 13.7 Adjustments; Set-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 13.8 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 13.9 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 13.10 Integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 13.11 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 13.12 Submission to Jurisdiction; Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 13.13 Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 13.14 WAIVERS OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 13.15 Additional Borrowers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
iii 5 Schedules Schedule I Commitments; Lending Offices and Addresses for Notices Schedule II Principal Subsidiaries Exhibits Exhibit A Form of Revolving Credit Note Exhibit B Form of Bid Loan Note Exhibit C Form of Bid Loan Confirmation Exhibit D Form of Bid Loan Offer Exhibit E Form of Bid Loan Request Exhibit F-1 Form of Opinion of Counsel to the Company and Grace New York Exhibit F-2 Form of Opinion of Simpson Thacher & Bartlett Exhibit G Form of Officer's Certificate Exhibit H Form of Commitment Transfer Supplement Exhibit I Form of Notice of Additional Borrower iv 6 CREDIT AGREEMENT, dated as of December 29, 1995, among W. R. GRACE & CO.-CONN., a Connecticut corporation (the "Company"), W. R. GRACE & CO., a New York corporation and sole shareholder of the Company ("Grace New York"), the several banks from time to time parties to this Agreement (the "Banks") and CHEMICAL BANK, a New York banking corporation, as agent for the Banks hereunder (in such capacity, the "Agent"). The parties hereto hereby agree as follows: SECTION 1. DEFINITIONS 1.1 Defined Terms. As used in this Agreement, the following terms shall have the following meanings: "ABR Loans": Loans the rate of interest applicable to which is based upon the Alternate Base Rate. "Affiliate": as to any Person, (a) any other Person (other than a Subsidiary) which, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person or (b) any Person who is a director, officer, shareholder or partner (i) of such Person, (ii) of any Subsidiary of such Person or (iii) of any Person described in the preceding clause (a). For purposes of this definition, "control" of a Person means the power, directly or indirectly, either to (i) vote 10% or more of the securities having ordinary voting power for the election of directors of such Person or (ii) direct or cause the direction of the management and policies of such Person whether by contract or otherwise. "Agreement": this Credit Agreement, as amended, supplemented or otherwise modified from time to time. "Aggregate Outstanding Bilateral Option Loans": at any time, (i) the aggregate outstanding principal amount of all Dollar Bilateral Loans and (ii) the aggregate Dollar Equivalents at such time with respect to all outstanding Alternative Currency Bilateral Loans. "Alternate Base Rate": for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. "Prime Rate" shall mean the rate of interest per annum publicly announced from time to time by the Agent as its prime rate in effect at its principal office in New York City. "Federal Funds Effective Rate" shall mean, for any day, the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so 7 published for any day which is a Business Day, the average of the quotations for the day of such transactions received by the Agent from three federal funds brokers of recognized standing selected by it. If for any reason the Agent shall have determined (which determination shall be conclusive absent manifest error) that it is unable to ascertain the Federal Funds Effective Rate, for any reason, including, the inability or failure of the Agent to obtain sufficient quotations in accordance with the terms hereof, the Alternate Base Rate shall be determined without regard to clause (b) of the first sentence of this definition until the circumstances giving rise to such inability no longer exist. Any change in the Alternate Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective on the effective date of such change in the Prime Rate or the Federal Funds Effective Rate, respectively. "Alternative Currency": any currency other than Dollars which is freely transferable and convertible into Dollars. "Alternative Currency Bilateral Loan": a Loan made by a Bank to any Borrower in an Alternative Currency pursuant to Section 3. "Applicable Margin": for any day on which the long term senior unsecured debt of the Company is rated by both S&P and Moody's, the rate per annum under the caption "Margin" (a "Margin Rate") set forth below opposite the S&P and Moody's ratings applicable to such debt on such day (or, if such ratings are set opposite two different Margin Rates, then the Applicable Margin shall be the lower of said two Margin Rates):
Margin S&P Moody's ------ --- ------- .450% BB+ or lower Ba1 or lower .325% BBB- Baa3 .300% BBB Baa2 .270% BBB+ Baa1 .240% A- or higher A3 or higher
provided that if on any day the long term senior unsecured debt of the Company is rated by only one of either S&P or Moody's, the Applicable Margin will be determined based on the rating by such rating agency, and provided, further, that if on any day the long term senior unsecured debt of the Company is rated by neither S&P nor Moody's, the Applicable Margin will be determined based on the rating of 8 3 such debt by Duff & Phelps, Fitch or another nationally recognized statistical rating organization agreed to by and among the Company, the Agent and the Majority Banks (each, a "Substitute Rating Agency") and will be the Margin Rate set forth above opposite the S&P and Moody's ratings comparable to such Substitute Rating Agency's rating of such debt on such date, and provided, further, that if on any day the long term senior unsecured debt of the Company is rated by none of S&P, Moody's or any Substitute Rating Agency, the Company, the Agent and the Banks will negotiate in good faith to determine an alternative basis for calculating the Applicable Margin consistent with the table set forth above and, if agreement on such alternative basis is not reached within 30 days, the Applicable Margin will be calculated on an alternative basis determined by the Agent and the Banks in their reasonable discretion consistent with the table above, and until such alternative basis is determined the Applicable Margin will be the Applicable Margin last determined as provided in the table above. "Available Commitment": as to any Bank at any time, an amount equal to the excess, if any, of (a) the amount of such Bank's Commitment over (b) the Loan Outstandings of such Bank at such time. "Bid Loan": each Bid Loan made pursuant to Section 4. "Bid Loan Banks": Banks which have outstanding Bid Loans or which are making Bid Loans. "Bid Loan Confirmation": each confirmation by the Borrower of its acceptance of Bid Loan Offers, which Bid Loan Confirmation shall be substantially in the form of Exhibit C. "Bid Loan Note": as defined in subsection 4.5; collectively, the "Bid Loan Notes". "Bid Loan Offer": each offer by a Bank to make Bid Loans pursuant to a Bid Loan Request, which Bid Loan Offer shall contain the information specified in Exhibit D. "Bid Loan Request": each request by a Borrower for Banks to submit bids to make Bid Loans at a fixed rate, which shall contain the information in respect of such requested Bid Loans specified in Exhibit E and shall be delivered to the Agent. "Bilateral Option Loan": a Loan made by a Bank to a Borrower pursuant to Section 3. Bilateral Option Loans may be either Dollar Bilateral Loans or Alternative Currency Bilateral Loans. 9 4 "Bilateral Option Loan Report": as defined in subsection 3.2. "Board": The Board of Governors of the Federal Reserve System or any successor thereto. "Borrower": the Company and any Subsidiary of the Company with respect to which a Notice of Additional Borrower has been given and all conditions precedent to the effectiveness thereof have been satisfied. "Borrowing Date": any Business Day specified in a notice pursuant to subsection 2.3 and 4.2, as a date on which a Borrower requests the Banks to make Loans hereunder, or any date that a Bilateral Option Loan is made in accordance with subsection 3.1. "Business Day": a day other than a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to close. "Capitalized Lease": any lease of property, real or personal, the obligations of the lessee in respect of which are required to be capitalized in accordance with GAAP. "Change of Control Date": (i) the first day on which the Company determines that any Person or group of related Persons has direct or indirect beneficial ownership of 30% or more of the outstanding capital stock of Grace New York having ordinary voting power (other than stock having such power only by reason of the happening of a contingency) for the election of a majority of the board of directors of Grace New York or (ii) the first day on which any Person or group of related Persons shall acquire all or substantially all of the assets of Grace New York. "Chemical": Chemical Bank. "Closing Date": the first date on which the conditions set forth in subsection 7.1 have been satisfied or waived. "Code": the Internal Revenue Code of 1986, as amended from time to time. "Commitment": as to any Bank, the obligation of such Bank to make Revolving Credit Loans hereunder to the Borrowers in an aggregate principal amount at any one time outstanding not to exceed the amount set forth opposite such Bank's name on Schedule I under the heading "Commitment". "Commitment Percentage": as to any Bank at any time, the percentage of the aggregate Commitments then constituted by such Bank's Commitment. 10 5 "Commitment Period": the period from and including the date hereof to but not including the Termination Date or such earlier date on which the Commitments shall terminate as provided herein. "Commonly Controlled Entity": an entity, whether or not incorporated, which is under common control with the Company within the meaning of Section 4001(a)(14) of ERISA or is part of a group which includes the Company and which is treated as a single employer under subsection (b) or (c) of Section 414 of the Code. "Consolidated Adjusted Net Worth": at a particular date, with respect to Grace New York and its Subsidiaries, and without duplication, the sum of all amounts which would, in accordance with GAAP, be set forth opposite the captions "Total Shareholders' Equity", "Minority interests, current" and "Minority interests, noncurrent" (or the equivalent captions) on a consolidated balance sheet of Grace New York and its Subsidiaries prepared as of such date, plus (a) non-cash after-tax charges arising from: (1) asset disposals (excluding the retirement of property, plant and equipment in the ordinary course of business) by Grace New York and its Subsidiaries, (2) the implementation or modified application of financial accounting standards applicable to Grace New York and its Subsidiaries, and (3) other special non-recurring transactions (including charges relating to Restructuring Activities, discontinued operations and asbestos property damage litigation and claims), in each case referred to in this clause (a) occurring after June 30, 1994, plus (b) any payments received in respect of non-cash after-tax gains referred to in clause (c) of this definition, minus (c) non- cash after-tax gains arising from: (1) asset disposals (excluding the retirement of property, plant and equipment in the ordinary course of business) by Grace New York and its Subsidiaries, (2) the implementation or modified application of financial accounting standards applicable to Grace New York and its Subsidiaries, and (3) other special non-recurring transactions (including gains relating to Restructuring Activities, discontinued operations and asbestos property damage litigation and claims), in each case referred to in this clause (c) occurring after June 30, 1994, minus (d) any payments made in respect of non-cash after-tax charges referred to in clause (a) of this definition. "Consolidated Interest Expense": for any period, with respect to Grace New York and its Subsidiaries, the amount which, in conformity with GAAP, would be set forth opposite the caption "Interest expense and related financing costs" (or the equivalent caption) on a consolidated statement of operations of Grace New York and its Subsidiaries for such period. 11 6 "Consolidated Debt": at a particular date, with respect to Grace New York and its Subsidiaries, and without duplication, the sum of the amounts set forth on a consolidated balance sheet of Grace New York and its Subsidiaries prepared as of such date in accordance with GAAP opposite the captions (1) "Long-term debt" (or the equivalent caption) and (2) "Short-term debt" (or the equivalent caption) but always to include all indebtedness for borrowed money of Grace New York and its Subsidiaries in accordance with GAAP. "Contractual Obligation": as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound. "Default": any of the events specified in Section 10, whether or not any requirement for the giving of notice, the lapse of time, or both, has been satisfied. "Dollar Bilateral Loan": a Bilateral Option Loan denominated in Dollars. "Dollar Equivalent": on any date of determination by the Agent pursuant to subsection 3.2(b) or 3.2(c), as applicable, in respect of any Alternative Currency Bilateral Loan the amount of Dollars obtained by converting the outstanding amount of currency of such Alterative Currency Bilateral Loan, as specified in the then most recent Bilateral Option Loan Report, into Dollars at the spot rate for the purchase of Dollars with such currency as quoted by the Agent at its principal foreign exchange trading operations office in New York City on such date. "Dollars" and "$": dollars in lawful currency of the United States of America. "Domestic Subsidiary": any Subsidiary of Grace New York other than a Foreign Subsidiary. "Domestic Indebtedness": any Indebtedness of Grace New York and any Domestic Subsidiary. "Duff & Phelps": Duff & Phelps, Inc. "EBIT": for any period, with respect to Grace New York and its Subsidiaries, (a) all amounts which would be set forth opposite the caption "Income from continuing operations before income taxes" (or the equivalent caption) on a consolidated statement of income of Grace New York and its Subsidiaries prepared in accordance with GAAP for such period plus (b) non-cash pre-tax charges arising from: (1) asset disposals (excluding the retirement of property, plant 12 7 and equipment in the ordinary course of business) by Grace New York and its Subsidiaries, (2) the implementation or modified application of financial accounting standards applicable to Grace New York and its Subsidiaries, and (3) other special non-recurring transactions (including charges relating to Restructuring Activities, discontinued operations and asbestos property damage litigation and claims) (to the extent that such amounts have been deducted in determining the amount set forth opposite the caption "Income from continuing operations" (or the equivalent caption) for such period), plus (c) Consolidated Interest Expense for such period, plus (d) any payments received in such period in respect of non-cash pre-tax gains referred to in clause (e) of this definition, minus (e) non-cash pre-tax gains arising from: (1) asset disposals (excluding the retirement of property, plant and equipment in the ordinary course of business) by Grace New York and its Subsidiaries, (2) the implementation or modified application of financial accounting standards applicable to Grace New York and its Subsidiaries, and (3) other special non-recurring transactions (including charges relating to Restructuring Activities, discontinued operations and asbestos property damage litigation and claims) (to the extent that such amounts have been added in determining the amount set forth opposite the caption "Income from continuing operations" (or the equivalent caption) for such period), minus (f) any payments made in such period in respect of non-cash pre-tax charges referred to in clause (b) of this definition. "Environmental Laws": any and all federal, state, local or municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees or requirements of any Governmental Authority regulating, relating to or imposing liability or standards of conduct concerning environmental protection matters, including without limitation, Hazardous Materials, as now or may at any time hereafter be in effect. "ERISA": the Employee Retirement Income Security Act of 1974, as amended from time to time. "Eurocurrency Reserve Requirements": for any day as applied to a Eurodollar Loan, the aggregate (without duplication) of the rates (expressed as a decimal fraction) of any reserve requirements in effect on such day (including, without limitation, basic, supplemental, marginal and emergency reserves under any regulations of the Board of Governors of the Federal Reserve System or other Governmental Authority having jurisdiction with respect thereto) dealing with reserve requirements prescribed for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of such Board) maintained by a member bank of such System. 13 8 "Eurodollar Loans": Loans the rate of interest applicable to which is based upon the Eurodollar Rate. "Eurodollar Rate": with respect to each day during each Interest Period pertaining to a Eurodollar Loan, the rate per annum equal to the rate at which Chemical is offered Dollar deposits at or about 10:00 A.M., New York City time, two Business Days prior to the beginning of such Interest Period in the interbank eurodollar market where the eurodollar and foreign currency and exchange operations in respect of its Eurodollar Loans are then being conducted for delivery on the first day of such Interest Period for the number of days comprised therein and in an amount comparable to the amount of its Eurodollar Loan to be outstanding during such Interest Period. "Eurodollar Tranche": the collective reference to Eurodollar Loans, the Interest Periods with respect to all of which begin on the same date and end on the same later date (whether or not such Loans shall originally have been made on the same day). "Event of Default": any of the events specified in Section 10, provided that any requirement for the giving of notice, the lapse of time, or both, has been satisfied. "Existing Agreements": the 364-Day Credit Agreement dated as of September 1, 1994 among the Company, Grace New York, the several banks party thereto and Chemical, as agent, and the Credit Agreement dated as of September 1, 1994 among the Company, Grace New York, the several banks party thereto and Chemical, as agent, as each such agreement has been or may be amended, modified or supplemented from time to time. "FASB 5": Statement of Financial Accounting Standards No. 5, Accounting for Contingencies, of the Financial Accounting Standards Board, as the same may be from time to time supplemented, amended or interpreted by such Board. "Fitch": Fitch Investors Service Inc. "Foreign Subsidiary": any Subsidiary of Grace New York (i) that is organized under the laws of any jurisdiction other than any state (including the District of Columbia), territory or possession of the United States of America (a "foreign jurisdiction"), or (ii) more than 50 percent of the book value of the assets of which (as of the end of the most recent fiscal period for which financial statements are required to have been provided pursuant to subsection 8.1(a) or (b)) are located in one or more foreign jurisdictions, or (iii) more than 50 percent of the Net Sales and Revenues of which (for the most recent fiscal year for which financial statements are required to have been provided pursuant to 14 9 subsection 8.1(a)) were from sales made and/or services provided in one or more foreign jurisdictions, or (iv) more than 50 percent of the book value of the assets of which (as of the end of the most recent fiscal period for which financial statements are required to have been provided pursuant to subsection 8.1(a) or (b)) consists of equity interests in and/or Indebtedness of one or more Subsidiaries that are "Foreign Subsidiaries" within clauses (i), (ii), (iii) or (iv) of this definition. "Foreign Subsidiary Indebtedness": any Indebtedness of any Foreign Subsidiary. "GAAP": generally accepted accounting principles in the United States of America in effect from time to time. "Governmental Authority": any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Hazardous Materials": any hazardous materials, hazardous wastes, hazardous constituents, hazardous or toxic substances, petroleum products (including crude oil or any fraction thereof), defined or regulated as such in or under any Environmental Law. "Indebtedness": of any Person at any date, (a) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services (other than current trade liabilities incurred in the ordinary course of business and payable in accordance with customary practices) or which is evidenced by a note, bond, debenture or similar instrument, (b) all obligations of such Person under Capitalized Leases, and (c) without duplication, all "loss contingencies" of such Person of the types described in paragraph 12 of FASB 5, whether or not disclosed or required to be disclosed on the financial statements or footnotes thereto of such Person pursuant to GAAP. "Insolvency": with respect to any Multiemployer Plan, the condition that such Plan is insolvent within the meaning of Section 4245 of ERISA. "Insolvent": pertaining to a condition of Insolvency. "Interest Payment Date": (a) as to any ABR Loan, the fifteenth day of each March, June, September and December to occur while such Loan is outstanding and, if different, the Termination Date, and (b) as to any Eurodollar Loan having an Interest Period of three months or less, the last day of such Interest Period, and (c) as to any Eurodollar Loan 15 10 having an Interest Period longer than three months, if any, as agreed by the Borrower of such Loan and the Banks. "Interest Period": with respect to any Eurodollar Loan: (i) initially, the period commencing on the borrowing or conversion date, as the case may be, with respect to such Eurodollar Loan and ending one, two, three or six months thereafter, or such other period as may be requested by the Borrower and agreed to by the Banks making such Loan, as selected by the Borrower of such Loan in its notice of borrowing or notice of conversion, as the case may be, given with respect thereto; and (ii) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Eurodollar Loan and ending one, two, three or six months thereafter, or such other period as may be requested by the Borrower and agreed to by the Banks making such Loan, as selected by such Borrower by irrevocable notice to the Agent and the Banks which made such Eurodollar Loan not less than two Business Days prior to the last day of the then current Interest Period with respect thereto; provided that, all of the foregoing provisions relating to Interest Periods are subject to the following: (1) if any Interest Period pertaining to a Eurodollar Loan would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Business Day; (2) any Interest Period that would otherwise extend beyond the Termination Date shall end on the Termination Date; and (3) any Interest Period pertaining to a Eurodollar Loan that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month. "Lien": any mortgage, pledge, hypothecation, assignment as security, security deposit arrangement, encumbrance, lien (statutory or other), conditional sale or 16 11 other title retention agreement or other similar arrangement. "Loan": any loan made by any Bank pursuant to this Agreement. "Loan Documents": this Agreement, the Notes and the Notices of Additional Borrower. "Loan Outstandings": as to any Bank at any time, the sum of (a) the aggregate principal amount of all Revolving Credit Loans made by such Bank then outstanding, and (b) such Bank's Commitment Percentage multiplied by the aggregate principal amount of all Bid Loans then outstanding. "Loan Parties": the collective reference to the Company, the other Borrowers, and Grace New York. "Majority Banks": at any time, Banks the Commitment Percentages of which aggregate (or, if at such time all of the Commitments shall have been terminated, Banks the Commitment Percentages of which immediately prior to such termination aggregated) at least 51%. "Material Adverse Effect": a material adverse effect on (a) the business, operations, properties, or condition (financial or otherwise) of Grace New York and its Subsidiaries taken as a whole, (b) the ability of the Company, or any Borrower or Grace New York to perform their respective obligations hereunder and under the other Loan Documents to which such Person is a party, or (c) the validity or enforceability of the Loan Documents or the rights or remedies of the Agent or the Banks hereunder or thereunder. "Moody's": Moody's Investors Services, Inc. "Multiemployer Plan": a Plan which is a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "Net Sales and Revenues": with respect to any Person for any period, all sales and operating revenues of such Person during such period computed in accordance with GAAP after deducting therefrom sales returns, discounts and allowances. "Notes": the collective reference to the Revolving Credit Notes and the Bid Loan Notes, if any. "Notice of Additional Borrower": as defined in subsection 13.15(a). 17 12 "Obligations": the unpaid principal of and interest on (including, without limitation, interest accruing after the maturity of the Loans and interest accruing after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to Grace New York or any of the Borrowers, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding) the Loans and the Notes, if any, and all other obligations and liabilities of Grace New York or the Borrowers to the Agent or to the Banks, whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, this Agreement, the Notes, any other Loan Document and any other document made, delivered or given in connection herewith or therewith, whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses (including, without limitation, all fees and disbursements of counsel to the Agent or to the Banks that are required to be paid by Grace New York and/or the Borrowers pursuant to the terms of this Agreement) or any other obligation hereunder or thereunder. "Participant": as defined in subsection 13.6(b). "Payment Sharing Notice": a written notice from the Company or any Bank informing the Agent that an Event of Default has occurred and is continuing and directing the Agent to allocate payments thereafter received from the Borrower in accordance with subsection 5.9(c). "PBGC": the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA. "Person": an individual, partnership, corporation, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature. "Plan": at a particular time, any employee benefit plan which is covered by ERISA and in respect of which the Company or a Commonly Controlled Entity is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Prepayment Date": as defined in subsection 5.3(b). "Principal Subsidiary": (a) any Borrower and (b) any other Subsidiary if it shall have Total Assets at the end of the most recent fiscal year for which financial statements are required to have been furnished pursuant to subsection 8.1(a) in excess of $75,000,000 or have had during such year Net Sales and Revenues in excess of $75,000,000. 18 13 "Purchasing Banks": as defined in subsection 13.6(c). "Register": as defined in subsection 13.6(d). "Regulation U": Regulation U of the Board of Governors of the Federal Reserve System. "Regulation X": Regulation X of the Board of Governors of the Federal Reserve System. "Reorganization": with respect to any Multiemployer Plan, the condition that such plan is in reorganization within the meaning of Section 4241 of ERISA. "Reportable Event": any of the events set forth in Section 4043(b) of ERISA, other than those events as to which the thirty day notice period is waived under subsection .13, .14, .16, .18, .19 or .20 of PBGC Reg. Section 2615. "Requested Bank": as defined in subsection 3.1(a). "Requirement of Law": as to any Person, the Certificate of Incorporation and By-Laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Responsible Officer": the chief executive officer, the president, the chief financial officer or the treasurer, assistant treasurer or controller of Grace New York. "Restructuring Activities": all reductions in carrying value of assets or investments and provisions for the termination and/or relocation of operations and employees. "Revolving Credit Loans": as defined in subsection 2.1(a). "Revolving Credit Notes": as defined in subsection 2.2. "SEC": the Securities and Exchange Commission, and any successor or analogous federal Governmental Authority. "Single Employer Plan": any Plan which is covered by Title IV of ERISA, but which is not a Multiemployer Plan. "S&P": Standard & Poor's Ratings Group. 19 14 "Subsidiary": as to any Person, a corporation, partnership or other entity which is required to be consolidated with such Person in accordance with GAAP; provided, that any such corporation, partnership or other entity which is controlled by a receiver or trustee under any bankruptcy, insolvency or similar law shall continue to be a "Subsidiary" of such Person for purposes of this Agreement. Unless otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of Grace New York. "Substitute Rating Agency": as defined in the definition of "Applicable Margin". "Termination Date": September 30, 1996. "Total Assets": with respect to any Person at any time, the total of all assets appearing on the asset side of the balance sheet of such Person prepared in accordance with GAAP as of such time. "Total Capitalization": at a particular date, the sum of Consolidated Debt and Consolidated Adjusted Net Worth. "Transferee": as defined in subsection 13.6(f). "Type": as to any Loan, its nature as an ABR Loan or a Eurodollar Loan. 1.2 Other Definitional Provisions. (a) Unless otherwise specified therein, all terms defined in this Agreement shall have the defined meanings when used in the Notes, if any, or any certificate or other document made or delivered pursuant hereto. (b) As used herein and in the Notes, if any, and any certificate or other document made or delivered pursuant hereto, accounting terms relating to Grace New York and its Subsidiaries not defined in subsection 1.1, to the extent not defined, shall have the respective meanings given to them under GAAP. (c) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, subsection, Schedule and Exhibit references are to this Agreement, unless otherwise specified. (d) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. 20 15 SECTION 2. AMOUNT AND TERMS OF COMMITMENTS 2.1 Commitments. (a) Subject to the terms and conditions hereof, each Bank severally agrees to make revolving credit loans ("Revolving Credit Loans") to any Borrower from time to time during the Commitment Period in an aggregate principal amount at any one time outstanding not to exceed the amount of such Bank's Commitment, provided that no Bank shall make any Revolving Credit Loan if, (i) after giving effect to such Loan, the aggregate Loan Outstandings of all of the Banks plus the Aggregate Outstanding Bilateral Option Loans would exceed the aggregate Commitments or (ii) the commitments under the Existing Agreements are not fully utilized. (b) The Revolving Credit Loans may from time to time be (i) Eurodollar Loans, (ii) ABR Loans or (iii) a combination thereof, as determined by the Borrower thereof and notified to the Agent in accordance with subsections 2.3 and 5.5, provided that no Revolving Credit Loan shall be made as a Eurodollar Loan maturing after the Termination Date. 2.2 Obligations of Borrowers; Revolving Credit Notes. (a) Each Borrower agrees that each Revolving Credit Loan made by each Bank to such Borrower pursuant hereto shall constitute the promise and obligation of such Borrower to pay to the Agent, on behalf of such Bank, at the office of the Agent specified in subsection 13.2, in lawful money of the United States of America and in immediately available funds the aggregate unpaid principal amount of all Revolving Credit Loans made by such Bank to such Borrower pursuant to subsection 2.1, which amounts shall be due and payable (whether at maturity or by acceleration) as set forth in this Agreement and, in any event, on the Termination Date. (b) Each Borrower agrees that each Bank and the Agent are authorized to record (i) the date, amount and Type of each Revolving Credit Loan made by such Bank to such Borrower pursuant to subsection 2.1, (ii) the date of each continuation thereof pursuant to subsection 5.5(b), (iii) the date of each conversion of all or a portion thereof to another Type pursuant to subsection 5.5(a), (iv) the date and amount of each payment or prepayment of principal of each such Revolving Credit Loan and (v) in the case of each such Revolving Credit Loan which is a Eurodollar Loan, the length of each Interest Period and the Eurodollar Rate with respect thereto, in the books and records of such Bank or the Agent, as the case may be, and in such manner as is reasonable and customary for such Bank or the Agent, as the case may be, and a certificate of an officer of such Bank or the Agent, as the case may be, setting forth in reasonable detail the information so recorded, shall constitute prima facie evidence of the accuracy of the information so recorded; provided that the failure to make any such recording shall not in any way affect the obligations of such Borrower hereunder. 21 16 (c) Each Borrower agrees that, upon the request to the Agent by any Bank at any time, the Revolving Credit Loans made by such Bank to such Borrower shall be evidenced by a promissory note of such Borrower, substantially in the form of Exhibit A with appropriate insertions as to Borrower, payee, date and principal amount (a "Revolving Credit Note"), payable to the order of such Bank and in a principal amount equal to the lesser of (a) the amount of the initial Commitment of such Bank and (b) the aggregate unpaid principal amount of all Revolving Credit Loans made by such Bank to such Borrower. Upon the request to the Agent by any such Bank at any time, such Borrower shall execute and deliver to such Bank a Revolving Credit Note conforming to the requirements hereof and executed by a duly authorized officer of such Borrower. Each Bank is hereby authorized to record the date, Type and amount of each Revolving Credit Loan made by such Bank to such Borrower, each continuation thereof, each conversion of all or a portion thereof to another Type, the date and amount of each payment or prepayment of principal thereof and, in the case of Eurodollar Loans, the length of each Interest Period and the Eurodollar Rate with respect thereto, on the schedule annexed to and constituting a part of its Revolving Credit Note and any such recordation shall constitute prima facie evidence of the accuracy of the information so recorded; provided that the failure to make any such recording shall not in any way affect the obligations of such Borrower hereunder or thereunder. Each Revolving Credit Note shall (x) be dated the Closing Date, (y) be stated to mature on the Termination Date and (z) provide for the payment of interest in accordance with subsection 5.1. 2.3 Procedure for Revolving Credit Borrowing. Any Borrower may borrow under the Commitments from all Banks during the Commitment Period on any Business Day, provided that such Borrower shall give the Agent irrevocable notice (which notice must be received by the Agent (a) prior to 4:00 P.M., New York City time, three Business Days prior to the requested Borrowing Date, if all or any part of the requested Revolving Credit Loans are to be initially Eurodollar Loans, or (b) prior to 10:00 A.M., New York City time, on the requested Borrowing Date, otherwise), specifying (i) the amount to be borrowed, (ii) the requested Borrowing Date, (iii) whether the borrowing is to be of Eurodollar Loans, ABR Loans or a combination thereof and (iv) if the borrowing is to be entirely or partly of Eurodollar Loans, the respective amounts of each such Type of Loan and the respective lengths of the initial Interest Periods therefor. Each borrowing under the Commitments shall be in an amount equal to $5,000,000 or a whole multiple of $1,000,000 in excess thereof (or, in the case of ABR Loans, if the amount of the Available Commitments minus the Aggregate Outstanding Bilateral Option Loans is less than $5,000,000, such lesser amount). Upon receipt of such notice from such Borrower, the Agent shall promptly notify each Bank thereof. Each Bank will make the amount of its pro rata share of each such borrowing available to the Borrower at the office of the Agent specified in subsection 13.2 prior to 22 17 12:00 noon, New York City time, on the Borrowing Date requested by such Borrower in funds immediately available to the Agent. Such borrowing will then be made available to such Borrower on the books of such office with the aggregate of the amounts made available to the Agent by the Banks and in like funds as received by the Agent. SECTION 3. BILATERAL OPTION LOANS 3.1 Requests for Offers. (a) From time to time during the period from the Closing Date until the Termination Date, any Borrower may request any or all of the Banks (each such Bank to which such a request is made, a "Requested Bank") to make offers to make Bilateral Option Loans, provided that immediately after making any such Bilateral Option Loan, the aggregate Loan Outstandings of all the Banks plus the Aggregate Outstanding Bilateral Option Loans will not exceed the aggregate Commitments. Any such request shall specify the principal amount and maturity date of the Bilateral Option Loans for which such Borrower is requesting offers, whether such Bilateral Option Loans are requested to be Dollar Bilateral Loans or Alternative Currency Bilateral Loans, the time by which offers to make such Bilateral Option Loans must be made by such Requested Bank and by which such offers shall be accepted or rejected by such Borrower, and if all or any part of the requested Bilateral Option Loans are requested to be made as Alternative Currency Bilateral Loans, the Alternative Currency to be applicable thereto. Each Requested Bank may, but shall have no obligation to, make such offers on such terms and conditions as are satisfactory to such Requested Bank, and such Borrower may, but shall have no obligation to, accept any such offers. No Bilateral Option Loan may mature after the Termination Date. (b) Each Borrower and Requested Bank shall separately agree as to the procedures, documentation, lending office and other matters relating to any Bilateral Option Loan. 3.2 Reports to Agent; Determination of Dollar Equivalents. (a) The Borrower shall deliver to the Agent a report in respect of each Bilateral Option Loan (a "Bilateral Option Loan Report") by 2:00 P.M. (New York City time) on the date on which the applicable Borrower accepts any Bilateral Option Loan, on the date on which any principal amount thereof is repaid prior to the scheduled maturity date, or on the scheduled maturity date if payment thereof is not made on such scheduled maturity date, specifying for such Bilateral Option Loan the date on which such Bilateral Option Loan was or will be made, such amount of principal is or will be repaid or such payment was not made as the case may be; in the case of Alternative Currency Bilateral Loans, the Alternative Currency thereof; and the principal amount of such Bilateral Option Loan or principal prepayment or repayment or the amount paid (in the case of any 23 18 Alternative Currency Bilateral Loan, expressed in the Alternative Currency therefor). (b) Upon receipt of a Bilateral Option Loan Report with respect to the acceptance of a Bilateral Option Loan, the Agent shall determine the Dollar Equivalent thereof. (c) If on any Borrowing Date on which after giving effect to the Loans made on such date, the sum of the aggregate Loan Outstandings of all the Banks plus the Aggregate Outstanding Bilateral Option Loans exceeds 85% of the aggregate Commitments, then the Agent shall redetermine as of such Borrowing Date, on the basis of the most recently delivered Bilateral Option Loan Report for each Bilateral Option Loan, the Dollar Equivalent of each Alternative Currency Bilateral Loan then outstanding. In addition, for so long as the condition specified in the preceding sentence remains in effect, the Agent shall determine, at the end of each fiscal quarter of the Company, on the basis of the most recently delivered Bilateral Option Loan Report for each Bilateral Option Loan, the Dollar Equivalent of each Alternative Currency Bilateral Loan then outstanding. (d) The Agent shall promptly notify the Company of each Dollar Equivalent under this subsection 3.2. 3.3 Judgment Currency. If for the purpose of obtaining judgment in any court, it is necessary to convert a sum due from any Borrower hereunder or under any of the Notes in the currency expressed to be payable herein or under the Notes (the "specified currency") into another currency, the parties hereto agree, to the fullest extent that they may effectively do so, that the rate of exchange used shall be that at which in accordance with normal banking procedures the Agent could purchase the specified currency with such other currency at the Agent's New York office on the Business Day preceding that on which final judgment is given. The obligations of each Borrower in respect of any sum due to any Bank or the Agent hereunder or under any Note shall, notwithstanding any judgment in a currency other than the specified currency, be discharged only to the extent that on the Business Day following receipt by such Bank or the Agent (as the case may be) of any sum adjudged to be so due in such other currency such Bank or the Agent (as the case may be) may in accordance with normal banking procedures purchase the specified currency with such other currency; if the amount of the specified currency so purchased is less than the sum originally due to such Bank or the Agent, as the case may be, in the specified currency, each Borrower agrees, to the fullest extent that it may effectively do so, as a separate obligation and notwithstanding any such judgment, to indemnify such Bank or the Agent, as the case may be, against such difference, and if the amount of the specified currency so purchased exceeds: (a) the sum originally due to any Bank or the Agent, as the case may be, and 24 19 (b) any amounts shared with other Banks as a result of allocations of such excess as a disproportionate payment to such Bank under subsection 13.7, such Bank or the Agent, as the case may be, agrees to remit such excess to the applicable Borrower. 