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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000 Commission file number 1-13953
W. R. GRACE & CO.
Incorporated under the Laws of the I.R.S. Employer Identification No.
State of Delaware 65-0773649
7500 GRACE DRIVE, COLUMBIA, MARYLAND 21044-4098
410/531-4000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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Common Stock, $.01 par value } New York Stock Exchange, Inc.
Preferred Stock Purchase Rights }
7-3/4% Notes Due 2002 }
(issued by W. R. Grace & Co.-Conn., } New York Stock Exchange, Inc.
a wholly owned subsidiary) and }
related Guarantees }
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 Regulations S-K is not contained herein and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of W. R. Grace & Co. voting stock held by
nonaffiliates was approximately $135,346,000 at March 12, 2001.
At March 12, 2001, 65,456,505 shares of W. R. Grace & Co. Common Stock, $.01 par
value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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TABLE OF CONTENTS
PART I.........................................................................1
Item 1. Business..........................................................1
Chapter 11 Filing.............................................1
Business Overview.............................................1
Products And Markets..........................................4
Discontinued Operations.......................................9
Research Activities...........................................9
Patents And Other Intellectual Property Matters...............9
Environmental, Health And Safety Matters.....................10
Item 2. Properties.......................................................11
Item 3. Legal Proceedings................................................11
Item 4. Submission of Matters to a Vote of Security Holders..............15
PART II.......................................................................16
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters............................................16
Item 6. Selected Financial Data..........................................17
Item 7. Management's Discussion and Analysis of Results of Operations
and Financial Condition........................................18
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.......18
Item 8. Financial Statements and Supplementary Data......................18
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.......................................18
PART III......................................................................18
Item 10. Directors and Executive Officers of the Registrant...............18
Item 11. Executive Compensation...........................................20
Item 12. Security Ownership of Certain Beneficial Owners and Management...31
Item 13. Certain Relationships and Related Transactions...................33
PART IV.......................................................................33
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.......................................................33
SIGNATURES....................................................................39
FINANCIAL SUPPLEMENT.........................................................F-1
PART I
ITEM 1. BUSINESS
CHAPTER 11 FILING
On April 2, 2001, W. R. Grace & Co. ("Grace" or the "Company") and 61
of its United States subsidiaries and affiliates filed voluntary petitions for
reorganization under Chapter 11 of the United States Bankruptcy Code ("Chapter
11") in United States Bankruptcy Court for the District of Delaware. The cases
were consolidated for the purpose of joint administration and were assigned case
numbers 01-1139 through 01-1200. None of the Company's foreign subsidiaries were
included in the filing.
The filing was made in response to a sharply increasing number of
asbestos-related bodily injury claims. Under Chapter 11, Grace expects to
continue to operate its businesses as debtor-in-possession under court
protection from its creditors and claimants, while using the Chapter 11 process
to develop and implement a plan for addressing the asbestos-related claims
against it.
Prior to 2000, Grace was able to settle asbestos-related claims through
direct negotiations. The filings of claims had stabilized, and annual cash flows
were manageable and fairly predictable. In 2000, the litigation environment
changed with an unexpected 81% increase in bodily injury claims, which Grace
believes is due to a surge in unmeritorious claims. Trends in case filings and
settlement demands, which show no signs of returning to historic levels, and
which have been exacerbated by the Chapter 11 filings of several co-defendants
in asbestos bodily injury litigation, increased the risk that Grace would not be
able to resolve its pending and future asbestos claims under the current state
court system.
Grace has concluded that a federal court-supervised Chapter 11 filing
provides the best forum available to achieve predictability and fairness in the
claims settlement process. By filing under Chapter 11, Grace expects to be able
to both obtain a comprehensive resolution of the claims against it and preserve
the inherent value of its businesses.
Grace's asbestos-related litigation and Chapter 11 filing is further
discussed in Item 3 of this Report, and in Notes 1 and 3 to Grace's Consolidated
Financial Statements for the three years in the period ended December 31, 2000
("Consolidated Financial Statements") and "Management's Discussion and Analysis
of Results of Operations and Financial Condition" in the Financial Supplement to
this Report.
BUSINESS OVERVIEW
W. R. Grace & Co., through its subsidiaries, is one of the world's
leading specialty chemicals companies. Grace entered the specialty chemicals
industry in 1954, when it acquired both the Dewey and Almy Chemical Company and
the Davison Chemical Company. Grace primarily operates in the following two
business segments:
o Davison Chemicals manufactures catalysts and silica-based products.
Davison Chemicals' catalysts include (1) fluid cracking catalysts and
additives used by petroleum refineries to convert distilled crude oil
into transportation fuels and other petroleum-based products; (2)
hydroprocessing catalysts that upgrade heavy oils and remove certain
impurities; and (3) polyolefin catalysts and catalyst supports that are
essential components in the manufacture of high density and linear low
density polyethylene resins used in products such as plastic film,
high-performance plastic pipe and plastic household containers. Davison
Chemicals' silica gel, colloidal silica, and zeolite adsorbents are
used in a wide variety of industrial and consumer applications, such as
ink jet paper, separations/chromatography, plastics, toothpastes,
paints, precision investment casting, and insulated glass, as well as
in the refining of edible oils and for purification in petrochemical
processes. Davison Chemicals accounted for approximately 50% of Grace's
2000 sales.
o Performance Chemicals produces (1) specialty construction chemicals,
including performance-enhancing concrete admixtures, cement additives
and masonry products; (2) specialty building materials, including
fireproofing and waterproofing materials and systems; and (3) container
and closure sealants that protect food and beverages from bacteria and
other contaminants, extend shelf life and preserve flavor, and coatings
used in the manufacture of cans and closures. Performance Chemicals
accounted for approximately 50% of Grace's 2000 sales.
Grace also has other business interests as described in "Other Businesses and
Investments" below. In 1997, Grace classified its former flexible packaging
business ("Packaging Business") as a discontinued operation. The Packaging
Business was separated from Grace on March 31, 1998 in a transaction described
in Notes 1 and 4 to the Consolidated Financial Statements.
As used in this Report, the term "Grace" or the "Company" refers to W.
R. Grace & Co., a Delaware corporation and, in certain cases, one or more of its
subsidiaries and/or their respective predecessors. Grace's principal executive
offices are located at 7500 Grace Drive, Columbia, Maryland 21044, telephone
410/531-4000. As of year-end 2000, Grace had approximately 6,300 full-time
employees worldwide in its continuing operations.
Information concerning net sales, pretax operating income and total
assets of Grace's continuing operations by business segment and information by
geographic area for 2000, 1999 and 1998 is contained in Note 20 to the
Consolidated Financial Statements in the Financial Supplement to this Report.
Strategic Objectives and Actions. Grace's strategy has been, and will
continue to be, to seek to enhance enterprise value by profitably growing its
specialty chemicals businesses on a global basis and achieving high levels of
financial performance. To achieve these objectives, Grace plans to (i) invest in
research and development activities, with the goals of introducing new
high-performance products and services and enhancing manufacturing processes;
(ii) implement process and productivity improvements and cost-management
initiatives (including the use of Six Sigma processes), including rigorous
controls on working capital and capital spending; and (iii) pursue selected
acquisitions and alliances. These plans are designed to make
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Grace a high-performance company focused on the strengths of its global
specialty chemicals businesses.
Projections and Other Forward-Looking Information. This Report
contains, and other communications by Grace may contain, projections or other
"forward-looking" information. Forward-looking information includes all
statements regarding Grace's expected financial position, results of operations,
cash flows, dividends, financing plans, business strategy, budgets, capital and
other expenditures, competitive positions, growth opportunities for existing
products, benefits from new technology, plans and objectives of management, and
markets for stock. Like any other business, Grace is subject to risks and other
uncertainties that could cause its actual results to differ materially from any
projections or that could cause other forward-looking information to prove
incorrect.
Most significantly, Grace is a defendant in thousands of lawsuits
related to previously sold asbestos-containing products. During 2000, several
adverse developments occurred that resulted in a $294 million increase in
Grace's estimated cost of disposing of its pending and expected future
asbestos-related claims. As a result of these developments, Grace, following a
thorough review of its strategic alternatives, filed for protection under
Chapter 11 on April 2, 2001. See Item 3 of this Report, and Notes 1 and 3 to
Grace's Consolidated Financial Statements and "Management's Discussion and
Analysis of Results of Operations and Financial Condition" in the Financial
Supplement to this Report, for a more detailed discussion of risks related to
Grace's asbestos liabilities.
In addition to general economic, business and market conditions, Grace
is also subject to other risks and uncertainties, including the following:
o developments in and the outcome of the Chapter 11 proceedings;
o the loss of flexibility in operating its businesses and the higher
costs of doing business under Chapter 11;
o greater than expected liabilities with respect to environmental
remediation;
o an inability to obtain committed credit facilities or alternative
sources of liquidity in amounts sufficient to fund operations, growth
initiatives and non-core obligations;
o a decline in worldwide oil consumption or the development of new
methods of oil refining;
o increases in prices of raw materials and energy costs;
o an inability to gain customer acceptance, or slower than anticipated
acceptance, of new products or product enhancements (particularly in
the construction industry);
o changes in environmental regulations or societal pressures that make
Grace's business operations more costly or that change the types of
products used, especially petroleum-based products;
o slower than anticipated economic advances in less developed countries;
o foreign currency devaluations in developing countries or other adverse
changes in currency exchange rates;
o technological breakthroughs rendering a product, a class of products or
a line of business obsolete;
o an inability to adapt to continuing technological improvements by
competitors or customers; and
o the acquisition (through theft or other means) and use by others of
Grace's proprietary formulas and other know-how (particularly in the
container products business).
3
See Notes 1, 3, 4, 5, 10, 13 and 15 to the Consolidated Financial Statements and
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" in the Financial Supplement for additional risks and uncertainties.
PRODUCTS AND MARKETS
Specialty Chemicals Industry Overview. Specialty chemicals, such as
those produced by Grace, are high-value-added products used as intermediates,
components or additives in a wide variety of products and processes. They are
produced in relatively small volumes and must satisfy well-defined performance
requirements and specifications. Specialty chemicals are often critical
components of the end products and processes in which they are used;
consequently, they are tailored to meet customer needs, which generally results
in a close relationship between the specialty chemicals producer and the
customer. Rapid response to changing customer needs and reliability of product
and supply are important competitive factors in specialty chemicals businesses.
Grace's management believes that, in specialty chemicals businesses,
technological leadership (resulting from continuous innovation through research
and development), combined with product differentiation and superior customer
service, lead to high operating margins. Grace believes that these factors
reward the research and development and customer service costs associated with
its strategy.
Davison Chemicals (Catalysts and Silica-Based Products). Davison,
founded in 1832, is composed of two primary product groups: (i) catalysts and
(ii) silica products and adsorbents. These product groups principally apply
silica, alumina and zeolite technology in the design and manufacture of products
to meet the varying specifications of such diverse customers as major oil
refiners, plastics and chemical manufacturers, and consumer products and
pharmaceutical/nutraceutical companies. Davison believes that its technological
expertise provides a competitive edge, allowing it to quickly design products
and materials that meet changing customer specifications and to develop new
products and materials that expand its existing technology.
Davison produces refinery catalysts, including (i) fluid cracking
catalysts ("FCC") used by petroleum refiners to convert distilled crude oil into
more valuable transportation fuels (such as gasoline and jet and diesel fuels)
and other petroleum-based products, and (ii) hydroprocessing catalysts that
upgrade heavy oils and remove certain impurities (such as nitrogen, sulfur and
heavy metals). Davison also develops and manufactures FCC additives used for
octane enhancement and to reduce emissions of sulfur oxides, nitrogen oxides and
carbon monoxide. Oil refining is a highly specialized discipline, demanding that
products be tailored to meet local variations in crude oil and the refinery's
products output mix. Davison works regularly with most of the approximately 360
refineries in the world, helping to find the most appropriate catalyst
formulations for refiners' changing needs.
Davison's catalyst business has benefited from the increased use of FCC
units to produce selected petrochemical feedstocks. It has also benefited from
the passage of more stringent environmental regulations, which has increased
demand for FCC additives that reduce emissions. Davison's business is affected
by the capacity utilization of refiners' cracking units - as capacity
utilization increases, the refiner uses a disproportionately greater amount of
fluid cracking catalyst. Consolidation in the refining industry may affect
Davison's sales and margins as the
4
purchasing power of its customers may increase, and the gain or loss of a
customer may have a greater impact on Davison's sales.
Davison has recently introduced new catalyst technologies for certain
high-technology market segments such as sulfur reduction in gasoline. Davison
also has expanded its hydroprocessing catalyst offerings through two recent
transactions. In 2000, Davison acquired the distillate catalyst business of the
Crosfield Group. In March 2001, Grace and Chevron Corporation entered into a
joint venture to combine Chevron's fixed bed residuum catalyst business with
Davison's ebullating bed residuum and distillate catalyst business.
Davison believes it is one of the world leaders in refinery catalysts
and the largest supplier of fluid cracking catalysts in the world. Competition
in the refinery catalyst business is based on technology, product performance,
customer service and price.
Davison is also a major producer of polyolefin catalysts and catalyst
supports, essential components in the manufacture of high density and linear low
density polyethylene resins used in products such as plastic film,
high-performance plastic pipe and plastic household containers. Davison
catalysts and catalyst supports are used in manufacturing nearly half of all
such resins produced worldwide. The polyolefin catalyst business is
technology-intensive and focused on providing products formulated to meet
customer specifications. Manufacturers generally compete on a worldwide basis,
and competition has recently intensified due to evolving technologies,
particularly the use of metallocene catalysts. Davison believes that metallocene
catalysts represent a revolutionary development in the making of plastics,
allowing manufacturers to design polymers with exact performance
characteristics. Davison is continuing to work with leading technology licensors
on the development and commercialization of metallocene catalysts.
Silica products and zeolite adsorbents produced by Davison are used in
a wide variety of industrial and consumer applications. For example, silica gels
are used in coatings as matting agents (i.e., to reduce gloss), in plastics to
improve handling, in toothpastes as whiteners, in foods to carry flavors and
prevent caking, and in the purification of edible oils and beer stabilization.
Colloidal silicas are used as binders in precision investment casting and
refractory applications. Zeolite adsorbents are used between the two panes of
insulating glass to adsorb moisture and are used in process applications to
separate certain chemical components from mixtures. Competition is based on
product performance, customer service and price.
Davison is using its expertise in silica gels technology to develop new
products for existing markets, such as coatings. Davison also has recently
introduced new products for the high-growth ink receptive paper segment,
including improved gels for ink absorption for glossy media and new paper
coating formulas. During 2000, Davison enhanced its silica products offerings by
acquiring the colloidal silicas business of E.I. DuPont de Nemours. In addition
to being used in some of the applications described above, colloidal silicas are
used in precision investment casting and refractory applications. The silicas
and adsorbents business has a large, fragmented customer base due to the diverse
markets served by its products. To help cope with and better serve these
customers, Davison recently introduced web-based initiatives, starting with
online ordering of packaged desiccants and offering process design formulas
online to assist customers in quickly and efficiently determining their needs.
Europe accounts for almost half of silica and adsorbent sales, which have
recently been subject to unfavorable currency exchange.
5
Davison's net sales were $784 million in 2000, $751 million in 1999 and
$761 million in 1998; 49% of Davison's 2000 net sales were generated in North
America, 33% in Europe, and 11% in Asia Pacific and 7% in Latin America. Sales
of catalysts accounted for 35% of total net sales of Grace in 2000 and 1999 and
36% in 1998. Sales of silica products and zeolite adsorbents accounted for 14%
of Grace's total net sales in 2000, 1999 and 1998. At year-end 2000, Davison
employed approximately 2,800 people worldwide in 12 facilities (eight in the
U.S. and one each in Canada, Germany, Brazil and Malaysia). Davison's principal
U.S. manufacturing facilities are located in Baltimore, Maryland and Lake
Charles, Louisiana. Davison has a direct selling force and distributes its
products directly to approximately 12,300 customers (290 for catalysts and more
than 12,000 for silicas/adsorbents), the largest of which accounted for
approximately 6% of Davison's 2000 sales.
Most raw materials used in the manufacture of Davison products are
available from multiple sources; in some instances, Davison produces its own raw
materials. Recently, due to worldwide supply shortages, Davison has experienced
significantly higher natural gas and petroleum-based raw material price
increases that have had a negative impact on its operating margins. Seasonality
does not have a significant overall effect on Davison's business. However, sales
of refining catalysts tend to be lower in the first and fourth quarters due to a
shift in production by refineries from gasoline to home heating oil for the
winter season.
Performance Chemicals (Specialty Construction Chemicals, Specialty
Building Materials and Container Products). Performance Chemicals was formed in
July 1999 by integrating Grace's construction products businesses with its
Darex(R) container products businesses. Grace integrated these businesses, which
share many facilities around the world and are headquartered in the Cambridge,
Massachusetts area, in order to realize efficiencies in supply chain management,
process improvement, commercialization of new products and marketing.