3.4 Repayments. Each Borrower shall repay to each Bank which has made a Bilateral Option Loan on the maturity date of each Bilateral Option Loan (such maturity date being that specified in the documentation referred to in subsection 3.1(a)) the then unpaid principal amount of such Bilateral Option Loan. SECTION 4. BID LOANS 4.1 The Bid Loans. Any Borrower may borrow Bid Loans from time to time on any Business Day during the period from the Closing Date until the Termination Date, in the manner set forth in this Section 4 and in amounts such that the aggregate Loan Outstandings of all the Banks at any time plus the Aggregate Outstanding Bilateral Option Loans at such time will not exceed the aggregate Commitments at such time, and provided, further, that no such Bid Loan shall be made if, after giving effect thereto, any Bid Loans would mature after the Termination Date. 4.2 Procedure for Bid Loans. (a) A Borrower shall request Bid Loans by delivering a Bid Loan Request to the Agent, in writing, by telex or facsimile transmission, or by telephone, confirmed by telex or facsimile transmission, not later than 1:00 P.M. (New York City time) one Business Day prior to the proposed Borrowing Date. Each Bid Loan Request may solicit bids for Bid Loans in an aggregate principal amount of $5,000,000 or a whole multiple of $1,000,000 in excess thereof and for not more than three alternative maturity dates for such Bid Loans. The Agent shall promptly notify each Bank by telex or facsimile transmission of the contents of each Bid Loan Request received by it. (b) Upon receipt of notice from the Agent of the contents of a Bid Loan Request, any Bank that elects, in its sole discretion, to do so, shall irrevocably offer to make one or more Bid Loans at a rate of interest determined by such Bank in its sole discretion for each such Bid Loan. Any such irrevocable offer shall be made by delivering a Bid Loan Offer to the Agent, by telephone, immediately confirmed by telex or facsimile transmission, before 9:30 A.M. (New York City time) on the proposed Borrowing Date, setting forth the maximum amount of Bid Loans for each maturity date, and the aggregate maximum amount for all maturity dates, which such Bank would be willing to make (which amounts may, subject to subsection 4.1, exceed such Bank's Commitments) and the rate of interest at which such Bank is willing to make each such Bid Loan; the Agent shall advise the Borrower before 10:00 A.M. (New York City time) on the proposed 25 20 Borrowing Date of the contents of each such Bid Loan Offer received by it. If the Agent in its capacity as a Bank shall, in its sole discretion, elect to make any such offer, it shall advise the Borrower of the contents of its Bid Loan Offer before 9:15 A.M. (New York City time) on the proposed Borrowing Date. (c) The Borrower shall before 10:30 A.M. (New York City time) on the proposed Borrowing Date, in its absolute discretion, either: (i) cancel such Bid Loan Request by giving the Agent telephone notice to that effect, and the Agent shall give prompt telephone notice thereof to the Banks and the Bid Loans requested thereby shall not be made; or (ii) accept one or more of the offers made by any Bank or Banks by giving telephone notice to the Agent (confirmed as soon as practicable thereafter by delivery to the Agent of a Bid Loan Confirmation in writing, by telex or by facsimile transmission) of the amount of Bid Loans for each relevant maturity date to be made by each Bank (which amount for each such maturity date shall be equal to or less than the maximum amount for such maturity date specified in the Bid Loan Offer of such Bid Loan Bank, and for all maturity dates included in such Bid Loan Offer shall be equal to or less than the aggregate maximum amount specified in such Bid Loan Offer for all such maturity dates) and reject any remaining offers made by Banks; provided, however, that (x) the Borrower may not accept offers for Bid Loans for any maturity date in an aggregate principal amount in excess of the maximum principal amount requested in the related Bid Loan Request, (y) if the Borrower accepts any of such offers, it must accept offers strictly based upon pricing for such relevant maturity date and no other criteria whatsoever and (z) if two or more Banks submit offers for any maturity date at identical pricing and the Borrower accepts any of such offers but does not wish to (or by reason of the limitations set forth in subsection 4.1 or in clause (x) of this proviso, cannot) borrow the total amount offered by such Banks with such identical pricing, the Borrower shall accept offers from all of such Banks in amounts allocated among them pro rata according to the amounts offered by such Banks. (d) If the Borrower accepts pursuant to clause (c) (ii) above one or more of the offers made by any Bid Loan Bank or Bid Loan Banks, the Agent shall notify before 11:00 A.M. (New York City time) each Bid Loan Bank which has made such an offer, 26 21 of the aggregate amount of such Bid Loans to be made on such Borrowing Date for each maturity date and of the acceptance or rejection of any offers to make such Bid Loans made by such Bid Loan Bank. Each Bid Loan Bank which is to make a Bid Loan shall, before 12:00 Noon (New York City time) on the Borrowing Date specified in the Bid Loan Request applicable thereto, make available to the Agent at its office set forth in subsection 13.2 the amount of Bid Loans to be made by such Bid Loan Bank, in immediately available funds. The Agent will make such funds available to the Borrower at or before 2:00 P.M. (New York City time) on such date at the Agent's aforesaid address. As soon as practicable after each Borrowing Date, the Agent shall notify each Bank of the aggregate amount of Bid Loans advanced on such Borrowing Date and the respective maturity dates thereof. 4.3 Repayments. Each Borrower shall repay to the Agent for the account of each Bid Loan Bank which has made a Bid Loan on the maturity date of each Bid Loan (such maturity date being that specified by the Borrower for repayment of such Bid Loan in the related Bid Loan Request) the then unpaid principal amount of such Bid Loan. The Borrowers shall not have the right to prepay any principal amount of any Bid Loan without the prior written consent of the Bid Loan Bank which made such Bid Loan. 4.4 Interest on Bid Loans. Each Borrower which shall have borrowed a Bid Loan shall pay interest on the unpaid principal amount of such Bid Loan from the Borrowing Date to the stated maturity date thereof, at the rate of interest determined pursuant to subsection 4.2 above (calculated on the basis of a 360 day year for actual days elapsed), payable on the interest payment date or dates specified by such Borrower for such Bid Loan in the related Bid Loan Request. If all or a portion of the principal amount of any Bid Loan shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), such overdue principal amount shall, without limiting any rights of any Bank under this Agreement, bear interest from the date on which such payment was due at a rate per annum which is 2% above the rate which would otherwise be applicable to such Bid Loan until the scheduled maturity date with respect thereto, and for each day thereafter at a rate per annum which is 2% above the Alternate Base Rate until paid in full (as well after as before judgment). 4.5 Obligations of Borrowers; Bid Loan Notes. (a) Each Borrower agrees that each Bid Loan made by each Bid Loan Bank to such Borrower pursuant hereto shall constitute the promise and obligation of such Borrower to pay to the Agent, on behalf of such Bid Loan Bank, at the office of the Agent specified in subsection 13.2, in lawful money of the United States of America and in immediately available funds the aggregate unpaid principal amount of each Bid Loan made by such Bid Loan Bank to such Borrower pursuant to subsection 4.2, which amounts shall be due and payable (whether at maturity or by 27 22 acceleration) as set forth in the Bid Loan Request related to such Bid Loan and in this Agreement. (b) Each Borrower agrees that each Bid Loan Bank and the Agent are authorized to record (i) the date and amount of each Bid Loan made by such Bid Loan Bank to such Borrower pursuant to subsection 4.2, and (ii) the date and amount of each payment or prepayment of principal of each such Bid Loan, in the books and records of such Bid Loan Bank or the Agent, as the case may be, and in such manner as is reasonable and customary for such Bank or the Agent, as the case may be, and a certificate of an officer of such Bid Loan Bank or the Agent, as the case may be, setting forth in reasonable detail the information so recorded, shall constitute prima facie evidence of the accuracy of the information so recorded; provided that the failure to make any such recording shall not in any way affect the obligations of such Borrower hereunder. (c) Each Borrower agrees that, upon the request to the Agent by any Bid Loan Bank at any time, the Bid Loans made by such Bid Loan Bank to any Borrower shall be evidenced by a promissory note of such Borrower, substantially in the form of Exhibit B with appropriate insertions (a "Bid Loan Note"), payable to the order of such Bid Loan Bank and representing the obligation of such Borrower to pay the unpaid principal amount of all Bid Loans made by such Bid Loan Bank, with interest on the unpaid principal amount from time to time outstanding of each Bid Loan evidenced thereby as prescribed in subsection 4.4. Upon the request to the Agent by any such Bid Loan Bank at any time, such Borrower shall execute and deliver to such Bid Loan Bank a Bid Loan Note conforming to the requirements hereof and executed by a duly authorized officer of such Borrower. Each Bid Loan Bank is hereby authorized to record the date and amount of each Bid Loan made by such Bank, the maturity date thereof, the date and amount of each payment of principal thereof and the interest rate with respect thereto on the schedule annexed to and constituting part of its Bid Loan Note, and any such recordation shall constitute prima facie evidence of the accuracy of the information so recorded; provided, however, that the failure to make any such recordation shall not affect the obligations of such Borrower hereunder or under any Bid Loan Note. Each Bid Loan Note shall be dated the Closing Date and each Bid Loan evidenced thereby shall bear interest for the period from and including the Borrowing Date thereof on the unpaid principal amount thereof from time to time outstanding at the applicable rate per annum determined as provided in, and such interest shall be payable as specified in, subsection 4.4. SECTION 5. LOAN FACILITY COMMON PROVISIONS 5.1 Interest Rates and Payment Dates. (a) Each Eurodollar Loan shall bear interest for each day during each Interest Period with respect thereto at a rate per annum equal to 28 23 the Eurodollar Rate determined for such Interest Period plus the Applicable Margin. (b) Each ABR Loan shall bear interest at a fluctuating rate per annum equal to the Alternate Base Rate. (c) Except as otherwise provided in subsection 4.4, if all or a portion of (i) the principal amount of any Loan or (ii) any interest payable thereon shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), such overdue amount shall bear interest at a rate per annum which is (x) in the case of overdue principal, the rate that would otherwise be applicable thereto pursuant to the foregoing provisions of this subsection plus 2% or (y) in the case of overdue interest, the rate described in paragraph (b) of this subsection plus 2%, in each case from the date of such non-payment until such amount is paid in full (as well after as before judgment). (d) Interest shall be payable in arrears on each Interest Payment Date, provided that interest accruing pursuant to paragraph (c) of this subsection shall be payable on demand. (e) Subject to the limitations set forth herein, each Borrower may use the Loans by borrowing, prepaying and reborrowing the Loans, all in accordance with the terms and conditions hereof. 5.2 Facility Fee. (a) The Company agrees to pay to the Agent for the account of each Bank a facility fee for the period from and including the date hereof to the Termination Date, computed at the rate per annum determined as set forth in paragraph (b) of this subsection on the average daily amount of the Commitment of such Bank during the period for which payment is made, payable quarterly in arrears on the fifteenth day of each March, June, September and December and on the Termination Date or such earlier date as the Commitments shall terminate as provided herein, commencing on the first of such dates to occur after the date hereof. (b) The rate per annum at which such facility fee under paragraph (a) above shall be computed (the "Applicable Facility Fee Rate"), for any day on which the long term senior unsecured debt of the Company is rated by both S&P and Moody's, shall be the rate per annum under the caption "Facility Fee Rate" (a "Facility Fee Rate") set forth below opposite the S&P and Moody's ratings applicable to such debt on such day (or, if such ratings are set opposite two different rates under said caption, then the Applicable Facility Fee Rate shall be the lower of said two Facility Fee Rates): 29 24
FACILITY FEE RATE S&P MOODY'S ---------- --- ------- .1500% BB+ or lower Ba1 or lower .1250% BBB- Baa3 .1000% BBB Baa2 .0800% BBB+ Baa1 .0600% A- or higher A3 or higher
provided that if on any day the long term senior unsecured debt of the Company is rated by only one of S&P or Moody's, such rate will be determined based on the rating by such rating agency, and provided, further, that if on any day the long term senior unsecured debt of the Company is rated by neither S&P nor Moody's, the Applicable Facility Fee Rate will be determined based on the rating of such debt by a Substitute Rating Agency and will be the Facility Fee Rate set forth above opposite the S&P and Moody's ratings comparable to the Substitute Rating Agency's rating of such debt on such date, and provided, further, that if on any day the long term senior unsecured debt of the Company is rated by none of S&P, Moody's or any Substitute Rating Agency, the Company, the Agent and the Banks will negotiate in good faith to determine an alternative basis for calculating such rate consistent with the table set forth above and, if agreement on such alternative basis is not reached with 30 days, such rate will be calculated on an alternative basis determined by the Agent and the Banks in their reasonable discretion consistent with the table above, and until such alternative basis is determined such rate will be the rate last determined as provided in the table above. 5.3 Termination or Reduction of Commitments; Change of Control Date. (a) The Company shall have the right, upon not less than five Business Days' notice to the Agent, to terminate the Commitments or, from time to time, to reduce the amount of the Commitments, provided that no such termination or reduction shall be permitted to the extent that, after giving effect thereto and to any prepayments of Loans made on the effective date thereof, the sum of the aggregate Loan Outstandings of all the Banks, plus the Aggregate Outstanding Bilateral Option Loans would exceed the Commitments then in effect. Any such partial reduction shall be in an amount equal to $5,000,000 or a whole multiple of $1,000,000 in excess thereof and shall reduce permanently the Commitments then in effect. (b) (i) In the event that a Change of Control Date shall occur, (A) the Company shall, within 10 days after such Change of Control Date, give each Bank notice thereof in writing describing in reasonable detail the facts and circumstances 30 25 giving rise thereto, and (B) such Bank, by written notice given to the Company not later than 30 days after the Change of Control Date, may declare the Commitments of such Bank to be terminated in full or reduced as of the date of (or as of a later date specified in) such notice to the Company, and may require that the Borrowers prepay as provided in this subsection 5.3 any Loans payable to such Bank and outstanding on such date to the extent the principal amount thereof exceeds such Bank's Commitment, if any, remaining after such termination or reduction. To the extent such Bank so requires, the Borrowers shall prepay such Loans on the 75th day after the date of the Company's notice or, in the event such 75th day is not a Business Day, the Business Day next succeeding such 75th day ("Prepayment Date"). (ii) On the Prepayment Date, the Borrowers shall prepay the unpaid principal amount of the Loans payable to such Bank, without premium or penalty, together with accrued interest on the amount prepaid to the Prepayment Date. (iii) Subsections 5.9(a), (b) and (c) shall not apply to prepayments under this subsection 5.3(b). (iv) Paragraph (a) of this subsection 5.3 hereof shall not apply to any Commitment reductions pursuant to this paragraph (b). (v) In the event that a Change of Control Date shall occur, the Company shall not thereafter, without the prior written consent of the Majority Banks, borrow any additional Loan (other than a Bilateral Option Loan) in order to make, directly or indirectly, any payment or prepayment on any Indebtedness subordinated as to the payment of principal and interest or on liquidation to the prior payment of any of the Obligations. (c) If all or a substantial part of the property, assets, business or capital stock of any of National Medical Care, Inc., NMC Holding, Inc., Bio-Medical Application Management or the Dearborn Division of the Company is directly or indirectly conveyed, sold, leased, assigned or otherwise disposed of (including by merger, consolidation, dividend, distribution, sale of stock, liquidation or dissolution) by Grace New York or any of its Subsidiaries (other than to Grace New York or any of its Subsidiaries) (a "Disposition"), the Commitments shall automatically terminate on the earliest effective date of any such Dispositions and the Borrowers shall immediately prepay the Loans on such date without premium or penalty, together with accrued interest on the amount prepaid to the date of such prepayment. (d) The Commitments shall automatically terminate on the date any of the commitments under the Existing Agreements are reduced, cancelled or terminated. 31 26 5.4 Prepayments. (a) Any Borrower may at any time and from time to time upon at least four Business Days' irrevocable notice to the Agent, in the case of Eurodollar Loans, or upon at least one Business Day's irrevocable notice to the Agent, in the case of ABR Loans, prepay the Loans (other than Bid Loans), in whole or in part, without premium or penalty (subject to subsection 5.13), specifying the date and amount of prepayment and whether the prepayment is of Eurodollar Loans, ABR Loans or a combination thereof, and, if of a combination thereof, the amount allocable to each. Upon receipt of any such notice the Agent shall promptly notify each Bank thereof. If any such notice is given, the amount specified in such notice shall be due and payable on the date specified therein. Partial prepayments shall be in an aggregate principal amount of $5,000,000 or a whole multiple of $1,000,000 in excess thereof. (b) If at any time, the Agent shall determine (which determination shall be conclusive in the absence of manifest error) that the sum of the aggregate Loan Outstandings of all the Banks plus the Aggregate Outstanding Bilateral Option Loans exceeds the aggregate Commitments, the Borrowers shall immediately prepay the Loans in an aggregate principal amount equal to such excess. (c) All Loans shall be immediately prepaid in full upon the payment of any of the principal amount of any loans under the Existing Agreements unless the amounts paid under the Existing Agreements are immediately reborrowed under the Existing Agreements. 5.5 Conversion and Continuation Options. (a) Any Borrower may elect at any time and from time to time (subject to subsection 5.13) to convert its Eurodollar Loans to ABR Loans by giving the Agent at least two Business Days' prior irrevocable notice of such election. Any Borrower may elect at any time and from time to time to convert its ABR Loans to Eurodollar Loans by giving the Agent irrevocable notice of such election (which notice must be received by the Agent prior to 4:00 P.M., New York City time, three Business Days prior to the requested conversion date). Any such notice of conversion to Eurodollar Loans shall specify the length of the initial Interest Period or Interest Periods therefor. Upon receipt of any such notice the Agent shall promptly notify each Bank thereof. All or any part of outstanding Eurodollar Loans and ABR Loans may be converted as provided herein, provided that (i) no Loan may be converted into a Eurodollar Loan when any Event of Default has occurred and is continuing and the Agent or the Majority Banks have determined that such a conversion is not appropriate, and (ii) any such conversion may only be made if, after giving effect thereto, subsection 5.6 shall not have been contravened. (b) Any Eurodollar Loans may be continued as such upon the expiration of the then current Interest Period with respect thereto by the Borrower thereof giving notice to the Agent, in 32 27 accordance with the applicable provisions of the term "Interest Period" set forth in subsection 1.1, of the length of the next Interest Period to be applicable to such Loans, provided that no Eurodollar Loan may be continued as such (i) when any Event of Default has occurred and is continuing and the Agent or the Majority Banks have determined that such a continuation is not appropriate, or (ii) if, after giving effect thereto, subsection 5.6 would be contravened and provided, further, that if any Borrower shall fail to give any required notice as described above in this paragraph or if such continuation is not permitted pursuant to the preceding proviso such Loans shall be automatically converted to ABR Loans on the last day of such then expiring Interest Period. 5.6 Minimum Amounts of Eurodollar Tranches. All borrowings, conversions and continuations of Loans hereunder and all selections of Interest Periods hereunder shall be in such amounts and be made pursuant to such elections so that, after giving effect thereto, the aggregate principal amount of the Loans comprising each Eurodollar Tranche shall be equal to $5,000,000 or a whole multiple of $1,000,000 in excess thereof. 5.7 Computation of Interest and Fees. (a) Interest on ABR Loans, and facility fees shall be calculated on the basis of a 365- (or 366-, as the case may be) day year for the actual days elapsed. Interest on Eurodollar Loans shall be calculated on the basis of a 360-day year for the actual days elapsed. The Agent shall as soon as practicable notify the Borrowers and the Banks of each determination of a Eurodollar Rate. Any change in the interest rate on a Loan resulting from a change in the Prime Rate shall become effective as of the opening of business on the day on which such change in the Prime Rate is announced. The Agent shall as soon as practicable notify the Borrowers and the Banks of the effective date and the amount of each such change in interest rate. (b) Each determination of an interest rate by the Agent pursuant to any provision of this Agreement shall be conclusive and binding on the Borrowers and the Banks in the absence of manifest error. The Agent shall, at the request of the Company, deliver to the Company a statement showing in reasonable detail the quotations and calculations used by the Agent in determining any interest rate pursuant to subsections 5.1 and 5.7(a). 5.8 Inability to Determine Interest Rate. In the event that prior to the first day of any Interest Period: (a) the Agent shall have determined (which determination shall be conclusive and binding upon the Borrowers) that, by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for such Interest Period, or 33 28 (b) the Agent shall have received notice from the Majority Banks that the Eurodollar Rate determined or to be determined for such Interest Period will not adequately and fairly reflect the cost to such Banks (as conclusively certified by such Banks) of making or maintaining their affected Loans during such Interest Period, the Agent shall give telecopy or telephonic notice thereof to the Borrowers and the Banks as soon as practicable thereafter. If such notice is given (x) any Eurodollar Loans requested to be made on the first day of such Interest Period shall be made as ABR Loans, (y) any Loans that were to have been converted on the first day of such Interest Period to Eurodollar Loans shall be continued as ABR Loans and (z) any outstanding Eurodollar Loans shall be converted, on the first day of such Interest Period, to ABR Loans. Until such notice has been withdrawn by the Agent, no further Eurodollar Loans shall be made or continued as such, nor shall any Borrower have the right to convert Loans to Eurodollar Loans. 5.9 Pro Rata Treatment and Payments. (a) Each borrowing by any Borrower of Revolving Credit Loans from the Banks hereunder, each payment by the Company on account of any facility fee or utilization fee hereunder, and any reduction of the Commitments of the Banks shall be made pro rata according to the respective Commitment Percentages of the Banks. (b) Whenever any payment received by the Agent or any Bank under this Agreement or any Note is insufficient to pay in full all amounts then due and payable to the Agent and the Banks under this Agreement and the Notes, and the Agent has not received a Payment Sharing Notice (or if the Agent has received a Payment Sharing Notice but the Event of Default specified in such Payment Sharing Notice has been cured or waived), such payment shall be distributed and applied by the Agent and the Banks in the following order: first, to the payment of fees and expenses due and payable to the Agent in its capacity as Agent under and in connection with this Agreement; second, to the payment of all expenses due and payable under subsection 13.5, ratably among the Banks in accordance with the aggregate amount of such payments owed to each such Bank; third, to the payment of fees due and payable under subsections 5.2(a) and (b), ratably among the Banks in accordance with their Commitment Percentages; fourth, to the payment of interest then due and payable on the Loans, ratably among the Banks in accordance with the aggregate amount of interest owed to each such Bank; and fifth, to the payment of the principal amount of the Loans which is then due and payable, ratably among the Banks in accordance with the aggregate principal amount owed to each such Bank. (c) After the Agent has received a Payment Sharing Notice which remains in effect, all payments received by the Agent under this Agreement or any Note shall be distributed and applied by the Agent and the Banks in the following order: 34 29 first, to the payment of all amounts described in clauses first through third of the foregoing paragraph (b), in the order set forth therein; and second, to the payment of the interest accrued on and the principal amount of all of the Loans, regardless of whether any such amount is then due and payable, ratably among the Banks in accordance with the aggregate accrued interest plus the aggregate principal amount owed to such Bank. (d) All payments (including prepayments) to be made by any Borrower hereunder and under the Notes, whether on account of principal, interest, fees or otherwise, shall be made without set-off or counterclaim and shall be made prior to 3:00 P.M., New York City time, on the due date thereof (i) in the case of fees and Loans other than Bilateral Option Loans, to the Agent, for the account of the Banks, at the Agent's office specified in subsection 13.2, and (ii) in the case of Bilateral Option Loans made by any Bank, to such Bank, at the Bank's office specified in Schedule I (or, with respect to Alternative Currency Bilateral Loans, if different, at such other office of the Bank that it shall designate), in each case in Dollars (or, with respect to Alternative Currency Bilateral Loans, in the relevant Alternative Currency) and in immediately available funds. If any payment hereunder becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day (unless, with respect to any payment on a Eurodollar Loan, the result of such extension would be to extend such payment into another calendar month, in which event such payment shall be made on the immediately preceding Business Day), and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. (e) Unless the Agent shall have been notified in writing by the Bank prior to a Borrowing Date that such Bank will not make the amount of any Loan it has committed to make on such date available to the Agent, the Agent may assume that such Bank has made such amount available to the Agent on such Borrowing Date, and the Agent may, in reliance upon such assumption, make available to the applicable Borrower a corresponding amount. If such amount is made available to the Agent on a date after such Borrowing Date, such Bank shall pay to the Agent on demand an amount equal to the product of (i) the daily average Federal Funds Effective Rate during such period, times (ii) the amount of the Loan such Bank was committed to make, times (iii) a fraction the numerator of which is the number of days that elapse from and including such Borrowing Date to the date on which such Bank's Loan shall have become immediately available to the Agent and the denominator of which is 360. A certificate of the Agent submitted to any Bank with respect to any amounts owing under this subsection shall be conclusive in the absence of manifest error. If such Bank's Commitment Percentage of such borrowing is not in fact made available to the Agent by such Bank within three Business Days of such Borrowing Date, the Agent shall be entitled to recover such amount with interest thereon at the rate per 35 30 annum applicable to ABR Loans hereunder, on demand, from such Borrower. 5.10 Illegality. Notwithstanding any other provision herein, if any change after the date hereof in any Requirement of Law or in the interpretation or application thereof shall make it unlawful for any Bank to make or maintain Eurodollar Loans as contemplated by this Agreement, (a) the commitment of such Bank hereunder to make Eurodollar Loans, continue Eurodollar Loans as such and convert ABR Loans to Eurodollar Loans shall forthwith be cancelled and (b) such Bank's Loans then outstanding as Eurodollar Loans, if any, shall be converted automatically to ABR Loans on the respective last days of the then current Interest Periods with respect to such Loans or within such earlier period as required by law. If any such conversion of a Eurodollar Loan occurs on a day which is not the last day of the then current Interest Period with respect thereto, the Borrower of such Loan shall pay to such Bank such amounts, if any, as may be required pursuant to subsection 5.13. 5.11 Requirements of Law. (a) In the event that any change after the date hereof in any Requirement of Law or in the interpretation or application thereof or compliance by any Bank with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority made subsequent to the date hereof: (i) shall subject any Bank to any tax of any kind whatsoever with respect to this Agreement, any Note or any Eurodollar Loan made by it, or change the basis of taxation of payments to such Bank in respect thereof (except for taxes covered by subsection 5.12 and changes in taxes based upon or measured by income of such Bank); (ii) shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances, loans or other extensions of credit by, or any other acquisition of funds by, any office of such Bank which is not otherwise included in the determination of the Eurodollar Rate hereunder; or (iii) shall impose on such Bank any other condition; and the result of any of the foregoing is to increase the cost to such Bank, by an amount which such Bank deems in its reasonable judgment to be material, of making, converting into, continuing or maintaining Eurodollar Loans or to reduce any amount receivable hereunder in respect thereof then, in any such case, the Company shall promptly pay such Bank, upon its demand, any additional amounts necessary to compensate such Bank for such increased cost or reduced amount receivable. If any Bank becomes entitled to claim any additional amounts pursuant to this 36 31 subsection, it shall promptly notify the Company, through the Agent, of the event by reason of which it has become so entitled. A certificate as to any additional amounts payable pursuant to this subsection setting forth the calculation thereof in reasonable detail (as determined by such Bank in its reasonable discretion) submitted by such Bank, through the Agent, to the Company shall be conclusive in the absence of manifest error. This covenant shall survive the termination of this Agreement and the payment of the Notes and all other amounts payable hereunder. (b) In the event that any Bank shall have determined that any change in any Requirement of Law regarding capital adequacy or in the interpretation or application thereof or compliance by such Bank or any corporation controlling such Bank with any request or directive regarding capital adequacy (whether or not having the force of law) from any Governmental Authority made subsequent to the date hereof does or shall have the effect of reducing the rate of return on such Bank's or such corporation's capital as a consequence of its obligations hereunder to a level below that which such Bank or such corporation could have achieved but for such change or compliance (taking into consideration such Bank's or such corporation's policies with respect to capital adequacy) by an amount deemed by such Bank to be material, then from time to time, after submission by such Bank to the Company (with a copy to the Agent) of a written request therefor, the Company shall pay to such Bank such additional amount or amounts as will compensate such Bank for such reduction. A certificate as to any additional amount payable pursuant to this subsection setting forth the calculation thereof in reasonable detail (as determined by such Bank in its reasonable discretion) through the Agent, to the Company shall be conclusive in the absence of manifest error. (c) Upon request by any Bank, through the Agent, from time to time, the Borrowers shall pay the cost of all Eurocurrency Reserve Requirements applicable to the Eurodollar Loans made by such Bank. If a Bank is or becomes entitled to receive payments in respect of Eurocurrency Reserve Requirements, pursuant to this subsection 5.11(c), it shall promptly notify the Borrowers thereof through the Agent. A certificate as to the amount of such Eurocurrency Reserve Requirements setting forth the calculation thereof in reasonable detail (as determined by such Bank in its reasonable discretion) submitted by such Bank, through the Agent, to the Borrowers shall be conclusive in the absence of manifest error. This covenant shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. 5.12 Taxes. (a) All payments made by any Borrower under this Agreement and any Notes shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by 37 32 any Governmental Authority, excluding, in the case of the Agent and each Bank, net income taxes and franchise taxes (imposed in lieu of net income taxes) that would not have been imposed on the Agent or such Bank, as the case may be, in the absence of a present or former connection between the jurisdiction of the government or taxing authority imposing such tax and the Agent or such Bank (other than a connection arising solely from the Agent or such Bank having executed, delivered or performed its obligations or received a payment under, or enforced, this Agreement or any Notes) or any political subdivision or taxing authority thereof or therein (all such non-excluded taxes, levies, imposts, duties, charges, fees, deductions and withholdings being hereinafter called "Taxes"). If any Taxes are required to be withheld from any amounts payable to the Agent or any Bank hereunder or under any Notes, the amounts so payable to the Agent or such Bank shall be increased to the extent necessary to yield to the Agent or such Bank (after payment of all Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Agreement and the Notes. Whenever any Taxes are payable by any Borrower in respect of any payment made hereunder, as promptly as possible thereafter any Borrower shall send to the Agent for its own account or for the account of such Bank, as the case may be, a certified copy of an original official receipt received by such Borrower showing payment thereof. If such Borrower fails to pay any Taxes when due to the appropriate taxing authority or fails to remit to the Agent the required receipts or other required documentary evidence, such Borrower shall indemnify the Agent and the Banks for any incremental taxes, interest or penalties that may become payable by the Agent or any Bank as a result of any such failure. The agreements in this subsection shall survive the termination of this Agreement and the payment of the Notes and all other amounts payable hereunder. (b) Each Bank that is not incorporated under the laws of the United States of America or a state thereof agrees that it will deliver to the Company and the Agent (i) two duly completed copies of United States Internal Revenue Service Form 1001 or 4224 or successor applicable form, as the case may be, and (ii) an Internal Revenue Service Form W-8 or W-9 or successor applicable form. Each such Bank also agrees to deliver to the Company and the Agent two further copies of the said Form 1001 or 4224 and Form W-8 or W-9, or successor applicable forms or other manner of certification, as the case may be, on or before the date that any such form expires or becomes obsolete or after the occurrence of any event requiring a change in the most recent form previously delivered by it to the Company, and such extensions or renewals thereof as may reasonably be requested by the Company or the Agent, unless in any such case an event (including, without limitation, any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Bank from duly completing and delivering any such form with respect to it and 38 33 such Bank so advises the Company and the Agent. Such Bank shall certify (i) in the case of a Form 1001 or 4224, that it is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes and (ii) in the case of a Form W-8 or W-9, that it is entitled to an exemption from United States backup withholding tax. 5.13 Indemnity. Each Borrower agrees to indemnify each Bank and to hold each Bank harmless from any loss or expense which such Bank may sustain or incur as a consequence of (a) default by any Borrower in payment when due of the principal amount of or interest on any Eurodollar Loan, (b) default by any Borrower in making a borrowing of, conversion into or continuation of Eurodollar Loans after such Borrower has given a notice requesting the same in accordance with the provisions of this Agreement, (c) default by any Borrower in making any prepayment after such Borrower has given a notice thereof in accordance with the provisions of this Agreement or (d) the making of a payment or prepayment of Eurodollar Loans on a day which is not the last day of an Interest Period with respect thereto, including, without limitation, in each case, any such loss or expense arising from the reemployment of funds obtained by it or from fees payable to terminate the deposits from which such funds were obtained. This covenant shall survive the termination of this Agreement and the payment of the Loans or Notes, if any, and all other amounts payable hereunder. SECTION 6. REPRESENTATIONS AND WARRANTIES To induce the Banks to enter into this Agreement, each of the Company and Grace New York represents and warrants to the Agent and each Bank that: 6.1 Corporate Existence; Compliance with Law. Each Loan Party (a) is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, (b) is duly qualified and in good standing in each jurisdiction wherein, in the opinion of the Company and Grace New York, the conduct of its business or the ownership of its properties requires such qualification and (c) is in compliance with all Requirements of Law, except to the extent that the failure to comply with paragraph (a), (b) or (c) of this subsection would not, in the aggregate, reasonably be expected to have a Material Adverse Effect. 6.2 Corporate Power, Authorization; Enforceable Obligations. Each Loan Party has the corporate power and authority to make, deliver and perform its obligations under the Loan Documents to which it is or will be a party, and has taken all necessary corporate action to authorize (i) in the case of the Borrowers, the borrowings under this Agreement and any Notes to which it is or will be a party on the terms and conditions 39 34 hereof and thereof and (ii) the execution, delivery and performance of this Agreement and the Loan Documents to which it is or will be a party. This Agreement has been, and any Note and the other Loan Documents to which it is or will be a party will be, duly executed and delivered on behalf of each relevant Loan Party. This Agreement constitutes, and each of the Notes, if any, and the other Loan Documents when executed and delivered will constitute, a legal, valid and binding obligation of the Loan Party thereto, and enforceable against such Loan Party in accordance with its terms, such enforceability subject to limitations under any applicable bankruptcy, insolvency, moratorium or other laws affecting creditors' rights and by general equitable principles (whether applied in a proceeding in equity or at law). No consent of any other party (including stockholders of Grace New York) and no consent, license, approval or authorization of, or registration or declaration with, any Governmental Authority is required to be obtained by any Loan Party in connection with the execution, delivery, performance, validity or enforceability of this Agreement and any Notes. 6.3 No Legal Bar. The execution, delivery and performance of this Agreement, the Notes and the other Loan Documents, the borrowings hereunder and the use of the proceeds thereof, will not violate or contravene any material provision of any Requirement of Law or material Contractual Obligation of Grace New York, the Company or any of its Subsidiaries and will not result in, or require, the creation or imposition of any material Lien (other than Liens permitted under subsection 9.2) on any of its or their respective properties or revenues pursuant to any such Requirement of Law or Contractual Obligation. 6.4 No Material Litigation. There is no legal action, administrative proceeding or arbitration (whether or not purportedly on behalf of Grace New York or the Company or any of its Subsidiaries) presently pending, or to the knowledge of Grace New York or the Company threatened, against or affecting Grace New York or the Company or any of its Subsidiaries which would reasonably be expected to have a Material Adverse Effect, except that the foregoing is subject to the fact that, as discussed in footnote (c) to the financial statements included in Grace New York's Quarterly Report on Form 10-Q for the period ended September 30, 1995 referred to in subsection 6.6, the Company and Grace New York cannot predict at this time the results and impact, if any, of the governmental investigation of Grace New York's Subsidiary, National Medical Care, Inc., referred to in that footnote, and related claims and litigation. 6.5 Ownership of Properties. Each of Grace New York, the Company and its Subsidiaries is the tenant under valid leases or has good title to substantially all its properties and assets, real and personal (except defects in title and other matters that would not reasonably be expected to have a Material Adverse Effect), subject to no Lien except as permitted to exist under subsection 9.2. 40 35 6.6 Financial Condition. The consolidated balance sheets of Grace New York and its Subsidiaries as at December 31, 1994 and December 31, 1993 and the related consolidated statements of operations, shareholders' equity and of cash flows (together with the related notes), included or incorporated in Grace New York's Annual Report on Form 10-K filed with the SEC for the fiscal year ended December 31, 1994, present fairly in all material respects the financial position of Grace New York and its Subsidiaries as at such dates and the results of their operations and their cash flows for the fiscal years then ended. The unaudited consolidated balance sheet of Grace New York and its Subsidiaries as at September 30, 1995 and the related unaudited consolidated statement of operations for the three- and nine-month interim periods, and the related unaudited consolidated statement of cash flows for the nine-month interim period, ended on such date, included in Grace New York's Quarterly Report on Form 10-Q filed with the SEC for such period, present fairly in all material respects the financial position of Grace New York and its Subsidiaries as at such date and the results of their operations and their cash flows for the three- and nine-month periods, respectively, then ended. All of such financial statements, including the notes to such financial statements, have been prepared in conformity with GAAP (subject, in the case of interim statements, to normal year-end adjustments and to the fact that such financial statements may be abbreviated and may omit footnotes or contain incomplete footnotes) consistently applied throughout the periods involved except as stated therein. 6.7 Disclosure of Contingent Liabilities. To the best of the knowledge and belief of Grace New York, neither Grace New York nor any of its Subsidiaries has any contingent obligation, liability for taxes, long-term leases, unusual forward or other liabilities, which are material in amount in relation to the consolidated financial condition of Grace New York and its Subsidiaries taken as a whole and which are not disclosed in the financial statements (including the related notes) described in subsection 6.6 above. 6.8 ERISA. Each Plan that is intended to qualify under Section 401(a) of the Code satisfies in all material respects the applicable requirements for qualification under that Code Section. No Reportable Event has occurred and is continuing with respect to any such Plan, and neither Grace New York nor any of its Subsidiaries has incurred any liability to the PBGC under Section 4062 of ERISA with respect to any such Plan that would reasonably be expected to have a Material Adverse Effect. 6.9 Certain Federal Regulations. Neither the Company nor any of its Subsidiaries is engaged in or will engage in the business of extending credit for the purposes of "purchasing" or "carrying" any "margin stock" within the respective meanings of each of the quoted terms under Regulation U of the Board, and no part of the proceeds of any Loan will be used for any purpose 41 36 which violates, or which would be inconsistent with, the provisions of Regulation U or X of the Board. 6.10 No Default. Neither Grace New York nor any of its Subsidiaries is in default under or with respect to any of its Contractual Obligations in any respect which would reasonably be expected to have a Material Adverse Effect. No Default or Event of Default has occurred and is continuing. 6.11 Taxes. (a) Each of Grace New York and its Subsidiaries has filed or caused to be filed all tax returns which, to the knowledge of Grace New York, are required to be filed and has paid all taxes shown to be due and payable on said returns or on any assessments made against it or any of its property and all other taxes, fees or other charges imposed on it or any of its property by any Governmental Authority (other than any the amount or validity of which are currently being contested in good faith by appropriate proceedings and with respect to which adequate reserves to the extent required in conformity with GAAP, have been provided on the books of Grace New York or its Subsidiaries, as the case may be) except insofar as the failure to make such filings or payments would not reasonably be expected to have a Material Adverse Effect; and (b) no tax Lien (other than a Lien permitted under subsection 9.2(a)) has been filed, and, to the knowledge of Grace New York, no claim is being asserted, with respect to any such tax, fee or other charge which would reasonably be expected to have a Material Adverse Effect. 6.12 Investment Company Act; Other Regulations. None of Grace New York, the Company or any of its Subsidiaries is an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. None of Grace New York, the Company or any other Borrower is subject to regulation under any Federal or State statute or regulation which limits its ability to incur Indebtedness. 6.13 Purpose of Loans. The proceeds of the Loans shall be used by the Borrowers for general corporate purposes. 6.14 Environmental Matters. To the best of the knowledge of Grace New York, the operations of Grace New York and its Subsidiaries and all parcels of real estate owned or operated by Grace New York or its Subsidiaries are in compliance with all Environmental Laws, except where the failure to so comply would not reasonably be expected to have a Material Adverse Effect. 6.15 Principal Subsidiaries. Set forth on Schedule III are all of the Principal Subsidiaries as of the date hereof. 42 37 SECTION 7. CONDITIONS PRECEDENT 7.1 Conditions to Effectiveness. The parties hereto acknowledge that the effectiveness of this Agreement is subject to the satisfaction of the following conditions precedent on or prior to December 29, 1995: (a) Loan Documents. The Agent shall have received (i) this Agreement, executed and delivered by a duly authorized officer of each of the Loan Parties, with a counterpart for each Bank, (ii) for the account of each Bank so requesting, a Revolving Credit Note and a Bid Loan Note conforming to the requirements hereof and executed by a duly authorized officer of the Borrowers and (iii) an incumbency certificate of each of the Loan Parties which covers such officers. (b) Corporate Proceedings. The Agent shall have received, with a counterpart for each Bank, a copy of the resolutions, in form and substance satisfactory to the Agent, of the Board of Directors of each of the Loan Parties authorizing (i) the execution, delivery and performance of the Loan Documents to which it is or will be a party and (ii) the borrowings contemplated hereunder (in the case of each Borrower), certified by the Secretary or an Assistant Secretary of such Loan Party as of the Closing Date, which certificate shall state that the resolutions thereby certified have not been amended, modified, revoked or rescinded and shall be in form and substance satisfactory to the Agent. (c) Fees. The Agent shall have received the fees to be received on the Closing Date referred to in subsection 5.2. (d) Legal Opinions. The Agent shall have received, with a counterpart for each Bank, the following executed legal opinions: (i) the executed legal opinion of counsel to the Company and Grace New York, who may be the General Counsel of the Company, substantially in the form of Exhibit F-1; (ii) to the extent required pursuant to subsection 13.15(a)(ii), the executed legal opinion of counsel to any other Borrower, in form and substance reasonably satisfactory to the Agent; and (iii) the executed legal opinion of Simpson Thacher & Bartlett, counsel to the Agent, substantially in the form of Exhibit F-2. 43 38 Each such legal opinion shall cover such other matters incident to the transactions contemplated by this Agreement as the Agent may reasonably require. (e) Officer's Certificate. The Agent shall have received, with a counterpart for each Bank, a certificate respecting accuracy of representations and warranties, the absence of events having a Material Adverse Effect and the absence of Defaults and Events of Default, substantially in the form of Exhibit G hereto, signed by a Responsible Officer on behalf of the Company and Grace New York. (f) Additional Matters. All corporate and other proceedings, and all documents, instruments and other legal matters in connection with the transactions contemplated by this Agreement shall be satisfactory in form and substance to the Agent, and the Agent shall have received such other documents and legal opinions in respect of any aspect or consequence of the transactions contemplated hereby or thereby as it shall reasonably request. 7.2 Conditions to Each Loan. The agreement of each Bank to make any Loan requested to be made by it on any date is subject to the satisfaction of the following conditions precedent: (a) Representations and Warranties. Each of the representations and warranties made by each of the Loan Parties in or pursuant to subsections 6.1, 6.2, 6.3, 6.5, 6.9, 6.10, 6.11, 6.12 and 6.13 of this Agreement and in or pursuant to any other Loan Document to which it is or will be a party, shall be true and correct in all material respects on and as of such date as if made on and as of such date, and the representation and warranty made pursuant to subsection 6.6 shall be true and correct in all material respects with respect to the financial statements most recently delivered pursuant to subsection 8.1, mutatis mutandis, as if such financial statements delivered pursuant to subsection 8.1 were the financial statements referred to in subsection 6.6. (b) No Default. No Default or Event of Default shall have occurred and be continuing on such date or after giving effect to the Loans requested to be made on such date. Each borrowing by the Borrowers hereunder shall constitute a representation and warranty by the Loan Parties as of the date of such Loan that the conditions contained in this subsection 7.2 have been satisfied. 44 39 SECTION 8. AFFIRMATIVE COVENANTS Each of the Company and Grace New York hereby agrees that, so long as the Commitments remain in effect, any Note remains outstanding and unpaid or any other amount is owing to any Bank or the Agent hereunder, each of the Company and Grace New York shall and the Company (except in the case of delivery of financial information, reports and notices) shall cause each of its Principal Subsidiaries to: 8.1 Financial Statements. Furnish to each Bank: (a) as soon as available, but in any event within 120 days after the end of each fiscal year of Grace New York, a copy of the consolidated balance sheet of Grace New York and its Subsidiaries as at the end of such year and the related consolidated statements of operations, shareholders' equity and cash flows for such year (as included or incorporated by reference in Grace New York's Annual Report on Form 10-K or successor form filed with the SEC for each such fiscal year), setting forth in each case in comparative form the figures for the previous year, reported on without a "going concern" or like qualification or exception, or qualification arising out of the scope of the audit, by Price Waterhouse or other independent certified public accountants of nationally recognized standing not unacceptable to the Majority Banks; and (b) as soon as available, but in any event not later than 75 days after the end of each of the first three quarterly periods of each fiscal year of Grace New York, the unaudited consolidated balance sheet of Grace New York and its Subsidiaries as at the end of such quarter and the related unaudited consolidated statements of operations for such quarter and the related unaudited consolidated statements of operations and cash flows for the portion of the fiscal year through the end of such quarter (as included in Grace New York's Quarterly Report on Form 10-Q or successor form filed with the SEC for each such period), setting forth in each case in comparative form the figures for the previous year, certified by a Responsible Officer as being fairly stated in all material respects when considered in relation to the consolidated financial statements of Grace New York and its Subsidiaries. All such financial statements shall be prepared in conformity with GAAP (subject, in the case of interim statements, to normal year-end adjustments and to the fact that such financial statements may be abbreviated and may omit footnotes or contain incomplete footnotes) applied consistently throughout the periods reflected therein and with prior periods (except as disclosed therein). 45 40 8.2 Certificates; Other Information. Furnish to each Bank: (a) concurrently with the delivery of the financial statements referred to in subsection 8.1(a), a certificate of the independent certified public accountants reporting on such financial statements stating that in making the examination necessary therefor no knowledge was obtained of any Default or Event of Default, except as specified in such certificate. (b) concurrently with the delivery of the financial statements referred to in subsections 8.1(a) and 8.1(b), a certificate of a Responsible Officer of Grace New York in his capacity as such officer stating that, to the best of such Officer's knowledge, each of the Borrowers and Grace New York during such period has observed or performed all of its covenants and other agreements, and satisfied every condition, contained in this Agreement and in the Notes and the other Loan Documents to which it is a party to be observed, performed or satisfied by it, and that such Officer has obtained no knowledge of any Default or Event of Default except as specified in such certificate and showing in detail the calculation of compliance with subsections 9.1 and 9.2; (c) concurrently with the delivery of the financial statements referred to in subsection 8.1(a), a list of the Principal Subsidiaries as of the corresponding fiscal year end, certified by a Responsible Officer in his capacity as such officer; (d) within ten Business Days after the same are sent, copies of all financial statements and reports which Grace New York sends to its shareholders generally relating to the business of Grace New York and its Subsidiaries, and within ten Business Days after the same are filed, copies of all reports on Forms 10-K, 10-Q, 8-K, 8 and 10, and Schedules 13D, 13E-3, 13E-4, 13-G, 14D-1 and 14D-9, or successor forms or schedules, and the final prospectus in each effective registration statement (other than registration statements on Form S-8) and each post-effective amendment to such registration statement which Grace New York may make to, or file with, the SEC; and (e) promptly, subject to reasonable confidentiality requirements agreed to by the Company and such Bank, such additional financial and other information as any Bank may from time to time reasonably request. 8.3 Payment of Obligations. Pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all its obligations of whatever nature, except where the amount or validity thereof is currently 46 41 being contested in good faith by appropriate proceedings and reserves, to the extent required in conformity with GAAP with respect thereto, have been provided on the books of Grace New York or its Subsidiaries, as the case may be, and except to the extent that the failure to so pay, discharge or otherwise satisfy such obligations would not result in a Default or Event of Default under Section 10(e)(i). 8.4 Conduct of Business and Maintenance of Existence. Preserve, renew and keep in full force and effect its corporate existence and take all reasonable action to maintain all corporate rights, privileges and franchises necessary or desirable in the normal conduct of its business, except as otherwise permitted pursuant to subsection 9.3; comply with all Contractual Obligations and Requirements of Law except to the extent that failure to comply therewith would not, in the aggregate, reasonably be expected to have a Material Adverse Effect. 8.5 Insurance. Maintain with financially sound and reputable insurance companies (which may include, without limitation, captive insurers), such insurance coverage as is reasonable for the business activities of Grace New York and its Subsidiaries; and furnish to the Agent, upon written request, such information as the Agent may reasonably request as to its insurance program. 8.6 Inspection of Property, Books and Records; Discussions. Permit representatives of any Bank (subject to reasonable safety and confidentiality requirements) to visit and inspect any of its properties and examine and make abstracts from any of its books and records at any reasonable time and as often as may reasonably be desired and to discuss the business, operations, properties and financial and other condition of Grace New York and its Subsidiaries with officers and employees of Grace New York and its Subsidiaries and, provided representatives of Grace New York are given an opportunity to participate, with its independent certified public accountants. 8.7 Notices. Promptly give notice to the Agent and each Bank of: (a) the occurrence of any Default or Event of Default; (b) any (i) default or event of default under any Contractual Obligation of Grace New York or any of its Subsidiaries or (ii) litigation, investigation or proceeding which may exist at any time between Grace New York or any of its Subsidiaries and any Governmental Authority, which in either case, would reasonably be expected to have a Material Adverse Effect; (c) any litigation or proceeding affecting Grace New York or any of its Subsidiaries in which the then reasonably 47 42 anticipated exposure of Grace New York and its Subsidiaries is $10,000,000 or more and not covered by insurance, or in which injunctive or similar relief is sought which is then reasonably anticipated to have an adverse economic effect on Grace New York and its Subsidiaries of $10,000,000 or more; (d) the following events, as soon as possible and in any event within 30 days after the Company or Grace New York knows or has reason to know thereof: (i) the occurrence or expected occurrence of any Reportable Event with respect to any Plan, or any withdrawal from, or the termination, Reorganization or Insolvency of any Multiemployer Plan or (ii) the institution of proceedings or the taking of any other action by the PBGC or the Company or Grace New York or any Commonly Controlled Entity or any Multiemployer Plan with respect to the withdrawal from, or the terminating, Reorganization or Insolvency of, any Plan, where in connection with any of the events described in (i) or (ii) above the liability to the Company or a Commonly Controlled Entity would reasonably be expected to be $10,000,000 or more; (e) any upgrading, downgrading or cessation in the rating of the long term senior unsecured debt of the Company by the rating agency or agencies whose rating on such debt is then being used to determine the Applicable Margin and the Facility Fee Rate; and (f) a development or event which would reasonably be expected to have a Material Adverse Effect. Each notice pursuant to this subsection shall be accompanied by a statement of a Responsible Officer setting forth details of the occurrence referred to therein and stating what action each of the Company and Grace New York proposes to take with respect thereto. 8.8 Environmental Laws. (a) Comply with all Environmental Laws and obtain and comply with and maintain any and all licenses, approvals, registrations or permits required by Environmental Laws, except to the extent that failure to do so would not be reasonably expected to have a Material Adverse Effect; and (b) Defend, indemnify and hold harmless the Agent and the Banks, and their respective employees, agents, officers and directors, from and against any claims, demands, penalties, fines, liabilities, settlements, damages, costs and expenses of whatever kind or nature known or unknown, contingent or otherwise, arising out of, or in any way relating to the violation of or noncompliance with any Environmental Laws applicable to the real property owned or operated by the Company, Grace New York or any of the Company's Subsidiaries, or any 48 43 orders, requirements or demands of Governmental Authorities related thereto, including, without limitation, attorney's and consultant's fees, investigation and laboratory fees, court costs and litigation expenses, except to the extent that any of the foregoing arise out of the gross negligence or willful misconduct of the party seeking indemnification therefor. SECTION 9. NEGATIVE COVENANTS Grace New York hereby agrees that, so long as the Commitments remain in effect, any Note remains outstanding and unpaid or any other amount is owing to any Bank or the Agent hereunder, it shall not, and (except with respect to subsections 9.1 and 9.5(b)) shall not permit any of its Subsidiaries to, directly or indirectly: 9.1 Financial Condition Covenants. (a) Consolidated Debt to Total Capitalization. Permit the ratio of Consolidated Debt to Total Capitalization at the end of any fiscal quarter after the Closing Date to be greater than 60%. (b) Interest Coverage. Permit for any period of four consecutive fiscal quarters ending on the last day of any fiscal quarter of the Company commencing with September 30, 1994 the ratio of EBIT to Consolidated Interest Expense to be less than 2.0 to 1.0. 9.2 Limitation on Liens. Create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues (which property, assets or revenues are or would be reflected from time to time on the consolidated financial statements of Grace New York and its Subsidiaries in accordance with GAAP), whether now owned or hereafter acquired, except for: (a) Liens for taxes or other governmental charges not yet due or which are being contested in good faith by appropriate proceedings, provided that adequate reserves with respect thereto are maintained on the books of Grace New York or its Subsidiaries, as the case may be, to the extent required in conformity with GAAP; (b) carriers', warehousemen's, mechanics', materialmen's, repairmen's, vendors', landlords', brokers', bankers' and other like Liens arising in the ordinary course of business relating to obligations which are not overdue for a period of more than 60 days or which are being contested in good faith and Liens arising out of judgments or awards that are either discharged within 60 days after entry or execution of which has been stayed pending the outcome of appeal or review proceedings; 49 44 (c) pledges or deposits in connection with workers' compensation, unemployment insurance and other social security legislation and deposits securing liability to insurance carriers under insurance or self-insurance arrangements; (d) pledges, deposits and similar arrangements in connection with or to secure performance of bids, tenders, leases and other deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business and contractual rights of other Persons to make set-offs and to require security in connection with letters of credit, currency, commodity and interest rate contracts, surety bonds, leases, banking and brokerage agreements and other transactions in the ordinary course of business; (e) leases, easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business which would not reasonably be expected to have a Material Adverse Effect; (f) Liens on the property, assets or revenues of a Person which becomes a Subsidiary after the date hereof, to the extent that (i) such Liens existed at the time such Person became a Subsidiary and were not created in anticipation thereof, (ii) any such Lien is not extended to cover any property, assets or revenues of such Person after the time such Person becomes a Subsidiary, and (iii) the amount of Indebtedness secured thereby is not thereafter increased; (g) Liens arising in connection with (i) industrial development, pollution control or other tax exempt financing transactions, provided that such Liens do not at any time encumber any property other than the property financed by such transaction and other property, assets or revenues related to the property so financed on which Liens are customarily granted in connection with such transactions, or (ii) conveyances of any production payment or other obligation to make a production payment (A) which is to be made solely from production from oil, gas or other underground mineral properties dedicated thereto or (B) as to which production payment amount the obligee's sole recourse is to such properties; (h) Liens (including, without limitation, Liens incurred in connection with Capitalized Leases, operating leases and sale-leaseback transactions) securing Indebtedness of Grace New York and its Subsidiaries incurred to finance the acquisition of fixed or capital assets, and refinancings thereof, provided that (i) such Liens do not at 50 45 any time encumber any property other than the property financed by such Indebtedness and other property, assets or revenues related to the property so financed on which Liens are customarily granted in connection with such financings or refinancings, and (ii) the principal amount of Indebtedness secured by any such Lien shall at no time exceed 100% of the greater of the original purchase price of such property at the time it was acquired and the fair market value of such property as reasonably determined by a Responsible Officer of the Company in good faith thereafter, plus fees and other costs related to the financing or refinancing thereof which have been agreed upon in an arm's length manner; (i) Liens incurred in connection with accounts receivable sale transactions entered into by Grace New York or its Subsidiaries; (j) Liens securing Contractual Obligations of any Subsidiary to Grace New York, the Company or any Domestic Subsidiary; (k) Liens on the property, assets or revenues of any Foreign Subsidiary; and (l) Liens (not otherwise permitted hereunder) which secure obligations in an aggregate amount at any time outstanding not exceeding an amount equal to 5% of the amount recorded opposite the caption "Properties and equipment, net" (or the equivalent caption) on the consolidated balance sheet of Grace New York and its Subsidiaries most recently delivered to the Agent pursuant to subsection 8.1. 9.3 Limitation on Fundamental Changes. Convey, sell, lease, assign, transfer or otherwise dispose of (including by merger, consolidation, sale of stock, liquidation or dissolution) all or substantially all of the property, assets or business of Grace New York and its Subsidiaries taken as a whole. 9.4 Limitation on Asset Transfers to Foreign Subsidiaries. With respect to Grace New York or any Domestic Subsidiary, convey, sell, lease, assign, transfer or otherwise dispose of (collectively, a "transfer") any of its property, business or assets (including, without limitation leasehold interests), whether now owned or hereafter acquired, to any Foreign Subsidiary, except such transfers which, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. 51 46 9.5 Limitation on Subordinated Debt. Permit any Subsidiary of Grace New York (other than the Company) to create, incur, assume or suffer to exist any subordinated indebtedness other than (a) subordinated indebtedness of a Person which becomes a Subsidiary after the date hereof to the extent such indebtedness existed at the time such Person became a Subsidiary and was not incurred in anticipation thereof and any refinancings of such indebtedness after such time so long as the principal amount thereof is not increased or (b) subordinated indebtedness of such Subsidiary held by Grace New York or any other Subsidiary of Grace New York. SECTION 10. EVENTS OF DEFAULT If any of the following events shall occur and be continuing: (a) Any Borrower shall fail to pay any principal of any Loan or Note when due in accordance with the terms thereof or hereof; or any Borrower shall fail to pay any interest on any Loan or Note, or any other amount payable hereunder, within five Business Days after any such interest or other amount becomes due in accordance with the terms thereof or hereof; or (b) Any representation or warranty made, or pursuant to subsection 7.2, deemed made, by any Loan Party herein or in any other Loan Document or which is contained in any certificate, document or financial or other statement furnished at any time under or in connection with this Agreement shall prove to have been incorrect in any material adverse respect on or as of the date made or deemed made; or (c) Grace New York or any Subsidiary shall default in the observance or performance of any agreement contained in subsection 9.1, 9.3, 9.4 or 9.5; or (d) Any Loan Party shall default in the observance or performance of any other agreement contained in this Agreement (other than as provided in paragraphs (a) through (c) of this Section), and such default shall continue unremedied for a period of 30 days; or (e) Grace New York or any of its Subsidiaries shall (i) default in any payment of principal of or interest on, or any other amount payable with respect to, any (A) Domestic Indebtedness (other than the Notes and Loans) in an aggregate principal amount for all such Domestic Indebtedness of $10,000,000 or more, or (B) Foreign Subsidiary Indebtedness (other than the Notes and Loans) in an aggregate principal amount for all such Foreign Subsidiary Indebtedness of $20,000,000 or more, beyond the period of grace (not to exceed 30 days), if any, provided in 52 47 the instrument or agreement under which such Indebtedness was created; or (ii) default in the observance or performance of any other agreement relating to any such Indebtedness in the amounts specified in clause (i) above or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist in any case which continues uncured or unwaived (and, if waived, without any change in the material terms of such Indebtedness) after the expiration of all applicable grace periods, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause, with the giving of notice if required, such Indebtedness to become due prior to its stated maturity; (f) (i) Grace New York or any Principal Subsidiary shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its assets, or Grace New York or any such Principal Subsidiary shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against Grace New York or any such Principal Subsidiary any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of 60 days; or (iii) there shall be commenced against any Grace New York or any such Principal Subsidiary any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof; or (iv) Grace New York or any such Principal Subsidiary shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii) or (iii) above; or (v) Grace New York or any such Principal Subsidiary shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; or (g) (i) Any Person shall engage in any non-exempt "prohibited transaction" (as defined in Section 406 of ERISA 53 48 or Section 4975 of the Code) involving any Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302 of ERISA), whether or not waived, shall exist with respect to any Plan, (iii) a Reportable Event shall occur with respect to, or judicial proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, any Single Employer Plan, which Reportable Event or commencement of judicial proceedings or appointment of a trustee is, in the reasonable opinion of the Majority Banks, likely to result in the termination of such Plan for purposes of Title IV of ERISA, (iv) any Single Employer Plan shall terminate for purposes of Title IV of ERISA, (v) the Company or any Commonly Controlled Entity shall, or in the reasonable opinion of the Majority Banks is likely to, incur any liability in connection with a withdrawal from, or the Insolvency or Reorganization of, a Multiemployer Plan or (vi) any other event or condition shall occur or exist, with respect to a Plan; and in each case in clauses (i) through (vi) above, such event or condition, together with all other such events or conditions, if any, could reasonably be expected to subject the Company or any of its Subsidiaries to any tax, penalty or other liabilities which in the aggregate would have a Material Adverse Effect; or (h) One or more judgments or decrees shall be entered against Grace New York or any of its Subsidiaries in aggregate amounts (not paid or fully covered by insurance) of $10,000,000 or more and all such judgments or decrees shall not have been vacated, discharged, stayed or bonded pending appeal within 60 days from the entry thereof; or (i) Grace New York shall cease to own directly or indirectly of record and beneficially free and clear of Liens at least 75% of the shares of the issued and outstanding capital stock of the Company; then, and in any such event, (A) if such event is an Event of Default specified in clause (i), (ii) or (iii) of paragraph (f) above with respect to any of the Borrowers, automatically the Commitments to such Borrower shall immediately terminate and the Loans made to such Borrower hereunder (with accrued interest thereon) and all other amounts owing under this Agreement and the Notes of such Borrower shall immediately become due and payable, and (B) if such event is any other Event of Default, either or both of the following actions may be taken: (i) with the consent of the Majority Banks, the Agent may, or upon the request of the Majority Banks, the Agent shall, by notice to the Company declare the Commitments of any or all of the Borrowers to be terminated forthwith, whereupon such Commitments shall immediately terminate; and (ii) with the consent of the Majority Banks, the Agent may, or upon the request of the Majority Banks, the Agent shall, by notice of default to the Company and Grace New York, declare the Loans hereunder made to any or all of the Borrowers 54 49 (with accrued interest thereon) and all other amounts owing by such Borrower under this Agreement and the Notes of such Borrower to be due and payable forthwith, whereupon the same shall immediately become due and payable. Except as expressly provided above in this Section, presentment, demand, protest and all other notices of any kind are hereby expressly waived. SECTION 11. THE AGENT 11.1 Appointment. Each Bank hereby irrevocably designates and appoints Chemical as the Agent of such Bank under this Agreement and the other Loan Documents, and each such Bank irrevocably authorizes Chemical, as the Agent for such Bank, to take such action on its behalf under the provisions of this Agreement and the other Loan Documents and to exercise such powers and perform such duties as are expressly delegated to the Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement, the Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Bank, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Agent. 11.2 Delegation of Duties. The Agent may execute any of its duties under this Agreement and the other Loan Documents by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. 11.3 Exculpatory Provisions. Neither the Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be (i) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement or any other Loan Document (except for its or such Person's own gross negligence or willful misconduct) or (ii) responsible in any manner to any of the Banks for any recitals, statements, representations or warranties made by any Loan Party or any officer thereof contained in this Agreement or any other Loan Document or in any certificate, report, statement or other document referred to or provided for in, or received by the Agent under or in connection with, this Agreement or any other Loan Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or the Notes or any other Loan Document or for any failure of any Loan Party to perform its obligations hereunder or thereunder. The Agent shall not be under any obligation to any Bank to ascertain or to inquire as to the observance or performance of any of the agreements contained 55 50 in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of any Loan Party. 11.4 Reliance by Agent. The Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Company, Grace New York or any other Borrower), independent accountants and other experts selected by the Agent. The Agent may deem and treat the payee of any Note as the owner thereof for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have been filed with the Agent. The Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Majority Banks as it deems appropriate or it shall first be indemnified to its satisfaction by the Banks against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the Notes and the other Loan Documents in accordance with a request of the Majority Banks, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Banks and all future holders of the Notes. 11.5 Notice of Default. The Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the Agent has received notice from a Bank or any Loan Party referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". In the event that the Agent receives such a notice, the Agent shall give notice thereof to the Banks. The Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Majority Banks; provided that unless and until the Agent shall have received such directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Banks. 11.6 Non-Reliance on Agent and Other Banks. Each Bank expressly acknowledges that neither the Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates has made any representations or warranties to it and that no act by the Agent hereinafter taken, including any review of the affairs of the Loan Parties, shall be deemed to constitute any representation or warranty by the Agent to any Bank. Each Bank represents to the Agent that it has, independently and without reliance upon the Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made 56 51 its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Loan Parties and made its own decision to make its Loans hereunder and enter into this Agreement. Each Bank also represents that it will, independently and without reliance upon the Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Loan Parties. Except for notices, reports and other documents expressly required to be furnished to the Banks by the Agent hereunder, the Agent shall not have any duty or responsibility to provide any Bank with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of the Loan Parties which may come into the possession of the Agent or any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates. 11.7 Indemnification. The Banks agree to indemnify the Agent in its capacity as such (to the extent not reimbursed by the Loan Parties and without limiting the obligation of Grace New York, the Company and any other Borrower to do so), ratably according to the respective amounts of their Commitments as in effect on the date on which the claim for indemnity by the Agent is sought, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including, without limitation, at any time following the payment of the Notes) be imposed on, incurred by or asserted against the Agent in any way relating to or arising out of this Agreement, any of the other Loan Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by the Agent under or in connection with any of the foregoing; provided that no Bank shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from the Agent's gross negligence or willful misconduct. The agreements in this subsection shall survive the payment of the Notes and all other amounts payable hereunder. 11.8 Agent in Its Individual Capacity. The Agent and its Affiliates may make loans to, accept deposits from and generally engage in any kind of business with Grace New York, the Company or any other Borrower as though the Agent were not the Agent hereunder and under the other Loan Documents. With respect to its Loans made or renewed by it and any Note issued to it, the Agent shall have the same rights and powers under this Agreement and the other Loan Documents as any Bank and may exercise the 57 52 same as though it were not the Agent, and the terms "Bank" and "Banks" shall include the Agent in its individual capacity. 11.9 Successor Agent. The Agent may resign as Agent upon 10 days' notice to the Banks. If the Agent shall resign as Agent under this Agreement and the other Loan Documents, then the Majority Banks shall appoint from among the Banks a successor agent for the Banks, which successor agent shall be approved by the Company, whereupon such successor agent shall succeed to the rights, powers and duties of the Agent, and the term "Agent" shall mean such successor agent effective upon its appointment, and the former Agent's rights, powers and duties as Agent shall be terminated, without any other or further act or deed on the part of such former Agent or any of the parties to this Agreement or any holders of the Notes. After any retiring Agent's resignation as Agent, the provisions of this subsection shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement and the other Loan Documents. SECTION 12. GUARANTEES 12.1 Grace New York Guarantee. Grace New York hereby unconditionally and irrevocably guarantees to the Agent and the Banks the prompt and complete payment and performance by each of the Borrowers when due (whether at the stated maturity, by acceleration or otherwise) of the Obligations owing to the Agent and the Banks by such Borrowers. This guarantee (the "Grace New York Guarantee") shall remain in full force and effect until the Obligations of each of the Borrowers are indefeasibly paid in full, notwithstanding that from time to time prior thereto any Borrower may be free from any Obligations. Grace New York agrees that whenever, at any time, or from time to time, it shall make any payment to the Agent or any Bank on account of its liability under this Grace New York Guarantee, it will notify the Agent and such Bank in writing that such payment is made under this Grace New York Guarantee for such purpose. No payment or payments made by any Borrower or any other Person or received or collected by the Agent or any Bank from any Borrower or any other Person by virtue of any action or proceeding or any offset or appropriation or application, at any time or from time to time, in reduction of or in payment of the Obligations of such Borrower shall be deemed to modify, reduce, release or otherwise affect the liability of Grace New York under this Grace New York Guarantee, which shall remain obligated under this Grace New York Guarantee, notwithstanding any such payment or payments until the Obligations are paid in full. 12.2 Company Guarantee. The Company hereby unconditionally and irrevocably guarantees to the Agent and the Banks, the prompt and complete payment and performance by each of the other Borrowers when due (whether at the stated maturity, by acceleration or otherwise) of the Obligations owing to the Agent 58 53 and the Banks by such Borrowers. This guarantee (the "Company Guarantee") shall remain in full force and effect until the Obligations of each such Borrower are indefeasibly paid in full, notwithstanding that from time to time prior thereto any such Borrower may be free from any Obligations. The Company agrees that whenever, at any time, or from time to time, it shall make any payment to the Agent or any Bank on account of its liability under this Company Guarantee, it will notify the Agent and such Bank in writing that such payment is made under this Company Guarantee for such purpose. No payment or payments made by any such Borrower or any other Person or received or collected by the Agent or any Bank from any such Borrower or any other Person by virtue of any action or proceeding or any offset or appropriation or application, at any time or from time to time, in reduction of or in payment of the Obligations of such Borrowers shall be deemed to modify, reduce, release or otherwise affect the liability of the Company under this Company Guarantee, which shall remain obligated under this Company Guarantee, notwithstanding any such payment or payments until the Obligations of such Borrowers are paid in full. 12.3 No Subrogation, Contribution, Reimbursement or Indemnity. Notwithstanding anything to the contrary in the Grace New York Guarantee and the Company Guarantee (together, the "Guarantees", each a "Guarantee"), each of Grace New York and the Company (together, the "Guaranteeing Parties," each a "Guaranteeing Party") hereby irrevocably waives all rights which may have arisen in connection with its Guarantee to be subrogated to any of the rights (whether contractual, under the Bankruptcy Code, including Section 509 thereof, under common law or otherwise) of the Agent or any Bank against the Company or any other Borrowers (together, the "Guaranteed Parties", each a "Guaranteed Party") for the payment of the Obligations. Each Guaranteeing Party hereby further irrevocably waives all contractual, common law, statutory or other rights of reimbursement, contribution, exoneration or indemnity (or any similar right) from or against any Guaranteed Party or Parties or any other Person which may have arisen in connection with its Guarantee. So long as the Obligations remain outstanding, if any amount shall be paid by or on behalf of any Guaranteed Party to the Guaranteeing Party on account of any of the rights waived in this subsection, such amount shall be held by such Guaranteeing Party in trust, segregated from other funds of such Guaranteeing Party, and shall, forthwith upon receipt by such Guaranteeing Party, be turned over to the Agent in the exact form received by such Guaranteeing Party (duly endorsed by such Guaranteeing Party to the Agent, if required), to be applied against the Obligations of such Guaranteed Party or Parties, whether matured or unmatured, in such order as the Agent may determine. The provisions of this subsection as they apply to each of the Guaranteeing Parties shall survive the payment in full of the Obligations of its Guaranteed Party or Parties. 