Performance Chemicals is a leading supplier of specialty construction
chemicals and building materials to the nonresidential (commercial and
infrastructure) construction industry, and to a lesser extent, the residential
construction industry. Specialty construction chemicals (principally concrete
admixtures, cement additives and masonry products) add strength, control
corrosion and enhance the handling and application of concrete, improve the
manufacturing efficiency and performance of cement, and improve the water
resistance and other qualities of masonry wall systems. Performance Chemicals
has introduced a number of new construction chemicals products and product
enhancements in recent years. These include an admixture that reduces concrete
shrinkage and helps prevent cracking; a product that enables contractors to
obtain acceptable concrete set times in colder temperatures; an admixture that
inhibits corrosion and prolongs the life of concrete structures; and an additive
that improves cement processing efficiency and product quality. In 1999,
Performance Chemicals introduced a new masonry admixture for improving the
freeze/thaw durability of segmental retaining wall units and pavers, and new
structural fiber reinforcements for concrete that provide a corrosion-free
alternative to steel fibers and welded wire mesh.
Performance Chemicals' specialty building materials prevent water
damage to structures (such as water- and ice-barrier products for residential
use and waterproofing systems for commercial structures) and protect structural
steel against collapse due to fire. In North America, the specialty building
materials product line also manufactures and distributes vermiculite products
used in insulation and other applications. Recent product developments include
liquid-applied waterproofing products and new roof underlayments that provide
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protection from ice and wind-driven rain; enhancements to fireproofing products
that make Performance Chemicals' systems more competitive by improving
applicator productivity; and fireproofing products for industrial, petrochemical
and acoustical applications. In addition, through the acquisition of
International Protective Coatings Corporation in 2000, Performance Chemicals
added firestops to its product offerings. Firestops are caulk and sealant
systems that retard the spread of heat, flame and smoke through walls and
ceiling joints and openings in buildings for wiring and piping through which
heat, flame or smoke can penetrate.
In addition to new product introductions and enhancements and
acquisitions, Performance Chemicals looks for growth opportunities in developing
economies, where increases in construction activity and sophistication of
construction practices can increase demand for Performance Chemicals'
construction chemicals and building materials products.
The construction chemicals and building materials produced by
Performance Chemicals are marketed to an extremely broad range of customers,
including cement manufacturers, ready-mix and precast concrete producers, local
contractors, specialty subcontractors and applicators, masonry block
manufacturers, building materials distributors and other industrial
manufacturers, as well as construction specifiers, such as architects and
structural engineers. For some of these customer groups (such as contractors),
cost and ease of application are key factors in making purchasing decisions; for
others (such as architects and structural engineers), product performance and
design versatility are the critical factors. In view of this diversity, and
because the construction chemicals and building materials businesses require
intensive sales and customer service efforts, Performance Chemicals maintains a
separate sales and technical support team for each of its product groups. These
sales and support teams sell products under global contracts, under U.S. or
regional contracts and on a job-by-job basis. Consequently, Performance
Chemicals competes globally with several large construction materials suppliers
and regionally and locally with numerous smaller competitors. In recent years,
the cement and concrete industry has experienced some consolidation,
particularly in markets outside the U.S. Competition is based largely on
technical support and service, product performance, adaptability of the product
and price.
The construction business is cyclical, in response to economic
conditions and construction demand. The construction business is also seasonal
due to weather conditions. Performance Chemicals seeks to increase profitability
and minimize the impact of cyclical downturns in regional economies by
introducing technically advanced higher-performance products, expanding
geographically, and developing business opportunities in renovation construction
markets. Although in recent years these strategies have been successful in
minimizing the impact of cyclicality on Performance Chemicals' construction
business, there can be no assurance that this strategy will continue to succeed,
and such cyclicality could adversely affect its business and results of
operations in the future.
The raw materials used by the construction chemicals and building
materials product lines can be obtained from multiple sources, including
commodity chemical producers, petroleum companies and paper manufacturers. In
most instances, there are at least two alternative suppliers for each of the
principal raw materials used by these businesses. Recently, due to worldwide
shortages in the supply of oil, petroleum-based raw materials costs have
significantly increased, negatively affecting operating margins.
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The container products business consists primarily of three product
lines: can sealants and closure sealants for rigid containers, and coatings for
metal packaging. These products are used to assure the quality of packaging and
to preserve container contents. Can sealants ensure a hermetic seal between the
lid and the body of beverage, food, aerosol and other cans. Closure sealants are
used to seal pry-off and twist-off metal crowns, as well as roll-on pilfer-proof
and plastic closures for glass and plastic bottles and jars used in beverage and
food applications. Coatings are used in the manufacture of cans and closures to
protect the metal against corrosion, to protect the contents against the
influences of metal, to ensure proper adhesion of sealing compounds to metal
surfaces, and to provide base coats for inks and for decorative purposes. These
products are principally sold to companies that manufacture containers.
Performance Chemicals is seeking to expand its container product
offerings and improve sales growth through developing technologies, such as its
oxygen-scavenging compounds (which absorb oxygen resulting in extended shelf
life) and high barrier materials that limit gas transmission into plastic
packaging. Performance Chemicals is also looking to improve container product
sales through continued growth in developing regions. However, sales growth has
been impacted and will likely be impacted in the future by the trend toward can
systems requiring fewer seams, as well as the increasing use of plastic and
glass containers.
Competition is based on providing high-quality customer service at
customer sites, as well as on uniform product quality, reliability, the ability
to offer environmentally-friendly products and price. In addition, because of
the relative concentration of the canning and bottling market, maintaining
relationships with leading container manufacturers, canners and bottlers, and
assisting them as they install new production equipment and reengineer
processes, are key elements for success. In 2000, approximately 35% of container
product sales were derived from its top ten customers.
Although raw materials used in the container products business,
including resins, rubber and latices, are generally available from multiple
sources, certain raw materials are purchased from single source suppliers. Some
raw materials are also subject to pricing pressures from time to time,
particularly for certain specialty resins. Also, currency devaluations in
developing countries may adversely affect raw material costs and the prices the
business may charge for its products. Performance Chemicals has been successful
in establishing a supply chain organization focused on managing raw material
costs and flow to alleviate some of these pressures. However, due to recent
worldwide shortages in the supply of oil, petroleum-based raw materials costs
have significantly increased, negatively affecting operating margins. The impact
of seasonality is not significant to the container products business.
Performance Chemicals' 2000 net sales totaled $813 million (58% in
North America, 19% in Europe, 16% in Asia Pacific and 7% in Latin America),
versus $800 million in 1999 and $785 million in 1998. Sales of specialty
construction chemicals accounted for 22% of Grace's total net sales in 2000, 21%
in 1999 and 20% in 1998; sales of specialty building materials accounted for 14%
of Grace's total net sales in 2000, 1999 and 1998; and sales of container
products accounted for 15% of Grace's total net sales in 2000, and 16% in 1999
and 1998. At year-end 2000, Performance Chemicals employed approximately 3,300
people at 65 production facilities (25 in North America, 19 in Asia Pacific, 14
in Europe and 7 in Latin America) and approximately 80 sales offices worldwide.
Performance Chemicals' capital expenditures tend to be relatively lower, and
sales and marketing expenditures tend to be relatively higher, than those of
Davison Chemicals.
8
Other Businesses and Investments. In January 1999, Grace sold its Circe
biomedical subsidiary to an investment group. Circe was engaged in the
development of bioartificial organs. Grace also owns miscellaneous businesses
and investments that are not material.
DISCONTINUED OPERATIONS
Grace's former Packaging Business was a leading global supplier of
high-performance materials and systems used in packaging food and industrial and
consumer products. The Packaging Business operated in the U.S. and in 45 other
countries throughout the world. Its principal products were various food
packaging products and shrink and nonshrink films for industrial and consumer
products. On March 31, 1998, the predecessor and former parent company of Grace
("Old Grace") combined its Packaging Business with Sealed Air Corporation
("Sealed Air"). Old Grace effected the transaction with Sealed Air by
transferring its specialty chemicals and other non-packaging businesses to
Grace, spinning off Grace to Old Grace shareholders and merging a subsidiary of
Old Grace with Sealed Air. For further information, see Notes 1 and 4 to the
Consolidated Financial Statements in the Financial Supplement.
In July 1999, Grace sold substantially all of its interest in Cross
Country Staffing, a provider of temporary nurses and other health care related
services, to an affiliate of Charterhouse Group International, Inc., a private
equity firm, and the management of Cross Country Staffing. The transaction was
preceded by Grace's purchase of a minority interest in Cross Country Staffing
held by Nestor Healthcare Group plc. Grace received pretax net cash proceeds of
approximately $103 million as a result of these two transactions.
RESEARCH ACTIVITIES
Grace's research and development programs are directed toward the
development of new products and processes and the improvement of, and
development of new uses for, existing products and processes. Research is
conducted in all regions, with North America and Europe accounting for the most
activity. Grace's research and development strategy is to develop technology
platforms on which new products will be based, while focusing development
efforts in each business unit on the improvement of existing products and/or the
adaptation of existing products to customer needs.
Research and development expenses relating to continuing operations
amounted to $46 million in 2000, $42 million in 1999 and $47 million in 1998
(including expenses incurred in funding external research projects). The amount
of research and development expenses relating to government- and
customer-sponsored projects (rather than projects sponsored by Grace) was not
material.
PATENTS AND OTHER INTELLECTUAL PROPERTY MATTERS
Grace's products, processes and manufacturing equipment are protected
by numerous patents and patent applications, and include legally protectable
know-how and other proprietary information. As competition in the markets in
which Grace does business is often based on technological superiority and
innovation, with new products being introduced frequently, the ability to
achieve technological innovations and to obtain patent or other intellectual
property protection is important. There can be no assurance that Grace's
patents, patent applications or
9
other intellectual property will provide sufficient proprietary protection. In
addition, other companies may independently develop similar systems or processes
that circumvent patents issued to Grace, or may acquire patent rights within the
fields of Grace's businesses.
ENVIRONMENTAL, HEALTH AND SAFETY MATTERS
Manufacturers of specialty chemicals products, including Grace, are
subject to stringent regulations under numerous U.S. federal, state and local
and foreign environmental, health and safety laws and regulations relating to
the generation, storage, handling, discharge and disposition of hazardous wastes
and other materials. Grace has expended substantial funds to comply with such
laws and regulations and expects to continue to do so in the future. The
following table sets forth Grace's expenditures in the past three years, and its
estimated expenditures in 2001 and 2002, for (i) the operation and maintenance
of environmental facilities and the disposal of wastes with respect to
continuing operations; (ii) capital expenditures for environmental control
facilities relating to continuing operations; and (iii) site remediation:
(i) (ii) (iii)
Operation of
Facilities and Capital Site
Waste Disposal Expenditures Remediation
-------------- ------------ -----------
(in $ millions)
1998 38 6 37
1999 31 6 25
2000 26 4 47
2001 (est.) 27 7 37
2002 (est.) 29 6 23
Additional material environmental costs may arise as a result of future
legislation or other developments. Grace's earnings, competitive position and
other capital expenditures have not been, and are not expected to be, materially
adversely affected by compliance with environmental requirements. See Note 15 to
the Consolidated Financial Statements and "Management's Discussion and Analysis
of Results of Operations and Financial Condition" in the Financial Supplement to
this Report.
With the goal of continuously improving Grace's environmental, health
and safety ("EHS") performance, Grace established its Commitment to Care(R)
initiative (based on the Responsible Care(R) program of the Chemical
Manufacturers Association) in 1994 as the program under which all Grace EHS
activities are to be implemented. To the extent applicable, Commitment to Care
extends the basic elements of Responsible Care to all Grace locations worldwide,
embracing specific performance objectives in the key areas of product
stewardship, employee health and safety, community awareness and emergency
response, distribution, process safety and pollution prevention.
10
See Item 3 below for information concerning environmental proceedings
to which Grace is a party.
ITEM 2. PROPERTIES
Grace operates manufacturing and other types of plants and facilities
(including office and other service facilities) throughout the world. Some of
these plants and facilities are shared by more than one Grace business unit, and
since the disposition of the Packaging Business, some plants and facilities are
shared with Sealed Air Corporation. Grace considers its major operating
properties to be in good operating condition and suitable for their current use.
Although Grace believes that, after taking planned expansion into account, the
productive capacity of its plants and other facilities is generally adequate for
current operations and foreseeable growth, it conducts ongoing, long-range
forecasting of its capital requirements to assure that additional capacity will
be available when and as needed. Accordingly, Grace does not anticipate that its
operations or income will be materially affected by the absence of available
capacity. See Note 20 to the Consolidated Financial Statements and "Management's
Discussion and Analysis of Results of Operations and Financial Condition" in the
Financial Supplement for information regarding Grace's capital expenditures.
Additional information regarding Grace's properties is set forth in
Item 1 above.
ITEM 3. LEGAL PROCEEDINGS
Asbestos Litigation. Grace is a defendant in property damage and bodily
injury lawsuits relating to previously sold asbestos-containing products and
expects that it will receive additional asbestos-related claims in the future.
Grace was a defendant in 61,395 asbestos-related lawsuits at December 31, 2000
(15 involving claims for property damages, including 8 relating to Grace's
former attic insulation product, and the remainder involving 124,907 claims for
bodily injury), as compared to 50,342 lawsuits at year-end 1999 (11 involving
claims for property damage, none of which relates to attic insulation, and the
remainder involving 105,670 claims for bodily injury). In most of these
lawsuits, Grace is one of many defendants.
The plaintiffs in property damage lawsuits generally seek to have the
defendants absorb the cost of removing, containing or repairing the
asbestos-containing materials in the affected buildings. Cumulatively through
December 31, 2000, 140 asbestos property damage cases were dismissed without
payment of any damages or settlement amounts; judgments were entered in favor of
Grace in nine cases (excluding cases settled following appeals of judgments in
favor of Grace); judgments were entered in favor of the plaintiffs in seven
cases for a total of $60.3 million (none of which is on appeal); and 207
property damage cases were settled for a total of $696.8 million.
In February 2000 a purported class action lawsuit was filed in the U.S.
District Court for the Eastern District of Massachusetts against the Company
(Lindholm v. W. R. Grace & Co.) on behalf of all owners of homes containing
Zonolite(R) attic fill insulation, a product previously sold by Grace that may
contain trace amounts of asbestos. The action seeks damages and equitable
relief, including the removal, replacement and/or disposal of all such
insulation. Since Lindholm was filed, eight additional purported class action
lawsuits have been filed against Grace in various state and federal courts
asserting similar claims and seeking similar damages to those in Lindholm. One
of the purported federal class actions has been consolidated with
11
Lindholm, and all the purported federal class actions have been transferred to
the U.S. District Court for the Eastern District of Massachusetts. Purported
class actions in California, Minnesota, Illinois and Washington were pending in
state courts at the time of Grace's Chapter 11 filing. While Grace has not
completed its investigation of the claims described in these lawsuits, Grace
believes that this product was and continues to be safe for its intended purpose
and poses little or no threat to human health. At this time Grace is not able to
assess the extent of any possible liability related to this matter.
Cumulatively through December 31, 2000, approximately 16,200 bodily
injury lawsuits involving approximately 35,500 claims were dismissed without
payment of any damages or settlement amounts (primarily on the basis that Grace
products were not involved), and approximately 53,400 lawsuits involving
approximately 151,800 claims were disposed of for a total of $561.8 million.
Based on Grace's experience and trends in asbestos bodily injury
litigation, Grace has endeavored to reasonably forecast the number and ultimate
cost of all present and future bodily injury claims expected to be asserted,
based on measures governed by generally accepted accounting principles relating
to probable and estimable liabilities. Grace has accrued $1,105.9 million at
December 31, 2000 as its estimate of liability for all asbestos-related property
damage and bodily injury cases and claims then pending (except for the cases and
claims related to Grace's attic fill litigation as described above), as well as
all bodily injury claims expected to be filed in the future. (However, due to
the Chapter 11 filing and the uncertainties of asbestos-related litigation,
actual amounts could differ materially from the recorded liability.)
Grace previously purchased insurance policies with respect to its
asbestos-related lawsuits and claims. Grace has settled with and has been paid
by all of its primary insurance carriers with respect to both property damage
and bodily injury cases and claims. Grace has also settled with its excess
insurance carriers that wrote policies available for property damage cases;
those settlements involve amounts paid and to be paid to Grace. In addition,
Grace has settled with excess insurance carriers that wrote policies available
for bodily injury claims in layers of insurance that Grace believes may be
reached based on its current estimates. Insurance coverage for asbestos-related
liabilities has not been commercially available since 1985.
Pursuant to settlements with primary-level and excess-level insurance
carriers with respect to asbestos-related claims, Grace received payments
totaling $821.4 million prior to 1998, as well as payments totaling $74.0
million in 1998, $73.1 million in 1999, and $85.6 million in 2000. Under certain
settlements, Grace expects to receive additional amounts from insurance carriers
in the future and has recorded receivables to reflect the amounts expected to be
recovered as asbestos-related claims are paid. At December 31, 2000, Grace had
recorded a receivable of $369.3 million, as well as notes receivable of $2.7
million from insurance carriers, reflecting the estimated recovery from
insurance carriers with respect to pending and projected asbestos cases and
claims.