59 54 12.4 Amendments, etc., with respect to the Obligations. Each Guaranteeing Party shall remain obligated under its Guarantee notwithstanding that, without any reservation of rights against such Guaranteeing Party, and without notice to or further assent by such Guaranteeing Party, any demand for payment of any of the Obligations made by the Agent or any Bank may be rescinded by the Agent or such Bank, and any of the Obligations continued, and the Obligations, or the liability of any other party upon or for any part thereof, or any collateral security or guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by the Agent or any Bank, and this Agreement, the Notes and the other Loan Documents may be amended, modified, supplemented or terminated, in whole or in part, as the Agent or the Banks (or the Majority Banks, as the case may be) may deem advisable from time to time in accordance with the provisions of subsection 13.1(a), and any collateral security, guarantee or right of set-off at any time held by the Agent or any Bank for the payment of the Obligations may be sold, exchanged, waived, surrendered or released. Neither the Agent nor any Bank shall have any obligation to protect, secure, perfect or insure any Lien at any time held by it as security for the Obligations or for the obligations of either Guaranteeing Party under its Guarantee or any property subject thereto. 12.5 Guarantee Absolute and Unconditional. Each Guaranteeing Party waives any and all notice of the creation, renewal, extension or accrual of any of the Obligations and notice of or proof of reliance by the Agent or any Bank upon its Guarantee or acceptance of its Guarantee; the Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred in reliance upon the Guarantees; and all dealings between the Borrowers and Grace New York, on the one hand, and the Agent and the Banks, on the other, shall likewise be conclusively presumed to have been had or consummated in reliance upon the Guarantees. Each Guaranteeing Party waives diligence, presentment, protest, notice of intent to accelerate, notice of acceleration, demand for payment and notice of default or nonpayment to or upon any Guaranteed Party or such Guaranteeing Party with respect to the Obligations. The Guarantees shall be construed as a continuing, absolute and unconditional guarantee of payment without regard to (a) the validity or enforceability of this Agreement, any Note, any other Loan Document, any of the Obligations or any collateral security therefor or guarantee or right of set-off with respect thereto at any time or from time to time held by the Agent or any Bank, (b) any defense, offset or counterclaim (other than a defense of payment or performance) which may at any time be available to or be asserted by any of the Guaranteed Parties against the Agent or any Bank or (c) any other circumstance whatsoever (with or without notice to or knowledge of any of the Guaranteed Parties or such Guaranteeing Party) which constitutes, or might be construed to constitute, an equitable or legal discharge of any 60 55 of the Guaranteed Parties for the Obligations of such Guaranteed Party, or of such Guaranteeing Party under its Guarantee, in bankruptcy or in any other instance. When the Agent is pursuing its rights and remedies hereunder against either Guaranteeing Party, the Agent or any Bank may, but shall be under no obligation to, pursue such rights and remedies as it may have against its Guaranteed Party or any other Person or against any collateral security or guarantee for the Obligations or any right of offset with respect thereto, and any failure by the Agent or any Bank to pursue such other rights or remedies or to collect any payments from such Guaranteed Party or such other Person or to realize upon any such collateral security or guarantee or to exercise such right of offset or any release of such Guaranteed Party or such other Person or of any such collateral security, guarantee or right of offset, shall not relieve such Guaranteeing Party of any liability under its Guarantee, and shall not impair or affect the rights and remedies, whether express, implied or available as a matter of law, of the Agent and the Banks against such Guaranteeing Party. 12.6 Reinstatement. Each Guarantee shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the Obligations of any Guaranteed Party thereunder is rescinded or must otherwise be restored or returned by the Agent or any Bank upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of such Guaranteed Party or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, such Guaranteed Party or any substantial part of any of its property, or otherwise, all as though such payments had not been made. 12.7 Payments. Each Guaranteeing Party hereby agrees that the Obligations will be paid to the Agent for the benefit of the Agent and the Banks, as the case may be, without set-off or counterclaim in Dollars or Alternative Currency, as appropriate, in immediately available funds at the office of the Agent located at 270 Park Avenue, New York, New York 10017. SECTION 13. MISCELLANEOUS 13.1 Amendments and Waivers; Replacement of Banks. (a) Neither this Agreement, any Note, any other Loan Document, nor any terms hereof or thereof may be amended, supplemented or modified except in accordance with the provisions of this subsection. With the written consent of the Majority Banks, the Agent, Grace New York and the Company may, from time to time, enter into written amendments, supplements or modifications hereto and to the Notes, if any, and the other Loan Documents for the purpose of adding any provisions to this Agreement or the Notes, if any, or the other Loan Documents or changing in any manner the rights of the Banks, Grace New York or of the Borrowers hereunder or thereunder or waiving, on such terms and 61 56 conditions as the Agent may specify in such instrument, any of the requirements of this Agreement or the Notes, if any, or the other Loan Documents or any Default or Event of Default and its consequences; provided, however, that no such waiver and no such amendment, supplement or modification shall (a) reduce the amount or extend the maturity of any Loan or Note or any installment thereof, or reduce the rate or extend the time of payment of interest thereon, or reduce any fee payable to any Bank hereunder, or change the amount of any Bank's Commitment, in each case without the consent of the Bank affected thereby, or (b) amend, modify or waive any provision of this subsection or reduce the percentage specified in the definition of Majority Banks, or consent to the assignment or transfer by Grace New York or any Borrower of any of its rights and obligations under this Agreement and the other Loan Documents, or amend, modify or waive any provision of Section 12, in each case without the written consent of all the Banks, or (c) amend, modify or waive any provision of Section 11 without the written consent of the then Agent. Any such waiver and any such amendment, supplement or modification shall apply equally to each of the Banks and shall be binding upon Grace New York, the Borrowers, the Banks, the Agent, all future holders of the Notes, if any, and all future obligees under the Loans. In the case of any waiver, Grace New York, the Borrowers, the Banks and the Agent shall be restored to their former position and rights hereunder and under the outstanding Loans or Notes, if any, and any other Loan Documents, and any Default or Event of Default waived shall be deemed to be cured and not continuing; but no such waiver shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereon. (b) Notwithstanding anything to the contrary contained in subsection 13.1(a), so long as no Default or Event of Default has occurred and is continuing the Borrowers and Grace New York shall be permitted in their discretion (but, if any Revolving Credit Loans are then outstanding, with the consent of the Majority Banks (which consent shall not be unreasonably withheld)) to amend this Agreement to replace one or more Banks without the consent of any Bank to be so replaced pursuant to this subsection 13.1(b) (a "Replaced Bank") and to provide for (w) the termination of the Commitments of such Replaced Bank, (x) the addition to this Agreement of one or more other banking institutions, or an increase in the Commitments of one or more of the other Banks (with the consent of such other Banks), so that the total Commitments after giving effect to such amendment shall be in the same amount as the total Commitments immediately before giving effect to such amendment, (y) if any Loans are outstanding at the time of such amendment, the making of such additional Loans by such new financial institutions or other Bank or Banks, as the case may be, as may be necessary to repay in full the outstanding Loans of such Replaced Bank together with interest thereon and all accrued fees and indemnities with respect thereto immediately before giving effect to such amendment and (z) such 62 57 other modifications to this Agreement as may be necessary to effect the replacement of such Replaced Bank. (c) Notwithstanding anything to the contrary contained in paragraph (a) or (b) of this subsection 13.1, if as a result of a change in any Requirement of Law after the date hereof any Borrower or Grace New York has become obligated to, or reasonably believes that it will become obligated to pay to any Bank any increased amount pursuant to subsection 5.11, 5.12 or 5.13, and such Bank shall not have waived payment of such increased amounts, then the Borrowers and Grace New York may, if no Default or Event of Default has occurred and is continuing and payment of any such increased amounts as have become due has been made or appropriately provided for, upon five Business Days' notice to the Agent and such Bank, amend this Agreement, without the consent of any Bank or the Agent, to replace any one or more of the Banks to which such increased amounts have become payable or would become payable and to provide for the matters referred to in clauses (w), (x), (y) and (z) of subsection 13.1(b), and such replaced Bank or Banks shall be deemed to be Replaced Banks for purposes of such clauses. 13.2 Notices. All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by telecopy), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made on receipt, addressed as follows in the case of the Company, Grace New York and the Agent, as set forth in paragraph 5 of the Notice of Additional Borrower relating to any Borrower other than the Company, in the case of such other Borrower, and as set forth in Schedule I in the case of the other parties hereto, or to such other address as may be hereafter notified by the respective parties hereto and any future holders of the Notes, if any, or any future obligees under the Loans: The Company: W. R. Grace & Co.-Conn One Town Center Road Boca Raton, Florida 33486-1010 Attention: Treasurer Telecopy: (407) 362-1944 Telephone: (407) 362-1949 Grace New York: W. R. Grace & Co. One Town Center Road Boca Raton, Florida 33486-1010 Attention: Treasurer Telecopy: (407) 362-1944 Telephone: (407) 362-1949 63 58 The Agent: Chemical Bank 270 Park Avenue New York, New York 10017 Attention: Scott S. Ward Telecopy: (212) 270-3125 Telephone: (212) 270-2625 13.3 No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Agent or any Bank, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. 13.4 Survival of Representations and Warranties. All representations and warranties made hereunder and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement and the Notes, if any. 13.5 Payment of Expenses and Taxes. The Company agrees (a) to pay or reimburse the Agent for all its out-of-pocket costs and expenses incurred in connection with the development, preparation and execution of, and any amendment, supplement or modification to, this Agreement and any Notes and the other Loan Documents and any other documents prepared in connection herewith or therewith, and the consummation and administration of the transactions contemplated hereby and thereby, including, without limitation, the fees and disbursements of counsel to the Agent, (b) to pay or reimburse each Bank and the Agent for all its costs and expenses incurred in connection with the enforcement or preservation of any rights under this Agreement, any Notes, the other Loan Documents and any such other documents, including, without limitation, fees and disbursements of counsel to the Agent and to the several Banks, and (c) to pay, indemnify, and hold each Bank and the Agent harmless from, any and all recording and filing fees and any and all liabilities with respect to, or resulting from any delay in paying, stamp, excise and other transactional taxes, if any, which may be payable or determined to be payable in connection with the execution and delivery of, or consummation or administration of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, this Agreement, any Notes, the other Loan Documents and any such other documents, and (d) to pay, indemnify, and hold each Bank and the Agent harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery and performance by the Loan Parties, and 64 59 administration and enforcement by the Agent and the Banks of this Agreement, any Notes and the other Loan Documents and any such other documents (all the foregoing, collectively, the "indemnified liabilities"), provided, that the Company shall have no obligation hereunder to the Agent or any Bank with respect to indemnified liabilities arising from (i) the gross negligence or willful misconduct of the Agent or any such Bank, (ii) legal proceedings commenced against the Agent or any such Bank by any security holder or creditor thereof arising out of and based upon rights afforded any such security holder or creditor solely in its capacity as such, or (iii) legal proceedings commenced against the Agent or any such Bank by any other Bank or by any Transferee (as defined in subsection 13.6). The agreements in this subsection shall survive repayment of the Loans or Notes, if any, and all other amounts payable hereunder. 13.6 Successors and Assigns; Participations; Purchasing Banks. (a) This Agreement shall be binding upon and inure to the benefit of Grace New York, the Borrowers, the Banks, the Agent, all future holders of the Notes, if any, all future obligees under the Loans and their respective successors and assigns, except that neither Grace New York nor any Borrower may assign or transfer any of its rights or obligations under this Agreement without the prior written consent of each Bank. (b) Any Bank may, in the ordinary course of its commercial banking business and in accordance with applicable law, at any time sell to one or more banks or other entities ("Participants") participating interests in any Loan owing to such Bank, any Note held by such Bank, any Commitments of such Bank or any other interest of such Bank hereunder and under the other Loan Documents. In the event of any such sale by a Bank of participating interests to a Participant, such Bank's obligations under this Agreement to the other parties to this Agreement shall remain unchanged, such Bank shall remain solely responsible for the performance thereof, such Bank shall remain the holder of any such Note, if any, and the obligee under any such Loan for all purposes under this Agreement and the other Loan Documents, and Grace New York, the Borrowers and the Agent shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement and the other Loan Documents. Each of Grace New York and each of the Borrowers agrees that if amounts outstanding under this Agreement and the Loans or the Notes, if any, are due or unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall be deemed to have the right of set-off in respect of its participating interest in amounts owing under this Agreement and any Loan or Note to the same extent as if the amount of its participating interest were owing directly to it as a Bank under this Agreement or any Loan or Note, provided that such Participant shall only be entitled to such right of set-off if it shall have agreed in the agreement 65 60 pursuant to which it shall have acquired its participating interest to share with the Banks the proceeds thereof as provided in subsection 13.7. Each of Grace New York and each of the Borrowers also agrees that each Participant shall be entitled to the benefits of subsections 5.11, 5.12, 5.13 and 13.5 with respect to its participation in the Commitments and the Loans outstanding from time to time; provided, that no Participant shall be entitled to receive any greater amount pursuant to such subsections than the transferor Bank would have been entitled to receive in respect of the amount of the participation transferred by such transferor Bank to such Participant had no such transfer occurred. (c) Any Bank may, in the ordinary course of its commercial banking business and in accordance with applicable law, at any time sell to any Bank or any affiliate thereof and, with the consent of the Company (which consent shall not be unreasonably withheld) and upon notice to the Agent, to one or more additional banks or financial institutions ("Purchasing Banks") all or any part of its rights and obligations under this Agreement and the Loans or the Notes, if any, pursuant to a Commitment Transfer Supplement, substantially in the form of Exhibit H, executed by such Purchasing Bank, such transferor Bank (and, in the case of a Purchasing Bank that is not then a Bank or an affiliate thereof, by the Company and the Agent) and delivered to the Agent for its acceptance and recording in the Register. Upon such execution, delivery, acceptance and recording, from and after the Transfer Effective Date determined pursuant to such Commitment Transfer Supplement, (x) the Purchasing Bank thereunder shall be a party hereto and, to the extent provided in such Commitment Transfer Supplement, have the rights and obligations of a Bank hereunder with a Commitment as set forth therein, and (y) the transferor Bank thereunder shall, to the extent provided in such Commitment Transfer Supplement, be released from its obligations under this Agreement (and, in the case of a Commitment Transfer Supplement covering all or the remaining portion of a transferor Bank's rights and obligations under this Agreement, such transferor Bank shall cease to be a party hereto). Such Commitment Transfer Supplement shall be deemed to amend this Agreement to the extent, and only to the extent, necessary to reflect the addition of such Purchasing Bank and the resulting adjustment of Commitment Percentages arising from the purchase by such Purchasing Bank of all or a portion of the rights and obligations of such transferor Bank under this Agreement and the Loan or the Notes, if any. On or prior to the Transfer Effective Date determined pursuant to such Commitment Transfer Supplement, the relevant Borrower, at its own expense, if the Purchasing Bank so requests, shall execute and deliver to the Agent in exchange for any surrendered Revolving Credit Note and Bid Loan Note a new Revolving Credit Note and Bid Loan Note to the order of such Purchasing Bank in an amount equal to the Commitment assumed by it pursuant to such Commitment Transfer Supplement and, if the transferor Bank has retained a Commitment hereunder, new Notes to the order of the transferor Bank in an 66 61 amount equal to the Commitment retained by it hereunder. Such new Notes shall be dated the Closing Date and shall otherwise be in the form of the Notes replaced thereby. Any Notes surrendered by the transferor Bank shall be returned by the Agent to the Company marked "cancelled". (d) The Agent shall maintain at its address referred to in subsection 13.2 a copy of each Commitment Transfer Supplement delivered to it and a register (the "Register") for the recordation of the names and addresses of the Banks and the Commitment of, and principal amount of the Loans owing to, each Bank from time to time. The entries in the Register shall be conclusive, in the absence of manifest error, and Grace New York, the Borrowers, the Agent and the Banks may treat each Person whose name is recorded in the Register as the owner of the Loan recorded therein for all purposes of this Agreement. The Register shall be available for inspection by Grace New York, the Borrowers or any Bank at any reasonable time and from time to time upon reasonable prior notice. (e) Upon its receipt of a Commitment Transfer Supplement executed by a transferor Bank and Purchasing Bank (and, in the case of a Purchasing Bank that is not then a Bank or an affiliate thereof, by the Company and the Agent) together with payment to the Agent of a registration and processing fee of $500, the Agent shall (i) promptly accept such Commitment Transfer Supplement (ii) on the Transfer Effective Date determined pursuant thereto record the information contained therein in the Register and give notice of such acceptance and recordation to the Banks and the Company. (f) Each of Grace New York and the Borrowers authorizes each Bank to disclose to any Participant or Purchasing Bank (each, a "Transferee") and any prospective Transferee any and all financial information in such Bank's possession concerning such Borrower and its affiliates which has been delivered to such Bank by or on behalf of Grace New York, the Company or such Borrower pursuant to this Agreement or which has been delivered to such Bank by or on behalf of Grace New York, the Company or such Borrower in connection with such Bank's credit evaluation of such Borrower and its affiliates prior to becoming a party to this Agreement. (g) If, pursuant to this subsection, any interest in this Agreement or any Note is transferred to any Transferee which is organized under the laws of any jurisdiction other than the United States or any state thereof, the transferor Bank shall cause such Transferee, concurrently with the effectiveness of such transfer, (i) to represent to the transferor Bank (for the benefit of the transferor Bank, the Agent, Grace New York and the Borrowers) that under applicable law and treaties no taxes will be required to be withheld by the Agent, Grace New York, the Borrowers or the transferor Bank with respect to any payments to be made to such Transferee in respect of the Loans, (ii) to 67 62 furnish to the transferor Bank (and, in the case of any Purchasing Bank registered in the Register, the Agent, Grace New York and the Company) either U.S. Internal Revenue Service Form 4224 or U.S. Internal Revenue Service Form 1001 (wherein such Transferee claims entitlement to complete exemption from U.S. federal withholding tax on all interest payments hereunder) and (iii) to agree (for the benefit of the transferor Bank, the Agent, Grace New York and the Company) to provide the transferor Bank (and, in the case of any Purchasing Bank registered in the Register, the Agent, Grace New York and the Company) a new Form 4224 or Form 1001 upon the expiration or obsolescence of any previously delivered form and comparable statements in accordance with applicable U.S. laws and regulations and amendments duly executed and completed by such Transferee, and to comply from time to time with all applicable U.S. laws and regulations with regard to such withholding tax exemption. (h) Nothing herein shall prohibit any Bank from pledging or assigning any Note to any Federal Reserve Bank in accordance with applicable law. 13.7 Adjustments; Set-off. (a) If any Bank (a "benefitted Bank") shall at any time receive any payment of all or part of its Revolving Credit Loans, or interest thereon, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off, pursuant to events or proceedings of the nature referred to in Section 10(f), or otherwise), in a greater proportion than any such payment to or collateral received by any other Bank, if any, in respect of such other Bank's Revolving Credit Loans, or interest thereon, such benefitted Bank shall purchase for cash from the other Banks such portion of each such other Bank's Loan, or shall provide such other Banks with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such benefitted Bank to share the excess payment or benefits of such collateral or proceeds ratably with each of the Banks; provided, however, that if all or any portion of such excess payment or benefits is thereafter recovered from such benefitted Bank, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. Each Borrower agrees that each Bank so purchasing a portion of another Bank's Loan may exercise all rights of payment (including, without limitation, rights of set-off) with respect to such portion as fully as if such Bank were the direct holder of such portion. (b) In addition to any rights and remedies of the Banks provided by law, each Bank shall have the right, without prior notice to Grace New York and the Borrowers, any such notice being expressly waived by Grace New York and the Borrowers, to the extent permitted by applicable law, upon any amount not being paid when due and payable by any Borrower hereunder or under the Notes (whether at the stated maturity, by acceleration or 68 63 otherwise) to set-off and appropriate and apply against such amount any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by such Bank or any branch or agency thereof to or for the credit or the account of Grace New York or such Borrower. Each Bank agrees promptly to notify Grace New York, the Borrowers and the Agent after any such set-off and application made by such Bank, provided that the failure to give such notice shall not affect the validity of such set-off and application. 13.8 Counterparts. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. A set of the copies of this Agreement signed by all the parties shall be lodged with Grace New York, the Company and the Agent. 13.9 Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 13.10 Integration. This Agreement represents the agreement of Grace New York, each Borrower, the Agent and the Banks with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by the Agent or any Bank relative to subject matter hereof not expressly set forth or referred to herein, in the other Loan Documents or in any documentation entered into pursuant to subsection 3.1(b). 13.11 GOVERNING LAW. THIS AGREEMENT (INCLUDING SECTION 12) AND THE NOTES AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 13.12 Submission to Jurisdiction; Waivers. (a) Each of Grace New York, each Borrower, the Agent and the Banks hereby irrevocably and unconditionally: (i) submits for itself and its property in any legal action or proceeding relating to this Agreement and the other Loan Documents to which it is a party, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the Courts of the State of New York sitting in New York County, the courts of the United States of America for the Southern 69 64 District of New York, and the appellate courts from any thereof; (ii) consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; (iii) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to Grace New York or such Borrower at its address set forth in subsection 13.2 or, with respect to Borrowers other than the Company, the Notice of Additional Borrower relating to such Borrower or at such other address of which the Agent shall have been notified pursuant thereto; (iv) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction; and (v) waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this subsection any special, exemplary, punitive or consequential damages. (b) Each Borrower other than the Company hereby appoints and empowers each of Grace New York and the Company, 1114 Avenue of the Americas, New York, New York 10036-7794, Attention: Treasurer, as its authorized agent (the "Process Agent") to receive on behalf of such Borrower service of any and all process and documents in any such legal action or proceeding brought in a New York state or federal court sitting in New York City. It is understood that a copy of such process served on the Process Agent will be promptly hand delivered or mailed (by registered or certified airmail if available), postage prepaid, to such Borrower at its address set forth in paragraph 5 of such Borrower's Notice of Additional Borrower, but the failure of such Borrower to receive such copy shall not affect in any way the service of such process on the Process Agent. If the Process Agent shall refuse or be prevented from acting as agent, notice thereof shall immediately be given by such Borrowers to the Agent by registered or certified airmail (if available), postage prepaid, and such Borrowers agree promptly to designate another agent in New York City, satisfactory to the Agent, to serve in place of the Process Agent and deliver to the Agent written evidence of such substitute agent's acceptance of such designation. 70 65 13.13 Acknowledgments. Each of Grace New York, each Borrower, the Agent and the Banks hereby acknowledges that: (a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the Notes and the other Loan Documents; (b) neither the Agent nor any Bank has any fiduciary relationship with or duty to Grace New York or such Borrower, as the case may be, arising out of or in connection with this Agreement or any of the other Loan Documents, and the relationship between Agent and Banks, on one hand, and Grace New York and the Borrowers, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and (c) as to any matter relating to any Loan Documents, no joint venture exists among the Banks or among Grace New York, the Borrowers and the Banks. 13.14 WAIVERS OF JURY TRIAL. GRACE NEW YORK, THE BORROWERS, THE AGENT AND THE BANKS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR THE NOTES OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN. 13.15 Additional Borrowers. (a) Any Subsidiary of the Company shall have the right to become a "Borrower" hereunder, and to borrow hereunder subject to the terms and conditions hereof applicable to a Borrower and to the following additional conditions: (i) the Company shall deliver a notice in substantially the form of Exhibit I hereto (a "Notice of Additional Borrower") signed by such Subsidiary and countersigned by Grace New York and the Company to the Agent and the Banks stating that such Subsidiary desires to become a "Borrower" under this Agreement and agrees to be bound by the terms hereof. From the time of receipt of such Notice of Additional Borrower by the Agent and the Banks and subject to the satisfaction of each condition precedent contained in such Notice of Additional Borrower, such Subsidiary shall be a "Borrower" hereunder with all of the rights and obligations of a Borrower hereunder; provided, however, that the Company may revoke a Notice of Additional Borrower with respect to any Subsidiary (other than the Company) upon five Business Days' written notice to the Agent, so long as such Borrower has no Obligations outstanding. No Notice of Additional Borrower relating to a Subsidiary may be revoked as to amounts owed by such Subsidiary to the Banks under this Agreement or any Notes or when an irrevocable notice pursuant to subsection 2.3, or a notice of acceptance pursuant to subsection 3.1 or 4.2, has 71 66 been given by such Subsidiary as a Borrower and is effective; (ii) if such Subsidiary is a Foreign Subsidiary, if reasonably requested by the Majority Banks, such Notice of Additional Borrower shall be accompanied by an opinion of counsel for such Subsidiary as specified in paragraph 4(a)(ii) of such Notice of Additional Borrower; (iii) and the other conditions set forth in such Notice of Additional Borrower shall have been satisfied (including the representations and warranties contained therein being true and correct as of the date thereof). (b) Promptly, upon receipt of any Notice of Additional Borrower by the Agent, the Agent shall notify each Bank thereof, and shall deliver to each Bank copies of each document delivered to the Agent pursuant to such Notice of Additional Borrower. 72 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered in New York, New York by their proper and duly authorized officers as of the day and year first above written. W. R. GRACE & CO.-CONN. By: -------------------------- Title: Vice President W. R. GRACE & CO. By: --------------------------- Title: Vice President CHEMICAL BANK, as Agent and as a Bank By: --------------------------- Title: Vice President 73 68 SCHEDULE I BANK COMMITMENT ---------- Chemical Bank $250,000,000 74 69 Lending Offices; Address For Notices CHEMICAL BANK ------------- Domestic Lending Office: Chemical Bank 270 Park Avenue New York, New York 10017 Eurodollar Lending Office: Chemical Bank 270 Park Avenue New York, New York 10017 Address for Notices: Chemical Bank 270 Park Avenue New York, New York 10017 Attention: Scott S. Ward Telephone: (212) 270-3125 Telecopy: (212) 270-2625 Address for Bid Loan Notices: Chemical Bank 270 Park Avenue New York, New York 10017 Attention: Scott S. Ward Telephone: (212) 270-3125 Telecopy: (212) 270-2625 EX-4.10 5 FIRST AMENDMENT 1 EXHIBIT 4.10 FIRST AMENDMENT FIRST AMENDMENT, dated as of December 31, 1995 (this "Amendment"), to the Credit Agreement, dated as of December 29, 1995 (as amended, supplemented or otherwise modified prior to the date hereof, the "Credit Agreement"), among W. R. GRACE & CO.-CONN., a Connecticut corporation (the "Company"), W. R. GRACE & CO., a New York corporation ("Grace New York"), the banks parties thereto (the "Banks") and CHEMICAL BANK, a New York banking corporation, as agent (in such capacity the "Agent") for the Banks. W I T N E S S E T H : WHEREAS, the Company and Grace New York have requested the Agent and the Banks to agree to amend the Credit Agreement in certain respects as hereinafter set forth; and WHEREAS, the Agent and the Banks are willing to agree to such amendment, but only on the terms and subject to the conditions set forth in this Amendment; NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company, Grace New York, the Banks and the Agent hereby agree as follows: 1. Definitions. Unless otherwise defined herein, terms defined in the Credit Agreement are used herein as therein defined. 2. Amendment to Section 1. Section 1 of the Credit Agreement is hereby amended by deleting therefrom each reference to the phrase "asbestos property damage" in the definitions of "Consolidated Adjusted Net Worth" and "EBIT" and substituting therefore the phrase "asbestos related". 3. Effectiveness. This Amendment shall become effective upon receipt by the Agent of evidence satisfactory to the Agent that this Amendment has been executed and delivered by the Company, Grace New York and the Majority Banks. 4. No Other Amendments. Except as expressly amended hereby, the Credit Agreement and the other Loan Documents (if any) shall remain in full force and effect in accordance with their respective terms. 5. Counterparts. This Amendment may be executed by one or more of the parties hereto on any number of separate counterparts and all of said counterparts taken together shall be deemed to constitute one and the same instrument. 2 2 6. Applicable Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 3 3 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered as of the day and year first above written. W. R. GRACE & CO.-CONN. By:__________________________ Title: W. R. GRACE & CO. By:__________________________ Title: CHEMICAL BANK, as Agent By:__________________________ Title: EX-10.02 6 1981 STOCK INCENTIVE PLAN 1 EXHIBIT 10.02 ----- W. R. GRACE & CO. 1981 STOCK INCENTIVE PLAN (As amended through March 7, 1996) 2 W. R. GRACE & CO. 1981 STOCK INCENTIVE PLAN Section 1. PURPOSES: The purposes of this Plan are (a) to secure for the Company the benefits of incentives inherent in ownership of Common Stock by Key Employees, (b) to encourage Key Employees to increase their interest in the future growth and prosperity of the Company and to stimulate and sustain constructive and imaginative thinking by Key Employees, (c) to further the identity of interests of those who hold positions of major responsibility in the Company and its Subsidiaries with the interests of the Company's shareholders, and (d) to induce the employment or continued employment of Key Employees and to enable the Company to compete with other organizations offering similar or other incentives in obtaining and retaining the services of competent executives. Section 2. DEFINITIONS: Unless otherwise required by the context, the following terms when used in this Plan shall have the meanings set forth in this Section 2. Board of Directors: The Board of Directors of the Company. Common Stock: The common stock of the Company, par value $1.00 per share, or such other class of shares or other securities or property as may be applicable pursuant to the provisions of section 8. Company: W. R. Grace & Co., a New York corporation. Fair Market Value: As applied to any date, the mean between the high and low sales prices of a share of Common Stock as reported on the Consolidated Transactions Tape for securities listed on the New York Stock Exchange for such date or, if no such sales were reported for such date, on the next preceding date for which sales were so reported. Grace - Connecticut: W. R. Grace & Co.