During 2000, the number of bodily injury claims made against Grace
increased significantly compared to 1999 and prior year claim levels, with a
total of 48,786 bodily injury claims being received in 2000, versus 26,941
claims in 1999. Also, costs to resolve asbestos litigation were higher than
expected for bodily injury and certain property damage claims. In addition, five
significant codefendant companies in bodily injury litigation have petitioned
for reorganization under Chapter 11 of the U.S. Bankruptcy Code. These
developments and events
12
have caused an environment that increases the risk of more claims being filed
against Grace than previously projected, with higher settlement demands and
trial risks. These developments and events also raised substantial doubt whether
Grace would be able to manage its asbestos liabilities over the long term under
the existing state court system. As a result, following a thorough review of the
strategic and operating issues associated with continuing to defend asbestos
litigation through the court system versus voluntarily seeking a resolution of
such litigation through reorganization under Chapter 11 of the U.S. Bankruptcy
Code, Grace filed for protection under Chapter 11 on April 2, 2001. As a result
of the Chapter 11 filing, all asbestos-related litigation against Grace has been
stayed.
See Item 1 of this Report and Notes 1 and 3 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.
Environmental Proceedings. The following is a description of the
material environmental proceedings in which Grace is involved:
Grace (together with certain other companies) has been designated a
"potentially responsible party" ("PRP") by the U.S. Environmental Protection
Agency ("EPA") with respect to absorbing the costs of investigating and
remediating pollution at various sites. At year-end 2000, proceedings were
pending with respect to approximately 30 sites as to which Grace has been
designated a PRP. U.S. federal law provides that all PRPs may be held jointly
and severally liable for the costs of investigating and remediating a site.
Grace is also conducting investigatory and remediation activities at sites under
the jurisdiction of state and/or local authorities.
The EPA is conducting an investigation of the air, water and soil
quality in and around Libby, Montana. This investigation was triggered by
newspaper reports of excessive levels of asbestos-related disease related to
Grace's former vermiculite mining activities in the area. The EPA, which
commenced such investigation in 1999, has recently questioned the reliability of
its analytical methods, and announced a program of additional testing in the
yards and homes of Libby area residents. These investigations are not expected
to result in material liability to Grace.
In February 2000, a purported class action lawsuit was filed in U.S.
District Court for Montana, Missoula Division (Tennison, et al. v. W. R. Grace &
Co., et al.) against Grace on behalf of all owners of real property situated
within 12 miles of Libby, Montana that are improved private properties. The
action alleges that the class members have suffered harm in the form of
environmental contamination and loss of property rights resulting from Grace's
former vermiculite mining and processing operations. The complaint seeks
remediation, property damages and punitive damages. Grace has no reason to
believe that its former activities caused damage to the environment or property.
In October 2000, a purported class action lawsuit was filed in U.S.
District Court for Minnesota, 4th Division (Chase v. W. R. Grace & Co.-Conn.)
alleging loss of property values of residents in the vicinity of a former
vermiculite expanding plant in Minneapolis. Grace is presently cooperating with
regulatory authorities and the present owners to investigate this former plant
site. The EPA has commenced a program to remove suspected vermiculite
13
processing by-products from driveways at about 45 homes in the area. These
activities are not expected to result in material liability to Grace.
The EPA is investigating approximately 50 vermiculite expanding plants
operated by Grace and may be investigating approximately 285 other plants
operated by third parties that handled vermiculite concentrate supplied by
Grace. Active investigative or remediation activities are ongoing at five
locations. Grace does not have sufficient information at this time to determine
the extent of any possible liability related to this investigation.
Grace is a party to additional proceedings involving U.S. federal,
state and/or local government agencies and private parties regarding Grace's
compliance with environmental laws and regulations. These proceedings are not
expected to result in significant sanctions or in any material liability.
However, Grace may incur material liability in connection with future actions of
governmental agencies or private parties relating to past or future practices of
Grace with respect to the generation, storage, handling, discharge or
disposition of hazardous wastes and other materials.
Grace is a party to three environmental insurance coverage actions
pending in the U.S. District Court for the Southern District of New York. The
first is styled Maryland Casualty Co. v. W. R. Grace & Co. (filed June 21,
1988). Litigation continues in this case as to a primary-level carrier that has
not settled with respect to claims for environmental property damage. The second
case, entitled Uniguard v. W. R. Grace, was filed on December 17, 1997. This
declaratory judgment action seeks a determination concerning the liability of
one excess carrier for bodily injury claims as a result of environmental
contamination. In June 2000, a separate lawsuit was filed against Grace by one
of its former primary insurance carriers seeking coverage determinations
regarding 45 claims (Continental Casualty Company v. W. R. Grace & Co. and W. R.
Grace & Co.-Conn.). Most of these claims involve alleged environmental property
damage at sites once owned and operated by Grace or at waste sites that
allegedly received waste materials from plants operated by Grace, including
Grace's claims for coverage regarding certain claims involving its former
vermiculite mining operation in Libby, Montana. The outcome of these cases, as
well as the amounts of any recoveries that Grace may receive in connection
therewith, is presently uncertain.
Grace believes that the liabilities for environmental remediation
costs, including costs relating to environmental proceedings, that have been
recorded in Grace's historical financial statements are adequate and,
irrespective of the outcome of the insurance litigations referred to above,
Grace believes that the resolution of pending environmental proceedings will not
have a material adverse effect on the consolidated financial position or
liquidity of Grace. For further information, see "Environmental, Health and
Safety Matters" under Item 1 above and "Management's Discussion and Analysis of
Results of Operations and Financial Condition" in the Financial Supplement.
Abner Class Action. Grace has been named in a putative class action
suit filed in September 2000 in California Superior Court for the County of San
Francisco alleging that the 1996 reorganization involving a predecessor of Grace
and Fresenius A.G. and the 1998 reorganization involving a predecessor of Grace
and Sealed Air Corporation were fraudulent transfers (Abner, et al., v. W. R.
Grace & Co., et al.). The suit is alleged to have been brought on behalf of all
individuals who presently have lawsuits on file that are pursuing personal
injury or wrongful death claims against any of the defendants. The other
defendants in the suit have all
14
asserted claims against Grace for indemnification. The amended complaint also
names "Does 1-100" as defendants and alleges that those unidentified individuals
are responsible "in some manner" for the wrongs alleged. While this lawsuit has
been stayed as to Grace as a result of Grace's Chapter 11 filing, Grace believes
that the suit is without merit.
Tax Claims. In 1988 and 1990, Grace acquired whole life insurance
policies ("COLI") on the lives of certain of its employees as part of a strategy
to fund the cost of post-retirement employee health care benefits and other
long-term liabilities. COLI premiums have been funded in part by loans issued
against the cash surrender value of the COLI policies. The Internal Revenue
Service ("IRS") is challenging the deductions for interest on such loans claimed
by Grace and similarly situated companies. In 2000 Grace paid approximately
$21.2 million of tax and interest related to COLI deductions taken in 1990
through 1992. Grace is currently under audit for the 1993-96 tax years. During
those years Grace deducted approximately $122.1 million in interest attributable
to the COLI policies. In 1996 legislation was enacted that phased out the tax
benefits for COLI-related interest deductions over a three-year period ending in
1998. During those years, Grace deducted approximately $41.1 million in
COLI-related interest. Grace is contesting the IRS's position on the grounds
that Grace had and continues to have a valid business purpose for acquiring the
COLI policies, that the COLI policies have economic substance and that the
interest deductions claimed were in compliance with tax laws in effect at the
time.
The IRS also has assessed additional federal income tax withholding and
Federal Insurance Contributions Act taxes plus interest and related penalties
for calendar years 1993 through 1995 related to a subsidiary of Grace that
formerly held a majority interest in Cross Country Staffing. The assessments
were made in connection with a meal and incidental expense per diem plan for
traveling healthcare personnel, which was in effect through 1999. The IRS
contends that certain per diem meals and incidental expenses and lodging
benefits provided to traveling healthcare personnel to defray the expenses they
incurred while traveling on business should have been treated as wages subject
to employment taxes. Grace contends that its per diem and expense allowance
plans were in accordance with statutory and regulatory requirements, as well as
other published guidance from the IRS, for per diem and expense allowance plans.
The matter is currently pending in the U.S. Court of Claims.
For further information, see Note 15 to the Consolidated Financial
Statements and "Management's Discussion and Analysis of Results of Operations
under Financial Condition" in the Financial Supplement to this Report.
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 2000.
15
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER 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-32); under the heading "Quarterly Summary and Statistical Information -
Unaudited" opposite the caption "Market price of common stock" (page F-31); and
in Note 16 to the Consolidated Financial Statements (page F-25).
On March 31, 1998, the Company paid a dividend, in respect of each
share of the Company's Common Stock, par value $.01 per share ("Common Stock"),
of one Preferred Stock Purchase Right ("Right"). The Rights are not and will not
become exercisable unless and until certain events occur (as described below).
Until such events occur, the Rights will automatically trade with the Common
Stock, and separate certificates for the Rights will not be distributed. The
Rights will become exercisable on the earlier to occur of (a) 10 days after a
person or group ("Acquiring Person") has acquired beneficial ownership of 20% or
more of the then outstanding shares of Common Stock or (b) 10 business days (or
such later date as may be fixed by the Company's Board of Directors) after an
Acquiring Person commences (or announces the intention to commence) a tender
offer or exchange offer that would result in such Acquiring Person becoming the
beneficial owner or 20% or more of the then outstanding shares of Common Stock.
Holders of Rights, as such, have no rights as shareholders of the Company;
consequently, such holders have no rights to vote or receive dividends, among
other things.
When the Rights become exercisable, each Right will initially entitle
the holder to buy from the Company one hundredth of a share of the Company's
Junior Participating Preferred Stock, par value $.01 per share ("Junior
Preferred Stock"), for $100, subject to adjustment ("exercise price"). If a
person or group becomes an Acquiring Person, each Right will entitle the holder
to receive upon exercise, in lieu of shares of Junior Preferred Stock, that
number of shares of Common Stock having a market value of two times the exercise
price of the Right. If, at any time after a person or group becomes an Acquiring
Person, the Company is acquired in a merger or other business combination of 50%
or more of the Company's consolidated assets or earning power is sold, each
Right not owned by an Acquiring Person will entitle the holder to buy a number
of shares of common stock of the acquiring company having a market value equal
to twice the exercise price.
Shares of Junior Preferred Stock that may be purchased upon exercise of
the Rights will not be redeemable. Each share of Junior Preferred Stock will be
entitled to a minimum preferential quarterly dividend payment of $1.00 per share
but will be entitled to an aggregate dividend equal to 100 times the dividend
declared per share of Common Stock whenever such dividend is declared. In the
event of liquidation, holders of Junior Preferred Stock will be entitled to a
minimum preferential liquidation payment of $100 per share but will be entitled
to an aggregate payment equal to 100 times the payment made per share of Common
Stock. Each share of Junior Preferred Stock will have 100 votes, voting together
with the Common Stock. Finally, in the event of any merger, consolidation or
other transaction in which the Common Stock is exchanged, each share of Junior
Preferred Stock will be entitled to receive an amount equal to 100 times the
amount received per share of Common Stock. These rights are protected by
customary antidilution provisions.
16
Because of the nature of the dividend, liquidation and voting rights of
the Junior Preferred Stock, the value of the one-hundredth interest in a share
of Junior Preferred Stock that may be purchased upon exercise of each Right
should approximate the value of one share of Common Stock.
At any time after any person or group becomes and Acquiring Person, and
prior to the acquisition by such Acquiring Person of 50% or more of the
outstanding shares of Common Stock, the Company's Board of Directors may
exchange the Rights (other than Rights owned by such person or group, which will
become void after such person becomes an Acquiring Person) for Common Stock or
Junior Preferred Stock, in whole or in part, at an exchange ratio of one share
of Common Stock, or one hundredth of a share of Junior Preferred Stock (or of a
share of another series of the Company's Preferred Stock having equivalent
rights, preferences and privileges), per Right (subject to adjustment).
At any time prior to the acquisition by a person or group of beneficial
ownership of 20% or more of the outstanding shares of Common Stock, the
Company's Board of Directors may redeem the Rights in whole, but not in part, at
a price of $.01 per Right.
The terms of the Rights may be amended by the Company's Board of
Directors without the consent of the holders of the Rights, including an
amendment to lower (a) the threshold at which a person becomes an Acquiring
Person and (b) the percentage of Common Stock proposed to be acquired in a
tender or exchange offer that would cause the Rights to become exercisable, to
not less than the greater of (a) the sum of .001% plus the largest percentage of
the Company's outstanding Common Stock then known to the Company to be
beneficially owned by any person or group and (b) 10%, except that, from and
after such time as any person or group becomes an Acquiring Person, no such
amendment may adversely affect the interests of the holders of the Rights.
The Rights are currently scheduled to expire on March 31, 2008 (subject
to extension or the earlier redemption or exchange of the Rights).
The foregoing summary of the Rights does not purport to be complete and
is qualified in its entirety by reference to the Rights Agreement, which was
filed as an Exhibit 4.1 to the Company's Form 8-K filed on April 9, 1998.
ITEM 6. SELECTED FINANCIAL DATA
The information called for by this Item appears under the heading
"Financial Summary" (page F-32 of the Financial Supplement) and in Notes 1, 2,
3, 4, 10, 13 and 15 to the Consolidated Financial Statements (pages F-10, F-11,
F-12, F-13, F-14, F-15, F-16, F-17, F-20, F-21, F-22, F-23 and F-24 of the
Financial Supplement), which is incorporated herein by reference. In addition,
Exhibit 12 to this Report (page F-47 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 1996-2000.
17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The information called for by this Item appears on pages F-33 to F-45
of the Financial Supplement, which is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information called for by this Item appears in Notes 12 and 13 to
the Consolidated Financial Statements (pages F-21 and F-22 of the Financial
Supplement), which is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Index to Consolidated Financial Statements and Financial
Statement Schedule and Exhibit on page F-2 of the Financial Supplement, which is
incorporated herein by reference.
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
The Company's current directors and executive officers are listed
below. The Company's Certificate of Incorporation provides for the division of
the Board of Directors into three classes, each to serve for a three-year term
or until their respective successors are elected. Executive officers are elected
to serve until the following annual meeting of the Company's Board of Directors
or until their respective successors are elected.
<TABLE>
<CAPTION>
Name and Age Office First Elected
------------ ------ -------------
<S> <C> <C>
John F. Akers (66) Class II Director - Term expiring in 2003 05/09/97
Ronald C. Cambre (62) Class III Director - Term expiring in 2001 09/01/98
Marye Anne Fox (53) Class I Director - Term expiring in 2002 05/10/96
John J. Murphy (69) Class II Director - Term expiring in 2003 05/09/97
Paul J. Norris (53) Class III Director (Chairman) - Term
expiring in 2001, 01/01/99
President and Chief 11/01/98
Executive Officer
Thomas A. Vanderslice (69) Class I Director - Term expiring in 2002 05/10/96
18
Robert J. Bettacchi (58) Senior Vice President 04/01/97
William M. Corcoran (51) Vice President 05/11/99
W. Brian McGowan (51) Senior Vice President 12/06/90*
David B. Siegel (52) Senior Vice President and 09/01/98*
General Counsel
Robert M. Tarola (50) Senior Vice President and 05/11/99
Chief Financial Officer
</TABLE>
* Designated an Executive Officer on July 9, 1998
In view of the Chapter 11 filing, the directors are expected to
continue to serve beyond the expiration of their respective terms.
Mr. Akers served as Chairman of the Board and Chief Executive Officer
of International Business Machines Corporation from 1985 until his retirement in
1993. He is a director of Hallmark Cards, Inc., Lehman Brothers Holdings, Inc.,
The New York Times Company, PepsiCo, Inc. and Springs Industries, Inc.
Mr. Cambre is Chairman of the Board of Newmont Mining Corporation. He
joined Newmont as Vice Chairman and CEO in 1993 and has served as Chairman since
1995. He is also a director of Cleveland-Cliffs Inc. and McDermott
International, Inc.
Dr. Fox is Chancellor of North Carolina State University and Professor
of Chemistry at that institution. Previously she was Vice President for Research
and the Waggoner Regents Chair in Chemistry of the University of Texas,
positions she held from 1994 and 1992, respectively, until 1998.
Mr. Murphy served as Chairman of the Board of Dresser Industries, Inc.,
a supplier of products and technical services to the energy industry, until
1996. From 1997 to 2000, he was a Managing Director of SMG Management L.L.C., a
privately owned investment group. Mr. Murphy is a director of CARBO Ceramics,
Inc., Kerr-McGee Corporation, PepsiCo, Inc. and Shaw Industries Ltd.
Mr. Norris was Senior Vice President of AlliedSignal Incorporated and
President of its specialty chemicals business from January 1997 until joining
Grace. Mr. Norris joined AlliedSignal in 1989 as President of its fluorine
products/chemicals and catalysts businesses.
Mr. Vanderslice served as Chairman and Chief Executive Officer of
M/A-COM, Inc., a designer and manufacturer of radio frequency and microwave
components, devices and subsystems for commercial and defense applications, from
1989 until his retirement in 1995. He is a director of Texaco Inc.
Messrs. Bettacchi, McGowan and Siegel have been actively engaged in
Grace's business for the past five years.
19
Mr. Corcoran previously served as Vice President of Business and
Regulatory Affairs for AlliedSignal Incorporated's specialty chemicals business
from 1997. For nine years prior to that, he served as Vice President of Public
Affairs in AlliedSignal's engineered materials sector.
Mr. Tarola joined Grace from MedStar Health, Inc., where he had served
as Senior Vice President and Chief Financial Officer from July 1998. He
previously served in a similar capacity with Helix Health, Inc. for two years.
From 1974 through 1996, Mr. Tarola was an employee of and partner of Price
Waterhouse LLP.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table. The following Summary Compensation Table
contains information concerning the compensation of (a) Paul J. Norris, Chief
Executive Officer; and (b) the other four most highly compensated executive
officers of Grace who were serving as such at year-end 2000. Certain information
has been omitted from the Summary Compensation Table because it is not
applicable or because it is not required under the rules of the Securities and
Exchange Commission ("SEC").
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
-------------------------------------------------------------------------------------
Awards Payouts
---------------------------- ------------
No. of Shares
Other Restricted Underlying
Name and Principal Annual Stock Options LTIP All Other
Position Year Salary Bonus Compensation Award(a) Granted(b) Payouts(c) Compensation(d)
-------- ---- ------ ----- ------------ -------- ---------- --------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
P. J. Norris 2000 $812,500 $526,800 --- --- 315,000 N/A $90,766
Chairman, President and 1999 737,500 942,500 $272,486(e) --- 290,000 N/A 33,353
Chief Executive 1998 120,833 250,000 $2,966,486 439,026 N/A 3,819
Officer(f)
R. J. Bettacchi 2000 332,344 125,000 --- 85,000 $102,670 42,171
Senior Vice President 1999 297,500 300,000 --- --- 45,508 41,733
1998 242,500 170,000 --- 130,000 1,905,438 37,358
W. M. Corcoran 2000 256,667 100,000 --- 40,000 N/A 7,157
Vice President (g) 1999 145,833 125,000 178,750 32,500 N/A 306
1998
D. B. Siegel 2000 306,667 125,000 --- 60,000 75,832 22,205
Senior Vice President 1999 275,000 225,000 --- --- 35,822 16,561
and General Counsel 1998 240,000 108,000 202,000 130,000 1,491,352 16,737
R. M. Tarola 2000 359,000 155,000 --- 75,000 N/A 12,322
Senior Vice President 1999 224,130 155,000 --- 100,000 N/A 621
and Chief Financial 1998
Officer (h)
</TABLE>
(Footnotes appear on following page)
20
(a) At December 31, 2000, the dollar value of the 170,733 shares of
restricted stock issued to Mr. Norris was $544,211. The restrictions
expire in one-third increments on November 1, 1999, November 1, 2000
and November 1, 2001. At December 31, 2000, the dollar value of the
10,000 shares of restricted stock issued to Mr. Corcoran was $31,875.
The restrictions on shares held by Mr. Corcoran expire on May 31, 2002.
At December 31, 2000, the dollar value of the 10,100 shares of
restricted stock issued to Mr. Siegel was $32,194. The restrictions on
shares held by Mr. Siegel expired on April 2, 2001. Restrictions on all
shares will expire earlier under certain circumstances, such as a
change of control. See "Employment Agreements."
(b) The share amounts in this column for Messrs. Bettacchi and Siegel
reflect adjustments made to give effect to the March 1998 separation of
Grace's packaging business and the merger of such business with Sealed
Air Corporation (the "Packaging Transaction").
(c) The amounts in this column represent payments under the Long-Term
Incentive Plan ("LTIP") made in each year, as follows: 2000 - amounts
paid for the 1997-1999 Performance Period; 1999 - amounts paid for the
1996-1998 Performance Period (to the extent not previously paid in
1998); and 1998 - amounts paid for the 1995-1997, 1996-1998 and
1997-1999 Performance Periods following termination of the LTIP in
connection with the Packaging Transaction. See "LTIP" below for
additional information.
(d) The amounts in this column for 2000 consist of the following:
(i) above-market interest earned on deferred compensation, as
follows: Mr. Norris -- $864; Mr. Bettacchi -- $16,949; Mr.
Corcoran -- $1,587; and Mr. Tarola -- $5,875;
(ii) the actuarially determined value of Company-paid premiums on
"split-dollar" life insurance, as follows: Mr. Norris --
$32,904; Mr. Bettacchi -- $4,415; and Mr. Siegel -- $4,516;
(iii) payments made to persons whose personal and/or Company
contributions to Grace's Salaried Employees Savings and
Investment Plan ("Savings Plan") would be subject to
limitations under federal income tax law, as follows: Mr.
Norris -- $50,736; Mr. Bettacchi -- $15,130; and Mr. Siegel
-- $12,012.
(iv) Company contributions to the Savings Plan , as follows: Mr.
Norris -- $5,100; Mr. Bettacchi -- $5,100; Mr. Corcoran --
$5,142; Mr. Siegel -- $5,100; and Mr. Tarola -- $5,870; and
(v) the value of Company-provided personal liability insurance,
as follows: Mr. Norris -- $1,162; Mr. Bettacchi -- $577; Mr.
Corcoran -- $428; Mr. Siegel -- $577; and Mr. Tarola -- $577.
(e) This amount includes $238,996 of payments made to Mr. Norris under
Grace's relocation program.
(f) Mr. Norris was elected President and Chief Executive Officer November
1, 1998 and became Chairman on January 1, 1999.
(g) Mr. Corcoran was elected Vice President on May 11, 1999.
(h) Mr. Tarola was elected Senior Vice President and Chief Financial
Officer on May 11, 1999.
21
Stock Options. The following table contains information concerning
stock options granted in 2000, including the potential realizable value of each
grant assuming that the market value of the Common Stock were to appreciate from
the date of grant to the expiration of the option at annualized rates of (a) 5%
and (b) 10%, in each case compounded annually over the term of the option. For
example, the options granted to Mr. Norris in 2000 would produce a pretax gain
of $6,745,848 shown in the table if the market price of the Common Stock rises
at an annual rate of 10% to $34.88 per share by the time the options are
exercised; based on the number and market price of the shares outstanding at
year-end 2000, such an increase in the price of the Common Stock would produce a
corresponding aggregate pretax gain of approximately $312 million for the
Company's shareholders. The assumed rates of appreciation shown in the table
have been specified by the SEC for illustrative purposes only and are not
intended to predict future stock prices, which will depend upon various factors,
including market conditions and future performance and prospects. In view of
recent developments, Grace believes it is unlikely that its Common Stock will
achieve the indicated levels of appreciation in the foreseeable future, if at
all (see "Chapter 11 Filing" in Item 1).
Options become exercisable at the time or times determined by the
Compensation Committee of the Board of Directors; the options shown below become
exercisable in three approximately equal annual installments beginning one year
after the date of grant or upon the earlier occurrence of a "change in control"
(see "Employment Agreements" and "Severance Agreements"). All of the options
shown below have purchase prices equal to the fair market value of the Common
Stock at the date of grant.
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of Stock
2000 Grants Price Appreciation for Option
Term
----------------------------------------------------------- -------------------------------
% of Total
No. of Shares Options
Underlying Granted to Purchase
Options Employees in Price Expiration
NAME Granted 2000 ($/Share) Date 5% 10%
----------------------------------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
P. J. Norris. . . . . 315,000 12% $13.4688 5/9/10 $2,672,883 $6,745,848
R. J. Bettacchi . . . 85,000 3% $13.4688 5/9/10 721,254 1,820,308
W. M. Corcoran. . . . 40,000 2% $13.4688 5/9/10 339,414 856,616
D. B. Siegel . . . . . 60,000 2% $13.4688 5/9/10 509,121 1,284,923
R. M. Tarola . . . . . 75,000 3% $13.4688 5/9/10 636,401 1,606,154
All Shareholders . . . - - - - $123,640,458 $312,044,967
Named Executive
Officers' Percentage
of Realizable Value
Gained by All - - - - 4% 4%
Shareholders. . . .
</TABLE>
The following table contains information concerning stock options
exercised in 2000, including the "value realized" upon exercise (the difference
between the total purchase price of the options exercised and the market value,
at the date of exercise, of the shares acquired), and the value of unexercised
"in-the-money" options held at December 31, 2000 (the difference
22
between the aggregate purchase price of all such options held and the market
value of the shares covered by such options at December 31, 2000).
<TABLE>
<CAPTION>
Option Exercises in 2000 and Option Values at 12/31/00 (1)
---------------------------------------------------------------------------------------------
No. of Shares No. of Shares Underlying Value of Unexercised
Acquired on Unexercised Options at In-the-Money Options at
Name Exercise Value Realized 12/31/00 12/31/00
Exercisable/Unexercisable Exercisable/Unexercisable
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
P. J. Norris . . . . 0 $ 0 389,350 / 654,676 $0 / $0
R. J. Bettacchi . . 0 0 668,399 / 128,334 0 / 0
W. M. Corcoran. . . 0 0 10,833 / 61,667 0 / 0
D. B. Siegel . . . . 0 0 254,861 / 103,334 0 / 0
R. M. Tarola . . . . 0 0 33,333 / 141,667 0 / 0
</TABLE>
(1) The number of shares covered by each option and the purchase price of each
option reflect, where applicable, adjustments made in connection with the
Packaging Transaction in the cases of Messrs. Bettacchi and Siegel.
Long-Term Incentive Program (LTIP). In connection with the Packaging
Transaction, the Compensation Committee determined to make the following changes
in the LTIP: (a) Performance Units granted for the 1996-1998 and 1997-1999
Performance Periods vested on a prorata basis on March 31, 1998, the completion
date of the Packaging Transaction; (b) the amounts earned under those Units were
calculated based on results achieved through March 31, 1998; (c) 75% of the
estimated value of such vested portions was paid in cash prior to completion of
the Packaging Transaction; (d) the balance of such vested portions was paid in
cash following completion of the Packaging Transaction; and (e) the value of the
unvested portions, based on targeted Performance Units and on the final average
price of the Common Stock immediately prior to completion of the Packaging
Transaction, was paid in cash following the end of the respective Performance
Periods (subject to continued service).
The Board has approved a new LTIP for key employees for 2001, and it is
anticipated that awards will be made to key employees under the new LTIP for
each subsequent calendar year as well. The new LTIP is generally designed to
provide key employees with long-term incentives having a value at the 60th
percentile of long-term incentives offered by specialty chemical companies of
comparable size to Grace. For each key employee, the targeted value of the new
LTIP award for each year will be split so that 50% of the value of the award
will be provided in the form of a stock option grant, and 50% will be in the
form of cash compensation, payable if the Company achieves certain pretax
earnings targets over a three calendar year period. Depending on the pretax
earnings performance of the Company during the applicable three-year period, the
employee may be paid a total amount ranging from zero to two times the targeted
cash compensation applicable to the employee.
If a key employee becomes entitled to any cash compensation for any
award year under the new LTIP, then such compensation will generally be paid in
two installments; one after the end of the second calendar year following the
applicable award year (which will be a partial payment based on performance for
the first two years of the applicable three-year period), and the other
installment will be paid to the employee after the end of the third calendar
year
23
following the applicable award year (which will consider performance for the
complete three-year period and will be offset by the amount of the prior
installment). Generally, under the new LTIP, a key employee will forfeit his or
her rights to receive an installment of cash compensation if, prior to the
payment of the installment, the employee either voluntarily resigns from the
Company or is terminated by the Company for cause.
Pension Arrangements. Salaried employees of designated units who are 21
or older and who have one or more years of service are eligible to participate
in the Retirement Plan for Salaried Employees. Under this basic retirement plan,
pension benefits are based upon (a) the employee's average annual compensation
for the 60 consecutive months in which his or her compensation is highest during
the last 180 months of continuous participation and (b) the number of years of
the employee's credited service. For purposes of this basic retirement plan,
compensation generally includes nondeferred base salary and nondeferred annual
incentive compensation (bonus) awards; however, for 2000, federal income tax law
limited to $170,000 the annual compensation on which benefits under this plan
may be based.
Grace also has a Supplemental Executive Retirement Plan under which a
covered employee will receive the full pension to which he or she would be
entitled in the absence of the above and other limitations imposed under federal
income tax law. In addition, this supplemental plan recognizes deferred base
salary, deferred annual incentive compensation awards and, in some cases,
periods of employment during which an employee was ineligible to participate in
the basic retirement plan. (Commencing in 2001, Grace's deferred compensation
plan no longer permits deferrals of base salary or incentive compensation.) An
employee will generally be eligible to participate in the supplemental plan if
he or she has an annual base salary of at least $75,000 and is earning credited
service under the basic retirement plan.
The following table shows the annual pensions payable under the basic
and supplemental plans for different levels of compensation and years of
credited service. The amounts shown have been computed on the assumption that
the employee retired at age 65 on January 1, 2000, with benefits payable on a
straight life annuity basis. Such amounts are subject to (but do not reflect) an
offset of 1.25% of an estimate of the employee's primary Social Security benefit
at retirement age for each year of credited service under the basic and
supplemental plans.
24
<TABLE>
<CAPTION>
Highest Average Years of Credited Service
Annual ---------------------------------------------------------------------------------------------
Compensation 10 Years 15 Years 20 Years 25 Years 30 Years 35 Years
------------------- ---------- ------------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
$100,000 $15,000 $22,500 $30,000 $37,500 $45,000 $52,500
200,000 30,000 45,000 60,000 75,000 90,000 105,000
300,000 45,000 67,500 90,000 112,500 135,000 157,500
400,000 60,000 90,000 120,000 150,000 180,000 210,000
500,000 75,000 112,500 150,000 187,500 225,000 262,500
600,000 90,000 135,000 180,000 225,000 270,000 315,000
700,000 105,000 157,500 210,000 262,500 315,000 367,500
800,000 120,000 180,000 240,000 300,000 360,000 420,000
900,000 135,000 202,500 270,000 337,500 405,000 472,500
1,000,000 150,000 225,000 300,000 375,000 450,000 525,000
1,100,000 165,000 247,500 330,000 412,500 495,000 577,500
1,200,000 180,000 270,000 360,000 450,000 540,000 630,000
1,300,000 195,000 292,500 390,000 487,500 585,000 682,500
1,400,000 210,000 315,000 420,000 525,000 630,000 735,000
1,500,000 225,000 337,500 450,000 562,500 675,000 787,500
1,600,000 240,000 360,000 480,000 600,000 720,000 840,000
1,700,000 255,000 382,500 510,000 637,500 765,000 892,500
1,800,000 270,000 405,000 540,000 675,000 810,000 945,000
1,900,000 285,000 427,500 570,000 712,500 855,000 997,500
2,000,000 300,000 450,000 600,000 750,000 900,000 1,050,000
2,100,000 315,000 472,500 630,000 787,500 945,000 1,102,500
2,200,000 330,000 495,000 660,000 825,000 990,000 1,155,000
</TABLE>
At December 31, 2000, Messrs. Norris, Bettacchi, Corcoran, Siegel and
Tarola had 8.83, 29, 1.56, 23.75 and 1.56 years of credited service,
respectively, under the basic and supplemental retirement plans. (Mr. Norris'
years of credited service include his eligible service with Grace from 1975 to
1981.) For purposes of those plans, the 2000 compensation of such executive
officers was as follows: Mr. Norris -- $1,755,000; Mr. Bettacchi -- $632,344;
Mr. Corcoran -- $381,667; Mr. Siegel -- $531,667; and Mr. Tarola -- $514,000.
Messrs. Corcoran and Tarola are entitled to additional pension benefits under
their employment agreements, and Mr. Norris is eligible for additional pension
benefits under his employment agreement if his employment continues beyond
October 31, 2001, or if he is terminated without cause (see "Employment
Agreements").
Employment Agreements. Effective January 1, 2001, Mr. Norris and Grace
entered into a new employment agreement, which supercedes the letter agreement
between Mr. Norris and Grace dated October 26, 1998. This agreement expires
December 31, 2002, subject to renewal provisions. Under the agreement, Mr.
Norris' annual base salary will not be less than $875,000. He will continue to
participate in Grace's annual incentive compensation program, under which his
targeted award will be at least 75% of his annual base salary.
Under Mr. Norris' prior letter agreement, he received a restricted
stock award on November 1, 1998 covering 170,733 shares of Grace Common Stock.
The restrictions on the
25
final installment of Mr. Norris' restricted stock award (covering 56,911 shares
of Grace Common Stock) will lapse on November 1, 2001. Under his employment
agreement, Mr. Norris may choose to receive the award in the form of
unrestricted shares or may convert the award to cash in the amount of $10.25 for
each unrestricted share comprising such final installment.
Also under the prior agreement, Mr. Norris received upon his
commencement of employment on November 1, 1998 a non-statutory stock option
grant covering 439,026 shares of Common Stock pursuant to Grace's 1998 Stock
Incentive Plan. His employment agreement provides that Grace will make a stock
appreciation payment to Mr. Norris, at the time he elects to exercise any vested
options under that stock option grant or at the time he elects to cancel such
options, provided that the price of a share of Common Stock is above $10.25 at
the time. The payment will be equal to the number of shares exercised (or
cancelled), multiplied by the difference between (a) the purchase price per
share ($16.75), or the price of a share of Common Stock on the date of such
exercise if less than the purchase price per share, and (b) $10.25.
Under his employment agreement, Mr. Norris received (in January 2001)
an $875,000 retention bonus for services through December 31, 2001, and if he
remains employed with Grace (or is terminated without cause or on the basis of
constructive discharge, death or disability), he will receive retention bonuses
of $500,000 each on December 31, 2001 and 2002. The first two payments are
subject to prorata repayment if Mr. Norris' terminates his employment other than
on the basis of constructive discharge, death or disability.