- Conn., a Connecticut corporation which is a subsidiary of the Company and which was formerly known as "W. R. Grace & Co." Incentive Committee: The committee designated by the Board of Directors to administer stock incentive and stock option plans of the Company and its subsidiaries. Incentive Compensation: Bonuses, extra and other compensation payable in addition to a salary or other base amount, whether contingent or not, whether discretionary or required to be paid pursuant to a plan, agreement, resolution or arrangement, and whether payable currently or on a deferred basis, in cash, Common Stock or other property, awarded by the Company or a Subsidiary prior or subsequent to the date of the approval and adoption of this Plan. 3 Incentive Stock Option: An option, including an Option as the context may require, intended to meet the requirements of section 422A of the Internal Revenue Code and the regulations thereunder applicable to incentive stock options adopted by the Secretary of the Treasury or his delegate, or any provisions that may be adopted to amend or replace such section or regulations or both. Key Employee: An employee of the Company or of a Subsidiary, including an officer or director who is an employee, who in the opinion of the Incentive Committee can contribute significantly to the growth and successful operations of the Company or a Subsidiary. The grant of a Stock Incentive to an employee by the Incentive Committee shall be deemed a determination by the Incentive Committee that such employee is a Key Employee. Non-Statutory Stock Option: An option, including an Option as the context may require, which is not an Incentive Stock Option or another form of statutory stock option (within the meanings of sections 422, 423 and 424 of the Internal Revenue Code and the regulations thereunder as adopted and amended from time to time by the Secretary of the Treasury or his delegate). Option: An option to purchase shares of Common Stock. Plan: The 1981 Stock Incentive Plan of the Company herein set forth as the same may from time to time be amended. Performance Unit: A unit representing a share of Common Stock subject to a Stock Award, the issuance, transfer or retention of which, in whole or in part, is contingent upon or measured by the attainment of a specified performance objective or objectives, including, without limitation, objectives determined (on a consolidated or unconsolidated basis) by reference to or changes in (a) the Fair Market Value, book value or earnings per share of Common Stock, or (b) the sales and revenues, earnings, return on capital employed, asset values or net worth of the Company or one or more of its groups, divisions, Subsidiaries or other units, or (c) a combination of two or more of the foregoing or other factors. Stock Award: An issuance or transfer of shares of Common Stock at the time the Stock Incentive is granted or as soon thereafter as practicable, or an undertaking (other than an Option) to issue or transfer such shares in the future, including, without limitation, such an issuance, transfer or undertaking with respect to Performance Units. Stock Incentive: A stock incentive granted under this Plan in one of the forms provided for in section 3. -2- 4 Subsidiary: A corporation (or other form of business association) of which shares (or other ownership interests) (a) having 50% or more of the voting power regularly entitled to vote for directors (or equivalent management rights) or (b) regularly entitled to receive 50% or more of the dividends (or their equivalents) paid on the common stock (or its equivalent) are owned, directly or indirectly, by the Company; provided, however, that in the case of an Incentive Stock Option, the term "Subsidiary" shall mean a Subsidiary (as defined by the preceding clause) which is also a "subsidiary corporation" as defined in section 425(f) of the Internal Revenue Code and the regulations thereunder adopted by the Secretary of the Treasury or his delegate, or any provisions that may be adopted to amend or replace such section or regulations or both. Section 3. GRANTS OF STOCK INCENTIVES: (a) Subject to the provisions of this Plan, the Incentive Committee may at any time, or from time to time, grant Stock Incentives under this Plan to, and only to, Key Employees. (b) Stock Incentives may be granted in the following forms: (i) a Stock Award, or (ii) an Option, or (iii) a combination of a Stock Award and an Option. Section 4. STOCK SUBJECT TO THIS PLAN: (a) Subject to the provisions of paragraph (c) of this section 4 and of section 8, (i) the maximum number of shares of Common Stock which may be issued or transferred pursuant to Stock Incentives granted under this Plan shall not exceed 5,000,000 shares of Common Stock, (ii) the maximum number of shares of Common Stock which may be acquired upon exercise of Options granted at any time or from time to time under this Plan to any one Key Employee shall in no event exceed 5% of the maximum number of shares which may be issued or transferred pursuant to Stock Incentives granted under this Plan, and (iii) the maximum number of shares of Common Stock which may be acquired upon exercise of Options granted at any time or from time to time under this Plan to Key Employees serving as directors of the Company at the time they recommend this Plan for approval and adoption by the shareholders of the Company shall in no event exceed 25% of the maximum number of the shares which may be issued or transferred pursuant to Stock Incentives granted under this Plan. (b) Authorized but unissued shares of Common Stock and shares of Common Stock held in the treasury, whether acquired by the Company specifically for use under this Plan or otherwise, may be used, as the Incentive Committee may from time to time determine, for purposes of this Plan, provided, however, that any shares acquired or -3- 5 held by the Company for the purposes of this Plan shall, unless and until transferred to a Key Employee in accordance with the terms and conditions of a Stock Incentive, be and at all times remain treasury shares of the Company, irrespective of whether such shares are entered in a special account for purposes of this Plan, and shall be available for any corporate purpose. (c) If any shares of Common Stock subject to a Stock Incentive shall not be issued or transferred and shall cease to be issuable or transferable 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 or transfers be reacquired by the Company or a Subsidiary because of an employee's failure to comply with the terms and conditions of a Stock Incentive, the shares not so issued or transferred, or the shares so reacquired by the Company or a Subsidiary, shall no longer be charged against any of the limitations provided for in paragraph (a) of this section 4 and may again be made subject to Stock Incentives. (d) For purposes of this section 4, Common Stock shall include shares of common stock, par value $1.00 per share, of Grace-Connecticut issued or transferred pursuant to Stock Incentives granted by Grace-Connecticut under this Plan as in effect prior to its adoption by the Company, except that in determining, for purposes of this section 4, the number of shares so issued or transferred by Grace-Connecticut prior to the two-for-one split of the common stock of Grace-Connecticut which occurred in December 1987, adjustment shall be made to reflect such stock split. Section 5. STOCK AWARDS: Stock Incentives in the form of Stock Awards shall be subject to the following provisions: (a) A Stock Award shall be granted only in payment of Incentive Compensation that has been earned or as Incentive Compensation to be earned, including, without limitation, Incentive Compensation awarded concurrently with or prior to the grant of the Stock Award. (b) For the purposes of this Plan, in determining the value of a Stock Award, all shares of Common Stock subject to such 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 or transferred to the Key Employee and whether or not such shares are subject to restrictions which affect their value. (c) Shares of Common Stock subject to a Stock Award may be issued or transferred to the Key Employee at the time the Stock Award is granted, or at any time subsequent thereto, or in installments from time to time, as the Incentive Committee shall determine. In the event that any such issuance or transfer shall not be made to the Key Employee at the time the Stock Award is granted, the Incentive Committee may provide -4- 6 for payment to such Key Employee, either in cash or shares of Common Stock, from time to time or at the time or times such shares shall be issued or transferred to such Key Employee, of amounts not exceeding the dividends which would have been payable to such Key Employee in respect of such shares (as adjusted under section 8) if such shares had been issued or transferred to such Key Employee at the time such Stock Award was granted. Any amount payable in shares of Common Stock under the terms of a Stock Award may, at the discretion of the Company, be paid in cash, on each date on which delivery of shares would otherwise have been made, in an amount equal to the Fair Market Value on such date of the shares which would otherwise have been delivered. (d) A Stock Award shall be subject to such terms and conditions, including, without limitation, restrictions on the sale or other disposition of the Stock Award or of the shares issued or transferred pursuant to such Stock Award, as the Incentive Committee shall determine; provided, however, that upon the issuance or transfer of shares pursuant to a Stock Award, the recipient shall, with respect to such shares, be and become a shareholder of the Company fully entitled to receive dividends, to vote and to exercise all other rights of a shareholder except to the extent otherwise provided in the Stock Award. Each Stock Award shall be evidenced by a written instrument in such form as the Incentive Committee shall determine provided the Stock Award is consistent with this Plan and incorporates it by reference. Section 6. OPTIONS: Except as otherwise provided in section 12, Stock Incentives in the form of Options shall be subject to the following provisions: (a) Subject to the provisions of section 8, the purchase price per share 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 shall be paid in cash or, if so provided in the Option or authorized by the Incentive Committee (and subject to such terms and conditions as are specified in the Option or by the Incentive Committee), in shares of Common Stock delivered to the Company or in a combination of cash and such shares. Shares of Common Stock thus delivered shall be valued at their Fair Market Value on the date of exercise. (b) 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, as the Incentive Committee shall determine. Unless otherwise provided in the Option, 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 the Option. (c) Each Option shall be exercisable during the life of the optionee only by him, and after his death only by his estate or by a person who acquired 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, shall terminate when the optionee ceases to be an -5- 7 employee of the Company or a Subsidiary, unless he ceases to be an employee by reason of his resignation with the consent of the Incentive Committee (which consent may be given before or after resignation), or by reason of his death, incapacity or retirement under a retirement plan of the Company or a Subsidiary. Except as provided in the next sentence, if the optionee ceases to be an employee by reason of such resignation, the Option shall terminate three months after he ceases to be an employee. If the optionee ceases to be an employee by reason of such death, incapacity or retirement, or if he should die during the three-month period referred to in the preceding sentence, the Option shall terminate 15 months after he ceases to be an employee. Where an Option is exercised more than three months after the optionee ceased to be an employee, it may be exercised only to the extent it could have been exercised three months after he ceased to be an employee. A leave of absence for military or governmental service or for other purposes shall not, if approved by the Incentive Committee, be deemed a termination of employment within the meaning of this paragraph (c), provided, however, that an Option may not be exercised during any such leave of absence. Notwithstanding the foregoing provisions of this paragraph (c) 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 Non-Statutory Stock Option is granted for a term of less than ten years and one month, the Incentive 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 an Option under this Plan. (d) Options shall be granted for such lawful consideration as the Incentive Committee may determine. (e) Neither the Company nor any Subsidiary may directly or indirectly lend any money to any person for the purpose of assisting him to purchase or carry shares of Common Stock issued or transferred upon the exercise of an Option. (f) No Option nor any right thereunder may be assigned or transferred by the optionee except by will or the laws of descent and distribution. If so provided in the Option or if so authorized by the Incentive Committee and subject to such terms and conditions as are specified in the Option or by the Incentive Committee, the Company shall, upon or without the request of the holder of the Option and at any time or 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 of such shares, or (ii) issue or transfer shares of Common Stock to the holder with a Fair Market Value, at such time or times, equal to such excess. (g) An Option granted under the Plan may, but need not, be an Incentive Stock Option. All shares of Common Stock which may be made subject to Stock -6- 8 Incentives under this Plan may be made subject to Incentive Stock Options; provided that, the aggregate Fair Market Value (determined as of the time the 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 to any employee on or after January 1, 1987 (under all plans, including this Plan, of his employer corporation and its parent and subsidiary corporation) shall not exceed $100,000. (h) Each Option shall be evidenced by a written instrument, which shall contain such terms and conditions, and shall be in such form, as the Incentive Committee shall determine, provided the Option is consistent with this Plan and incorporates it by reference. Notwithstanding the preceding sentence, an Option, if so approved by the Incentive Committee, may include restrictions and limitations in addition to those provided for in this Plan. Section 7. COMBINATIONS OF STOCK AWARDS AND OPTIONS: Stock Incentives authorized by paragraph (b)(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 with 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 the Incentive Committee may determine, including, without limitation, a provision terminating in whole or in part a portion thereof upon the exercise in whole or in part of another portion thereof. Such combination Stock Incentive shall be evidenced by a written instrument in such form as the Incentive Committee shall determine, provided it is consistent with this Plan and incorporates it by reference. Section 8. ADJUSTMENT PROVISIONS: (a) In the event that any reclassification, split-up or consolidation of shares of 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 and class of shares or other securities or property that may be issued or transferred pursuant to Stock Incentives thereafter granted, (ii) the number and class of shares or other securities or property that have not been issued or transferred under outstanding Stock Incentives, (iii) the purchase price to be paid per share or other unit -7- 9 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 or transferred pursuant to Stock Incentives that are subject to a right of the Company or a Subsidiary to reacquire such shares or other securities or property, shall in each case be equitably adjusted as determined by the Incentive 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 and class of shares or other securities or property that may be issued pursuant to Stock Incentives thereafter granted, (ii) the number and class of shares or other securities or property that have not been issued under outstanding Stock Incentives, (iii) the purchase price to be paid per share or other unit under outstanding Stock Incentives, and (iv) the price to be paid per share or other unit by the Company or a Subsidiary for shares or other securities or property issued pursuant to Stock Incentives that are subject to a right of the Company or a Subsidiary to reacquire such shares or other securities or property, shall in each case be equitably adjusted as determined by the Incentive Committee. Section 9. TERM: This Plan was deemed adopted and became effective on the date it was approved and adopted by the shareholders of Grace-Connecticut. This Plan was deemed adopted as to the Company on the date of the adoption and assumption thereof by the Board of Directors with the approval of the shareholders of Grace-Connecticut and became effective as to the Company on the effective date of the merger of Grace Merger Corp., a subsidiary of the Company, with and into Grace-Connecticut. No Stock Incentives shall be granted under this Plan after April 30, 1991. Section 10. ADMINISTRATION: (a) This Plan shall be administered by the Incentive Committee. No director shall be designated as or continue to be a member of the Incentive Committee unless he shall at the time of designation and service be a "disinterested person" within the meaning of Rule 16b-3 of the Securities and Exchange Commission (or any successor provision at the time in effect). A member of the Incentive Committee shall not be eligible to be granted a Stock Incentive while serving on the Incentive Committee. Grants of Stock Incentives may be made by the Incentive Committee either in or without consultation with employees, but in either case the Incentive Committee shall have full authority to act in the matter of selection of all Key Employees and in granting Stock Incentives to them. (b) The Incentive Committee may establish such rules and regulations, not inconsistent with the provisions of this Plan, as it deems necessary to determine eligibility to participate in this Plan and for the proper administration of this Plan, and may amend or revoke any rule or regulation so established. The Incentive Committee may make such determinations and interpretations under or in connection with this Plan as it deems -8- 10 necessary or advisable. All such rules, regulations, determinations and interpretations, subject to the provisions of section 3.1 of the By-laws of the Company, shall be binding and conclusive upon the Company, its Subsidiaries, its shareholders and all employees, and upon their respective legal representatives, beneficiaries, successors and assigns and upon all other persons claiming under or through any of them. (c) Any action required or permitted to be taken by the Incentive Committee under this Plan may be taken in accordance with Article III of the By-laws of the Company even though, because of a vacancy or vacancies as a result of resignations or otherwise, the total number of directors who are then members of the Incentive Committee shall be less than the number initially designated by the Board of Directors. (d) Members of the Board of Directors and members of the Incentive Committee acting under this Plan shall be fully protected in relying in good faith upon the advice of counsel and shall incur no liability except for gross negligence or willful misconduct in the performance of their duties. Section 11. GENERAL PROVISIONS: (a) Nothing ln this Plan nor in any instrument executed pursuant hereto shall confer upon any employee any right to continue in the employ of the Company or a Subsidiary, or shall affect the right of the Company or of a Subsidiary to terminate the employment of any employee with or without cause. (b) No shares of Common Stock shall be issued or transferred pursuant to a Stock Incentive unless and until all legal requirements applicable to the issuance or transfer of such shares have, in the opinion of counsel to the Company, been compiled with. In connection with any such issuance or transfer 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 employee (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 or transferred to him. (d) The Company or a Subsidiary may, with the approval of the Incentive Committee, enter into an agreement or other commitment to grant a Stock Incentive in the future to a person who is or will be a Key Employee at the time of grant, and, -9- 11 notwithstanding any other provision of this Plan, any such agreement or commitment shall not be deemed the grant of a Stock Incentive until the date on which the Incentive Committee takes action to implement such agreement or commitment. (e) In the case of a grant of a Stock Incentive to an employee of a Subsidiary, such grant may, if the Incentive Committee so directs, be implemented by the Company issuing or transferring the shares, if any, covered by the Stock Incentive to the Subsidiary, for such consideration as the Incentive Committee may specify, upon the condition or understanding that the Subsidiary will transfer the shares to the employee in accordance with the terms of the Stock Incentive specified by the Incentive Committee pursuant to the provisions of this Plan. Notwithstanding any other provision hereof, such Stock Incentive may be issued by and in the name of the Subsidiary and shall be deemed granted on the date it is approved by the Incentive Committee, on the date it is delivered by the Subsidiary or on such other date between said two dates as the Incentive Committee shall specify. (f) The Company or a Subsidiary may make such provisions as it may deem appropriate for the withholding of any taxes which the Company or a Subsidiary determines it is required to withhold in connection with any Stock Incentive. (g) Nothing ln 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 fringe benefits to employees generally, or to any class or group of employees, which the Company or any Subsidiary now has or may hereafter lawfully put into effect, including, without limitation, any incentive compensation, retirement, pension, group insurance, stock purchase, stock bonus or stock option plan. Section 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 company, the Company in connection therewith, upon the approval of the Incentive Committee, (a) may assume, in whole or in part and with or without modifications or conditions, any stock options granted by the acquired company to its employees in their capacity as such, or (b) may grant new Options in substitution therefor; provided that the granting of an option with the terms and conditions of the assumed or substitute options is permissible under either this Plan or a plan approved by the shareholders of the acquired company. For the purposes of the preceding sentence, the permissibility of the granting of an option under a plan shall be determined as of the date of grant of the original option by the acquired company and not as of the date of assumption or substitution by the Company. Section 13. AMENDMENTS AND DISCONTINUANCE: (a) This Plan may be amended by the Board of Directors upon the recommendation of the Incentive Committee, provided that, without the approval of the -10- 12 shareholders of the Company, no amendment shall be made which (i) increases the maximum number of shares of Common Stock that may be issued or transferred pursuant to Stock Incentives, the maximum number of shares of Common Stock that may be acquired upon exercise of Options granted to any one employee or the maximum number of shares of Common Stock that may be acquired upon exercise of Options granted to employees serving as directors, in each case as provided in paragraph (a) of section 4, (ii) except as may be required to conform this Plan to changes in the federal securities laws and the rules and regulations of the Securities and Exchange Commission (or any successor agency), withdraws the administration of this Plan from the Incentive Committee or amends the provisions of paragraph (a) of section 10 with respect to eligibility and disinterest of members of the Incentive Committee, (iii) permits any person who is not at the time a Key Employee to be granted a Stock Incentive, (iv) amends the provisions of paragraph (b) of section 5 or paragraph (a) of section 6 to permit shares to be valued at, or to have a purchase price of, respectively, less than 100% of Fair Market Value, (v) amends section 9 to extend the date set forth therein, or (vi) amends this section 13. (b) The Board of Directors may by resolution adopted by a majority of the entire Board of Directors discontinue this Plan. (c) No amendment or discontinuance of this Plan by the Board of Directors or the shareholders of the Company shall, without the consent of the employee, adversely affect any Stock Incentive theretofore granted to him, and no amendment by the Incentive Committee of any such Stock Incentive shall, without the consent of the employee, adversely affect such Stock Incentive. -11- EX-10.03 7 1986 STOCK INCENTIVE PLAN 1 EXHIBIT 10.03 ----- W. R. GRACE & CO. 1986 STOCK INCENTIVE PLAN (As amended through March 7, 1996) 2 W. R. GRACE & CO. 1986 STOCK INCENTIVE PLAN 1. Purposes: The purposes of this Plan are (a) to secure for Key Persons the benefits of incentives attributable to Common Stock, (b) to encourage Key Persons to increase their interest in the future 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 shareholders, 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 competent individuals. 2. Definitions: Unless otherwise required by the context, the following terms when used in this Plan shall have the meanings set forth in this Section 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, and is no longer, an employee of, or consultant to, the Company or a Subsidiary; provided, however, in the case of an Incentive Stock Option, "cessation of service" (or words of similar import) shall mean when a person ceases to be an employee of the Company or a Subsidiary. Common Stock: The common stock of the Company, par value $1.00 per share, or such other class of shares or other securities or property as may be applicable pursuant to the provisions of section 8. Company: W. R. Grace & Co., a New York corporation. Fair Market Value: The fair market value of a share of Common Stock determined in accordance with any reasonable method approved by the Incentive Committee. In the absence of any such approved method, Fair Market Value, as applied to any date, shall be the mean between the high and low sales prices of a share of Common Stock as reported on the Consolidated Transactions Tape for securities listed on the New York Stock Exchange for such date or, if no such sales were reported for such date, for the next preceding date for which sales were so reported. Grace-Connecticut: W. R. Grace & Co.-Conn., a Connecticut corporation which is a subsidiary of the Company and which was formerly known as "W. R. Grace & Co." Incentive Committee: The committee designated by the Board of Directors to administer stock incentive and stock option plans of the Company and its subsidiaries. 3 Incentive Compensation: Bonuses, extra and other compensation payable in addition to a salary or other base amount, whether contingent or not, whether discretionary or required to be paid pursuant to a plan, agreement, resolution or arrangement, and whether payable currently or on a deferred basis, in cash, Common Stock or other property, awarded by the Company or a Subsidiary prior or subsequent to the date of the approval and adoption of this Plan. Incentive Stock Option: An option, including an Option as the context may require, intended to meet the requirements of section 422A of the Internal Revenue Code and the regulations thereunder applicable to incentive stock options adopted by the Secretary of the Treasury or his delegate, or any provisions that may be adopted to amend or replace such section or regulations or both. Key Employee: An employee of the Company or a Subsidiary who is a Key Person. Key Person: An employee of, or a consultant to, the Company or a Subsidiary, including an officer or director who is an employee or consultant, who in the opinion of the Incentive Committee can contribute significantly to the growth and successful operations of the Company or a Subsidiary. The grant of a Stock Incentive to an employee or consultant by the Incentive Committee shall be deemed a determination by the Incentive Committee that such person is a Key Person. Non-Statutory Stock Option: An option, including an Option as the context may require, which is not an Incentive Stock Option or another form of statutory stock option (within the meanings of sections 422, 423 and 424 of the Internal Revenue Code and the regulations thereunder as adopted and amended from time to time by the Secretary of the Treasury or his delegate). Option: An option granted under this Plan to purchase shares of Common Stock. Plan: The 1986 Stock Incentive Plan of the Company herein set forth as the same may from time to time be amended. Performance Unit: A unit representing a share of Common Stock subject to a Stock Award, the issuance, transfer or retention of which, in whole or in part, is contingent upon or measured by the attainment of a specified performance objective or objectives, including, without limitation, objectives determined (on a consolidated or unconsolidated basis) by reference to or changes in (a) the Fair Market Value, book value or earnings per share of Common Stock, or (b) the sales and revenues, net income, return on capital employed, asset values or net worth of the Company or one or more of its groups, divisions, Subsidiaries or other units, or (c) a combination of two or more of the foregoing or other factors. -2- 4 service: Service as an employee of, or a consultant to, the Company or a Subsidiary. "To serve" has a correlative meaning. Stock Award: An issuance or transfer of shares of Common Stock at the time the Stock Incentive is granted or as soon thereafter as practicable, or an undertaking (other than an Option) to issue or transfer such shares in the future, including, without limitation, such an issuance, transfer or undertaking with respect to Performance Units. 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) (a) having 50% or more of the voting power regularly entitled to vote for directors (or equivalent management rights) or (b) regularly entitled to receive 50% or more of the dividends (or their equivalents) paid on the common stock (or its equivalent) are owned, directly or indirectly, by the Company; provided, however, that in the case of an Incentive Stock Option, the term "Subsidiary" shall mean a Subsidiary (as defined by the preceding clause) which is also a "subsidiary corporation" as defined in section 425(f) of the Internal Revenue Code and the regulations thereunder adopted by the Secretary of the Treasury or his delegate, or any provisions that may be adopted to amend or replace such section or regulations or both. 3. "Grant" of Stock Incentives: (a) Subject to the provisions of this Plan, the Incentive Committee may at any time, or from time to time, grant Stock Incentives under this Plan to, and only to, Key Persons; provided, however, that Incentive Stock Options may be granted to, and only to, Key Employees. (b) Stock Incentives may be granted in the following forms: (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 of section 8, (i) the maximum number of shares of Common Stock which may be issued or transferred pursuant to Stock Incentives granted under this Plan shall not exceed 5,000,000 shares of Common Stock, (ii) the maximum number of shares of Common Stock which may be acquired upon exercise of Options granted at any time or from time to time under this Plan to any one Key Person shall in no event exceed 5% of the maximum number of shares -3- 5 which may be issued or transferred pursuant to Stock Incentives granted under this Plan, and (iii) the maximum number of shares of Common Stock which may be acquired upon exercise of Options granted at any time or from time to time under this Plan to Key Persons serving as directors of the Company at the time they recommend this Plan for approval and adoption by the shareholders of the Company shall in no event exceed 25% of the maximum number of the shares which may be issued or transferred pursuant to Stock Incentives granted under this Plan. (b) Authorized but unissued shares of Common Stock and shares of Common Stock held in the treasury, whether acquired by the Company specifically for use under this Plan or otherwise, may be used, as the Incentive Committee may from time to time determine, for purposes of this Plan, provided, however, that any shares acquired or held by the Company for the purposes of this Plan shall, unless and until transferred to a Key Person in accordance with the terms and conditions of a Stock Incentive, be and at all times remain treasury shares of the Company, irrespective of whether such shares are entered in a special account for purposes of this Plan, and shall be available for any corporate purpose. (c) If any shares of Common Stock subject to a Stock Incentive shall not be issued or transferred and shall cease to be issuable or transferable 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 or transfer, be reacquired by the Company or a Subsidiary because of an employee's failure to comply with the terms and conditions of a Stock Incentive, the shares not so issued or transferred, or the shares so reacquired by the Company or a Subsidiary, shall no longer be charged against any of the limitations provided for in paragraph (a) of this section 4 and may again be made subject to Stock Incentives. (d) For purposes of this section 4, Common Stock shall include shares of common stock, par value $1.00 per share, of Grace-Connecticut issued or transferred pursuant to Stock Incentives granted by Grace-Connecticut under this Plan as in effect prior to its adoption by the Company, except that in determining, for purposes of this section 4, the number of shares so issued or transferred by Grace-Connecticut prior to the two-for-one split of the common stock of Grace-Connecticut which occurred in December 1987, adjustment shall be made to reflect such stock split. 5. Stock Awards: Except as otherwise provided in section 12 and in paragraph (f) of section 11, Stock Incentives in the form of Stock Awards shall be subject to the following provisions: (a) A Stock Award shall be granted only in payment of Incentive Compensation that has been earned or as Incentive Compensation to be earned, including, without limitation, Incentive Compensation awarded concurrently with or prior to the grant of the Stock Award. -4- 6 (b) For the purposes of this Plan, in determining the value of a Stock Award, all shares of Common Stock subject to such 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 or transferred to the Key Person and whether or not such shares are subject to restrictions which affect their value. (c) Shares of Common Stock subject to a Stock Award may be issued or transferred to the Key Person at the time the Stock Award is granted, or at any time subsequent thereto, or in installments from time to time, as the Incentive Committee shall determine. In the event that any such issuance or transfer shall not be made to the Key Person at the time the Stock Award is granted, the Incentive Committee may provide for payment to such Key Person, either in cash or shares of Common Stock, from time to time or at the time or times such shares shall be issued or transferred to such Key Person, of amounts not exceeding the dividends which would have been payable to such Key Person in respect of such shares (as adjusted under section 8) if such shares had been issued or transferred to such Key Person at the time such Stock Award was granted. Any amount payable in shares of Common Stock under the terms of a Stock Award may, at the discretion of the Company, be paid in cash, on each date on which delivery of shares would otherwise have been made, in an amount equal to the Fair Market Value on such date of the shares which would otherwise have been delivered. (d) A Stock Award shall be subject to such terms and conditions, including, without limitation, restrictions on the sale or other disposition of the Stock Award or of the shares issued or transferred pursuant to such Stock Award, as the Incentive Committee shall determine; provided, however, that upon the issuance or transfer of shares pursuant to a Stock Award, the recipient shall, with respect to such shares, be and become a shareholder of the Company fully entitled to receive dividends, to vote and to exercise all other rights of a shareholder except to the extent otherwise provided in the Stock Award. Each Stock Award shall be evidenced by a written instrument in such form as the Incentive Committee shall determine, provided the Stock Award is consistent with this Plan and incorporates it by reference. 6. Options: Except as otherwise provided in section 12 and in paragraph (f) of section 11, Stock Incentives in the form of Options shall be subject to the following provisions: (a) Subject to the provisions of section 8, the purchase price per share 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 shall be paid in cash or, if so provided in the Option or authorized by the Incentive Committee (and subject to such terms and conditions as are specified in the Option or by the Incentive Committee), in shares of Common Stock delivered to the Company or in a combination of cash and such shares. Share of Common Stock thus delivered shall be valued at their Fair Market Value on the date of exercise. -5- 7 (b) 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, as the Incentive Committee shall determine. Unless otherwise provided in the Option, 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 the Option. (c) Each Option shall be exercisable during the life of the optionee only by him, and after death only by his estate or by a person who acquired 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 optionee ceases to serve: (i) if the optionee shall voluntarily resign without the consent of the Incentive Committee or be terminated for cause, the Option shall terminate immediately upon cessation of service; (ii) if the optionee 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 15 months after cessation of service if the optionee has served for less than 15 years, the Option shall terminate two years after cessation of service if the optionee has served 15 or more years but less than 25 years, and the Option shall terminate three years after cessation of service if the optionee has served 25 or more years; and (iii) except as provided in the next sentence, in all other cases the Option shall terminate three months after cessation of service unless the Incentive Committee shall approve a longer period (which approval may be given before or after cessation of service), not to exceed, however, the period which would have been applicable if the optionee had died, become incapacitated or retired under a retirement plan of the Company or a Subsidiary. If the optionee shall die or become incapacitated during the three-month period (or such longer period as the Incentive Committee may approve) referred to in the preceding clause (iii), the Option shall terminate at such time as it would have terminated had the service of the optionee ceased by reason of his death, incapacity or retirement under a retirement plan of the Company or Subsidiary. A leave of absence for military or governmental service or for other purposes shall not, if approved by the Incentive Committee (which approval may be given before or after the leave of absence commences), be deemed a termination of employment within the meaning of this paragraph (c); provided, however, that an Option may not be exercised or canceled during any such leave of absence. Notwithstanding the foregoing provisions of this paragraph (c) 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 Non-Statutory Stock Option is granted for a term of less than ten years and one month, the Incentive 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 an Option under this Plan. (d) Options shall be granted for such lawful consideration as may be provided in the Option or as the Incentive Committee may determine. -6- 8 (e) No Option nor any right thereunder may be assigned or transferred except by will or the laws of descent and distribution. If so provided in the Option or if so authorized by the Incentive Committee and subject to such terms and conditions as are specified in the Option or by the Incentive Committee, the Company shall, upon or without the request of the holder of the Option and at any time or 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 of such shares, or (ii) issue or transfer shares of Common Stock to the holder with a Fair Market Value, at such time or times, equal to such excess. (f) An Option may, but need not, be an Incentive Stock Option. All shares of Common Stock which may be made subject to Stock Incentives under this Plan may be made subject to Incentive Stock Options; provided that the aggregate Fair Market Value (determined as of the time the 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 to any employee on or after January 1, 1987 (under all plans, including this Plan, of his employer corporation and its parent and subsidiary corporations) shall not exceed $100,000. (g) Each Option shall be evidenced by a written instrument, which shall contain such terms and conditions, and shall be in such form, as the Incentive Committee shall determine, provided the Option is consistent with this Plan and incorporates it by reference. Notwithstanding the preceding sentence, an Option, if so approved by the Incentive Committee, may include restrictions and limitations in addition to those provided for in this Plan. 7. Combinations of Stock Awards and Options: Stock Incentives authorized by paragraph (b)(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 with 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 the Incentive Committee may determine, including, without limitation, a provision terminating in whole or in part a portion thereof upon the exercise in whole or in part of another portion thereof. Such combination Stock Incentive shall be evidenced by a written instrument in such form as the Incentive Committee shall determine, provided it is consistent with this Plan and incorporates it by reference. -7- 9 8. Adjustment Provisions: (a) In the event that any reclassification, split-up or consolidation of shares of 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 and class of shares or other securities or property that may be issued or transferred pursuant to Stock Incentives thereafter granted, (ii) the number and class of shares or other securities or property that have not been issued or transferred 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 or transferred pursuant to Stock Incentives which are subject to a right of the Company or a Subsidiary to reacquire such shares or other securities or property, shall in each case be equitably adjusted as determined by the Incentive 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 and class of shares or other securities or property that may be issued pursuant to Stock Incentives thereafter granted, (ii) the number and class of shares or other securities or property that have not been issued under outstanding Stock Incentives, (iii) the purchase price to be paid per share or other unit under outstanding Stock Incentives, and (iv) the price to be paid per share or other unit by the Company or a Subsidiary for shares or other securities or property issued pursuant to Stock Incentives that are subject to a right of the Company or a Subsidiary to reacquire such shares or other securities or property, shall in each case be equitably adjusted as determined by the Incentive Committee. 9. Term: This Plan was deemed adopted and became effective on the date it was approved and adopted by the shareholders of Grace-Connecticut. This Plan was deemed adopted as to the Company on the date of the adoption and assumption thereof by the Board of Directors with the approval of the shareholders of Grace-Connecticut and became effective as to the Company on the effective date of the merger of Grace Merger Corp., a subsidiary of the Company, with and into Grace-Connecticut. No Stock Incentives shall be granted under this Plan after April 30, 1996. 10. Administration: (a) This Plan shall be administered by the Incentive Committee. No director shall be designated as or continue to be a member of the Incentive Committee unless he shall -8- 10 at the time of designation and service be a "disinterested person" within the meaning of Rule 16b-3 of the Securities and Exchange Commission (or any successor provision at the time in effect). A member of the Incentive Committee shall not be eligible to be granted a Stock Incentive while serving on the Incentive Committee. Grants of Stock Incentives may be made by the Incentive Committee either in or without consultation with employees, but in either case the Incentive Committee shall have full authority to act in the matter of selection of all Key Persons and in granting Stock Incentives to them. (b) The Incentive Committee may establish such rules and regulations, not inconsistent with the provisions of this Plan, as it deems necessary to determine eligibility to participate in this Plan and for the proper administration of this Plan, and may amend or revoke any rule or regulation so established. The Incentive 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, subject to the provisions of section 3.1 of the By-laws of the Company, shall be binding and conclusive upon the Company, its Subsidiaries, its shareholders, and its directors, officers, consultants 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) Any action required or permitted to be taken by the Incentive Committee under this Plan may be taken in accordance with Article III or the By-laws of the Company even though, because of a vacancy or vacancies as a result of resignations or otherwise, the total number of directors who are then members of the Incentive Committee shall be less than the number initially designated by the Board of Directors. (d) Members of the Board of Directors and members of the Incentive Committee acting under this Plan shall be fully protected in relying in good faith upon the advice of counsel and shall incur no liability except for gross negligence or willful misconduct in the performance of their duties. 11. General Provisions: (a) Nothing in this Plan nor 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 or transferred pursuant to a Stock Incentive unless and until all legal requirements applicable to the issuance or transfer of such shares have, in the opinion of counsel to the Company, been complied with. In connection with any such issuance or transfer the person acquiring the shares shall, if requested by the Company, give assurances, satisfactory to counsel to the Company, in -9- 11 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 or transferred to him. (d) The Incentive Committee may grant a Stock Incentive to be effective at a specified future date or upon the future happening of a specified event, not more than sixty days from the date on which the Incentive Committee acts. For the purposes of this Plan, any such Stock Incentive shall be deemed granted on the date it is effective. An agreement or other commitment to grant a Stock Incentive in the future to a person who is or will be a Key Person at the time of grant shall not be deemed the grant of a Stock Incentive until the date on which the Incentive Committee takes action to implement such agreement or commitment. (e) In the case of a grant of a Stock Incentive to a Key Person of a Subsidiary, such grant may, if the Incentive Committee so approves, be implemented by the Company entering into an agreement with the Subsidiary containing such terms and provisions as the Incentive Committee may authorize, including, without limitation, a provision for the issuance or transfer of the shares covered by the Stock Incentive to the Subsidiary, for such consideration as the Incentive Committee may approve, upon the condition or understanding that the Subsidiary will transfer the shares to the Key Person in accordance with the terms of the Stock Incentive. (f) In the event the laws of a foreign country, in which the Company or a Subsidiary has employees, prescribes 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 Board of Directors, upon the recommendation of the Incentive Committee, may restate, in whole or in part, this Plan and may include in such restatement additional provisions for the purpose of qualifying the restated plan and Stock Incentives granted thereunder under such laws of such foreign country; provided, however, that (i) the terms and conditions of a Stock Incentive granted under such restated 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 restated plan shall be subject to the limitations of section 4, and (iii) the provisions of the restated plan may restrict but may not extend or amplify the provisions of sections 9 and 13. -10- 12 (g) The Company or a Subsidiary may make such provisions as it may deem appropriate for the withholding of any taxes which the Company or a Subsidiary determines it is required to withhold in connection with any Stock Incentive. (h) 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 fringe benefits to directors, officers, employees or consultants generally, or to any class or group of such persons, which the Company or any Subsidiary now has or may hereafter lawfully 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 company, the Company in connection therewith, upon the approval of the Incentive Committee, (a) may assume, in whole or in part and with or without modifications or conditions, any stock incentives granted by the acquired company to its directors, officers, employees or consultants in their capacity as such, or (b) may grant new Stock Incentives in substitution therefor. Such assumed or substitute stock incentives may contain terms and conditions inconsistent with the provisions of this Plan, including additional benefits for the recipient; provided that such terms and conditions are permitted under the plan of the other company and such plan was approved by the shareholders of such other company. 