Under the employment agreement, if Mr. Norris' employment is terminated
by Grace without cause or by Mr. Norris on the basis of constructive discharge
at any time, then he will be entitled to receive a severance payment equal to
two times the dollar amount that equals 175% of his annual base salary at the
time of such termination. Such payment will be made in a lump sum immediately
after Mr. Norris' date of termination.
Mr. Norris' employment agreement also continues the same retirement
benefits provisions as under his prior agreement, which are described in this
paragraph: If Mr. Norris is not terminated for cause, and he does not terminate
his employment (other than on the basis of constructive discharge, disability or
death), prior to November 1, 2001, the agreement provides that, in determining
the benefits payable to Mr. Norris under Grace's basic and supplemental
retirement plans, his years of service with Grace and his prior employer will be
recognized as if those years were continuous service with Grace, with an offset
for any retirement benefits payable from his prior employers' retirement plans.
In addition, the "final average compensation" used to determine his retirement
benefits payable under Grace's basic and supplemental retirement plans will only
consider compensation earned by Mr. Norris from and after the commencement of
his current term of employment with Grace on November 1, 1998.
Also, the employment agreement provides that, if Mr. Norris does not
receive supplemental retirement benefits under any Grace plan, then such
supplemental benefit will become payable to Mr. Norris under his employment
agreement. In addition, in the event of Mr. Norris' termination on or after
November 1, 2001 (or if he terminates his employment with Grace at any time
based on constructive discharge), Grace will immediately pay Mr. Norris a
26
lump sum cash payment equal in value to all supplemental retirement benefits
payable to Mr. Norris under his employment agreement or any plan or program of
Grace.
The agreement further provides that, upon Mr. Norris' termination of
employment (unless Mr. Norris terminates his employment prior to October 31,
2001 other than on the basis of constructive discharge, disability or death),
Grace will provide Mr. Norris with relocation assistance to any location within
the continental United States selected by Mr. Norris, including certain cash
payments and relocation assistance, including compensation for any loss
incurred on the sale of his Maryland home.
The agreement also provides for Mr. Norris' participation in other
benefits and compensation programs, including benefits and programs generally
available to other senior executives of Grace. The foregoing description of Mr.
Norris' employment agreement does not purport to be complete and is qualified
in its entirety by reference to such agreement, which is filed as Exhibit 10.20
to this Report.
Mr. Corcoran has an employment agreement with Grace that terminates May
31, 2002, subject to extension. Under the agreement, Mr. Corcoran's initial
base salary is $250,000, subject to annual review and approval of the
Compensation Committee. In addition, Mr. Corcoran is eligible to participate in
Grace's annual incentive compensation program, with a target award no less than
to 37% of his annual base salary (except that his incentive award for 1999 was
set at an amount between $92,000 and $182,000). Under the agreement, Mr.
Corcoran also received a stock option grant covering 32,500 shares of Common
Stock, and a grant of 10,000 shares of restricted Common Stock.
In the event that Mr. Corcoran is terminated by Grace without cause on or
before May 31, 2002, he will generally be entitled to a severance payment equal
to two times the amount that is 137% of his annual base salary at the time of
his termination. If he is terminated by Grace without cause after that date,
Mr. Corcoran will generally be entitled to a severance payment equal to one
times such amount. (However, along with other executive officers and certain
key employees of Grace, Mr. Corcoran has entered into a retention agreement
with Grace, described below, under which, in certain circumstances, he may be
entitled to enhanced severance pay in lieu of, but not in addition to, the
severance pay provided under his employment agreement.)
If Mr. Corcoran's employment does not cease prior to May 22, 2002 (or he
is terminated without cause prior to that date), the benefits payable to Mr.
Corcoran under Grace's basic and supplemental retirement plans will be
determined by adding additional years of credited service under those plans.
Generally, for each year of credited service under those plans that he actually
earns during his period of employment with Grace, he will receive credit for an
additional one-half year of credited service under those plans (up to a maximum
of 5 additional years of credited service), except that in no event will he
receive less than 5 years of credited service, regardless of the date his
employment with Grace actually terminates. The foregoing description of Mr.
Corcoran's employment agreement does not purport to be complete and is
qualified in its entirety by reference to such agreement, which is filed as
Exhibit 10.24 to this Report.
27
On January 30, 2001, Mr. Siegel entered into a new agreement with Grace
that specifies certain terms and conditions of his employment (the "2001
Agreement"). Under the 2001 Agreement, which supercedes his prior agreement,
Mr. Siegel received a retention payment and became covered by an enhanced
severance arrangement, each of which is described below. In exchange, Mr.
Siegel agreed that he would have no right to severance pay under the Grace 1999
Productivity and Effectiveness Program (the "PEP Program") and that he would
give Grace at least 90 days' prior notice if he voluntarily resigned or retired
on or prior to December 31, 2002.
Under the 2001 Agreement, Mr. Siegel received a retention payment in the
amount of $600,000. Mr. Siegel is required to repay a prorata portion of
one-half of the retention payment if he voluntarily terminates his employment
with Grace (other than as a result of a constructive termination), or he is
terminated for cause, prior to December 31, 2002. The 2001 Agreement also
specifies that Mr. Siegel would be entitled to an enhanced severance payment
equal to two times his annual base salary if he is involuntarily terminated
without cause under circumstances which would qualify him for severance pay
under Grace's severance plan that generally covers salaried employees.
The 2001 Agreement also provides that Mr. Siegel will relocate full time
to Columbia, Maryland on or before January 1, 2003, unless he gives Grace 90
days' notice of his election to resign prior to September 30, 2002. If Mr.
Siegel relocates to Maryland, he will be entitled to the relocation benefits
generally available to other Grace employees who relocated to Maryland during
1999 in conjunction with the relocation of Grace's headquarters from Boca
Raton, Florida. If Mr. Siegel elects to resign prior to September 30, 2002,
then he will be eligible for all separation arrangements under the PEP Program
(except severance pay under the PEP Program). Until Mr. Siegel relocates to
Maryland or resigns, Grace has agreed to continue to provide him with a
furnished apartment in Baltimore, a rental car while on business in Maryland
and roundtrip coach airfare for travel between Boca Raton and Columbia. The
foregoing description of the 2001 Agreement does not purport to be complete and
is qualified in its entirety by reference to such agreement, which is filed as
Exhibit 10.22 to this Report.
Mr. Tarola has an employment agreement providing for his service as Senior
Vice President and Chief Financial Officer of Grace through November 10, 2002,
subject to extension by agreement between Mr. Tarola and Grace. Under this
agreement, Mr. Tarola is entitled to an annual base salary of $350,000, and an
annual incentive award (bonus) for each calendar year during his term of
employment. That bonus will be targeted to be no less than 45% of his annual
base salary (with a maximum bonus equal to double the targeted bonus for any
calendar year); except that his incentive award for 1999 was set at an amount
no less than $129,000. The agreement also provides that Mr. Tarola's annual
base salary and incentive award is generally subject to annual review and
approval of the Compensation Committee. Under the agreement, Mr. Tarola
received a stock option grant covering 100,000 shares of Common Stock.
In the event that Mr. Tarola is terminated by Grace without cause on or
before November 10, 2002, he will generally be entitled to a severance payment
equal to two times the amount that is 145% of his annual base salary at the
time of his termination. If he is terminated by Grace without cause after that
date, Mr. Tarola will generally be entitled to a severance payment equal to one
times such amount. (However, along with other officers and certain key
employees of
28
Grace, Mr. Tarola entered into a retention agreement with Grace, described
below, under which, in certain circumstances, he may be entitled to enhanced
severance pay in lieu of, but not in addition to, the severance pay provided
under his employment agreement.)
If Mr. Tarola's employment does not cease prior to November 10, 2002 (or
if he is terminated without cause prior to that date), the benefits payable to
Mr. Tarola under Grace's basic and supplemental retirement plans will be
determined by adding additional years of credited service under those plans.
Generally, for each year of credited service under those plans that he actually
earns during his period of employment with Grace, he will receive credit for
one additional year of credited service under those plans (up to a maximum of
10 additional years of credited service), except that in no event will he
receive less than 5 years of credited service, regardless of the date his
employment with Grace actually terminates. The foregoing description of Mr.
Tarola's employment agreement does not purport to be complete and is qualified
in its entirety by reference to such agreement, which has been filed with the
SEC as an exhibit to Grace's Quarterly Report on Form 10-Q filed on August 13,
1999 for the quarter ended June 30, 1999.
Change-in-Control Severance Agreements. In addition to the severance
described in the retention agreements below, Grace has severance agreements
with all of its executive officers. These agreements generally provide that in
the event of the involuntary termination of the individual's employment without
cause (including constructive termination caused by a material reduction in his
or her authority or responsibility or by certain other circumstances) following
a "change in control" of Grace, he or she will generally receive a severance
payment equal to three times the sum of his or her annual base salary plus
target annual incentive compensation (bonus), subject to prorata reduction in
the case of an officer who is within 36 months of normal retirement age (65).
For purposes of the severance agreements, "change in control" means the
acquisition of 20% or more of the Common Stock (but not if such acquisition is
the result of the sale of Common Stock by Grace that has been approved by the
Board), the failure of Board-nominated directors to constitute a majority of
any class of the Board of Directors, the occurrence of a transaction in which
the shareholders of Grace immediately preceding such transaction do not own
more than 50% of the combined voting power of the corporation resulting from
such transaction, or the liquidation or dissolution of Grace. This description
of the severance agreements does not purport to be complete and is qualified in
its entirety by reference to the form of such agreement, which was filed as an
exhibit to the Registration Statement on Form 10 filed with the SEC by Grace
(named Grace Specialty Chemicals, Inc. at the time of filing) on March 13,
1998.
Retention Agreements. Effective January 1, 2001, Grace entered into
retention agreements with each of the executive officers other than Messrs.
Norris and Siegel, whose retention agreements are covered by their respective
employment agreements. These agreements were approved by the Compensation
Committee in recognition of the adverse effect that the market performance of
the Common Stock has had and is expected to continue to have on Grace's ability
to attract and retain key employees. Under the terms of these agreements, each
such executive officer received a payment in January 2001 equal to his annual
base salary, subject to remaining employed with Grace for a two-year period. In
the event of the voluntary termination of such officer's employment (other than
a constructive termination caused by a
29
reduction in salary, a permanent change in job location or a change in job
duties inappropriate to such officer's position) or a termination of such
officer's employment for cause, then such officer would be required to
reimburse Grace for a prorata portion of such payment based on the number of
days remaining in such two-year period. The retention payments are not
considered compensation for purposes of any Grace benefit or compensation plan
or program. In addition to the retention payment, the retention agreements
provide that in the event of the involuntary termination of such officer's
employment under circumstances that would qualify such officer for severance
pay under Grace's severance plan that generally covers salaried employees, then
the officer would be entitled to severance pay equal to two times his or her
annual base salary. With respect to any such officer who has any other
agreement with Grace regarding the payment of severance upon termination of
employment, if such officer becomes entitled to severance under both the terms
of the retention agreement and such other agreement, then the officer would
only receive severance pay under the retention agreement, unless the other
agreement provides for a greater amount of severance pay (in which case, the
officer would only receive severance pay under such other agreement).
Executive Salary Protection Plan. All executive officers participate in
the Executive Salary Protection Plan ("ESPP"), which provides that, in the
event of a participant's disability or death prior to age 70, Grace will
continue to pay all or a portion of base salary to the participant or a
beneficiary for a period based on the participant's age at the time of
disability or death. Payments under the ESPP may not exceed 100% of base salary
for the first year and 60% thereafter in the case of disability (50% in the
case of death). This description of the ESPP does not purport to be complete
and is qualified in its entirety by reference to the text of the ESPP, as
amended, which was filed as an exhibit to Grace's predecessor's Annual Report
on Form 10-K for the year ended December 31, 1996.
Effect of Chapter 11 Filing. The continuation of certain executive
compensation and benefit programs may be affected by the Chapter 11
proceedings.
Directors' Compensation and Consulting Arrangements. Under the
compensation program for nonemployee directors in effect for 2000, each
nonemployee director received an annual retainer of $50,000 payable, at the
election of each director, in the form of Common Stock or options to purchase
Common Stock. The number of option shares is calculated based on a ratio of
three option shares for each share of Common Stock that would otherwise be
payable had a director elected to receive the annual retainer in Common Stock.
The purchase price of the option is the market value of a share of Common Stock
on the date the option is granted. All such options are immediately
exercisable. In addition, in lieu of individual meeting fees, each nonemployee
director received an annual fee of $24,000, ($30,000 for directors holding a
committee chair), prorated for scheduled meetings not attended. This fee was
paid, at the election of each director, in cash, in Common Stock or in stock
options as described above. A director may elect to defer all or part of each
payment made in Common Stock. The deferred payment will be held in a deferred
compensation trust established by Grace. Common Stock held in the trust will be
delivered to the director following his or her termination from service (or a
subsequent date specified by the director). All stock options are transferable
to family members or trusts for their benefit.
30
Beginning in 2001, directors will receive $4,000 ($5,000 for directors
holding a committee chair) in cash for each meeting date in respect of the
Board meeting and all committee meetings held on such date. In addition, the
annual retainer of $50,000 will be paid one-half in cash, and one-half in
Common Stock or options to purchase Common Stock, at the election of each
director following the end of each year, as described above.
Grace reimburses nonemployee directors for expenses they incur in
attending Board and committee meetings. Grace also maintains business travel
accident insurance coverage for them. In addition, nonemployee directors may
receive $1,000 per day for work performed at the request of Grace.
Compensation Committee Interlocks and Insider Participation. During 2000,
the Compensation Committee of the Board was comprised of Messrs. Akers (Chair),
Cambre, Murphy and Vanderslice, and Dr. Fox. None of such persons is a current
or former officer or employee of Grace or any of its subsidiaries, nor did any
of such persons have any reportable transactions with Grace or any of its
subsidiaries.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the Common Stock beneficially owned,
directly or indirectly, as of January 31, 2001 by (1) each person known to
Grace to be the beneficial owner of more than 5% of the outstanding shares of
Common Stock, and (2) each current director and nominee, each of the executive
officers named in the Summary Compensation Table set forth under "Election of
Directors -- Compensation," and such directors and all executive officers as a
group.
<TABLE>
<CAPTION>
Shares of Common Stock
Beneficial Owner Beneficially Owned Percent
---------------- ---------------------- -------
<S> <C> <C>
The Baupost Group, L.L.C (1) . . .. . . . . . . . . . . 5,733,600 8.8%
44 Brattle Street, 5th Floor
Cambridge, MA 02138
FMR Corp. (1) . . . . . . . . . . . . . . . . . . . . . . 3,765,400 5.6%
62 Devonshire Street
Boston, MA 02109
Peninsula Partners, L.P. (1) (2) . . . . . . . . . .. . . 3,330,000 5.1%
Peninsula Capital Advisors, LLC
404B East Main Street, 2nd Floor
Charlottesville, VA 22902
J. F. Akers . . . . . . . . . . . . . . . . . . . . . . . 1,205 *
74,535 (O)
11,287 (T)
R. J. Bettacchi . . . . . . . . . . . . . . . . . . . . . 1.02%
668,399 (O)
8,155 (T)
31
<CAPTION>
Shares of Common Stock
Beneficial Owner Beneficially Owned Percent
---------------- ---------------------- -------
R. C. Cambre . . . . . . . . . . . . . . . . . . . . . . 3,362 *
W. M. Corcoran. . . . . . . . . . . . . . . . . . . . . . 10,000
10,833 (O)
2,496 (T)
M. A. Fox . . . . . . . . . . . . . . . . . . . . . . . . 3,455 *
59,007 (O)
2,834 (T)
J. J. Murphy . . . . . . . . . . . . . . . . . . . . . . 1,139 *
15,528 (O)
5,509 (T)
P. J. Norris . . . . . . . . . . . . . . . . . . . . . . 195,733 1.47%
778,701 (O)
2,089 (T)
D. B. Siegel . . . . . . . . . . . . . . . . . . . . . . 15,100 *
254,321 (O)
40,656 (T)
R. M. Tarola . . . . . . . . . . . . . . . . . . . . . . 15,000 *
33,000 (O)
124 (T)
T. A. Vanderslice . . . . . . . . . . . . . . . . . . . . 1,731 *
69,876 (O)
9,060 (T)
Directors and executive officers as a group . . . . 268,275 3.96%
2,297,238 (O)
117,857 (T)
</TABLE>
* Indicates less than 1%
(O) Shares covered by stock options exercisable on or within 60 days after
January 31, 2001.
(T) Shares owned by trusts and other entities as to which the person has the
power to direct voting and/or investment.
(1) The ownership information set forth is based in its entirety on material
contained in a Schedule 13G, dated February 2001 with respect to The
Baupost Group, L.L.C and FMR Corp.; and December 2000 with respect to
Peninsula Partners, L.P., filed with the SEC, which stated that the
securities were not acquired for the purpose of changing or influencing
the control of Grace.
(2) Shared voting power.
32
Ownership and Transactions Reports
Under Section 16 of the Securities Exchange Act of 1934, the Company's
directors, certain of its officers, and beneficial owners of more than 10% of
the outstanding Common Stock are required to file reports with the SEC and the
New York Stock Exchange concerning their ownership of and transactions in
Common Stock; such persons are also required to furnish the Company with copies
of such reports. Based solely upon the reports and related information
furnished to the Company, the Company believes that all such filing
requirements were complied with in a timely manner during and with respect to
2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Commercial Transactions. During 2000, no director, executive officer (or
any member of any of their respective immediate families) or, to the Company's
knowledge, any holder of more than 5% of the Common Stock, had a direct or
indirect material interest in any transaction (or any proposed transaction) to
which the Company was a party.