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 by the other company. 13. Amendments and Termination: (a) This Plan may be amended or terminated by the Board of Directors upon the recommendation of the Incentive Committee; provided that, without the approval of the shareholders of the Company, no amendment shall be made which (i) increases the maximum number of shares of Common Stock that may be issued or transferred pursuant to Stock Incentives, the maximum number of shares of Common Stock that may be acquired upon exercise of Options granted to any one person or the maximum number of shares of Common Stock that may be acquired upon exercise of Options granted to persons serving as directors, in each case as provided in paragraph (a) of section 4, (ii) except as may be required to conform this Plan to changes in the federal securities laws and the rules and regulations of the Securities and Exchange Commission (or any successor agency), withdraws the administration of this Plan from the Incentive Committee or amends the provisions of paragraph (a) of section 10 with respect to eligibility and disinterest of members of the Incentive Committee, (iii) permits any person who is not a Key Person to be granted a Stock Incentive (except as otherwise provided in section 12), (iv) amends the provisions of paragraph (b) of section 5 or paragraph (a) of section 6 to -11- 13 permit shares to be valued at, or to have a purchase price of, respectively, less than 100% of Fair Market Value, (v) amends section 9 to extend the date set forth therein, or (vi) amends this section 13. (b) No amendment or termination of this Plan by the Board of Directors or the shareholders of the Company shall adversely affect any Stock Incentive theretofore granted without the consent of the holder thereof, and no amendment by the Incentive Committee of any such Stock Incentive shall adversely affect such Stock Incentive without the consent of the holder thereof. -12- EX-10.04 8 1989 STOCK INCENTIVE PLAN 1 EXHIBIT 10.04 W. R. GRACE & CO. ---------------- 1989 STOCK INCENTIVE PLAN (As amended through March 7, 1996) 2 W. R. GRACE & CO. -------------- 1989 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 shareholders, 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 competent individuals. 2. Definitions: Unless otherwise required by the context, the following terms when used in this Plan shall have the meanings set forth in this section 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, or consultant to, the Company or a Subsidiary; provided, however, in the case of an Incentive Stock Option, "cessation of service" (or words of similar import) shall mean when a person ceases to be an employee of the Company or a Subsidiary. Code: The Internal Revenue Code of 1986, as amended. Common Stock: The common stock of the Company, par value $1.00 per share, or such other class of shares or other securities or property as may be applicable pursuant to the provisions of section 8. Company: W. R. Grace & Co., a New York corporation. Fair Market Value: (a) The mean between the high and low sales prices of a share of Common Stock as reported on the Consolidated Transactions Tape for securities listed on the New York Stock Exchange for the applicable date or, if no sales of shares of Common Stock were reported for such date, for the next preceding date for which such 3 sales were so reported, or (b) the fair market value of a share of Common Stock determined in accordance with any reasonable method approved by the Incentive Committee. Incentive Committee: The committee designated by the Board of Directors to administer stock incentive and stock option plans of the Company and its subsidiaries generally or this Plan specifically. Incentive Stock Option: A stock option which states that it is an incentive stock option and which is intended to meet the requirements of Section 422A 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 Employee: An employee of the Company or a Subsidiary who is a Key Person. Key Person: An employee of, or consultant to, the Company or a Subsidiary who, in the opinion of the Incentive Committee, has contributed or can contribute significantly to the growth and successful operations of the Company or a Subsidiary. The grant of a Stock Incentive to an employee or consultant shall be deemed a determination by the Incentive Committee that such person is a Key Person. Non-Statutory Stock Option: An Option which is not an Incentive Stock Option or another form of statutory stock option (within the meanings of sections 422, 423 and 424 of the Code and the regulations thereunder, as in effect from time to time). Option: An option granted under this Plan to purchase shares of Common Stock. Plan: The 1989 Stock Incentive Plan of the Company herein set forth, as the same may from time to time be amended. Rule 16b-3: Rule 16b-3 of the Securities and Exchange Commission (or any successor provision in effect at the applicable time). Service: Service to the Company or a Subsidiary as an employee or consultant. "To serve" has a correlative meaning. Stock Award: An issuance of shares of Common Stock at the time the Stock Incentive is granted or as soon thereafter as practicable, or an undertaking (other than an Option) to issue such shares in the future. -2- 4 Stock Incentive: A stock incentive granted under this Plan in one of the forms provided for in section 3. Subsidiary: A corporation (or other form of business association) of which shares (or other ownership interests) having 50% or more of the voting power regularly entitled to vote for directors (or equivalent management rights) are owned, directly or indirectly, by the Company; provided however, that in the case of an Incentive Stock Option, the term "Subsidiary" shall mean a Subsidiary (as defined by the preceding clause) which is also a "subsidiary corporation" as defined in section 425(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 Incentive Committee may at any time, and from time to time, grant Stock Incentives under this Plan to, and only to, Key Persons; provided, however, that Incentive Stock Options may be granted to, and only to, Key Employees. (b) The Incentive 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 is effective. An agreement or other commitment to grant a Stock Incentive in the future to a person who is a Key Person or will be a Key Person at the time the grant is intended to become effective shall not be deemed the grant of a Stock Incentive until the date on which the Incentive Committee makes such grant effective. (c) Stock Incentives may be granted in the following forms: (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 which may be issued pursuant to Stock Incentives granted under this Plan shall not exceed 7,500,000 shares of Common Stock. (b) Authorized but unissued shares of Common Stock and issued shares of Common Stock held by the Company or a Subsidiary, whether acquired specifically for use -3- 5 under this Plan or otherwise, may be used for purposes of this Plan; provided, however, that any shares acquired or held by the Company or a Subsidiary, or otherwise reserved, for the purposes of this Plan shall, unless and until issued to a Key Person in accordance with the terms and conditions of a Stock Incentive, be and at all times remain available for any corporate purpose. (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 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. 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 the 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 to the Key Person and whether or not such shares are subject to restrictions which affect their value. (b) Shares of Common Stock subject to a Stock Award may be issued to the 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 payment to such Key Person, either in cash or shares of Common Stock, of amounts not exceeding the dividends which would have been payable to such Key Person in respect of such shares (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 to be issued under the terms of 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 which would otherwise have been issued. (c) The material terms of each Stock Award shall be determined by the Incentive Committee. Each Stock Award shall be evidenced by a written instrument consistent with this Plan. A Stock Award (i) may be made contingent upon the attainment of a specified performance objective or objectives, (ii) may be subject to restrictions on the sale or other disposition of the Stock Award or of the shares issued pursuant to such Stock Award, and (iii) may include restrictions and limitations in addition to those provided for in this Plan. -4- 6 (d) Stock Awards shall be granted for such lawful consideration as may be provided for in the Stock Award. 6. Options: Except as otherwise provided in section 12, Stock Incentives in the form of Options shall be subject to the following provisions: (a) Subject to the provisions of paragraph (f) of this section 6, the purchase price per share of Common Stock shall be not less than 85% of the Fair Market Value of a share of Common Stock on the date the Option is granted. The Option may provide for the purchase price to be paid (i) in cash, or (ii) in shares of Common Stock (including shares issued pursuant to a Stock Award granted subject to restrictions as provided for in paragraph (c) of section 5), or (iii) in a combination of cash and such shares. Any shares of Common Stock delivered to the Company in payment of the purchase price 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, 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 cancelled over the purchase price of 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. Unless otherwise provided in the Option, 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 the Option. (d) Each Option shall be exercisable during the life of the optionee only by him and, after his death, only by his estate or by a person who acquired 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 cancelled, shall terminate as follows after the optionee ceases to serve: (i) if the optionee shall voluntarily cease to serve without the consent of the Incentive Committee or shall have his service terminated for cause, the Option shall terminate immediately upon cessation of service; (ii) if the optionee 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 optionee ceased to serve unless the Incentive Committee shall approve a longer period (which approval may be given before -5- 7 or after cessation of service), not to exceed, however, three years. If the optionee shall die or become incapacitated during the three-month period (or such longer period as the Incentive 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 Incentive Committee (which approval may be given before or after the leave of absence commences), be deemed a cessation of service within the meaning of this paragraph (d). Notwithstanding the foregoing provisions of this paragraph (d) or any other provision of this Plan, no Option shall be exercisable after expiration of a period of ten years and one month from the date the Option is granted. Where a Non-Statutory Stock Option is granted for a term of less than ten years and one month, the Incentive 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 an 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. (f) An Option may, but need not, be an Incentive Stock Option. All shares of Common Stock which may be made subject to Stock Incentives under this Plan may be made subject to Incentive Stock Options; provided 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, (ii) the purchase price per share of Common Stock subject to an Incentive Stock Option shall be not less than 100% of the Fair Market Value of a share of Common Stock on the date such Incentive Stock Option is granted, and (iii) the aggregate Fair Market Value (determined as of the time an Incentive Stock Option is granted) of the shares subject to each installment becoming exercisable for the first time in any calendar year under Incentive Stock Options granted, on or after January 1, 1987 (under all plans, including this Plan, of his employer corporation and its parent and subsidiary corporations), to the Key Employee to whom such Incentive Stock Option is granted, shall not exceed $100,000. (g) The material terms of each Option shall be determined by the Incentive Committee. Each Option shall be evidenced by a written instrument consistent with this Plan. An Option may include restrictions and limitations in addition to those provided for in this Plan. (h) Options shall be granted for such lawful consideration as may be provided for in the Option. 7. Combinations of Stock Awards and Options: Stock Incentives authorized by paragraph (b)(iii) of section 3 in the form of combinations of Stock Awards and Options shall be subject to the following provisions: -6- 8 (a) A Stock Incentive may be a combination of any form of Stock Award with any form of Option, provided, however, that the terms and conditions of such Stock Incentive pertaining to a Stock Award are consistent with section 5 and the terms and conditions of such Stock Incentive pertaining to an Option are consistent with section 6. (b) Such combination Stock Incentive shall be subject to such other terms and conditions as may be specified therein including, without limitation, a provision terminating in whole or in part a portion thereof upon the exercise in whole or in part of another portion thereof. (c) The material terms of each combination Stock Incentive shall be determined by the Incentive 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 shares of 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 and class of shares or other securities or property that may be issued pursuant to Stock Incentives thereafter granted, (ii) the number and class of shares or other securities or property which 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 which are subject to a right of the Company or a Subsidiary to reacquire such shares or other securities or property, shall in each case be equitably adjusted as determined by the Incentive 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 and class of shares or other securities or property that may be issued pursuant to Stock Incentives thereafter granted, (ii) the number and class of shares or other securities or property which 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 which are subject to a right of the Company or a Subsidiary to reacquire such shares or -7- 9 other securities or property, shall in each case be equitably adjusted as determined by the Incentive Committee. 9. Term: This Plan shall be deemed adopted and shall become effective on the date it is approved by the shareholders of the Company. No Stock Incentives shall be granted under this Plan after April 30, 1999. 10. Administration: (a) This Plan shall be administered by the Incentive Committee. No director shall be designated as or continue to be a member of the Incentive Committee unless he shall at the time of designation and at all times during service as a member of the Incentive Committee be a "disinterested person" within the meaning of Rule 16b-3. The Incentive 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 Incentive Committee by this Plan. (b) The Incentive 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 Incentive 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, consultants 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 Incentive 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 -8- 10 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 of a Subsidiary, such grant may provide for the issuance of the shares covered by the Stock Incentive to the Subsidiary, for such consideration as may be provided, upon the condition or understanding that the Subsidiary will transfer the shares to the Key Person in accordance with the terms of the Stock Incentive. (e) In the event the laws of a foreign 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 Board of Directors, upon the recommendation of the Incentive 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 of such foreign country; 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 it may deem appropriate for the withholding of any taxes which the Company or a Subsidiary determines it is required to withhold in connection with any 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, employees or consultants generally, or to any class or group of such persons, which 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. -9- 11 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 company, the Company, upon the approval of the Incentive Committee, (a) may assume, in whole or in part and with or without modifications or conditions, any stock incentives granted by the acquired company to its directors, officers, employees or consultants in their capacity as such, or (b) may grant new Stock Incentives in substitution therefor. Such assumed or substitute stock incentives may contain terms and conditions inconsistent with the provisions of this Plan, including additional benefits for the recipient, provided that, if such assumed or substitute stock incentives are Incentive Stock Options, such terms and conditions are permitted under the plan of the other company. 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 by the other company. 13. Amendments and Termination: (a) This Plan may be amended or terminated by the Board of Directors upon the recommendation of the Incentive Committee; provided that, without the approval of the shareholders of the Company, no amendment shall be made which (i) causes this Plan to no longer comply with Rule 16b-3 or 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 (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 respective percentages 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. -10- EX-10.05 9 1994 STOCK INCENTIVE PLAN 1 EXHIBIT 10.05 W. R. GRACE & CO. _____________ 1994 STOCK INCENTIVE PLAN (AS AMENDED THROUGH MARCH 7, 1996) THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING SECURITIES THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. 2 W. R. GRACE & CO. _____________ 1994 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 shareholders, 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, or consultant to, the Company or a Subsidiary; provided, however, in the case of an Incentive Stock Option, "cessation of service" (or words of similar import) shall mean when a person ceases to be an employee of the Company or a Subsidiary. 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 such Board of Directors to administer stock incentive and stock option plans of the Company and its subsidiaries generally or this Plan specifically. Common Stock: The common stock of the Company, par value $1.00 per share, or such other class of shares or other securities or property as may be applicable pursuant to the provisions of section 8. Company: W. R. Grace & Co., a New York corporation. 3 Fair Market Value: (a) The mean between the high and low sales prices of a share of Common Stock in New York Stock Exchange Composite Transactions on the applicable date, as reported in The Wall Street Journal or another newspaper of general circulation, or, if no sales of shares of Common Stock were reported for such date, for the next preceding date for which such sales were so reported, or (b) the fair market value of a share of Common Stock determined in accordance with any other reasonable method approved by the Committee. Incentive Stock Option: A stock option that states that it is an incentive stock option and that is intended to meet the requirements of Section 422A 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 Employee: An employee of the Company or a Subsidiary who is a Key Person. Key Person: An employee of, or consultant to, 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 or consultant shall be deemed a determination by the Committee that such person is a Key Person. Non-Statutory Stock Option: An Option that is not an Incentive Stock Option or another form of statutory stock option (within the meanings of sections 422, 423 and 424 of the Code and the regulations thereunder, as in effect from time to time). Option: An option granted under this Plan to purchase shares of Common Stock. Plan: The 1994 Stock Incentive Plan of the Company herein set forth, as the same may from time to time be amended. Rule 16b-3: Rule 16b-3 of the Securities and Exchange Commission (or any successor provision in effect at the applicable time). service: Service to the Company or a Subsidiary as an employee or consultant. "To serve" has a correlative meaning. - 2 - 4 Stock Award: An issuance of shares of Common Stock or an undertaking (other than an Option) to issue such shares in the future. Stock Incentive: A stock incentive granted under this Plan in one of the forms provided for in section 3. Subsidiary: A corporation (or other form of business association) of which shares (or other ownership interests) having 50% or more of the voting power regularly entitled to vote for directors (or equivalent management rights) are owned, directly or indirectly, by the Company; 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 425(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; provided, however, that Incentive Stock Options may be granted to, and only to, Key Employees. (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) Stock Incentives 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 3,000,000 shares of Common Stock. - 3 - 5 (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 for any reason, such shares shall no longer be charged against the limitation provided for in paragraph (a) of this section 4 and may again be made subject to Stock Incentives. (d) Of the total number of shares specified in paragraph (a) of this section 4 (subject to adjustment as specified therein), during the term of this Plan as defined in section 9, (i) no more than 10% may be subject to Options granted to any one Key Person, (ii) no more than 15% may be subject to Stock Incentives granted to any one Key Person, and (iii) no more than 3% in the aggregate may be subject to Stock Incentives granted to all Key Persons who are consultants to the Company and/or one or more Subsidiaries at the date the relevant Stock Incentive is granted 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 - 4 - 6 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 may 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 for a period of three or more years of the Stock Award or the shares subject thereto; provided 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) Subject to the provisions of paragraph (f) of this section 6, 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 Option may provide for the purchase price to be paid (i) in cash, or (ii) in shares of Common Stock (including shares issued pursuant to a Stock Award granted subject to restrictions as provided for in paragraph (c) of section 5), or (iii) in a combination of cash and such shares. Any shares of Common Stock delivered to the Company in payment of the purchase price 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, 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 - 5 - 7 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, as determined by the Committee. Unless otherwise provided in the written instrument provided in paragraph (g) of this section 6, 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 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 Non-Statutory Stock 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. - 6 - 8 (e) No Option nor any right thereunder may be assigned or transferred except by will or the laws of descent and distribution, unless otherwise provided in the Option. (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 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, (ii) the purchase price per share of Common Stock subject to an Incentive Stock Option shall be not less than 100% of the Fair Market Value of a share of Common Stock on the date such Incentive Stock Option is granted, and (iii) the aggregate Fair Market Value (determined as of the time an Incentive Stock Option is granted) of the shares subject to each installment becoming exercisable for the first time in any calendar year under Incentive Stock Options granted, on or after January 1, 1987 (under all plans, including this Plan, of his employer corporation and its parent and subsidiary corporations), to the Key Employee to whom such Incentive Stock Option is granted, shall not exceed $100,000. (g) The material terms of each Option shall be determined by the Committee. Each Option shall be evidenced by a written instrument consistent with this Plan. An Option may include restrictions and limitations in addition to those provided for in this Plan. (h) Options shall be granted for such lawful consideration as may be provided for in the Option. 7. Combination of Stock Awards and Options: Stock Incentives authorized by paragraph (c)(iii) of section 3 in the form of combinations of Stock Awards and Options shall be subject to the following provisions: (a) A Stock Incentive may be a combination of any form of Stock Award and any form of Option, provided, however, that the terms and conditions of such Stock Incentive pertaining to a Stock Award are consistent with section 5 and the terms and conditions of such Stock Incentive pertaining to an Option are consistent with section 6. (b) Such combination Stock Incentive shall be subject to such other terms and conditions as may be specified therein including, without limitation, a provision terminating in whole or in part a portion thereof upon the exercise in whole or in part of another portion thereof. - 7 - 9 (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 and class of shares or other securities or property that may be issued pursuant to Stock Incentives thereafter granted, (ii) the number 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 and class of shares or other securities or property that may be issued pursuant to Stock Incentives thereafter granted, (ii) the number 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. (c) In the event of a merger or consolidation of the Company in which the Common Stock is converted into the right to receive a specified amount of cash per share (the "merger price"), then each Option outstanding immediately prior to the effective time of such merger or consolidation (the "effective time") shall be treated as follows: (i) each - 8 - 10 such Option having a per share purchase price equal to or greater than the merger price shall terminate at the effective time and be of no further force and effect, without the making of any payment to the holder of such Option; and (ii) each such Option having a per share purchase price less than the merger price shall terminate at the effective time and be of no further force and effect, and the holder of such Option shall be paid in cash, as promptly as practicable following the effective time, an amount equal to the product of (A) the excess of the merger price over the per share purchase price of such Option times (B) the number of shares covered by such Option immediately prior to the effective time. 9. Term: This Plan shall be deemed adopted and shall become effective on the date it is approved by the shareholders of the Company. No Stock Incentives shall be granted under this Plan after April 30, 2004. 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 a "disinterested person" within the meaning of Rule 16b-3. 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. (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, the Subsidiaries, its shareholders and its directors, officers, consultants and employees, and upon their respective legal representatives, beneficiaries, successors and assigns, and upon all other persons claiming under or through any of them. - 9 - 11 (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 of a Subsidiary, such grant may provide for the issuance of the shares covered by the Stock Incentive to the Subsidiary, for such consideration as may be provided, upon the condition or understanding that the Subsidiary will transfer the shares to the Key Person in accordance with the terms of the Stock Incentive. (e) In the event the laws of a country in which the Company or a Subsidiary has employees prescribe certain requirements for stock incentives to qualify for advantageous tax treatment under the laws of that country (including, without limitation, laws establishing options analogous to Incentive Stock Options), the Committee, may, for the benefit of such employees, amend, in whole or in part, this Plan and may include in such amendment additional provisions for the purposes of qualifying the amended plan and Stock Incentives granted thereunder - 10 - 12 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 it may deem appropriate for the withholding of any taxes that the Company or a Subsidiary determines it is required to withhold 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, employees or consultants 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. 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 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 by the acquired entity. - 11 - 13 13. Amendments and Termination: (a) This Plan may be amended or terminated by the Board of Directors upon the recommendation of the Committee; provided that, without the approval of the shareholders of the Company, no amendment shall be made which (i) causes this Plan to cease to comply with Rule 16b-3 or 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. - 12 - EX-10.06 10 1994 STOCK RETAINER PLAN 1 EXHIBIT 10.06 W. R. GRACE & CO. _______________ 1994 STOCK RETAINER PLAN FOR NONEMPLOYEE DIRECTORS (AS AMENDED THROUGH MARCH 7, 1996) _______________ THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING SECURITIES THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. 2 W. R. GRACE & CO. _______________ 1994 STOCK RETAINER PLAN FOR NONEMPLOYEE DIRECTORS _______________ 1. Purposes: The purposes of this Plan are (a) to further the identity of interests of nonemployee directors of the Company with the interests of the Company's shareholders, (b) to stimulate and sustain constructive and imaginative thinking by such nonemployee directors, and (c) to induce the service or continued service of the most highly qualified individuals to serve as nonemployee directors of the company. 2. Definitions: When used in this Plan, the following terms shall have the meanings set forth in this section 2. Board of Directors: The Board of Directors of the Company. Code: The Internal Revenue Code of 1986, as amended. Common Stock: The common stock of the Company, par value $1.00 per share, or such other class of shares or other securities or property as may be applicable pursuant to the provisions of section 6. Company: W. R. Grace & Co., a New York corporation. Fair Market Value: (a) The mean between the high and low sales prices of a share of Common Stock in New York Stock Exchange Composite Transactions for the applicable date, as reported in The Wall Street Journal or another newspaper of general circulation, or, if no sales of shares of Common Stock were reported for such date, for the next preceding date for which such sales were so reported, or (b) the fair market value of a share of Common Stock determined in accordance with any other reasonable method. issuance (or words of similar import): The issuance of authorized but unissued Common Stock or the transfer of issued Common Stock held by the Company or a Subsidiary. 3 nonemployee director: An individual, not employed by the Company or a Subsidiary, who is serving as a director of the Company. Plan: The 1994 Stock Retainer Plan for Nonemployee Directors herein set forth, as the same may from time to time be amended. Rule 16b-3: Rule 16b-3 of the Securities and Exchange Commission (or any successor provision in effect at the applicable time). service: Service to the Company as a nonemployee director. "To serve" has a correlative meaning. Stock Retainer: An issuance of shares of Common Stock in payment of an annual retainer for service as a nonemployee director. Subsidiary: A corporation (or other form of business association) of which shares (or other ownership interests) having 50% or more of the voting power regularly entitled to vote for directors (or equivalent management rights) are owned, directly or indirectly, by the Company. 3. Eligibility and Participation: All nonemployee directors are eligible to participate in the Plan and each such director will participate as described in section 5. 4. Stock Subject to this Plan: (a) Subject to the provisions of paragraph (c) of this section 4 and the provisions of section 6, the maximum number of shares of Common Stock that may be issued pursuant to Stock Retainers under this Plan shall not exceed 66,000 shares of Common Stock. (b) Authorized but unissued shares of Common Stock and issued shares of Common Stock held by the Company or a Subsidiary, whether acquired specifically for use under this Plan or otherwise, may be used for purposes of this Plan. (c) If any shares of Common Stock issued pursuant to a Stock Retainer shall, after issuance, be reacquired by the Company 2 4 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 issued pursuant to Stock Retainers. 5. Stock Retainers: Stock Retainers shall be subject to the following provisions: (a) For the purposes of this Plan, all shares of Common Stock issued pursuant to a Stock Retainer shall be valued at not less than 100% of the Fair Market Value of such shares on the effective date as of which such Stock Retainer is paid, regardless of when such shares are actually issued to the nonemployee director and whether or not such shares are subject to restrictions that affect their value. (b) Except as provided in paragraph (c) of this section 5, effective as of July 1, 1994, and on each following July 1 through July 1, 1999, each person serving as a nonemployee director on such July 1 will, for service as such, be paid a Stock Retainer consisting of a whole number of shares of Common Stock equal to the quotient obtained by dividing (i) $24,000 (the "Retainer Amount") by (ii) the Fair Market Value of a share of Common Stock on such July 1. To the extent that such calculation does not result in a whole number of shares, the fractional share shall be rounded upwards to the next whole number so that no fractional shares shall be issued. (c) (i) In the event that a Stock Retainer is to be paid, effective July 1 of any calendar year, to a person who shall have commenced service as a nonemployee director subsequent to January 1 of such calendar year, the Retainer Amount shall be proportionately reduced to reflect the percentage of such calendar year prior to such commencement of service. (ii) In the event that a Stock Retainer is to be paid, effective July 1 of any calendar year, to a person who shall have commenced service as a nonemployee director subsequent to July 1 of the prior calendar year, the Retainer Amount shall be proportionately increased to reflect the percentage of the prior calendar year during which such nonemployee director served as such. (d) The shares referred to in paragraph (b) of this section 5 shall be delivered to each nonemployee director as soon as practicable following each July 1 during the term of this plan. After the delivery of the shares, each nonemployee director shall have all 3 5 the rights of a shareholder with respect to such shares (including the right to vote such shares and the right to receive all dividends paid with respect to such shares). (e) No shares will be issued in a calendar year to a nonemployee director who, prior to July 1 of such calendar year, is removed for cause, as specified in the Company's Certificate of Incorporation, as the same may be amended, or who voluntarily terminates service prior to retirement under the Company's Retirement Plan for Outside Directors, as the same may be amended. 6. Adjustment Provisions: (a) In the event that any reclassification, split-up or consolidation of the Common Stock shall be effected, or the outstanding shares of Common Stock are, in connection with a merger or consolidation of the Company or a sale by 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 and class of shares that may be issued pursuant to Stock Retainers thereafter paid, and (ii) the number and class of shares that have not been issued under effective Stock Retainers, shall in each case be equitably adjusted. (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), the number and class of shares that may be issued pursuant to Stock Retainers thereafter paid shall be equitably adjusted as determined by the Board of Directors. 7. Term: This Plan shall be deemed adopted and shall become effective on the date it is approved by the shareholders of the Company. No Stock Retainers shall be paid under this Plan with respect to any period beginning after July 1, 1999. 4 6 8. General Provisions: (a) Nothing in this Plan or in any instrument executed pursuant hereto shall confer upon any person any right to continue to serve as a nonemployee director of the Company. (b) No shares of Common Stock shall be issued pursuant to a Stock Retainer unless and until all legal requirements applicable to the issuance of such shares have, in the opinion of counsel to the Company, been complied with. In connection with any such issuance, the person acquiring the shares shall, if requested by the Company, give assurances, satisfactory to counsel to the Company, in respect of such matters as the Company or a Subsidiary may deem desirable to assure compliance with all applicable legal requirements. (c) No person (individually or as a member of a group), and no beneficiary or other person claiming under or through him, shall have any right, title or interest in or to any shares of Common Stock allocated or reserved for the purposes of this Plan or subject to any Stock Retainer except as to such shares of Common Stock, if any, as shall have been issued to him. (d) Nothing in this Plan is intended to be a substitute for, or shall preclude or limit the establishment or continuation of, any other plan, practice or arrangement for the payment of compensation or benefits to nonemployee directors that the Company now has or may hereafter put into effect. 9. Amendments and Termination: (a) This Plan may be terminated, suspended or amended at any time by the Board of Directors upon the recommendation of its Compensation, Employee Benefits and Stock Incentive Committee; provided, however, that (i) no amendment shall become effective without the approval of the shareholders of the Company to the extent shareholder approval is required in order to comply with Rule 16b-3, and (ii) neither the Retainer Amount, nor any other provision of this Plan affecting the number of shares of Common Stock receivable pursuant to a Stock Retainer or the frequency with which Stock Retainers are paid, shall be amended or otherwise modified more than once every six months, except as may be necessary or appropriate to comport with the Code or the Employee Retirement Income Security Act, as either of the same may be amended, or the rules and regulations promulgated thereunder. 5 7 (b) No termination, suspension or amendment of this Plan shall adversely affect any Stock Retainer theretofore paid. 6 EX-10.23 11 LETTER AGREEMENT DATED 2-12-96 1 EXHIBIT 10.23 ----- William L. Monroe Vice President Human Resources W.R. Grace & Co. One Town Center Road Boca Raton, FL 33486-1010 February 12, 1996 Mr. Jean-Louis Greze W. R. Grace & Co. One Town Center Road Boca Raton, FL 33486 Dear Jean-Louis: This letter outlines the arrangements and understanding relating to your retirement as Executive Vice President of W. R. Grace & Co. ("Company"). 1. You will retire effective February 29, 1996 and, effective as of that date, resign your position as Executive Vice President of the Company and all other positions you hold with subsidiaries and affiliates of the Company. 2. Following your retirement on February 29, 1996, you will be entitled to the compensation and benefits set forth below in accordance with and subject to the following terms: A. INCENTIVE COMPENSATION You will be considered for an annual incentive compensation award for 1995 based on the financial performance of Grace Packaging and your individual performance. Your 1995 award, which is subject to Board approval, will be paid to you in March 1996. B. EXECUTIVE SALARY PROTECTION PLAN AND SPLIT-DOLLAR LIFE INSURANCE PLAN Your death benefit coverage under the Executive Salary Protection Plan shall cease on March 31, 1996, while your disability coverage under that Plan will cease on February 29, 1996, in accordance with the terms of that Plan. Your participation in the Split-Dollar Life Insurance Plan will cease on July 31, 1996, although you may purchase the policy by reimbursing the Company for the premiums paid by the Company for that policy on your behalf through the date of your retirement. Estimated premiums paid by the Company through July 31, 1996 are expected to total approximately $297,853 for four policy years. Your death benefit coverage is $800,000. C. LONG-TERM INCENTIVE PLAN Your participation in the Company's Long-Term Incentive Plan for the 1993-95, 1994-96 and 1995-97 Performance Periods will vest and be paid to you at the same time as other participants. While you will participate for the full 1993-95 cycle, your awards for 1994-96 and 1995-97 will be prorated as of your February 29, 1996 retirement date. 2 D. STOCK OPTIONS All of your stock options, which cover 168,000 shares as of January 9, 1996, are fully vested. Subject to SEC requirements and restrictions (as to which you should consult Bob Lamm), you will be free to exercise your stock options and to sell the shares acquired on exercise following your retirement on February 29, 1996. After your retirement, you will have a three-year grace period during which you may exercise your options. E. SAVINGS AND INVESTMENT PLAN Following your retirement, you may elect to take a lump sum distribution under the Savings and Investment Plan, defer your distribution until age 70 1/2 or elect to begin receiving installment payments over a period of up to 10 years, in accordance with the terms of the Plan. Your S&I balance as of January 10, 1996 was $163,263.28. In March 1996 you will be eligible to receive your Savings & Investment Replacement payment for 1995 in an amount estimated to be $17,550. As you know, you elected to defer this amount, and it will be paid out in a lump sum, according to your election. F. In accordance with the arrangement between you and the Company dated December 8, 1995, all of your deferred compensation balances totaling $564,068.81 as of December 30, 1995, will be consolidated into one balance and paid to you in one lump sum on August 31, 1996, along with earnings credited through that date. G. POST-RETIREMENT MEDICAL COVERAGE You and your dependents will have medical coverage as of March 1, 1996 under the Swiss medical system. H. PENSIONS Your active participation in the Grace A.G. Wallisallen Pension Plan ("Swiss Pension Plan") will continue until your retirement date of February 29, 1996. Your benefit payments from the Swiss Pension Plan will be paid in accordance with the provisions of that Plan commencing as of your retirement date. Your benefits from the Swiss Pension Plan will be based on all of your service with the Company, including your service in the United States. Your benefits from the Swiss Pension Plan (reduced by the benefits payable to you from the French Repartition system) will be: Lump sum payment 3/1/96 SFr. 2,737,062.00 Retirement pension 3/1/96 SFr. 174,000.00 per annum Retiree's child pension 8/1/96 SFr. 37,250.40 per annum
You are not entitled to receive payments from the Company's Third Country National Plan as benefits under such Plan, with your agreement, were replaced by your participation in the Swiss Pension Plan. I. PERQUISITES You may continue to use your Company-provided leased car through August 31, 1996 and receive reimbursement for Company-provided financial counseling expenses incurred through August 31, 1996. You will be provided with the services of Ernst & Young in the preparation and filing of your 1996 U.S. tax return(s). 3 -3- J. UNUSED VACATION PAYMENT You are entitled to paid vacation aggregating not less than five weeks during 1996. You will be entitled to payment for any unused vacation time in accordance with Company policy at the time of your retirement on February 29, 1996, including up to a maximum of ten days, if applicable, carried over from 1995. K. HOUSING LOAN Your Company-provided housing loan in the amount of $400,000 will be repaid by you upon the sale of your home or by December 31, 1996, if sooner. L. REPATRIATION The cost of your move to Switzerland and assistance with the sale of your home in Florida will be provided as described in your letter agreement with the Company dated March 1, 1995. This letter summarizes all of the compensation and benefit arrangements in which you participate as they apply to you at retirement. If you have any questions, please contact me. Jean-Louis, I extend my very best wishes to you and your family upon your retirement. Sincerely, /s/ William L. Monroe cc: P. J. Hamilton D. H. Kohnken EX-10.24 12 LETTER AGREEMENT DATED 6-15-95 1 EXHIBIT 10.24 Albert J. Costello Chairman, President and CEO W.R. Grace & Co. One Town Center Road Boca Raton, FL 33486-1010 June 15, 1995 Dr. F. Peter Boer W. R. Grace & Co. One Town Center Road Boca Raton, FL 33486 Dear Peter: This letter outlines the arrangements relating to your resignation and retirement as Executive Vice President and Chief Technical Officer of W. R. Grace & Co. ("Company") 1. You will resign your position effective June 15, 1995. You will remain in employment status until December 31, 1995, thus allowing you to "grow into" retirement age. You will then retire on December 31, 1995. 2. You will continue to receive your salary at your current annual rate and to receive other benefits currently provided to you as an active employee (with the exception of the Long-Term Disability Plan participation) while you remain in employment status. 3. Following your retirement under paragraph 1 above, you shall be entitled to the compensation and benefits set forth below in accordance with and subject to the following terms: A. Severance pay, payable in January 1996, in the form of a lump sum for 5 1/2 months at your current annual rate of base pay which, when combined with 6 1/2 months of continuing base salary in 1995, will total one year of severance pay. B. Incentive Compensation You shall be considered for annual incentive compensation for 1995 based on the financial performance of the Company and your individual performance. Though the 1995 Corporate formula for the Annual Incentive Plan has not yet been approved, it is anticipated that your 1995 bonus will be consistent with your 1994 bonus. 2 2 C. Executive Salary Protection Plan and Split-Dollar Life Insurance Plan Your participation in the Executive Salary Protection Plan shall cease 30 days following the date of your retirement with respect to death benefit coverage, and on June 15, 1995 with respect to disability coverage in accordance with the terms of such Plan. In accordance with the terms of the Split-Dollar Life Insurance Plan, your participation in such Plan will cease upon your termination of employment, although you may purchase the policy from the Company by reimbursing the Company for the premiums paid by the Company in your behalf through the date of termination of your employment. Estimated premiums paid by the Company through December 31, 1995 are expected to total approximately $408,000 for four policy years. D. Long-Term Incentive Plan Your participation in the Company's Long-Term Incentive Plan for the 1993-95, 1994-96 and 1995-97 Performance Periods will vest (subject to consent of Compensation Committee on July 6, 1995) and be paid to you at the same time as other participants. While you will participate for the full 1993-95 cycle, your awards for 1994-96 and 1995-97 will be prorated as of your December 31, 1995 retirement. E. Stock Options Your November 4, 1993, April 7, 1994, and March 2, 1995 as well as your 1991 and 1992 stock option grants are fully vested. Subject to SEC requirements and restrictions (as to which you should consult Bob Lamm), you are free to exercise your stock options and to sell the shares acquired on exercise. However, please note that under these SEC rules, you should not sell any shares covered by your 1995 grant until six months after the date of grant (September 3, 1995). After your retirement, you will have a three-year grace period during which you may exercise your options. F. Stock Swap Arrangement The 50,482 shares of restricted stock granted under the August 1, 1991 "Stock Swap Arrangement" are scheduled to have the restrictions lapse in five equal installments during the five-year period beginning January 31, 1997 and ending with the restrictions lapsing on the last installment on January 31, 2001. The 147,500 stock option shares covered under the August 1, 1991 "Stock Swap Arrangement" are scheduled to vest in five equal annual installments beginning January 31, 1997 through January 31, 2001. Notwithstanding this schedule, as a result of your retirement on December 31, 1995, all such stock option installments will vest, to the extent not already vested, on June 30, 1998 (30 months following your retirement) and you will have until December 31, 1998 to exercise such shares during the six month remainder of the three-year grace period to exercise stock option shares following your retirement. However, it is my intention to recommend to the Compensation Committee of the Board at the July 6 meeting that the restrictions on the restricted shares be lifted upon retirement, and in addition to recommend that the 30 month waiting period be eliminated with respect to the stock options. We can not guarantee that the Committee will approve these actions. G. Deferred Compensation Your deferred compensation balances, estimated at $694,700 as of April 30, 1995, will be paid in accordance with the distribution elections you have previously made. 3 3 H. Savings and Investment Plan Following your termination of employment, you may elect to take a lump sum distribution under the Savings and Investment Plan, defer your distribution out to age 70 1/2 or elect to begin receiving installment payments over a period of up to 10 years, any such election being in accordance with the Plan. Your balance as of May 30, 1995 totals $549,294. I. Post-Retirement Life and Medical Coverage You may participate in the Company's post-retirement life and medical plans in accordance with their terms following your retirement on December 31, 1995. J. Pensions Under the Company's Retirement Plan for Salaried Employees and the Supplemental Retirement Plan and assuming continuous service through December 31, 1995 and continuation of your base salary through such date, your estimated annual benefit would be $69,600 on a straight life basis. You can elect your preferred option under the plan. K. Perquisites You may continue have use of Company car, with auto fringe gross-up, and financial counseling through the end of 1995. L. Unused Vacation Payment You shall be entitled to paid vacation aggregating not less than four weeks during 1995. You shall be entitled to payment for any unused vacation time in accordance with Company policy at the time your employment terminates. Please confirm your agreement with the foregoing by signing a copy of this memorandum where indicated below and returning it to me. /s/ A. J. Costello ------------------ A. J. Costello Accepted and agreed to this 15th Day of June, 1995 /s/ Dr. F. Peter Boer - ---------------------- Dr. F. Peter Boer EX-10.25 13 LETTER AGREEMENT DATED 7-31-95 1 EXHIBIT 10.25 Albert J. Costello Chairman and CEO W.R. Grace & Co. One Town Center Road Boca Raton, FL 33486-1010 July 31, 1995 Mr. Brian J. Smith 2667 N.W. 63rd Place Boca Raton, FL 33496 Dear Brian: This letter outlines the arrangements relating to your resignation as Executive Vice President and Chief Financial Officer of W.R. Grace & Co. ("Company"). 1. You resigned your position as Executive Vice President and Chief Financial Officer effective as of July 18, 1995. You will remain in employment status until July 31, 1996 and continue to receive your salary at your current annual rate and to receive other benefits currently provided to you (with the exception of the Long-Term Disability Plan participation) while you remain in employment status until that date. 2. Following your termination of active employment status under paragraph 1 above, you shall be entitled to the compensation and benefits set forth below in accordance with and subject to the following terms: Compensation A. No severance pay will be paid to you either before or after the expiration of the one year period described in paragraph 1, which ends July 31, 1996. However, you may elect to take the remainder of the pay described in that paragraph as a lump sum at any time before July 31, 1996 (including in May 1996 after reaching age 52 to qualify for post-retirement life and medical coverage). As of the date that any such lump sum is paid to you, your participation as an active employee in the Company's benefit plans will cease. B. Incentive Compensation You shall be considered for annual incentive compensation for 1995 based on the financial performance of the Company and your individual performance. You will not be eligible for 1996 incentive compensation. C. Executive Salary Protection Plan and Split-Dollar Life Insurance Plan Your participation in the Executive Salary Protection Plan shall cease 30 days following the date of termination of your employment (July 31, 1996) with respect to death benefit coverage, and on August 1, 1995 with respect to disability coverage in accordance with the terms of such Plan. In accordance with the terms of the Split-Dollar Life Insurance Plan, your participation in such Plan will cease upon your termination of employment (July 31, 1996), although you may purchase the policy from 2 -2- the Company by reimbursing the Company for the premiums paid by the Company in your behalf through the date of termination of your employment. Estimated premiums paid by the Company through August 1, 1996 are expected to total approximately $325,000 for five policy years. D. Long-Term Incentive Plan Your participation in the Company's Long-Term Incentive Plan for the 1993-95, 1994-96 and 1995-97 Performance Periods will vest and be paid to you at the same time as other participants. While you will participate for the full 1993-1995 cycle, your awards for 1994-96, and 1995-97 will be prorated as of your July 31, 1996 date of termination unless the Plan is otherwise amended by the Board. E. Stock Options Your 1995, 1994, and 1993 as well as your 1991 and 1992 stock option grants are fully vested. Subject to SEC requirements and restrictions (as to which you should consult Bob Lamm), you are free to exercise your stock options and to sell the shares acquired on exercise. However, please note that under these SEC rules, you should not sell any shares covered by your 1995 grant until six months after the date of grant (September 3, 1995). You will have a three-year grace period following the termination of your employment during which you may exercise your options, i.e., through July 31, 1999. F. Stock Swap Arrangement The 11,150 shares of restricted stock granted under the August 1, 1991 "Stock Swap Arrangement" are scheduled to have the restrictions lapse as scheduled beginning in 1997. The Compensation Committee will be asked on August 3, 1995, to amend the restricted share award and accelerate the lapse of restrictions effective August 3, 1995. The Committee will be asked to amend the option granted to you on August 1, 1991 to make it exercisable in full effective August 3, 1995 and to provide a three-year grace period following July 31, 1996 during which the option may be exercised, i.e., through July 31, 1999. G. Deferred Compensation Your deferred compensation balances, estimated at $509,573 as of May 31, 1995, will be paid in accordance with the distribution elections you have previously made regarding amounts attributable to the pre-1990 program ($205,764) following July 31, 1996. The remainder will be paid in a lump sum after July 31, 1996. Benefits H. Active benefit coverages continue for 12 months through July 31, 1996, (or only through such earlier date if you elect to receive a lump sum payment of your remaining salary payments) for medical, dental and accident plans and participation in the Company's Retirement and Savings Plans continue through July 31, 1996; Long-term Disability Plan participation ceases on August 1, 1995. 3 -3- I. Savings and Investment Plan Following your termination of employment on July 31, 1996, you may elect to take a lump sum distribution under the Savings and Investment Plan, defer your distribution out to age 70 1/2 or elect to begin receiving installment payments over a period of up to 10 years, any such election being in accordance with the Plan. Your balance as of July 14, 1995 totals $934,110. J. Post-Retirement Life and Medical Coverage You may participate in the Company's post-retirement life (coverage of $5,000) and medical plans, beginning August 1, 1996, in accordance with their terms (which provide for special eligibility at or after age 52) following your termination of employment. K. Pensions Under the Company's Retirement Plan for Salaried Employees and the Supplemental Retirement Plan and assuming continuous service through July 31, 1996, and continuation of your base salary through July 31, 1996, your estimated annual benefit on a straight life basis would be $151,572 at age 55 and $182,616 at age 62. You can elect your preferred option under the plan. L. Perquisites You may continue to have use of your Company-provided lease car through December 31, 1995, and to continue financial counseling for expenses incurred for 1995 and through July 31, 1996. M. Unused Vacation Payment You shall be entitled to paid vacation aggregating not less than five weeks during 1995 and 1996. You shall be entitled to payment for any unused vacation time in accordance with Company policy at the time your employment terminates on July 31, 1996. Please confirm your agreement with the foregoing by signing a copy of this memorandum where indicated below and returning it to me. /s/ A. J. Costello ------------------- A. J. Costello Accepted and agreed to this 2nd Day of August /s/ B.J. Smith 4 [GRACE LOGO] Pamela J. Hamilton, Senior Vice President W. R. Grace & Co. One Town Center Road Boca Raton, FL 33486-1010 August 9, 1995 Mr. Brian J. Smith 2667 N.W. 63rd Place Boca Raton, FL 33496 Dear Brian: The purpose of this letter is to confirm that your request to have the restrictions lapse on the restricted stock and to accelerate the vesting of your stock options that were part of the 1991 "stock swap" was presented to the Compensation Committee on August 3, 1995. As was the case with another officer, the Committee declined to approve the request. The restrictions on your restricted stock are scheduled to lapse on July 31, 1996. Should you elect to receive a lump sum payout of your remaining base salary prior to July 31, 1996, thereby ending your "employment status," the restrictions would end on such date. The three year grace period under your options commences on the termination of employment (in other words, July 31, 1996, or any earlier termination date). Please do not hesitate to call me (x2101) or Bill Monroe (x2221) should you have any questions. Sincerely, /s/ Pamela J. Hamilton ---------------------- Pamela J. Hamilton EX-21 14 SUBSIDIARY LIST 1 EXHIBIT 21 1/31/96 W. R. GRACE & CO. SUBSIDIARY LIST Attached is a list of subsidiaries of W. R. Grace & Co. at January 31, 1996. United States subsidiaries (including those in Puerto Rico and the Virgin Islands) are listed alphabetically indicating the state of incorporation, ownership (by whom) and any notes that may pertain to the subsidiary. W. R. Grace & Co.-Conn. ("Grace-Conn") is the sole owner of the stock of each subsidiary listed unless otherwise noted or indicated by an "A", which means that the subsidiary is owned either (1) jointly by Grace-Conn. and one or more of its United States or non-United States wholly owned subsidiaries or (2) solely by one or more of those subsidiaries. Non-United States subsidiaries are listed by country and also indicate the ownership (percentage and by whom) and any notes that may pertain to the subsidiary. Also attached is a list of partnerships in which Grace-Conn., or one of its subsidiaries, is a partner and a list of investments (at least 20% but not more than 50%) held by W. R. Grace & Co. or Grace-Conn. and/or one or more of its subsidiaries. 2 1/31/96 U. S. SUBSIDIARIES
STATE OF SUBSIDIARY NAME INCORP. OWNERSHIP NOTES - --------------- --------- --------- ----- A-1 Bit & Tool Co., Inc. . . . . . . . . . . . . . . . . . . . . . . . . . DE A Advanced Integrated Medical Services, Inc. . . . . . . . . . . . . . . . . NJ A Agracetus, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DE Alewife Boston Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . MA A Alewife Land Corporation . . . . . . . . . . . . . . . . . . . . . . . . . MA A Amasi Medical Group, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . CA A 2 Ambulatory Care Associates, Inc. . . . . . . . . . . . . . . . . . . . . . DE A American Home Therapies, Inc. . . . . . . . . . . . . . . . . . . . . . . . MD A American Homecare Equipment, Inc. . . . . . . . . . . . . . . . . . . . . . VA 5 Amicon, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DE A Babcock Artificial Kidney Center, Inc. . . . . . . . . . . . . . . . . . . MA A Bio-Medical Applications Home Dialysis Services, Inc. . . . . . . . . . . . DE A Bio-Medical Applications Management Company, Inc. . . . . . . . . . . . . . DE A Bio-Medical Applications of Aguadilla, Inc. . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Alabama, Inc. . . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Alameda County, Inc. . . . . . . . . . . . . . DE A Bio-Medical Applications of Anacostia, Inc. . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Arecibo, Inc. . . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Arizona, Inc. . . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Arkansas, Inc. . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Bakersfield, Inc. . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Bayamon, Inc. . . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Blue Springs, Inc. . . . . . . . . . . . . . . DE A Bio-Medical Applications of Boston, Inc. . . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Brockton, Inc. . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Caguas, Inc. . . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of California, Inc. . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Camarillo, Inc. . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Cape Cod, Inc. . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Capitol Hill, Inc. . . . . . . . . . . . . . . DE A Bio-Medical Applications of Carolina, Inc. . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Carson, Inc. . . . . . . . . . . . . . . . . . DE A
3
STATE OF SUBSIDIARY NAME INCORP. OWNERSHIP NOTES - --------------- --------- --------- ----- Bio-Medical Applications of Chicopee, Inc. . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Chula Vista, Inc. . . . . . . . . . . . . . . . DE A 2 Bio-Medical Applications of Clinton, Inc. . . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Colorado, Inc. . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Columbia Heights, Inc. . . . . . . . . . . . . DE A Bio-Medical Applications of Delaware, Inc. . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Dover, Inc. . . . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Dublin, Inc. . . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of East Orange, Inc. . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Essex, Inc. . . . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Eureka, Inc. . . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Fajardo, Inc. . . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Fayetteville, Inc. . . . . . . . . . . . . . . DE A Bio-Medical Applications of Florida, Inc. . . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Framingham, Inc. . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Fremont, Inc. . . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Fresno, Inc. . . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Georgia, Inc. . . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Glendora, Inc. . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Guayama, Inc. . . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Hayward, Inc. . . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Hillside, Inc. . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Hoboken, Inc. . . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Humacao, Inc. . . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Illinois, Inc. . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Indiana, Inc. . . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Irvington, Inc. . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Jersey City, Inc. . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Kansas, Inc. . . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Kentucky, Inc. . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of La Mesa, Inc. . . . . . . . . . . . . . . . . . DE A 2 Bio-Medical Applications of Las Americas, Inc. . . . . . . . . . . . . . . DE A
- 2 - 4
STATE OF SUBSIDIARY NAME INCORP. OWNERSHIP NOTES - --------------- --------- --------- ----- Bio-Medical Applications of Long Beach, Inc. . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Los Angeles, Inc. . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Los Gatos, Inc. . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Louisiana, Inc. . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Maine, Inc. . . . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Manchester, Inc. . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Maryland, Inc. . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Massachusetts, Inc. . . . . . . . . . . . . . . DE A Bio-Medical Applications of Mayaguez, Inc. . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Medford, Inc. . . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Michigan, Inc. . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Mission Hills, Inc. . . . . . . . . . . . . . . DE A Bio-Medical Applications of Mississippi, Inc. . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Missouri, Inc. . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of MLK, Inc. . . . . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of National City, Inc. . . . . . . . . . . . . . . DE A 2 Bio-Medical Applications New Hampshire, Inc. . . . . . . . . . . . . . . . DE A Bio-Medical Applications of New Jersey, Inc. . . . . . . . . . . . . . . . DE A Bio-Medical Applications of New Mexico, Inc. . . . . . . . . . . . . . . . DE A Bio-Medical Applications of New York, Inc. . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Newington, Inc. . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of North Carolina, Inc. . . . . . . . . . . . . . DE A Bio-Medical Applications of North City, Inc. . . . . . . . . . . . . . . . DE A 2 Bio-Medical Applications of Northeast D.C., Inc. . . . . . . . . . . . . . DE A Bio-Medical Applications of Oakland, Inc. . . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Ohio, Inc. . . . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Oklahoma, Inc. . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Pennsylvania, Inc. . . . . . . . . . . . . . . DE A Bio-Medical Applications of Pine Brook, Inc. . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Ponce, Inc. . . . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Port Orange, Inc. . . . . . . . . . . . . . . . DE A 2 Bio-Medical Applications of Puerto Rico, Inc. . . . . . . . . . . . . . . . DE A
- 3 - 5
STATE OF SUBSIDIARY NAME INCORP. OWNERSHIP NOTES - --------------- --------- --------- ----- Bio-Medical Applications of Quincy, Inc. . . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Rhode Island, Inc. . . . . . . . . . . . . . . DE A Bio-Medical Applications of Rio Piedras, Inc. . . . . . . . . . . . . . . . DE A Bio-Medical Applications of San Antonio, Inc. . . . . . . . . . . . . . . . DE A Bio-Medical Applications of San German, Inc. . . . . . . . . . . . . . . . DE A Bio-Medical Applications of San Juan, Inc. . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Sarasota, Inc. . . . . . . . . . . . . . . . . DE A 2 Bio-Medical Applications of South Carolina, Inc. . . . . . . . . . . . . . DE A Bio-Medical Applications of South Queens, Inc. . . . . . . . . . . . . . . DE A Bio-Medical Applications of Southeast San Diego, Inc. . . . . . . . . . . . DE A 2 Bio-Medical Applications of Southeast Washington, Inc. . . . . . . . . . . DE A Bio-Medical Applications of Southeastern Massachusetts, Inc. . . . . . . . DE A Bio-Medical Applications of Springfield, Inc. . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Tarpon Springs, Inc. . . . . . . . . . . . . . DE A 2 Bio-Medical Applications of Tennessee, Inc. . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Texas, Inc. . . . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of The District of Columbia, Inc. . . . . . . . . DE A Bio-Medical Applications of Torrance, Inc. . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Trenton, Inc. . . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Ukiah, Inc. . . . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Union City, Inc. . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Virginia, Inc. . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of West Virginia, Inc. . . . . . . . . . . . . . . DE A Bio-Medical Applications of Westwood, Inc. . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Whittier, Inc. . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Wisconsin, Inc. . . . . . . . . . . . . . . . . DE A Bio-Medical Applications of Woonsocket, Inc. . . . . . . . . . . . . . . . DE A Bio-Trax Connecticut, Inc. . . . . . . . . . . . . . . . . . . . . . . . . CT A Bio-Trax International, Inc. . . . . . . . . . . . . . . . . . . . . . . . DE A Bradley Dialysis Clinic, Inc. . . . . . . . . . . . . . . . . . . . . . . . TN A Clinical Diagnostic Systems, Inc. . . . . . . . . . . . . . . . . . . . . . FL A Coalgrace, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DE A
- 4 - 6
STATE OF SUBSIDIARY NAME INCORP. OWNERSHIP NOTES - --------------- --------- --------- ----- Coalgrace II, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . DE A Conejo Valley Dialysis, Inc. . . . . . . . . . . . . . . . . . . . . . . . CA A 2 Continue Care Pharmaceuticals, Inc. . . . . . . . . . . . . . . . . . . . . WY A Continue Care of Wyoming, Inc. . . . . . . . . . . . . . . . . . . . . . . WY A Construction Products Dubai, Inc. . . . . . . . . . . . . . . . . . . . . . DE Creative Food 'N Fun Company . . . . . . . . . . . . . . . . . . . . . . . DE A D Interim, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . GA A Darex Puerto Rico, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . DE Dearborn International Holdings, Inc. . . . . . . . . . . . . . . . . . . . DE De Zaan, Incorporated . . . . . . . . . . . . . . . . . . . . . . . . . . . NY 7 Del Taco Restaurants, Inc. . . . . . . . . . . . . . . . . . . . . . . . . DE Dewey and Almy Company . . . . . . . . . . . . . . . . . . . . . . . . . . MA Diagnostic Management Services, Inc. . . . . . . . . . . . . . . . . . . . A Dialysis Assistance, Inc. . . . . . . . . . . . . . . . . . . . . . . . . NJ A Dialysis Associates West, Inc. . . . . . . . . . . . . . . . . . . . . . . TN A Dialysis Management Group, Inc. . . . . . . . . . . . . . . . . . . . . . . TN A Dialysis Services, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . TX A Ecarg, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NJ Emerson & Cuming, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . DE Erika International Sales Corporation . . . . . . . . . . . . . . . . . . . DE A 2 Erika of Texas, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . DE A Five Alewife Boston Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . MA A G/B Cocoa Holding Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . DE 7 GC Holding Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DE GEC Management Corporation . . . . . . . . . . . . . . . . . . . . . . . . DE A GPC Thomasville Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . DE A Gloucester New Communities Company, Inc. . . . . . . . . . . . . . . . . . NJ A Grace A-B Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DE A Grace-A-B II Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . DE A Grace Asia Pacific, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . DE Grace Chemicals, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . DE Grace Chemical Company of Cuba . . . . . . . . . . . . . . . . . . . . . . IL 6
- 5 - 7
STATE OF SUBSIDIARY NAME INCORP. OWNERSHIP NOTES - --------------- --------- --------- ----- Grace Cocoa, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DE 7 Grace Cocoa Limited Partners I, Inc. . . . . . . . . . . . . . . . . . . . DE Grace Cocoa Limited Partners II, Inc. . . . . . . . . . . . . . . . . . . . DE Grace Cocoa Management, Inc. . . . . . . . . . . . . . . . . . . . . . . . DE Grace Collections, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . DE Grace Communications, Inc. . . . . . . . . . . . . . . . . . . . . . . . . DE Grace Culinary Systems, Inc. . . . . . . . . . . . . . . . . . . . . . . . MD Grace Drilling Company . . . . . . . . . . . . . . . . . . . . . . . . . . DE A Grace Energy Corporation . . . . . . . . . . . . . . . . . . . . . . . . . DE Grace Environmental, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . DE A 4 Grace Europe, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . DE Grace H-G Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DE A Grace H-G II Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DE A Grace Hotel Services Corporation . . . . . . . . . . . . . . . . . . . . . DE 4 Grace JVH, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DE Grace (Middle East) Inc. . . . . . . . . . . . . . . . . . . . . . . . . . DE Grace Logistics Services, Inc. . . . . . . . . . . . . . . . . . . . . . . DE Grace Management Services, Inc. . . . . . . . . . . . . . . . . . . . . . . DE Grace Offshore Company . . . . . . . . . . . . . . . . . . . . . . . . . . LA A Grace PAR Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . DE Grace Petroleum Libya Incorporated . . . . . . . . . . . . . . . . . . . . DE A Grace Tarpon Investors, Inc. . . . . . . . . . . . . . . . . . . . . . . . DE Grace Ventures Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . DE Grace Washington, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . DE 4 W. R. Grace Capital Corporation . . . . . . . . . . . . . . . . . . . . . . NY A W. R. Grace Land Corporation . . . . . . . . . . . . . . . . . . . . . . . NY W. R. Grace & Co.-Conn. . . . . . . . . . . . . . . . . . . . . . . . . . . CT 4 Gracoal, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DE A Gracoal II, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DE A Greater Southeast Community Center for Renal Disease, Inc. . . . . . . . . DC A Guanica-Caribe Land Development Corporation . . . . . . . . . . . . . . . . DE Gulf Region Mobile Dialysis, Inc. . . . . . . . . . . . . . . . . . . . . . DE A
- 6 - 8
STATE OF SUBSIDIARY NAME INCORP. OWNERSHIP NOTES - --------------- --------- --------- ----- Gynesis Healthcare, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . DE A Gynesis Healthcare for Women of Florida, Inc. . . . . . . . . . . . . . . . FL A Gynesis Healthcare of Maryland, Inc. . . . . . . . . . . . . . . . . . . . MD A Gynesis Healthcare of New Jersey, Inc. . . . . . . . . . . . . . . . . . . NJ A Gynesis Healthcare of New York, Inc. . . . . . . . . . . . . . . . . . . . NY A Gynesis Healthcare of Oklahoma, Inc. . . . . . . . . . . . . . . . . . . . OK A Gynesis Healthcare of Pennsylvania, Inc. . . . . . . . . . . . . . . . . . PA A Gynesis Healthcare of South Carolina, Inc. . . . . . . . . . . . . . . . . SC A Gynesis Resources, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . DE A HNS Accucare, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . GA A HNS Integrated Care Centers, Inc. . . . . . . . . . . . . . . . . . . . . . GA A HNS Medical Technology Services, Inc. . . . . . . . . . . . . . . . . . . . GA A HNS Michigan, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . GA A HNS New York, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . NY A HNS Quality Home Care, Inc. . . . . . . . . . . . . . . . . . . . . . . . . GA A HNS UP Home Care, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . GA A Hanover Square Corporation . . . . . . . . . . . . . . . . . . . . . . . . DE Healthdyne Home Infusion Therapy, Inc. . . . . . . . . . . . . . . . . . . ? A Healthy Options for Personal Enrichment, Inc. . . . . . . . . . . . . . . . GA A Homco International, Inc. . . . . . . . . . . . . . . . . . . . . . . . . DE A Home Dialysis Care, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . TX A Home Intensive Care, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . DE A Home Intensive Care of Arizona, Inc. . . . . . . . . . . . . . . . . . . . AZ A Home Intensive Care of California, Inc. . . . . . . . . . . . . . . . . . . CA A Home Intensive Care of Colorado, Inc. . . . . . . . . . . . . . . . . . . . CO A Home Intensive Care of Connecticut, Inc. . . . . . . . . . . . . . . . . . CT A Home Intensive Care of Florida, Inc. . . . . . . . . . . . . . . . . . . . FL A Home Intensive Care of Georgia, Inc. . . . . . . . . . . . . . . . . . . . GA A Home Intensive Care of Illinois, Inc. . . . . . . . . . . . . . . . . . . . IL A Home Intensive Care of Kansas, Inc. . . . . . . . . . . . . . . . . . . . . KS A Home Intensive Care of Las Vegas, Inc. . . . . . . . . . . . . . . . . . . NV A Home Intensive Care of Louisiana, Inc. . . . . . . . . . . . . . . . . . . LA A
- 7 - 9
STATE OF SUBSIDIARY NAME INCORP. OWNERSHIP NOTES - --------------- --------- --------- ----- Home Intensive Care of Maryland, Inc. . . . . . . . . . . . . . . . . . . . MD A Home Intensive Care of Massachusetts, Inc. . . . . . . . . . . . . . . . . MA A Home Intensive Care of Michigan, Inc. . . . . . . . . . . . . . . . . . . . MI A Home Intensive Care of Missouri, Inc. . . . . . . . . . . . . . . . . . . . MO A Home Intensive Care of Nevada, Inc. . . . . . . . . . . . . . . . . . . . . NV A Home Intensive Care of New Jersey, Inc. . . . . . . . . . . . . . . . . . . NJ A Home Intensive Care of New York, Inc. . . . . . . . . . . . . . . . . . . . NY A Home Intensive Care of Northern Ohio, Inc. . . . . . . . . . . . . . . . . OH A Home Intensive Care of Ohio, Inc. . . . . . . . . . . . . . . . . . . . . . OH A Home Intensive Care of Pennsylvania, Inc. . . . . . . . . . . . . . . . . . PA A Home Intensive Care of Rhode Island, Inc. . . . . . . . . . . . . . . . . . RI A Home Intensive Care of Tampa, Inc. . . . . . . . . . . . . . . . . . . . . FL A Home Intensive Care of Virginia, Inc. . . . . . . . . . . . . . . . . . . . VA A Home Nutritional Services, Inc. . . . . . . . . . . . . . . . . . . . . . . CA A Home Nutritional Services, Inc. . . . . . . . . . . . . . . . . . . . . . . NJ A Home Pharmacy Care of Michigan, Inc. . . . . . . . . . . . . . . . . . . . MI A Homestead Artificial Kidney Center, Inc. . . . . . . . . . . . . . . . . . FL A 2 I. V. Solutions, Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . TX A Infusions Innovations of Jacksonville, Inc. . . . . . . . . . . . . . . . FL A Infusions Innovations of Tampa, Inc. . . . . . . . . . . . . . . . . . . . FL A International Medical Care, Inc. . . . . . . . . . . . . . . . . . . . . . DE A KDNY, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DE A Kidney Disease and Hypertension Center, Ltd. . . . . . . . . . . . . . . . AZ A LaFollette Dialysis Center, Inc. . . . . . . . . . . . . . . . . . . . . . TN A LB Realty, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DE Life Assist Medical Products Corp. . . . . . . . . . . . . . . . . . . . . PR A Lifechem, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DE A Lifeline Medical Supplies, Inc. . . . . . . . . . . . . . . . . . . . . . . FL A Lifeline Medical Systems, Inc. . . . . . . . . . . . . . . . . . . . . . . CA A Lifeline Medical Systems, Inc. . . . . . . . . . . . . . . . . . . . . . . FL A The Medical Accountability Group, Inc. . . . . . . . . . . . . . . . . . . TX A
- 8 - 10
STATE OF SUBSIDIARY NAME INCORP. OWNERSHIP NOTES - --------------- --------- --------- ----- Medical Supply Company, Inc. . . . . . . . . . . . . . . . . . . . . . . . VA A Medi-Sure Testing, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . DE A Med-X-Press, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . DE A Metro Dialysis Center - Kirkwood, Inc. . . . . . . . . . . . . . . . . . . MO A Metro Dialysis Center - Normandy, Inc. . . . . . . . . . . . . . . . . . . MO A Metro Dialysis Center - North, Inc. . . . . . . . . . . . . . . . . . . . . MO A Monolith Enterprises, Incorporated . . . . . . . . . . . . . . . . . . . . DC Monroe Street, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . DE National Medical Care, Inc. . . . . . . . . . . . . . . . . . . . . . . . DE A National Medical Care Home Care Service Agency, Inc. . . . . . . . . . . . NY A National Medical Care of Taiwan, Inc. . . . . . . . . . . . . . . . . . . . DE A Nephrology Applications of Mobile, Inc. . . . . . . . . . . . . . . . . . . AL A NMC Asia-Pacific, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . DE A NMC China, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DE A NMC Diabetic Foot Care, Inc. . . . . . . . . . . . . . . . . . . . . . . . DE A NMC Diabetic Foot Care Centers Orthotics, Inc. . . . . . . . . . . . . . . DE A NMC Diagnostics Services, Inc. . . . . . . . . . . . . . . . . . . . . . . DE A NMC Dialysis Services, Inc. . . . . . . . . . . . . . . . . . . . . . . . . DE A NMC Dialysis Services (Romania), Inc. . . . . . . . . . . . . . . . . . . . DE A NMC Holding, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DE A NMC Homecare, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . DE A NMC Homecare of Michigan, Inc. . . . . . . . . . . . . . . . . . . . . . . DE A 5 NMC International, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . DE A NMC Latin America, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . FL A NMC Management Services, Inc. . . . . . . . . . . . . . . . . . . . . . . . DE A NMC Medical Products, Inc. . . . . . . . . . . . . . . . . . . . . . . . . DE A NMC Services, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . DE A NMC Services (Romania), Inc. . . . . . . . . . . . . . . . . . . . . . . . DE A NMC Ventures, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . DE A Norlab, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A North Knoxville Dialysis Center, Inc. . . . . . . . . . . . . . . . . . . . TN PD Solutions, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . DE A
- 9 - 11
STATE OF SUBSIDIARY NAME INCORP. OWNERSHIP NOTES - --------------- --------- --------- ----- PD Solutions of Arizona, Inc. . . . . . . . . . . . . . . . . . . . . . . . AZ A PD Solutions of California, Inc. . . . . . . . . . . . . . . . . . . . . . CA A PD Solutions Georgia, Inc. . . . . . . . . . . . . . . . . . . . . . . . . GA A PD Solutions of Illinois, Inc. . . . . . . . . . . . . . . . . . . . . . . IL A PD Solutions Kansas, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . KS A PD Solutions of Louisiana, Inc. . . . . . . . . . . . . . . . . . . . . . . LA A PD Solutions Maryland, Inc. . . . . . . . . . . . . . . . . . . . . . . . . MD A PD Solutions Michigan, Inc. . . . . . . . . . . . . . . . . . . . . . . . . MI A PD Solutions Missouri, Inc. . . . . . . . . . . . . . . . . . . . . . . . . MO A PD Solutions of Nevada, Inc. . . . . . . . . . . . . . . . . . . . . . . . NV A PD Solutions New Jersey, Inc. . . . . . . . . . . . . . . . . . . . . . . . NJ A PD Solutions of New York, Inc. . . . . . . . . . . . . . . . . . . . . . . NY A PD Solutions of Ohio, Inc. . . . . . . . . . . . . . . . . . . . . . . . . OH A PD Solutions Pennsylvania, Inc. . . . . . . . . . . . . . . . . . . . . . . PA A PD Solutions of Texas, Inc. . . . . . . . . . . . . . . . . . . . . . . . . TX A PD Solutions Virginia, Inc. . . . . . . . . . . . . . . . . . . . . . . . . VA A PML, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A Park Diagnostic Imaging Center, Inc. . . . . . . . . . . . . . . . . . . . A Park Imaging, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . MA A Park Imaging, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . FL A Park Imaging, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . PA A Park Portable X-Ray, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . A Personal Care Health Services, Inc. . . . . . . . . . . . . . . . . . . . . DE A Phoenix Consulting Services, Inc. . . . . . . . . . . . . . . . . . . . . . FL A Preferred Homecare of Florida, Inc. . . . . . . . . . . . . . . . . . . . . FL A Preferred Homecare of New Jersey, Inc. . . . . . . . . . . . . . . . . . . NJ A Preferred Pharmacy Services, Inc. . . . . . . . . . . . . . . . . . . . . . FL A Prochrom, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IN A Quality Care Dialysis Centers, Inc. . . . . . . . . . . . . . . . . . . . . FL A Quality Care Dialysis Center of Baltimore, Inc. . . . . . . . . . . . . . . MD A Quality Care Dialysis Center of Boston, Inc. . . . . . . . . . . . . . . . MA A Quality Care Dialysis Center of Creve Coeur, Inc. . . . . . . . . . . . . . MO A
- 10 - 12