Legal Proceedings; Indemnification. During 2000 there were no legal
proceedings pending in which any current officers or directors of the Company
were parties or had a material interest adverse to the Company.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
Financial Statements and Schedules. See the Index to Consolidated
Financial Statements and Financial Statement Schedule and Exhibit on page F-2
of the Financial Supplement.
Reports on Form 8-K. The Company did not file any Reports on Form 8-K
during the fourth quarter of 2000.
Exhibits. The exhibits to this Report are listed below. Other than
exhibits that are filed herewith, all exhibits listed below are incorporated 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.
For purposes of describing these exhibits, "Old Grace" means W. R. Grace &
Co., a Delaware corporation (subsequently renamed Sealed Air Corporation), a
predecessor to the Company, and "Grace New York" means W. R. Grace & Co., a New
York corporation (subsequently renamed Fresenius Medical Care Holdings, Inc.),
a predecessor to Old Grace. See Note 1 to the Consolidated Financial Statements
in the Financial Supplement for a description of the reorganization involving
Grace's former Packaging Business.
33
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT WHERE LOCATED
--- ------- -------------
<S> <C> <C>
2.1 Form of Distribution Agreement, by and among Old Annex B to the Joint Proxy
Grace, W. R. Grace & Co.-Conn. and Grace Specialty Statement/Prospectus dated February 13,
Chemicals, Inc. (now named W. R. Grace & Co.) 1998 of Old Grace and Sealed Air
Corporation included in Form S-4 (filed
2/13/98)
3.1 Restated Certificate of Incorporation of Exhibit 3.1 to Form 8-K (filed 4/9/98)
W. R. Grace & Co.
3.2 Amended and Restated By-laws of W. R. Grace & Co. Exhibit 3.2 to Form 10-K (filed 3/29/99)
4.1 Rights Agreement dated as of March 31, 1998 between W. Exhibit 4.1 to Form 8-K (filed 4/9/98)
R. Grace & Co. and The Chase Manhattan Bank, as Rights
Agent
4.2 Indenture dated as of September 29, 1992 among W. R. Exhibit 4(a) to Registration Statement
Grace & Co.-Conn., Grace New York and Bankers Trust No. 33-43566 on Form S-3 (filed 10/29/91)
Company
4.3 Supplemental Indenture dated as of September 24, 1996, Exhibit 4.4 to Form 8-K of Old Grace
among W. R. Grace & Co.-Conn., Grace New York, Old (filed 10/10/96)
Grace and Bankers Trust Company, to Indenture dated as
of September 29, 1992
4.4 Indenture dated as of January 28, 1993 among W. R. Exhibit 4(a) to Registration Statement
Grace & Co.-Conn., Grace New York and The Bank of New No 33-55392 on Form S-3 (filed 12/4/92)
York (successor to NationsBank of Georgia, N.A.)
4.5 Supplemental Indenture dated as of September 24, 1996, Exhibit 4.5 to Form 8-K of Old Grace
among W. R. Grace & Co.-Conn., Grace New York, Old (filed 10/10/96)
Grace, and The Bank of New York, to Indenture dated as
of January 28, 1993
</TABLE>
34
<TABLE>
<S> <C> <C>
4.6 Credit Agreement dated as of May 14, 1998, among W. R. Exhibit 4.1 to Form 10-Q (filed 8/14/98)
Grace & Co.-Conn., W. R. Grace & Co., the several
banks parties thereto; the co-agents signatories
thereto; The Chase Manhattan Bank, as administrative
agent for such banks; and Chase Securities Inc., as
arranger
4.7 364-Day Credit Agreement, dated as of May 5, 1999, Exhibit 4.1 to Form 10-Q (filed 8/3/99)
among W. R. Grace & Co.-Conn.; W. R. Grace & Co.; the
several banks parties thereto; the co-agents
signatories thereto; Bank of America National Trust
and Savings Association, as documentation agent; The
Chase Manhattan Bank, as administrative agent for such
banks; and Chase Securities Inc., as book manager
4.8 First Amendment to 364-Day Credit Agreement dated as Exhibit 4 to Form 10-Q (filed 8/15/00)
of May 5, 1999 among W. R. Grace & Co.-Conn.; W. R.
Grace & Co.; the several banks parties thereto; Bank
of America National Trust and Savings Association, as
document agent; The Chase Manhattan Bank, as
administrative agent for such banks; and Chase
Securities, Inc., as bank manager
10.1 Form of Employee Benefits Allocation Agreement, by and Exhibit 10.1 to Form 10 (filed 3/13/98)
among Old Grace, W. R. Grace & Co.-Conn. and Grace
Specialty Chemicals, Inc. (now named W. R. Grace & Co.)
10.2 Form of Tax Sharing Agreement, by and among Old Grace, Exhibit 10.2 to Form 10 (filed 3/13/98)
W. R. Grace & Co.-Conn. and Grace Specialty Chemicals,
Inc. (now named W. R. Grace & Co.)
10.3 W. R. Grace & Co. 2000 Stock Incentive Plan, as amended Exhibit 10 for Form 10-Q (filed 8/15/00)*
</TABLE>
35
<TABLE>
<S> <C> <C>
10.4 W. R. Grace & Co. 1998 Stock Incentive Plan Annex C to the Information Statement of
Grace Specialty Chemicals, Inc. (now
named W. R. Grace & Co.) dated February
13, 1998 including the Form 10 of Grace
filed 3/13/98 ("Information Statement")*
10.5 W. R. Grace & Co. 1998 Stock Plan for Nonemployee Annex D to Information Statement*
Directors
10.6 W. R. Grace & Co. 1996 Stock Incentive Plan, as amended Exhibit 10.4 to Form 10-Q (filed
5/15/98)*
10.7 W. R. Grace & Co. Supplemental Executive Retirement Exhibit 10.03 to Form 10-K of Old Grace
Plan, as amended (filed 3/28/97)*
10.8 W. R. Grace & Co. Executive Salary Protection Plan, as Exhibit 10.04 to Form 10-K of Old Grace
amended (filed 3/28/97)*
10.9 W. R. Grace & Co. 1981 Stock Incentive Plan, as amended Exhibit 10.3 to Form 8-K of Old Grace
(filed 10/10/96)*
10.10 W. R. Grace & Co. 1986 Stock Incentive Plan, as amended Exhibit 10.4 to Form 8-K of Old Grace
(filed 10/10/96)*
10.11 W. R. Grace & Co. 1989 Stock Incentive Plan, as amended Exhibit 10.5 to Form 8-K of Old Grace
(filed 10/10/96)*
10.12 W. R. Grace & Co. 1994 Stock Incentive Plan, as amended Exhibit 10.6 to Form 8-K of Old Grace
(filed 10/10/96)*
10.13 Information concerning W. R. Grace & Co. Incentive Pages 7-12 and 26-36 of Proxy Statement
Compensation Program, Deferred Compensation Program of Old Grace (filed 4/7/97)*
and Long-Term Incentive Program
10.14 Form of Long-Term Incentive Program Award Exhibit 10.13 to Registration Statement
on Form S-1 of Old Grace (filed 8/2/96)*
10.15 Forms of Stock Option Agreements Exhibit 10.15 to Form 10-K (filed
3/29/99)*
</TABLE>
36
<TABLE>
<S> <C> <C>
10.16 Form of Stock Option Agreements Exhibit 10.14 to Registration Statement
on Form S-1 of Old Grace (filed 8/2/96)*
10.17 Form of Stock Option Agreements Exhibit 10.5 to Form 10-Q (filed
5/15/98)*
10.18 Form of Executive Severance Agreement between W. R. Exhibit 10.20 to Form 10 of Grace
Grace & Co. and officers Specialty Chemicals, Inc. (now W. R.
Grace & Co.) (filed 3/13/98)*
10.19 Form of Restricted Share Award Agreements dated April Exhibit 10.1 to Form 10-Q (filed
7, 1998 5/15/98)*
10.20 Employment Agreement, dated January 1, 2001, by and Filed herewith*
between W. R. Grace & Co. and Paul J. Norris
10.21 Employment Agreement dated May 11, 1999 between W. R. Exhibit 10.1 to Form 10-Q (filed
Grace & Co.-Conn. and Robert M. Tarola 8/13/99)*
10.22 Letter Agreement dated January 30, 2001 between Paul Filed herewith*
J. Norris, on behalf of W. R. Grace & Co., and David
B. Siegel
10.23 Form of Long-Term Incentive Program Award Filed herewith*
10.24 Letter Agreement dated May 7, 1999 between Paul J. Filed herewith*
Norris, on behalf of W. R. Grace & Co., and William M.
Corcoran
10.25 Distribution Agreement by and among Grace New York, W. Exhibit 2 to Form 8-K of Grace New York
R. Grace & Co.-Conn. and Fresenius AG dated February (filed 2/6/96)
4, 1996
10.26 Form of Indemnification Agreement between W. R. Grace Exhibit 10.39 to Registration Statement
& Co. and certain Directors on Form S-1 of Old Grace (filed 8/2/96)*
10.27 Form of Indemnification Agreement between W. R. Grace Exhibit 10.37 to Form 10-K of Old Grace
& Co. and certain Officers and Directors (filed 3/28/97)*
</TABLE>
37
<TABLE>
<S> <C> <C>
10.28 Form of Retention Agreement Filed herewith*
12 Computation of Ratio of Earnings and Fixed Charges and Filed herewith in Financial Supplement
Combined Fixed Charges and Preferred Stock Dividends to Grace's 2000 Form 10-K
21 List of Subsidiaries of W. R. Grace & Co. Filed herewith
23 Consent of Independent Accountants Filed herewith in Financial Supplement
to Grace's 2000 Form 10-K
24 Powers of Attorney Filed herewith
99.1 Audit Committee Charter Filed herewith
99.2 Press Release Filed herewith
</TABLE>
38
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, thereto duly authorized.
W. R. GRACE & CO.
By: /s/ Robert M. Tarola
--------------------
Robert M. Tarola
(Senior Vice President and
Chief Financial Officer)
Dated: April 16, 2001
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 April 16, 2001.
Signature Title
--------- -----
P. J. Norris* President and Director
(Principal Executive Officer)
J. F. Akers* }
R. C. Cambre* }
M. A. Fox* } Directors
J. J. Murphy* }
T. A. Vanderslice* }
/s/ Robert M. Tarola Senior Vice President and Chief Financial Officer
--------------------------- (Principal Financial Officer and Principal
(Robert M. Tarola) Accounting Officer)
------------------------------
* By signing his name hereto, Mark A. Shelnitz 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/ Mark A. Shelnitz
---------------------------
Mark A. Shelnitz
(Attorney-in-Fact)
39
FINANCIAL SUPPLEMENT
W. R. GRACE & CO.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2000
FINANCIAL SUPPLEMENT
TO
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2000
W. R. GRACE & CO. AND SUBSIDIARIES
Index to Consolidated Financial Statements
and Financial Statement Schedule and Exhibit
<TABLE>
<CAPTION>
<S> <C>
Management's Responsibility for Financial Reporting..................... F-3
Report of Independent Accountants....................................... F-4
Report of Independent Accountants on Financial Statement Schedule....... F-5
Consent of Independent Accountants...................................... F-5
Consolidated Statement of Operations for the three years in the
period ended December 31, 2000.................................... F-6
Consolidated Statement of Cash Flows for the three years in the
period ended December 31, 2000.................................... F-7
Consolidated Balance Sheet at December 31, 2000 and 1999................ F-8
Consolidated Statement of Shareholders' Equity (Deficit) for the three
years in the period ended December 31, 2000....................... F-9
Consolidated Statement of Comprehensive Income (Loss) for the three
years in the period ended December 31, 2000....................... F-9
Notes to Consolidated Financial Statements.............................. F-10 - F-30
Quarterly Summary and Statistical Information........................... F-31
Financial Summary....................................................... F-32
Management's Discussion and Analysis of Results of Operations
and Financial Condition........................................... F-33 - F-45
Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts and Reserves.... F-46
Exhibit 12: Computation of Ratio of Earnings to Fixed Charges and
Combined Fixed Charges and Preferred Stock Dividends.............. F-47
</TABLE>
The financial data listed above appearing in this Financial Supplement are
incorporated by reference herein. The Financial Statement Schedule should be
read in conjunction with the Consolidated Financial Statements and Notes
thereto. Financial statements of less than majority-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-2
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
Management is responsible for the preparation, integrity and objectivity
of the Consolidated Financial Statements and the other financial information
included in this report. Such financial information has been prepared in
conformity with accounting principles generally accepted in the United States
of America and accordingly includes certain amounts that represent management's
best estimates and judgments. Actual amounts could differ from those estimates.
Management maintains internal control systems to assist it in fulfilling
its responsibility for financial reporting. These systems include business,
accounting and reporting policies and procedures, selection of personnel,
segregation of duties 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 of internal control and that the costs of such
systems should not exceed their benefits.
The Audit Committee of the Board of Directors, which is comprised of
directors who are neither current nor former officers, employees or consultants
to Grace, meets regularly with Grace's senior financial personnel, internal
auditors and independent 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
accountants to the Board of Directors. Grace's management, internal auditors
and independent accountants have direct and confidential access to the Audit
Committee at all times.
The independent accountants are engaged to conduct the audits of and
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 accountants for purposes of supporting their opinion as set
forth in their report.
/s/ Paul J. Norris /s/ Robert M. Tarola
Paul J. Norris Robert M. Tarola
Chairman, President and Senior Vice President and
Chief Executive Officer Chief Financial Officer
F-3
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF
W. R. GRACE & CO.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of cash flows, of shareholders'
equity (deficit) and of comprehensive income (loss), after the restatement
described in Note 2, present fairly, in all material respects, the financial
position of W. R. Grace & Co. and its subsidiaries at December 31, 2000 and
1999, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the Company'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
auditing standards generally accepted in the United States of America, 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 our opinion.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
Note 1 to the consolidated financial statements, on April 2, 2001, the Company
and substantially all of its domestic subsidiaries voluntarily filed for
protection under Chapter 11 of the United States Bankruptcy Code, which raises
substantial doubt about the Company's ability to continue as a going concern in
its present form. Management's intentions with respect to this matter are also
described in Note 1. The accompanying consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Baltimore, Maryland
January 29, 2001, except for
"Subsequent Event - Voluntary
Bankruptcy Filing" of Note 1 and the
second paragraph under "Income Taxes"
of Note 15, as to which the date is
April 2, 2001
F-4
REPORT OF INDEPENDENT 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,
which was modified as to a matter raising substantial doubt about the Company's
ability to continue as a going concern, and which was dated January 29, 2001,
except for "Subsequent Event - Voluntary Bankruptcy Filing" of Note 1 and the
second paragraph under "Income Taxes" of Note 15, as to which the date is
April 2, 2001, appearing on page F-4 in this Form 10-K also included an audit
of the Financial Statement Schedule listed on page F-2 in the Index to
Consolidated Financial Statements and Financial Statement Schedule and Exhibit
of this Form 10-K. In our opinion, this Financial Statement Schedule, after the
restatement described in Note A to such schedule, presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Baltimore, Maryland
January 29, 2001, except for
"Subsequent Event - Voluntary
Bankruptcy Filing" of Note 1 and the
second paragraph under "Income Taxes"
of Note 15, as to which the date is
April 2, 2001
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 333-37024, 333-49083, 333-49507, 333-49509,
333-49511, 333-49513, 333-49515, 333-49517, 333-49703, and 333-49705) of W. R.
Grace & Co. of our report dated January 29, 2001, except for "Subsequent Event
- Voluntary Bankruptcy Filing" of Note 1 and the second paragraph under "Income
Taxes" of Note 15, as to which the date is April 2, 2001, relating to the
financial statements, which appears on page F-4 in this Form 10-K. We also
consent to the incorporation by reference of our report dated January 29, 2001,
except for "Subsequent Event - Voluntary Bankruptcy Filing" of Note 1 and the
second paragraph under "Income Taxes" of Note 15, as to which the date is
April 2, 2001, relating to the Financial Statement Schedule, which appears
above in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Baltimore, Maryland
April 16, 2001
F-5
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
===================================================================================================================================
W. R. GRACE & CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------------------------------------------------
(Restated)
Amounts in millions, except per share amounts 2000 1999 1998
--------------- -------------- ------------------
<S> <C> <C> <C>
Net sales........................................................ $ 1,597.4 $ 1,550.9 $ 1,546.2
Other income..................................................... 49.5 56.7 36.4
--------------- -------------- ------------------
1,646.9 1,607.6 1,582.6
--------------- -------------- ------------------
Cost of goods sold, exclusive of depreciation and
amortization shown separately below.............................. 973.9 929.3 961.7
Selling, general and administrative expenses..................... 323.1 327.2 325.9
Research and development expenses ............................... 45.7 42.4 47.4
Depreciation and amortization ................................... 87.8 89.2 92.1
Interest expense and related financing costs .................... 28.1 16.1 19.8
Provision for asbestos-related litigation, net of insurance ..... 208.0 -- 376.1
Provision for restructuring and asset impairments................ -- -- 21.0
Net insurance recovery on environmental remediation ............. -- -- (38.2)
--------------- -------------- ------------------
1,666.6 1,404.2 1,805.8
--------------- -------------- ------------------
(Loss) income from continuing operations
before income taxes............................................. (19.7) 203.4 (223.2)
(Provision for) benefit from income taxes ...................... (70.0) (73.2) 28.5
--------------- -------------- ------------------
(LOSS) INCOME FROM CONTINUING OPERATIONS .................. (89.7) 130.2 (194.7)
Income from discontinued operations, net of tax ................. -- 5.7 0.9
--------------- -------------- ------------------
(Loss) income before extraordinary item ......................... (89.7) 135.9 (193.8)
Extraordinary item - loss from early extinguishment
of debt, net of tax ............................................ -- -- (35.3)
--------------- -------------- ------------------
NET (LOSS) INCOME.......................................... $ (89.7) $ 135.9 $ (229.1)
=============== ============== ==================
BASIC (LOSS) EARNINGS PER SHARE:
Continuing operations ..................................... $ (1.34) $ 1.84 $ (2.61)
Net (loss) income ......................................... $ (1.34) $ 1.92 $ (3.07)
Weighted average number of basic shares ......................... 66.8 70.7 74.6
DILUTED (LOSS) EARNINGS PER SHARE:
Continuing operations ..................................... $ (1.34) $ 1.76 $ (2.61)
Net (loss) income.......................................... $ (1.34) $ 1.84 $ (3.07)
Weighted average number of diluted shares ....................... 66.8 73.8 74.6
=============== ============== ==================
</TABLE>
The Notes to Consolidated Financial Statements
are an integral part of these statements.
F-6
<TABLE>
<CAPTION>
==================================================================================== ==============================================
W. R. GRACE & CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------------------------------------------------
Dollars in millions 2000 1999 1998
------------ --------------- ------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
(Loss) income from continuing operations before income taxes .................... $ (19.7) $ 203.4 $ (223.2)
Reconciliation to cash (used for) provided by operating activities:
Depreciation and amortization ............................................. 87.8 89.2 92.1
Provision for asbestos-related litigation, net of insurance................ 208.0 -- 376.1
Provision for restructuring and asset impairments.......................... -- -- 21.0
Gain on disposal of assets ................................................ (5.5) (13.6) --
Changes in assets and liabilities, excluding effect of businesses
acquired/divested and foreign currency exchange:
(Increase) decrease in notes and accounts receivable, net................ (10.6) 0.5 85.7
(Increase) decrease in inventories ...................................... (8.0) (5.7) 0.5
(Increase) decrease in subordinated interest of accounts receivable sold (4.9) 37.0 (65.1)
(Increase) decrease in net pension asset ................................ (33.6) (10.6) (8.8)
Increase (decrease) in accounts payable ................................. (0.3) (0.3) 15.3
(Decrease) increase in accrued liabilities .............................. (9.8) 12.6 (157.1)
Expenditures for asbestos-related litigation ............................ (281.8) (115.9) (238.7)
Proceeds from asbestos-related insurance ................................ 85.6 73.1 74.0
Expenditures for environmental remediation .............................. (36.8) (17.8) (28.9)
Expenditures for postretirement benefits ................................ (23.0) (19.6) (21.0)
Other ................................................................... (5.3) 4.8 6.5
--------------- ----------- --- ----------------
NET PRE-TAX CASH (USED FOR) PROVIDED BY OPERATING ACTIVITIES
OF CONTINUING OPERATIONS................................................. (57.9) 237.1 (71.6)
Net pre-tax cash (used for) operating activities of discontinued operations...... (34.9) (42.9) (66.0)
--------------- ----------- --- ----------------
NET PRE-TAX CASH (USED FOR) PROVIDED BY OPERATING ACTIVITIES .............. (92.8) 194.2 (137.6)
Income taxes (paid) received, net ............................................... (28.3) (54.4) 70.7
--------------- ----------- --- ----------------
NET CASH (USED FOR) PROVIDED BY OPERATING ACTIVITIES ...................... (121.1) 139.8 (66.9)
--------------- ----------- --- ----------------
INVESTING ACTIVITIES
Capital expenditures ............................................................ (64.8) (82.5) (100.9)
Businesses acquired in purchase transactions, net of cash acquired .............. (49.0) (9.4) --
Investments in unconsolidated affiliates ........................................ (3.6) -- --
Net investing activities of discontinued operations ............................. -- (54.1) (14.3)
Net proceeds from divestments of businesses ..................................... -- 184.6 3.9
Proceeds from disposals of assets ............................................... 11.9 40.6 3.1
Net investment in life insurance policies ....................................... (16.3) (2.5) (5.8)
--------------- ----------- --- ----------------
NET CASH (USED FOR) PROVIDED BY INVESTING ACTIVITIES ...................... (121.8) 76.7 (114.0)
--------------- ----------- --- ----------------
FINANCING ACTIVITIES
Borrowings (repayments) having original maturities of three months or less, net 311.3 18.7 (331.3)
Repayments of borrowings having original maturities in excess of three months ... (24.7) -- (698.5)
Proceeds from the exercise of stock options ..................................... 5.8 26.6 52.0
Purchase of treasury stock ...................................................... (47.3) (95.3) (82.2)
Net financing activity of discontinued operations ............................... -- (27.5) 1,256.6
--------------- ----------- --- ----------------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES ...................... 245.1 (77.5) 196.6
--------------- ----------- --- ----------------
Effect of currency exchange rate changes on cash and cash equivalents ........... (10.1) (4.5) 2.0
--------------- ----------- --- ----------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ......................... (7.9) 134.5 17.7
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR .............................. 199.8 65.3 47.6
--------------- ----------- --- ----------------
CASH AND CASH EQUIVALENTS, END OF YEAR ...................................$ 191.9 $ 199.8 $ 65.3
================================================================================================ =========== === ================
</TABLE>
The Notes to Consolidated Financial Statements
are an integral part of these statements.
F-7
<TABLE>
<CAPTION>
================================================================================ ==================================================
W. R. GRACE & CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET DECEMBER 31,
-------------------------------------------------------------------------------- --------------------------------------------------
(Restated)
Amounts in millions, except par value and shares 2000 1999
--------------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents ...................................................... $ 191.9 $ 199.8
Notes and accounts receivable, net ............................................. 197.2 193.6
Inventories .................................................................... 144.2 128.2
Deferred income taxes .......................................................... 98.8 111.7
Asbestos-related insurance expected to be realized within one year ............. 83.8 75.2
Other current assets............................................................ 58.0 71.3
--------------- -------------
TOTAL CURRENT ASSETS ..................................................... 773.9 779.8
Properties and equipment, net of accumulated depreciation and
amortization of $935.4 (1999 - $908.3) ................................... 601.7 617.3
Goodwill, less accumulated amortization of $7.2 (1999 - $7.2) .................. 34.1 25.4
Cash value of life insurance policies, net of policy loans...................... 104.3 81.6
Deferred income taxes .......................................................... 388.4 328.3
Asbestos-related insurance expected to be realized after one year............... 288.2 296.2
Other assets ................................................................... 394.3 346.5
--------------- -- -------------
TOTAL ASSETS ............................................................. $ 2,584.9 $ 2,475.1
=============== == =============
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES
Short-term debt ................................................................ $ 421.9 $ 13.0
Accounts payable ............................................................... 123.1 124.1
Income taxes payable ........................................................... 123.1 146.7
Asbestos-related liability expected to be satisfied within one year............. 178.4 199.3
Other current liabilities ...................................................... 246.4 286.3
--------------- -------------
TOTAL CURRENT LIABILITIES ................................................ 1,092.9 769.4
Long-term debt ................................................................. -- 123.2
Deferred income taxes .......................................................... 20.2 20.5
Asbestos-related liability expected to be satisfied after one year ............. 927.5 884.7
Other liabilities .............................................................. 615.6 566.2
--------------- -- -------------
TOTAL LIABILITIES ........................................................ 2,656.2 2,364.0
--------------- -- -------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' (DEFICIT) EQUITY
Common stock issued, par value $.01; 300,000,000 shares authorized;
outstanding: 2000 - 65,418,000; 1999 - 69,414,000 0.8 0.8
Paid in capital ................................................................ 432.2 422.6
Accumulated deficit............................................................. (216.4) (126.7)
Deferred compensation trust .................................................... -- (0.6)
Treasury stock, at cost: 11,443,900 common shares (1999 - 6,628,500) ........... (136.4) (89.1)
Accumulated other comprehensive loss ........................................... (151.5) (95.9)
--------------- ---------------
TOTAL SHAREHOLDERS' (DEFICIT) EQUITY ..................................... (71.3) 111.1
--------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY ..................... $ 2,584.9 $ 2,475.1
=============== ==============
</TABLE>
The Notes to Consolidated Financial Statements
are an integral part of these statements.
F-8
W. R. GRACE & CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
-----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock and Retained Earnings Deferred
Paid in (Accumulated Compensation Treasury
Dollars in millions Capital Deficit) Trust Stock
------------------------------------------------- ------------------- -------------------- -------------------------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997 $ 564.1 $ 108.3 $ (5.7) $ --
Net (loss), as restated .................... -- (229.1) -- --
Separation of Packaging Business............ (233.8) (82.3) 0.5 --
Reclassification of assets in deferred
compensation trust ...................... -- -- 4.2 --
Purchase of common stock.................... -- -- -- (83.1)
Shares issued under stock plans............. 79.7 -- 0.2 --
Other comprehensive (loss).................. -- -- -- --
--------------- --------------- ------------ --------------
BALANCE, DECEMBER 31, 1998, AS RESTATED.....
$ 410.0 $ (203.1) $ (0.8) $ (83.1)
=============== =============== ============ ==============
Net income ................................. -- 135.9 -- --
Purchase of common stock.................... -- -- -- (94.4)
Shares issued under stock plans ............ 42.3 -- 0.2 --
Retirement of treasury stock................ (28.9) (59.5) -- 88.4
Other comprehensive (loss) ................. -- -- -- --
--------------- --------------- ------------ --------------
BALANCE, DECEMBER 31, 1999, AS RESTATED.....
$ 423.4 $ (126.7) $ (0.6) $ (89.1)
=============== =============== ============ ==============
Net (loss) ................................. -- (89.7) -- --
Purchase of common stock ................... -- -- -- (47.3)
Shares issued under stock plans............. 9.4 -- -- --
Rabbi trust activity ....................... 0.2 -- (0.8) --
Rabbi trust obligations..................... -- -- 1.4 --
Other comprehensive (loss).................. -- -- -- --
--------------- --------------- ------------ --------------
BALANCE, DECEMBER 31, 2000 $ 433.0 $ (216.4) $ -- $ (136.4)
================================================= =============== =============== ============ ==============
<CAPTION>
Accumulated Other TOTAL
Comprehensive SHAREHOLDERS'
Dollars in millions Loss EQUITY (DEFICIT)
----------------------------------------------------------- ---------------------------------
<S> <C> <C>
BALANCE, DECEMBER 31, 1997 $ (198.8) $ 467.9
Net (loss), as restated .................... -- (229.1)
Separation of Packaging Business............ 119.2 (196.4)
Reclassification of assets in deferred
compensation trust ...................... -- 4.2
Purchase of common stock.................... -- (83.1)
Shares issued under stock plans............. -- 79.9
Other comprehensive (loss).................. (1.3) (1.3)
----------------- -----------
BALANCE, DECEMBER 31, 1998, AS RESTATED.....
$ (80.9) $ 42.1
================= ===========
Net income ................................. -- 135.9
Purchase of common stock.................... -- (94.4)
Shares issued under stock plans ............ -- 42.5
Retirement of treasury stock................ -- --
Other comprehensive (loss) ................. (15.0) (15.0)
----------------- -----------
BALANCE, DECEMBER 31, 1999, AS RESTATED.....
$ (95.9) $ 111.1
================= ===========
Net (loss) ................................. -- (89.7)
Purchase of common stock ................... -- (47.3)
Shares issued under stock plans............. -- 9.4
Rabbi trust activity ....................... (0.6)
Rabbi trust obligations..................... 1.4
Other comprehensive (loss).................. (55.6) (55.6)
----------------- -- --------
BALANCE, DECEMBER 31, 2000 $ (151.5) $ (71.3)
================================================================= ===========
</TABLE>
<TABLE>
<CAPTION>
===================================================== =================================================
W. R. GRACE & CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS) YEAR ENDED DECEMBER 31,
----------------------------------------------------- -------------------------------------------------
(Restated)
Dollars in millions 2000 1999 1998
------------ ----------- --------------
<S> <C> <C> <C>
Net (loss) income.................................... $ (89.7) $ 135.9 $ (229.1)
------------ ----------- --------------
Other comprehensive (loss) income:
Foreign currency translation adjustments.......... (34.1) (19.3) (7.2)
Net unrealized (losses) gains on investments...... (17.7) 1.5 16.5
Minimum pension liability adjustments............. (3.8) 2.8 (10.6)
------------ ----------- --------------
Total other comprehensive (loss)..................... (55.6) (15.0) (1.3)
------------ ----------- --------------
Comprehensive (loss) income.......................... $ (145.3) $ 120.9 $ (230.4)
============ =========== ==============
</TABLE>
The Notes to Consolidated Financial Statements
are an integral part of these statements.
F-9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions unless otherwise stated)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING AND FINANCIAL
REPORTING POLICIES
------------------------------------------------------------------------------
NATURE OF OPERATIONS: W. R. Grace & Co., through its subsidiaries, is primarily
engaged in specialty chemicals and specialty materials businesses on a
worldwide basis. These businesses consist of catalysts and silica products
(Davison Chemicals) and construction chemicals, building materials and
container products (Performance Chemicals).
W. R. Grace & Co. conducts substantially all of its business through a direct,
wholly owned subsidiary, W. R. Grace & Co.-Conn. (Grace-Conn.). Grace-Conn.
owns substantially all of the assets, properties and rights of W. R. Grace &
Co., either directly or through subsidiaries. As used in these notes, the term
"Company" refers to W. R. Grace & Co. The term "Grace" refers to the Company
and/or one or more of its subsidiaries and, in certain cases, their respective
predecessors.
SUBSEQUENT EVENT - VOLUNTARY BANKRUPTCY FILING - On April 2, 2001, W. R. Grace
& Co. and 61 of its United States subsidiaries and affiliates, including
Grace-Conn. (collectively, the "Debtors"), filed voluntary petitions for
reorganization (the "Filing") under Chapter 11 of the United States Bankruptcy
Code ("Chapter 11" or the "Bankruptcy Code") in the United States Bankruptcy
Court for the District of Delaware (the "Bankruptcy Court"). The cases were
consolidated and are being jointly administered under case numbers 01-1139
through 01-1200. Grace's non-U.S. operating subsidiaries were not a part of the
Filing.
The Filing was made in response to a sharply increasing number of
asbestos-related bodily injury claims. These claims are discussed in more
detail in Note 3 to the Consolidated Financial Statements. Under Chapter 11,
the Debtors expect to continue to operate their businesses as
debtors-in-possession under court protection from their creditors and
claimants, while using the Chapter 11 process to develop and implement a plan
for addressing the asbestos-related claims against them.
Background of Filing - On January 29, 2001, Grace announced that recent
developments in asbestos-related litigation had led to a fourth quarter charge
of $208.0 million (net of expected insurance recovery). The charge was made to
account for probable and estimable costs related to several adverse
developments in Grace's asbestos litigation during 2000, including: a
significant increase in bodily injury claims; higher than expected costs to
resolve bodily injury and certain property damage claims; and new class-action
lawsuits alleging damages from a former attic insulation product not previously
subject to property damage litigation. After this adjustment, Grace's recorded
liability for asbestos-related litigation at December 31, 2000 is $1,105.9
million gross and $733.9 million net of insurance recovery. The estimated gross
liability represents an undiscounted stream of payments in decreasing amounts
over approximately 40 years. However, due to the Filing and the uncertainties
of asbestos-related litigation, actual amounts could differ materially from the
recorded liability.
Grace also announced on January 29, 2001 that it was reviewing the strategic
and operating issues associated with continuing to defend asbestos litigation
through the court system versus voluntarily seeking a resolution of such
litigation through reorganization under Chapter 11. As a result of that review,
the Board of Directors of Grace concluded on April 2, 2001 that a federal
court-supervised Chapter 11 filing provides the best forum available to achieve
predictability and fairness in the claims settlement process. By filing under
Chapter 11, Grace expects to be able to both obtain a comprehensive resolution
of the claims against it and preserve the inherent value of its businesses.
Consequence of Filing - As a consequence of the Filing, all pending litigation
against the Debtors is stayed and no party may take any action to realize its
pre-petition claims except pursuant to order of the Bankruptcy Court. It is the
Debtors' intention to address all of their pending and future asbestos-related
claims and all other pre-petition claims in a plan of reorganization. However,
it is currently impossible to predict with any degree of certainty how the plan
will treat asbestos and other pre-petition claims and the impact the Filing and
any reorganization plan may have on the shares of common stock of Grace.
Generally, under the provisions of the Bankruptcy Code, holders of equity
interests may not participate under a plan of reorganization unless the claims
of creditors are satisfied in full under the plan or unless creditors accept a
reorganization plan that permits holders of equity interests to participate. The
formulation and
F-10
implementation of a plan of reorganization could take a significant period of
time.