STATE OF SUBSIDIARY NAME INCORP. OWNERSHIP NOTES - --------------- --------- --------- ----- Quality Care Dialysis Center of Dallas, Inc. . . . . . . . . . . . . . . . TX A Quality Care Dialysis Center of Greensburg, Inc. . . . . . . . . . . . . . LA A Quality Care Dialysis Center of Hammond, Inc. . . . . . . . . . . . . . . . DE A Quality Care Dialysis Center of Houston, Inc. . . . . . . . . . . . . . . . TX A Quality Care Dialysis Center of Las Vegas, Inc. . . . . . . . . . . . . . . NV A Quality Care Dialysis Center of Margate, Inc. . . . . . . . . . . . . . . . FL A Quality Care Dialysis Center of Mt. Vernon, Inc. . . . . . . . . . . . . . VA A Quality Care Dialysis Center of New Orleans, Inc. . . . . . . . . . . . . . LA A Quality Care Dialysis Center of North County, Inc. . . . . . . . . . . . . MO A Quality Care Dialysis Center of Patapsco, inc. . . . . . . . . . . . . . . MD A Quality Care Dialysis Center of San Antonio, Inc. . . . . . . . . . . . . . TX A Quality Care Dialysis Center of Southern Maryland, Inc. . . . . . . . . . . MD A Quality Care Dialysis Center of St. Augustine, Inc. . . . . . . . . . . . . FL A Quality Care Dialysis Center of St. Clair Shores, Inc. . . . . . . . . . . MI A Quality Care Dialysis Center of St. Louis, Inc. . . . . . . . . . . . . . . MO A Quality Care Dialysis Center of Stoneham, Inc. . . . . . . . . . . . . . . MA A Quality Care Dialysis Center of University City . . . . . . . . . . . . . . MO A Quality Care Dialysis Center of Vega Baja, Inc. . . . . . . . . . . . . . . PR A Quality Care Dialysis Center of Vista, Inc. . . . . . . . . . . . . . . . . CA A Quality Care Dialysis Center of Weymouth, Inc. . . . . . . . . . . . . . . MA A Renal Scientific Service, Inc. . . . . . . . . . . . . . . . . . . . . . . DE A Renal Scientific Service of Texas, Inc. . . . . . . . . . . . . . . . . . DE A 2 Renal Supply (Tenn) Corporation . . . . . . . . . . . . . . . . . . . . . NJ A Retaw, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FL A Rockwood Dialysis Center, Inc. . . . . . . . . . . . . . . . . . . . . . . VA A San Diego Dialysis Services, Inc. . . . . . . . . . . . . . . . . . . . . . DE A Santa Barbara Community Dialysis Center, Inc. . . . . . . . . . . . . . . . CA A Security Health Services, Inc. . . . . . . . . . . . . . . . . . . . . . . NV A St. Louis Regional Dialysis Center, Inc. . . . . . . . . . . . . . . . . . MO A Sourgasco II Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . DE A Southern Oil, Resin & Fiberglass, Inc. . . . . . . . . . . . . . . . . . . FL Sover Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DE A
- 11 - 13
STATE OF SUBSIDIARY NAME INCORP. OWNERSHIP NOTES - --------------- --------- --------- ----- Tappahanock Dialysis Center, Inc. . . . . . . . . . . . . . . . . . . . . . VA A UKC-North, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TX A United Dialysis Corporation . . . . . . . . . . . . . . . . . . . . . . . . CA A University Kidney Center, Inc. . . . . . . . . . . . . . . . . . . . . . . TX A Warrenton Dialysis Facility, Inc. . . . . . . . . . . . . . . . . . . . . . VA A Water Street Corporation . . . . . . . . . . . . . . . . . . . . . . . . . DE West End Dialysis Center, Inc. . . . . . . . . . . . . . . . . . . . . . . VA A Woolwich Sewer Company, Inc. . . . . . . . . . . . . . . . . . . . . . . . NJ A Woolwich Water Co., Inc. . . . . . . . . . . . . . . . . . . . . . . . . . NJ A W. R. C. Technical Ventures, Inc. . . . . . . . . . . . . . . . . . . . . DE WRG (Delaware) Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . DE Zenex Capital Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . FL A
- 12 - 14 NON-U.S. SUBSIDIARIES
OWNERSHIP COUNTRY SUBSIDIARY NAME % / BY WHOM NOTES - ------- --------------- ----------- ----- ARGENTINA AQT Quimica Argentina, S.A. 100 / A Grace Argentina, S.A. 100 / A NMC de Argentina, S.A. 100 / A Inere, S.A. 100 / A Centro Nefrologico Bahia Blanca S. R. 100 / A Diali Salta S.A. 100 / A Centro de Dialisis Ituzaingo, S.A. 100 / A AUSTRALIA W. R. Grace Australia Limited 100 / A W. R. Grace Catalysts Pty. Limited 100 / A Omicron Proprietary Limited 100 / A Omipac Pty. Ltd. 51/A 12 BELGIUM Alexim N.V. 100 / A Grace Dearborn N.V. 100 / A Finac N.V. 100 / A Grace N.V. 100 / A Grace Silica N.V. 100 / A 1 BERMUDA Erika, Ltd. 100 / A NMC Holdings, Ltd. 100 / A Trans-Meridian Assurance Ltd. 100 / A BRAZIL Grace Brasil S.A. 100 / A PEADCO-Engenharia, Comercio Industria Ltda. 100 / A NMC do Brasil Ltda. 100 / A Maia de Almedia Industria e Comercio S.A. 100 / A Renal-Tec Industria Comercia e Servicos, Ltda. 100 / A International Holdings Ltda. 100 / A Dearborn International Ltda. 100 / A CANADA Ambrosia Chocolate Ltd. 100/A 9 Amicon Canada Limited 100 / Erika Laboratories, Ltd. 100 / A GEC Divestment Corporation Limited 100 / A Grace Dearborn Inc. 100 / W. R. Grace & Co. of Canada Ltd. 100 / W. R. Grace Finance (NRO) Ltd. 100 Erika Laboratories, Ltd. 100 / A 2 National Medical Care Canada Inc. 100 / A NMC Canada Dialysis Services Inc. 100 / A
- 13 - 15
OWNERSHIP COUNTRY SUBSIDIARY NAME % / BY WHOM NOTES - ------- --------------- ----------- ----- CAYMAN ISLANDS Grace Cocoa Hong Kong Ltd. 100 / A Global Cocoa Holdings Ltd. 100 / A Grace China Holdings I, Inc. 100 Grace Davison China, Inc. 100 CHILE Grace Quimica Compania Limitada 100 / A COLOMBIA Grace Colombia, S.A. 100 / A Aquatec de Colombia S.A. 100 / A CUBA Envases Industriales y Comerciales, S.A. 100 / 6 Papelera Camagueyana, S.A. 100 / 6 CZECH REPUBLIC Grace Spol. s r.o. 100 / National Medical Care, s r.o. 100 / A DENMARK W. R. Grace A/S 100 / ECUADOR Grace Cocoa Ecuador S.A. 100 / A FINLAND W. R. Grace Oy 100 / A Prochrom Oy 100 / A 1 FRANCE Grace Cocoa France S.A. 100 / A 7 Grace S.A. 100 / A Grace Service Chemicals S.A. 100 / A Prochrom S.A. 100 / A Prochrom Recherche et Developpement 100 / A Soboca S.A. 100 / 7 Societe Civile Immobiliere Les Rosiers 100 / A 1 GERMANY Amicon G.m.b.H. 100 / A-1 Bit & Tool Co. G.m.b.H. 100 / A Chomerics G.m.b.H. 100 / A De Zaan B.V.m.b.H. 100 / 7 EAP Akustik GmbH 100 / A 1 Emerson & Cuming G.m.b.H. 100 / A Grace G.m.b.H. 100 / A Kascho Kakao- und Schokoladenwerke, G.m.b.H. 100 / 7 National Medical Care (Deutschland) G.m.b.H. 100 / A NMC Dialysebehandlung G.m.b.H. i.g. 100 / A NMC Holding GmbH 100 / A Riggers Dialysatoren G.m.b.H. 100 / A Riggers Dialysatoren Produktion Thalheim G.m.b.H. 100 / A Rena-Med 100 / A Riggers Medizintechnik Thalheim G.m.b.H. 100 / A Grace Multiflex GmbH 100/A
- 14 - 16
OWNERSHIP COUNTRY SUBSIDIARY NAME % / BY WHOM NOTES - ------- --------------- ----------- ----- GREECE Grace Hellas E.P.E. 100 / GUATEMALA Grace Central America, S.A. 100 / HONG KONG Amicon Polymers (H.K.). Limited 100 / A 1 W. R. Grace Southeast Asia Holdings Limited 100 / W. R. Grace Far East Investment Company Limited 100 / 1 W. R. Grace (Hong Kong) Limited 100 / A HUNGARY Grace kft. 100 / A NMC Dialyzis Szolgaltato, kft. 100 / A NMC Asset Handling Limited Liability Company 100 / A INDIA Dearborn I.E.I. (India) Private Ltd. 51 / 11 W. R. Grace & Co. (India) Private Limited 100 INDONESIA P.T. Grace Specialty Chemicals Indonesia 100 / A IRELAND Amicon Ireland Limited 100 / W.R. Grace (Ireland) Ltd. 100 / A Trans-Meridian Dublin Ltd. 100 ITALY Emerson & Cuming Italiana S.r.L. 100 / A 1 Grace Finanziaria S.r.L. 100 / 1 Grace Italiana S.p.A. 100 / A JAPAN Grace Japan Kabushiki Kaisha 100 / Amicon Japan K.K. 100 / A KOREA Grace Korea Inc. 100 / NMC Korea, Inc. 100 / A MALAYSIA W. R. Grace (Malaysia) Sendiran Berhad 100 / A W. R. Grace Packaging (Malaysia) Sdn. Bhd. 100 / W. R. Grace Specialty Chemicals 100 / (Malaysia) Sdn. Bhd. MEXICO Erika de Reynosa S.A. de C.V. 100 / A Invertol S.A. de C.V. 100 / A Especialidades Quimicas Grace de Mexico, 100 / A S.A. de. C.V. Grace Holdings, S.A. de C. V. 100 NETHERLANDS Amicon B.V. 100 / Berisford Cacao Nederland B.V. 100 / 7 Cacao De Zaan B.V. 100 / 7 Grace B.V. 100 /
- 15 - 17
OWNERSHIP COUNTRY SUBSIDIARY NAME % / BY WHOM NOTES - ------- --------------- ----------- ----- NETHERLANDS Grace Cocoa B.V. 100 / 7 (continued) Grace Dearborn B.V. 100 / A J. G. van Bruinessen B.V. 100 / A 7 Storm van Bentem & Kluyver B.V. 100 / A Twincon B.V. 100 / 7 NETHERLANDS ANTILLES W. R. Grace N.V. 100 / NEW ZEALAND W. R. Grace (N.Z.) Limited 100 / A NORWAY W. R. Grace A/S 100 / A PEOPLE'S REPUBLIC OF CHINA Global Huada (Guangzhou) Confectionery Ltd. 100 17 Grace China Ltd. 100 / Shanghai Ren Ji - NMC Hemodialysis Center 100 / A Grace Packaging Gaoming Co. Ltd. 67.7 / A 16 Shenyang Liaoning NMC Hemodialysis Center Co. Ltd. 100 / A PHILIPPINES W. R. Grace (Philippines) Inc. 100 / A POLAND W. R. Grace Sp. z.O.O. 100 / National Medical Care Polska Sp. z.O.O. 100 / A PORTUGAL Abrandial-Clinica de Doencas Renais, Lda. 100 / A Ambulancias 111, SA 100 / A Clinica de Diagnosticos Dr. Fernando Teixeira 100 / A Limitada Cancho, Lda. 100 / A CNH - Centro Nacional de Hemodialise, Lda. 100 / A Egidial, Lda. 100 / A Hemodial, Lda 100 / A Grace Portuguesa (Produtos Quimicos e 100 / A Plasticos) Lda. NMC-Centro Medico Nacional, Lda. 100 / A Ribadial, Lda 100 / A Visodial, Lda. 100 / A Ascencao Afonso, Lda. 100 / A Flaviano Gusmao, Lda. 100 / A Gnostica, S.A. 100 / A LPC-Lab Patoogia Clinica 100 / A Lab. Analises Clinicas Dra. Susan Pereira Rosas 100 / A Lac-Lab De Analises Clinicas 100 / A Cal & Silveria - Analises Clinicas, Lda. 100 / A Analises Xira, Lda. 100 / A Diagnostic Laboratorial Dra. Helena Farrojota, Lda. 100 / A
- 16 - 18
OWNERSHIP COUNTRY SUBSIDIARY NAME % / BY WHOM NOTES - ------- --------------- ----------- ----- PORTUGAL Laboratorio de Analises Clinicas Dr. Joao Ribeiro (continued) e Dra. Maria da Graca Cardoso, Lda. 100 / A Louro & Pires, Lda. 100 / A RUSSIA A/O Grace 100 / A A/O Grace Kaustik 51 / A 10 A/O Grace Kriz 51 / A 15 SINGAPORE A-1 Bit & Tool Company Pte. Ltd. 100 / A De Zaan Far East Pte. Ltd. 100 / 7 Grace Cocoa Singapore Pte. Ltd. 100 / 7 W. R. Grace (Singapore) Private Limited 100 / A SOUTH AFRICA W. R. Grace Africa (Pty) Limited 100 / SPAIN Centro De Dialisis Recoletas Albacete, S.L. 100 / A Dialcentro, S.A. 100 / A Grace, S.A. 100 / Instituto de Ciencias Neurologicas, S.A. 100 / A Kidney, S.L. 100 / A National Medical Care of Spain, S.A. 100 / A Socodi Club, S.L. 100 / A Teroson Espanola, S.L. 100 / A 3 SWEDEN Grace AB 100 Grace Dearborn AB 100 / A Grace Sweden AB 100 / A Grace TEC Systems AB 100 / A SWITZERLAND Grace A.G. 100 / A Grace Cocoa Chocolate Mgt. S.A. 100 / A 7 Syncrete S.A. 100 / 3 Neue Transvac Maschinen A.G. 99.99% TAIWAN W. R. Grace Taiwan Inc. 100 / A THAILAND W. R. Grace (Thailand) Ltd. 100 / A 3 TURKEY Grace TLS 100 / A UNITED KINGDOM A.A. Consultancy & Cleaning Company Limited 100 / A Amicon Limited 100 / Amicon Merger, Ltd. 100 / A 1 Cormix Limited 100 / A 3 Dearborn (U.K.) Limited 100 / A 3 Dearborn Europe Limited 100 / A 3 Renacare Limited 100 / A
- 17 - 19
OWNERSHIP COUNTRY SUBSIDIARY NAME % / BY WHOM NOTES - ------- --------------- ----------- ----- UNITED KINGDOM Renalyte Services Limited 100 / A (continued) U.K. Renal Services Limited 100 / A W. R. Grace Limited 100 / A URUGUAY Aquatec de Uruguay, S.A. 100 / A Grace Uruguay S.A. 100 / VENEZUELA Grace Venezuela, S.A. 100 / A Inversiones GSC, S.A. 100 / NMC National Medical Care de Venezuela C.A. 100 / A
- 18 - 20 U.S. AND NON-U.S. NOTES 1 In liquidation 2 Inactive 3 Dormant, assets sold 4 Owned by W. R. Grace & Co. 5 Owned by National Medical Care, Inc. as of 1/1/94 6 Assets and business expropriated by Cuban Government 7 Owned by a partnership, Grace Cocoa Associates, L.P., or a subsidiary thereof 8 To be merged into W. R. Grace Limited 9 Common stock owned 100% by Grace Cocoa Associates, L.P./Preferred stock owned 100% by W. R. Grace & Co. of Canada Ltd. 10 Joint stock company, 46% owned by Grace Italiana S.p.A., 5% owned by W. R. Grace Ltd., 49% owned by A/O Kaustik 11 Joint Venture, 51% owned by W. R. Grace & Co.-Conn., 49% owned by Ion Exchange India 12 Joint Venture, 51% owned by Omicron Proprietary Limited, 49% owned by Parade Packaging Sdn Bhd 13 To be merged into Grace GmbH 14 To be merged into Grace AB 15 A Russia Joint Venture, owned 31% by Grace S.A., 20% by W. R. Grace Limited and 49% by A/O Kriz 16 A China Joint Venture, owned 67.7% by Grace China Holdings I, Inc. and 32.3% by Sanzhou Economic Development General Company 17 A China Joint Venture, owned 70% by Grace Cocoa Hong Kong Ltd. and 30% by Guangzhou Confectionery Factory - 19 - 21 PARTNERSHIPS Axial Basin Ranch Company a Delaware partnership, owned 50% by Grace A-B Inc., 50% Grace A-B II Inc. Boodin Partnership Owned 50% by NMC Homecare, Inc. Carbon Dioxide Slurry Systems L.P. a Delaware partnership, owned 50% by W. R. Grace & Co.-Conn. Cormix Middle East LLC a Dubai LLC, owned 49% Construction Products Dubai, Inc., 51% Sheikh Hasher Maktoum Juma Al Maktoum Dearborn USA, Limited Partnership a Delaware limited partnership. owned 1% by W. R. Grace & Co.-Conn., Sole General Partner and 99% by LB Realty, Inc., Sole Limited Partner Emirates Chemicals LLC a Dubai LLC, owned 49% Construction Products Dubai, Inc., 51% Sheikh Hasher Maktoum Juma Al Maktoum Grace Cocoa Associates, L.P. a Delaware limited partnership, owned 24.04% by W. R. Grace & Co.-Conn., 6.02% GC Holding Inc., 48.93% Grace Cocoa Ventures, L.P., .04% Grace Cocoa Management, Inc., 20.9% Tarpon Investors, L.P. Grace Cocoa Ventures, L.P. a Delaware limited partnership, owned .001% by Grace Cocoa Limited Partners I, Inc., 99.999% owned by Grace Cocoa Ventures, Inc. Grace Offshore Turnkey a Texas partnership, owned 50% by Grace Offshore Company Guangzhou Nanfang NMC Hemodialysis Center Company Limited a China joint venture at least 50% owned by NMC International, Inc. HIC Pharmacy Services, L.P. a Michigan LimIted Partnership, owned 75% by Home Pharmacy Care of Michigan, Inc. and 25% by Stuart E. Bas - 20 - 22 Hayden-Gulch West Coal Company a Delaware partnership, owned 50% by Grace H-G Inc., 50% by Grace H-G II, Inc. Healthtech Medical a California partnership, owned 50% by NMC Ventures, Inc. H-G Coal Company a Delaware partnership, owned 50% by Coalgrace, Inc., 50% by Coalgrace II, Inc. Immunecare of Hollywood a Florida partnership, owned 50% by NMC Ventures, Inc. ImmuneCare of Key West a Massachusetts partnership, owned 50% by NMC Ventures, Inc. Infusion Systems a Nevada partnership, owned 50% by NMC Ventures, Inc. Metreon an Ohio joint venture/partnership, owned 50% by Grace JVH, Inc., 50% by Englehard MC, Inc. New Bedford Infusioncare a Massachusetts partnership, owned 50% by NMC Ventures, Inc. Nippon Dearborn Kabushiki Kaisha a Japanese partnership, owned 50% by Grace Japan Kabushiki Kaisha North Suburban Dialysis a Massachusetts partnership, owned 50% by Bio-Medical Applications of Essex, Inc. OB One & IV Too an Indiana partnership, owned 50% by NMC Ventures, Inc. Palm Springs I.V. Care II owned 50% by NMC Homecare, Inc. Parade & Omicron Sdn Bhd a Malaysia Joint Venture, owned 51% by Omipac Proprietary Ltd. and 49% by Parade Industries Pte. Ltd. Paramont Coal Company a Virginia partnership, owned 50% by Grace PAR Corporation Pharmacy Direct a Massachusetts partnership, owned 50% by NMC Dialysis Services, Inc. Primecare Home Health Services owned 50% by NMC Homecare, Inc. Pursue Gas Processing and Petrochemical Company a Texas partnership, owned 25% by Sourgasco II Corp. - 21 - 23 Quality Homecare Services of Watertown, NY a Massachusetts partnership, owned 50% by NMC Dialysis Services, Inc. Renal Services (Malaysia) Sdn. Bhd., a Malaysia joint venture owned 25% by International Medical Care, Inc. Riggers Dialysatoren Produktion Thalheim G.m.b.H. & Co. K.G. a German partnership, owned 50% by Riggers Medizintechnik G.m.b.H., 50% by Riggers Dialysatoren Produktion Thalheim G.m.b.H. Sleep Diagnostic Associates an Arizona partnership, owned 50% by NMC Ventures, Inc. and 50% by Sleep Diagnostics, Inc. Sisters of Charity Home Health Care Owned 50% by NMC Homecare, Inc. VNA/NMC Homecare Partnership Owned 50% by NMC Homecare, Inc. - 22 - 24 INVESTMENTS (holdings of at least 20% but not more than 50%)
OWNERSHIP COMPANY NAME JURISDICTION PERCENT NOTES - ------------ ------------ ------------ ----- Arral & Partners British Virgin Islands 20.8% Asian Food Investment Limited British Virgin Islands 40% Colowyo Coal Company L.P. Delaware 6 Denka Grace K.K. Japan 45% General Cocoa Trading House Inc. British Virgin Islands GKA Company Limited Hong Kong 25% GN Holdings, Inc.* Delaware 47% Incacao Fabrica Nacional de Ecuador 10% 2 Elaboradoes de Cacao S.A. Intercao, S.A. British Virgin Islands 20% 2 PJ Margo Private Limited India 50% Noxso Corporation Virginia 23.1% Productos Derivados de la Sal Colombia 30.1% 3 Productora de Papeles S.A. (PROPAL) Colombia 36.16% Societe Novelle Sifca, S.A. Ivory Coast 30% 7 Tarpon Investors, L.P. Delaware 20% 4 Unicao B.V. Netherlands 20% 5 Unicao S.A. Ivory Coast 20% 5
NOTES: 1 Owned by W. R. Grace & Co. 2 Owned by Grace Cocoa, Inc. 3 Owned by Productora de Papeles S.A. 4 Owned by Grace Tarpon Investors, Inc. 5 Owned by Twincon B.V. 6 Limited Partnership interests are owned by Gracoal, Inc. and Gracoal II, Inc. 7 Owned by Targhee Holdings, B.V., a wholly owned subsidiary of Grace Cocoa B.V., a Netherlands corporation * formerly CCHP Delaware, Inc. - 23 - EX-24 15 POWERS OF ATTORNEY 1 EXHIBIT 24 POWER OF ATTORNEY The undersigned director of W. R. GRACE & CO. ("Company") hereby appoints PETER D. HOUCHIN and ROBERT B. LAMM as his true and lawful attorneys-in-fact for the purpose of signing the Company's Annual Report on Form 10-K for the year ended December 31, 1995, and all amendments thereto, to be filed with the Securities and Exchange Commission. Each of such attorneys-in-fact is appointed with full power to act without the other. /s/ E. W. Duffy /s/ P. S. Lynch /s/ H. A. Eckmann /s/ R. C. Macauley /s/ J. W. Frick /s/ J. E. Phipps /s/ C. L. Hampers /s/ E. J. Sullivan /s/ T. A. Holmes Dated: March 29, 1996 2 POWER OF ATTORNEY The undersigned director of W. R. GRACE & CO. ("Company") hereby appoints PETER D. HOUCHIN and ROBERT B. LAMM as her true and lawful attorneys-in-fact for the purpose of signing the Company's Annual Report on Form 10-K for the year ended December 31, 1995, and all amendments thereto, to be filed with the Securities and Exchange Commission. Each of such attorneys-in-fact is appointed with full power to act without the other. /s/ M. A. Fox Dated: March 29, 1996 3 POWER OF ATTORNEY The undersigned, Chairman, President and Chief Executive Officer (Principal Executive Officer) and a director of W. R. GRACE & CO. ("Company"), hereby appoints PETER D. HOUCHIN and ROBERT B. LAMM as his true and lawful attorneys-in-fact for the purpose of signing the Company's Annual Report on Form 10-K for the year ended December 31, 1995, and all amendments thereto, to be filed with the Securities and Exchange Commission. Each of such attorneys-in-fact is appointed with full power to act without the other. /s/ A. J. Costello Dated: March 29, 1996 4 POWER OF ATTORNEY The undersigned, Senior Vice President and Chief Financial Officer (Principal Financial Officer and Acting Principal Accounting Officer) of W. R. GRACE & CO. ("Company"), hereby appoints ROBERT B. LAMM as his true and lawful attorney-in-fact for the purpose of signing the Company's Annual Report on Form 10-K for the year ended December 31, 1995, and all amendments thereto, to be filed with the Securities and Exchange Commission. /s/ P. D. Houchin Dated: March 29, 1996 EX-99.05 16 SETTLEMENT AGREEMENT 1 EXHIBIT 99.05 SETTLEMENT AGREEMENT AGREEMENT made as of the 26th day of January, 1996 by and between HSC Hospitality, Inc., formerly known as HSC Holding Co., Inc. ("HSC"), a Delaware corporation, Grace Hotel Services Corporation ("GHSC"), a Delaware corporation, and W. R. Grace & Co. ("Grace"), a New York corporation. WHEREAS, HSC and GHSC entered into a letter agreement, dated December 14, 1994 (the "letter agreement"), pursuant to which certain monies were paid to GHSC by HSC and other sums were put in an interest bearing escrow account (the "Escrow Account") until a final determination was made regarding those sums. WHEREAS, an arbitration was commenced before the American Arbitration Association by GHSC against HSC regarding certain disputed sums, including those held in the Escrow Account (the "arbitration"). WHEREAS, GHSC and HSC desire to settle their disputes regarding the disputed sums held in the Escrow Account that are the subject of the arbitration. NOW THEREFORE, in consideration of the mutual promises contained herein and other good and valuable consideration, receipt of which is hereby acknowledged, the parties hereto agree as follows: 1. The sum of $110,312.50, together with all interest earned on $111,000 of the principal amount in the Escrow Fund from the date of deposit to the date of 2 disbursement, shall be paid from the Escrow Account to GHSC, $1,575.00 shall be paid to the American Arbitration Association and the remaining balance in the Escrow Account shall be paid to HSC. 2. Although GHSC continues to maintain that the full balance ($164,903) of the amount of the final determination (as that term is used in the letter agreement) is still due to GHSC and HSC continues to dispute that it is due to GHSC, in the interest of settling this matter, the parties have agreed that (a) the payments set forth in paragraph one, above, are in full payment and satisfaction of all claims made in the arbitration and all outstanding amounts owed by HSC to GHSC under paragraphs 1(ii), 2 and 3 of the letter agreement and (b) the arbitration shall be discontinued with prejudice. The parties shall execute a joint letter to the American Arbitration Association in the form annexed hereto as Exhibit A. 3. HSC henceforth shall be the rightful owner of the safe that currently is in HSC's possession and the Time Management System, the HP Hewlett Packard Desk Jet Printer, the Dell 486P33 and the Dell 333 100 MP that currently are in GHSC's possession, the ownership of which was disputed in the arbitration. HSC shall pick up from GHSC the Time Management System, the HP Hewlett Packard Desk Jet Printer, the Dell 486P33 and the Dell 333 100 MP (collectively the "equipment") within two weeks from the execution of this Settlement Agreement. HSC - 2 - 3 shall assume all obligations under any and all service contracts or other agreements pertaining to the equipment. GHSC represents that since November 9, 1994 it has not entered any service contracts pertaining to the equipment. GHSC henceforth shall be the rightful owner of all other assets in its possession, custody or control, the ownership of which was disputed in the arbitration. GHSC shall have the right to give to HSC at no charge any or none of such assets of which GHSC is the rightful owner or to otherwise dispose of such assets, in its sole, absolute and unreviewable discretion. 4. HSC acknowledges that it is responsible for all of the obligations arising from or relating to the food and beverage service business it operates or has operated, including but not limited to the food and beverage service at the following locations: (1) two Embassy Suites in Orlando, Florida; (2) Bourbon Orleans Hotel in New Orleans, Louisiana; (3) Embassy Suites in Altamonte Springs, Florida; (4) Embassy Suites in Jacksonville, Florida; (5) Embassy Suites in Nashville, Tennessee; (6) Michelangelo Hotel in New York City; (7) Embassy Suites in downtown San Diego, California; (8) Embassy Suites at the St. Louis airport, Missouri; (9) Dumont Plaza Hotel in New York City; and (10) Shelburne Hotel in New York City (hereinafter referred to as "HSC Business"). HSC agrees that it will assume and discharge in due course all obligations relating to HSC Business regardless of whether it - 3 - 4 incurred such obligations in the name of HSC or GHSC or otherwise, provided, however, that GHSC's obligations with respect to the Michelangelo Hotel in New York City relating to the period prior to June 13 1994, and GHSC's obligations with respect to the Dumont Plaza and Shelburne Hotels in New York City relating to the period prior to July 7, 1995, shall remain the responsibility of GHSC (June 12, 1994 and July 6, 1995 being the dates on which GHSC ceased operating the food and beverage service at the Michelangelo and the Dumont Plaza and Shelburne Hotels, respectively). HSC agrees to defend and to indemnify GHSC with respect to all claims arising from or relating to HSC Business, and GHSC agrees to defend and indemnify HSC with respect to all claims arising from or relating to the GHSC food and beverage service business during the time that such business was operated by GHSC. 5. Each party shall bear its own costs and attorneys' fees with respect to this matter, including all costs and fees incurred with respect to the arbitration. 6. The terms and conditions of paragraphs 4B, 4C, 5, and 6 of the letter agreement shall remain in full force and effect, with the exception of the second to last sentence in paragraph 5 and the first sentence of paragraph 6. 7. The parties agree that the terms of this Settlement Agreement will be kept confidential and not disclosed to anyone not a party to this Settlement Agreement, except as - 4 - 5 may be required (i) pursuant to securities laws and regulations, as determined in the sole and absolute discretion of counsel to the parties herein, or (ii) by court order. In the event of a court order requiring disclosure, each party agrees to give the other notice and an opportunity to request that such court reverse or modify such order. Notwithstanding anything contained herein, in the event that a lawsuit is commenced to which Grace, GHSC or HSC is a party, and which lawsuit relates or refers to the Settlement Agreement, any of them shall be free to produce and refer to this Settlement Agreement. 8. Each party represents that it has carefully read this Settlement Agreement, understands its provisions, and signs this Settlement Agreement freely and voluntarily with full knowledge of its significance. Each party represents that it has conferred with its attorneys. 9. No provision of this Settlement Agreement may be changed or modified except by an instrument in writing signed by all parties. 10. This Settlement Agreement shall be binding upon and shall inure to the benefit of the parties and their respective successors and assigns. 11. This Settlement Agreement may be signed in two or more counterparts, and such counterparts bearing the signatures of the parties shall, when taken together, constitute one and the same instrument. - 5 - 6 12. All matters affecting the interpretation of this Settlement Agreement and the rights of the parties hereto shall be governed by the laws of the State of New York. 13. This Settlement Agreement constitutes the entire understanding of the parties. There are no representations, promises, warranties, covenants or undertakings other than those expressly set forth herein. IN WITNESS WHEREOF, the parties have signed this Settlement Agreement on the date first set forth above. HSC HOSPITALITY, INC., formerly known as HSC HOLDING CO., INC. By: /s/ J. Peter Grace, III ----------------------- J. Peter Grace, III Chief Executive Officer GRACE HOTEL SERVICES CORPORATION By: /s/ Richard M. Gordon ----------------------- Richard M. Gordon President W. R. GRACE & CO. By: /s/ Robert H. Beber ----------------------- Robert H. Beber Executive Vice President - 6 - 7 January , 1996 Mr. Scott Besendorfer Case Administrator American Arbitration Association 140 West 51st Street New York, New York 10020-1203 Re: Grace Hotel Services Corporation and HSC Holding Co., Inc. Case No. 13 199 00239 95 -------------------------------- Dear Mr. Besendorfer: This is to inform you that Grace Hotel Services Corporation and HSC Holding Co., Inc., presently known as HSC Hospitality, Inc., have settled the issues that were the subject of the above referenced arbitration. Accordingly, the arbitration should be discontinued with prejudice. We very much appreciate your courtesy with respect to this matter. Please also extend our thanks and appreciation to the arbitrators assigned to this matter. Very truly yours, FLEMMING, ZULACK & WILLIAMSON, LLP By: --------------------- Richard A. Williamson PARCHER & HAYES By: ------------------- Steven M. Hayes - 7 - EX-99.06 17 CONSULTING AGREEMENT 1 EXHIBIT 99.06 CONSULTING AGREEMENT This Consulting Agreement ("Agreement") is made as of December 1, 1995 by and between W. R. Grace & Co. (the "Company"), a New York corporation having an office at One Town Center Road, Boca Raton, Florida, and Gordon J. Humphrey (the "Consultant"), who has an office at 78 Garvins Hill Road, Chichester, New Hampshire 03234. 1. Services and Performance - The Company does hereby appoint and engage the Consultant for the term of this Agreement to perform such services as are specifically assigned and pre-approved by the Company. The Consultant shall only receive assignments (and/or pre-approvals) hereunder from the Company's Chief Executive Officer and/or his designees. The nature of the services that the Consultant may be required to render include promoting the Company's interest with officials of the U.S. Government and performing projects related to the Company's businesses in the Commonwealth of Independent States (including Russia) and such other projects as the Company shall request from time to time. The Consultant shall also represent the Company in the most favorable possible light with customers, community and academic groups and individuals as well as the public at large. 2. Term - The term of this Agreement shall be for a period of 24 calendar months commencing on December 1, 1995 and ending on November 30, 1997. Notwithstanding the preceding sentence, this Agreement shall also terminate and the Consultant's compensation shall cease to accrue forthwith upon (i) his death, 2 (ii) any failure by him to observe or perform his agreements as described hereunder (including his voluntary cessation of services hereunder), (iii) his neglect of the faithful performance of his duties and responsibilities hereunder, or (iv) his inability to perform his duties hereunder (other than ordinary temporary inability due to sickness), as determined by the Company in its sole discretion. All provisions of this Agreement, except the provisions of Articles 1, 3 and 4 hereof, shall survive any termination of this Agreement. 3. Consultant's Compensation - As full and complete compensation for the services which Consultant provides hereunder and for the covenants provided in this Agreement, the Consultant will be paid a monthly retainer of $5,000.00 for each calendar month during the term of this Agreement, and such additional fees as are mutually agreeable to the Company and the Consultant with respect to any specific projects assigned by the Company to the Consultant. The monthly retainer payment for each such calendar month shall be made to the Consultant the first of the month to which the payment relates. 4. Reimbursement Of Out-Of-Pocket Expenses - The Company shall reimburse the Consultant for reasonable and necessary (which terms shall be interpreted in accordance with the Company's practices with respect to its employees) out-of-pocket expenses incurred for travel and other expenditures directly related to services performed by the Consultant for the Company pursuant to this Agreement; provided that, no expenditure in excess of $1,000 shall be reimbursed unless specifically pre-approved in writing by an authorized representative of the - 2 - 3 Company. Reimbursement of authorized expenditures will be made only upon the Consultant's providing to the Company itemized records of those expenditures and related receipts that are acceptable to the Company. 5. Independent Contractor Status - The Consultant is and at all times shall be, during his service as a consultant under the terms of this Agreement, an independent contractor and shall not be deemed to be an employee of the Company for any purpose, and no partnership, joint venture or other joint undertaking between the Company and the Consultant shall be deemed to be created by reason of this Agreement. The Consultant is not authorized to (i) represent that the Consultant is an agent of the Company or any affiliate, (ii) enter into contracts on behalf of the Company, or (iii) otherwise commit the Company or any affiliate to any legally binding liabilities or obligations. The Consultant is permitted to perform services for or become employed by others during the term of this Agreement, consistent with Section 6.06. 6. Representations, Warranties and Covenants 6.01 The Consultant represents and warrants to the Company that the Consultant is free to undertake the performance of consulting services as provided under this Agreement and that the Consultant has no prior or other commitments of any kind to anyone or conflicts of interest that would in any way hinder or interfere with the Consultant's acceptance of, or the full, uninhibited and faithful performance of, the Consultant's obligations under this Agreement, or the exercise of his best efforts as a consultant to the Company. - 3 - 4 6.02 The Consultant will not (except in the performance of his duties hereunder) at any time or in any manner make or cause to be made any copies, pictures, duplicates, facsimiles or summaries of any reports, studies, memoranda, correspondence, manuals, records, plans, or other written, printed or otherwise recorded materials of any kind whatsoever belonging to, or in the possession of, the Company or any affiliate of the Company. The Consultant shall have no right, title or interest in any such material, and he agrees that (except in the performance of his services hereunder) he will not, without the prior written consent of the Company, remove any such material from any premises of the Company or any affiliate of the Company, and that he will surrender all such material to the Company immediately upon the termination of this Agreement or at any time prior thereto upon the request of the Company. 6.03 Without the prior written consent of the Company, the Consultant shall not at any time (whether during or after the term of this Agreement) (i) use for the Consultant's own benefit or purposes, or for the benefit or purposes of any other person, firm, partnership, association, corporation or business entity, or (ii) disclose (except in the performance of the Consultant's duties under this Agreement) in any manner to any person, firm, partnership, association, corporation or business entity, any trade secrets, data, know-how, knowledge or information (including, but not limited to, that relating to the costs, products, equipment, merchandising and - 4 - 5 marketing methods, supplies, customs, personnel training programs, business expansion plans or financing) belonging to, or relating to the affairs of, the Company or any affiliate of the Company. Without limiting the generality of the foregoing, the Consultant shall not publish, or submit for publication, any material that includes information with respect to technology owned or used by the Company or any affiliate of the Company, or with respect to other matters related to the Company, unless the manuscript has been reviewed by the Company, and if the Company advises the Consultant that it believes publication of such information would be detrimental to its interests, such information shall be deleted from the manuscript. 6.04 The provisions of Section 6.02 and 6.03 shall not apply to any information that is available to the public, or becomes so available through no act or omission of the Consultant. 6.05 The Consultant shall promptly disclose to the Company in writing (and to no one else) all improvements, discoveries, ideas and inventions, made or conceived by the Consultant alone or in conjunction with others (whether or not patentable, and whether or not made or conceived at the request of or upon the suggestion of the Company or any affiliate of the Company during or out of the Consultant's usual hours of work or in or about the premises of the Company or elsewhere) while a consultant under this Agreement, or made or conceived within one year after the termination of this Agreement. All such improvements, discoveries, ideas and inventions shall be the sole and exclusive property of the - 5 - 6 Company and are hereby assigned to the Company. At the request of the Company and at its cost, the Consultant shall assist the Company, or any other person designated by it, in obtaining patents in the United States and/or in such countries as may be designated by the Company, covering such improvements, discoveries, ideas and inventions and shall in connection therewith execute such applications, statements or other documents, furnish information and data, and take such other actions (including, but not limited to, the giving of testimony) as the Company may from time to time request. 6.06 During the term of this Agreement and for a period of two years after the Consultant has ceased to provide services under this Agreement, the Consultant shall not (i) directly or indirectly engage, or (ii) assist or have an active interest in (whether as proprietor, partner, stockholder, officer, director or any type of principal whatever), or enter the employment of or act as an agent for or advisor or consultant to, any person, corporation or business entity that is, or is about to become, directly or indirectly engage in any business (whether in operation or in the planning or development stage), in the Commonwealth of Independent States (including, but not limited to, Russia) and any other areas where the Consultant performs services for the Company under this Agreement (including, but not limited to, Washington, D.C.), that competes with or - 6 - 7 is substantially similar to any business that the Company has operated, or had in the planning or development stage, during the 120-day period immediately prior to the Consultant's ceasing to provide services under this Agreement; provided that, the restrictions contained in this Section shall only apply to any business in any area where the Company shall have operated such business in such area, or had such business in the planning or development stage therein, during the 120-day period immediately prior to the Consultant's ceasing to provide services under this Agreement. The Consultant hereby acknowledges and confirms that the length of the period specified in this Section 6.06 (and the geographic area specified in Exhibit A) is reasonable and necessary for the protection of the Company against the injurious effects of any violation of the provisions of this Agreement. 6.07 The Consultant hereby acknowledges and confirms that the Company's remedy at law for any breach of any of the Consultant's obligations under Sections 6.02, 6.03, 6.05 or 6.06 of this Agreement would be inadequate, and that damages would be difficult or impossible to ascertain, and consents that temporary and permanent injunctive relief may be granted in accordance with equity in any proceeding which may be brought to enforce any provision of such Sections without the necessity of proof of actual damage. The Consultant acknowledges that (i) the Company has reserved and is to have the right to prove any damages which the Company is able to prove resulting from any breach of any of the Consultant's obligations under such Sections, and (ii) the value of the consideration which the - 7 - 8 Consultant is to receive in connection with this Agreement is not to be considered as equivalent to, or an evidence of, the amount or extent of any such damages. 7. General 7.01 Except as provided in the second paragraph of this Section 7.01, this Agreement sets forth the entire agreement and understanding of the parties concerning the subject matter of this Agreement and supersedes all prior agreements, arrangements and understandings concerning such subject matter between the parties hereto. No representation, promise, inducement or statement of intention has been made by or on behalf of any party hereto, or any related party, that is not set forth in this Agreement. Notwithstanding any other provision of this Agreement to the contrary, this Agreement does not supersede, but is in addition to, any non-competition or confidentiality agreement or understanding between the Consultant and the Company. The rights and remedies of the Company and its successors and assigns under this Agreement shall be independent of, and separate and distinct from, their rights and remedies under any such other agreement or understanding, and no default thereunder or termination thereof shall in any way affect the obligations of the Consultant or the rights and remedies of the Company under this Agreement. 7.02 This Agreement may be amended, superseded or cancelled, and any of the terms or provisions hereof may be waived, or a departure from the terms or provisions hereof may be consented to, only by a written instrument specifically - 8 - 9 stating that it amends, supersedes or cancels this Agreement, or waives or consents to a departure from the terms or provisions hereof, executed by each of the parties, or in the case of a waiver or consent, by the party granting such waiver or consent. 7.03 The terms and provisions of this Agreement shall be binding on and inure to the benefit of the Company or any affiliate of the Company and their respective successors and assigns, including such successors and assigns that purchase substantially all of the assets of the Company. The terms and provisions of this Agreement shall be binding on and inure to the benefit of the Consultant and the Consultant's legal representatives, but the Consultant's obligations hereunder shall not be assignable. 7.04 If the scope of any restriction contained in this Agreement is too broad to permit enforcement of such restriction to its full extent, then such restriction shall be enforced to the maximum extent permitted at law and in equity, and in that event the Consultant hereby consents that such scope may be judicially modified accordingly in any proceeding brought to enforce such restriction. 7.05 The failure of either party to require performance of the other party's obligations under this Agreement at any time shall in no manner affect either such party's right to enforce any provision of this Agreement at a subsequent time, and the waiver by either party of any right arising out of any breach of this Agreement shall not be construed as a waiver of any right arising out of any other or subsequent breach of this Agreement. - 9 - 10 7.06 The Article headings contained in this Agreement are for convenient reference only, and shall not in any way affect the meaning or interpretation of this Agreement. 7.07 This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York, U.S.A., other than the conflict-of-laws provisions thereof that would otherwise require the application of the law of any other jurisdiction. - 10 - 11 7.08 Notices and instructions under this Agreement shall be addressed as follows and sent by certified mail: To the Consultant: Gordon J. Humphrey 78 Garvins Hill Road Chichester, New Hampshire 03234 To the Company: A. J. Costello W. R. Grace & Co. One Town Center Road Boca Raton, Florida 33486-1010 IN WITNESS WHEREOF, the parties have executed this instrument as of the date first above written. /s/ Gordon J. Humphrey -------------------------- GORDON J. HUMPHREY W. R. GRACE & CO. By: /s/ Albert J. Costello ------------------------ ALBERT J. COSTELLO, CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER - 11 - EX-27 18 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 40,600 0 609,700 12,900 491,900 1,681,300 3,154,900 1,418,800 6,297,600 2,214,200 1,295,500 0 7,400 97,400 1,127,000 6,297,600 3,665,500 3,707,400 2,243,700 2,243,700 0 0 71,300 (312,400) (115,800) (196,600) (129,300) 0 0 (325,900) (3.40) (3.33) Included within current assets and total assets are net assets of discontinued operations of $323,700 and $1,759,000, respectively. Excludes 1995 sales of the discontinued health care business of $2,076,800. Includes provisions of $30,000 ($18,600 after-tax) for corporate governance, $220,000 ($144,000 after-tax) for restructuring, asset impairments and other costs, $77,000 ($50,000 after-tax) for environmental liabilities and $275,000 ($178,700 after-tax) for asbestos-related liabilities. In June 1995, the Company announced that its Board of Directors had approved a plan to spin off NMC. As a result, Grace has classified its health care business as a discontinued operation. Includes after-tax provisions of $83,600 for asset impairments, $5,600 for the phase-out of certain health care research programs, $4,800 for additional costs associated with Grace's long-term incentive programs, $1,800 for changes in accounting estimates and $6,600 for other items. Discontinued operations includes an after-tax provision of $151,300 relating to a reassessment of forecasts for all remaining discontinued operations. Fully diluted EPS is not presented on the face of the Consolidated Statement of Operations as amount is anti-dilutive.
-----END PRIVACY-ENHANCED MESSAGE-----