The accompanying Consolidated Financial Statements have been prepared on a
going concern basis, which contemplates continuity of operations, realization
of assets and liquidation of liabilities in the ordinary course of business.
However, as a result of the Filing, such realization of certain Debtors' assets
and liquidation of certain Debtors' liabilities are subject to significant
uncertainty. Further, a plan of reorganization could materially change the
amounts and classifications reported in the consolidated financial statements,
which do not give effect to any adjustments to the carrying value or
classification of assets or liabilities that might be necessary as a
consequence of a plan of reorganization.
All of the Debtors' pre-petition debt is now in default due to the Filing.
Accordingly, the accompanying Consolidated Balance Sheet as of December 31, 2000
reflects the classification of the Debtors' pre-petition debt as current.
The Debtors have negotiated a debtor-in-possession revolving credit facility
with Bank of America, N.A. (the "DIP facility") in the aggregate amount of $250
million. The DIP facility has a term of 2 years and bears interest at either
Bank of America's prime rate or a formula based on the LIBOR rate plus 2.00% to
2.25%. The Bankruptcy Court issued an interim approval of the DIP facility,
which allows the Debtors to draw on the DIP facility for 15 days in an amount
not to exceed $50 million.
The Debtors have received approval from the Bankruptcy Court to pay or
otherwise honor certain of its pre-petition obligations, including claims of
trade creditors to a specified amount and employee wages and benefits in the
ordinary course of business.
Accounting Impact - Beginning in the second quarter of 2001, Grace will be
required to follow Statement of Position 90-7 ("SOP 90-7"), "Financial
Reporting by Entities in Reorganization under the Bankruptcy Code." Pursuant to
SOP 90-7, Grace's pre-petition liabilities that are subject to compromise will
be reported separately on the balance sheet at an estimate of the amount that
will ultimately be allowed by the Bankruptcy Court. Obligations of Grace
subsidiaries not covered by the Filing will remain classified on the
consolidated balance sheet based upon maturity dates or the expected dates of
payment. SOP 90-7 also requires separate reporting of certain expenses,
realized gains and losses, and provisions for losses related to the Filing as
reorganization items.
Pro-Forma Balance Sheet Information (Unaudited) - The condensed balance sheet
of the Debtors as if the Debtors had filed petitions for reorganization under
Chapter 11 at December 31, 2000 is as follows:
================================================= ==================
PRO-FORMA CONDENSED BALANCE SHEET OF DEBTORS
------------------------------------------------- DECEMBER 31,
(UNAUDITED) 2000
(Dollars in millions)
------------------------------------------------- ------------------
Current Assets:
Cash and cash equivalents..................... $ 37.5
Notes and accounts receivable, net............ 32.8
Inventories................................... 75.2
Other current assets.......................... 81.2
------------------
Total current assets...................... 226.7
Properties and equipment, net................. 410.0
Asbestos-related insurance receivable......... 372.0
Deferred income taxes......................... 482.6
Loans to non-debtor entities.................. 407.0
Investment in non-debtor entities............. 148.3
Other noncurrent assets....................... 414.3
------------------
Total assets.............................. $2,460.9
==================
Liabilities Subject to Compromise:
Debt.......................................... $ 409.1
Asbestos-related liability ................... 1,105.9
Other liabilities............................. 955.4
------------------
Total liabilities.......................... 2,470.4
Equity........................................... (9.5)
------------------
Total liabilities and equity............... $2,460.9
================================================= ==================
PACKAGING BUSINESS TRANSACTION: On March 31, 1998, a predecessor of the Company
(Old Grace) completed a transaction in which its flexible packaging business
(Packaging Business) was combined with Sealed Air Corporation (Sealed Air). Old
Grace effected this transaction by transferring its specialty chemicals
businesses along with certain other businesses and assets to the Company (then
named Grace Specialty Chemicals, Inc.), distributing the shares of the
Company's common stock to Old Grace's shareholders on a one-for-one basis
(Spin-off) and merging a subsidiary of Old Grace with Sealed Air (Merger).
Immediately following the Spin-off and Merger, the Company changed its name to
"W. R. Grace & Co." and Old Grace changed its name to "Sealed Air Corporation"
(New Sealed Air). As a result of the transaction, the Packaging Business was
classified as a discontinued operation as of December 31, 1997.
For further information, see Old Grace's Joint Proxy Statement/Prospectus dated
February 13, 1998, the Company's Information Statement dated February 13, 1998
and Note 4.
PRINCIPLES OF CONSOLIDATION: The Consolidated Financial Statements include the
accounts of the Company and majority-owned companies as to which the Company
exercises control over operating and financial policies. Intercompany
transactions and balances are eliminated in consolidation. Investments in
affiliated companies as to which the Company does not exercise control over
operating and financial
F-11
policies are accounted for under the equity method, unless the Company's
ability to influence the investee is determined to be temporary, in which case
the investment is accounted for under the cost method.
RECLASSIFICATIONS: Certain amounts in prior years' Consolidated Financial
Statements have been reclassified to conform to the 2000 presentation.
USE OF ESTIMATES: The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires that management make estimates and assumptions affecting the assets
and liabilities (including contingent assets and liabilities) reported at the
date of the Consolidated Financial Statements and the revenues and expenses
reported for the periods presented. Actual amounts could differ from those
estimates.
CASH EQUIVALENTS: Cash equivalents consist of 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.
SALE OF ACCOUNTS RECEIVABLE: Grace enters into transactions to sell certain of
its trade accounts receivable and retains a subordinated interest and servicing
rights. Net losses on the sale of receivables are based on the carrying value
of the assets sold, allocated in proportion to their fair value. Retained
interests are carried at fair value and are included in other current assets in
the Consolidated Balance Sheet. Grace generally estimates fair value based on
the present value of expected future cash flows less management's best estimate
of uncollectible accounts receivable. Grace maintains an allowance for doubtful
accounts receivable based upon the expected collectibility of all trade
receivables, including receivables sold. The allowance is reviewed regularly
and adjusted for accounts deemed uncollectible by management. Expenses and
losses associated with the program are recognized as a component of interest
expense and related financing costs.
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. inventories, last-in/first-out. Market values for raw materials are based
on current cost and, for other inventory classifications, net realizable value.
PROPERTIES AND EQUIPMENT: Properties and equipment are stated at cost.
Depreciation of properties and equipment is generally computed using the
straight-line method over the estimated useful life of the asset. Estimated
useful lives range from 20 to 40 years for buildings, 3 to 7 years for
information technology equipment, 3 to 10 years for machinery and equipment and
5 to 10 years for furniture and fixtures. Interest is capitalized in connection
with major project expenditures. 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
accumulated depreciation are removed from the accounts and the net amount, less
any proceeds from disposal, is charged or credited to income. Grace reviews
long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be fully recoverable.
GOODWILL: Goodwill arises from certain purchase business combinations and is
amortized using the straight-line method over appropriate periods not exceeding
40 years. Grace reviews its goodwill for impairment whenever events or changes
in circumstances indicate that the carrying amount may not be fully
recoverable.
REVENUE RECOGNITION: Grace recognizes revenue as risk and title to the product
transfers to the customer, which usually occurs upon shipment of goods to
customers or upon performance of services.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements," subsequently updated by SAB 101A and SAB 101B ("SAB 101"). SAB 101
summarizes certain of the SEC's views in applying generally accepted accounting
principles to revenue recognition in financial statements. Grace adopted SAB
101 in the fourth quarter of 2000 and there was no material impact on Grace's
results of operations or financial position.
RESEARCH AND DEVELOPMENT COSTS: Research and development costs are charged to
expense as incurred.
CONSOLIDATED STATEMENT OF CASH FLOWS: Balance sheet information relating to a
discontinued business is not restated for periods prior to the date of
classification of a business as a discontinued operation. Accordingly, "Net
pre-tax cash used for operating activities of discontinued operations" excludes
the effects of changes in working capital of discontinued operations prior to
their classification as
F-12
such. The net investing and financing activities of discontinued operations
represent cash flows of discontinued operations subsequent to the respective
dates of such classifications.
INCOME TAXES: Grace recognizes deferred tax assets and liabilities with respect
to the expected future tax consequences of events that have been recorded in
the Consolidated Financial Statements and tax returns. If it is more likely
than not that all or a portion of deferred tax assets will not be realized, a
valuation allowance is provided against such deferred tax assets.
FOREIGN CURRENCY TRANSLATION: Assets and liabilities of foreign subsidiaries
(other than those located in countries with highly inflationary economies) are
translated into U.S. dollars at current exchange rates, while their revenues,
costs and expenses are translated at average exchange rates during each
reporting period; resulting translation adjustments are included in the
accumulated other comprehensive income (loss) section of the Consolidated
Balance Sheet. The financial statements of subsidiaries located in countries
with highly inflationary economies, if any, are remeasured as if the functional
currency were the U.S. dollar; the remeasurement creates translation
adjustments that are reflected in net (loss) income.
FINANCIAL INSTRUMENTS: Grace periodically enters into interest rate swap
agreements and foreign exchange forward and option contracts to manage exposure
to fluctuations in interest and foreign currency exchange rates. Grace does not
hold or issue derivative financial instruments for trading purposes.
2. PRIOR PERIOD RESTATEMENT AND RECLASSIFICATION
-------------------------------------------------------------------------------
PRIOR PERIOD RESTATEMENT
Grace's financial statements at December 31, 1999 and for the year ended
December 31, 1998, have been restated to reflect management's reassessment of
the realization of certain deferred tax assets. The effect of the restatement
on the accompanying consolidated financial statements was as follows:
=========================================== ==============================
DECEMBER 31, 1999
------------------------------
AS PREVIOUSLY AS
(Dollars in millions) REPORTED RESTATED
------------------------------------------- -------------- ---------------
CONSOLIDATED BALANCE SHEET:
Deferred income taxes, noncurrent....... $ 345.8 $ 328.3
Total assets............................ 2,492.6 2,475.1
Income taxes payable.................... 118.7 146.7
Total liabilities....................... 2,336.0 2,364.0
Accumulated deficit..................... (81.2) (126.7)
Total shareholders' equity.............. 156.6 111.1
=========================================== ============== ===============
=========================================== ==============================
YEAR ENDED
DECEMBER 31, 1998
------------------------------
AS PREVIOUSLY AS
(Dollars in millions) REPORTED RESTATED
------------------------------------------- -------------- ---------------
CONSOLIDATED STATEMENT OF OPERATIONS:
Benefit from income taxes............... $ 74.0 $ 28.5
(Loss) from continuing operations....... (149.2) (194.7)
Net (loss).............................. (183.6) (229.1)
Basic (loss) per share:
Continuing operations................. $ (2.00) $ (2.61)
Net (loss)............................ (2.46) (3.07)
Diluted (loss) per share:
Continuing operations................. $ (2.00) $ (2.61)
Net (loss)............................ (2.46) (3.07)
CONSOLIDATED STATEMENT OF COMPREHENSIVE
INCOME (LOSS):
Comprehensive (loss).................... $ (184.9) $ (230.4)
=========================================== ============== ===============
The restatement had no effect on the Consolidated Statement of Operations for
the year ended December 31, 1999 or the Consolidated Statement of Cash Flows
for the years ended December 31, 1999 and 1998, nor did it affect the financial
position or results of operations of Grace's operating segments as previously
reported.
PRIOR PERIOD RECLASSIFICATION
Grace's financial statements reflect a reclassification of freight costs and
sales commissions (previously shown as a reduction of net sales) to costs of
goods sold and selling expenses in accordance with the Emerging Issues Task
Force Consensus No. 00-10, "Accounting for Shipping and Handling Revenues and
Costs." The effect of the reclassification on the accompanying Consolidated
Statement of Operations was as follows:
========================= ========================== ==========================
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
-------------------------- --------------------------
AS AS AS AS
PREVIOUSLY CURRENTLY PREVIOUSLY CURRENTLY
(Dollars in millions) REPORTED REPORTED REPORTED REPORTED
------------------------- -------------- ----------- -------------- -----------
Net sales............ $1,471.9 $1,550.9 $1,463.4 $1,546.2
Cost of goods sold... 856.2 929.3 883.4 961.7
Selling, general and
administrative expenses 321.3 327.2 321.4 325.9
========================= ============== =========== ============== ===========
F-13
3. ASBESTOS-RELATED LITIGATION
-------------------------------------------------------------------------------
Grace is a defendant in property damage and bodily injury lawsuits relating to
previously sold asbestos-containing products and expects that it will receive
additional asbestos-related claims in the future. Grace was a defendant in
61,395 asbestos-related lawsuits at December 31, 2000 (7 involving claims for
property damage, 8 involving attic insulation, and the remainder involving
124,907 claims for bodily injury), as compared to 50,342 lawsuits at December
31, 1999 (11 involving claims for property damage and the remainder involving
105,670 claims for bodily injury).
PROPERTY DAMAGE LITIGATION
The plaintiffs in property damage lawsuits generally seek to have the
defendants absorb the cost of removing, containing or repairing the
asbestos-containing materials in the affected buildings. Each property damage
case is unique in that the age, type, size and use of the building, and the
difficulty of asbestos abatement, if necessary, vary from structure to
structure. Thus, the amounts involved in prior dispositions of property damage
cases are not necessarily indicative of the amounts that may be required to
dispose of cases in the future. Information regarding product identification,
the amount of product in the building, the age, type, size and use of the
building, the jurisdictional history of prior cases and the court in which the
case is pending provide meaningful guidance as to the range of potential costs.
Grace has recorded an accrual for all outstanding property damage cases for
which sufficient information is available to form a reasonable estimate of such
exposure.
Through December 31, 2000, out of 370 asbestos property damage cases filed, 140
were dismissed without payment of any damages or settlement amounts; judgments
were entered in favor of Grace in 9 cases (excluding cases settled following
appeals of judgments in favor of Grace); judgments were entered in favor of the
plaintiffs in 7 cases for a total of $60.3 million; 207 property damage cases
were settled for a total of $696.8 million; and 7 cases remain outstanding. No
new cases have been filed since 1998.
======================================================== ==================
PROPERTY DAMAGE CASE ACTIVITY 2000 1999
-------------------------------------------------------- ------------------
Cases outstanding, beginning of year.. 11 14
New cases filed ...................... -- --
Settlements .......................... (4) (3)
Dismissals ........................... -- --
Judgments ............................ -- --
------------------ ------------------
Cases outstanding, end of year.. 7 11
======================================================== ==================
ATTIC INSULATION LITIGATION
Through December 31, 2000, Grace was a defendant in eight class action lawsuits
brought on behalf of owners of homes containing Zonolite attic fill insulation.
These lawsuits seek damages and equitable relief, including the removal,
replacement and/or disposal of all such insulation. This former attic
insulation product has never previously been the subject of property damage
litigation. Grace believes that this product was safe for its intended purpose.
BODILY INJURY LITIGATION
Bodily injury claims are generally similar to each other (differing primarily
in the type of asbestos-related illness allegedly suffered by the plaintiff).
However, Grace's estimated liability for such claims is influenced by numerous
variables, including the solvency of other former asbestos producers,
cross-claims by co-defendants, the rate at which new claims are filed, the
jurisdiction in which the filings are made, and the defense and disposition
costs associated with these claims. Grace's bodily injury liability reflects
management's estimate of the number and ultimate cost of present and future
bodily injury claims expected to be asserted against Grace given demographic
assumptions of possible exposure to asbestos products manufactured by Grace.
Through December 31, 2000, approximately 16,200 asbestos bodily injury lawsuits
involving approximately 35,500 claims were dismissed without payment of any
damages or settlement amounts (primarily on the basis that Grace products were
not involved), and approximately 53,400 lawsuits involving approximately
151,800 claims were disposed of (through settlement and judgments) for a total
of $561.8 million.
Bodily injury claim activity for 2000 and 1999 was as follows:
============================================== ================ ==============
BODILY INJURY CLAIM ACTIVITY 2000 1999
---------------------------------------------- ---------------- --------------
Claims outstanding,
beginning of year .................... 105,670 97,017
New claims .............................. 48,786 26,941
Settlements ............................. (26,950) (16,174)
Dismissals .............................. (2,598) (2,109)
Judgments ............................... (1) (5)
---------------- --------------
Claims outstanding, end of year....... 124,907 105,670
============================================== ================ ==============
F-14
ASBESTOS-RELATED LIABILITY
Grace estimates its property damage and bodily injury liabilities based on its
experience with, and recent trends in, asbestos litigation. Its recorded
liabilities cover indemnity and defense costs for pending property damage cases
and for pending and projected future bodily injury claims. As a result of the
recent developments discussed in Note 1, Grace's evaluation of its recorded
liability for asbestos-related litigation as of December 31, 2000 led to a
fourth quarter adjustment of $293.1 million ($190.8 million net of tax) to
account for an unexpected increase in the number of claims filed, new risk
factors and recent cost experience. In the fourth quarter of 1998, a change in
the accrual period for asbestos-related bodily injury litigation resulted in an
adjustment of $576.2 million ($374.9 million after tax).
Grace previously purchased insurance policies with respect to its
asbestos-related lawsuits and claims. Grace adjusted its recorded insurance
receivable in the fourth quarter of 2000 by $85.1 million ($55.6 million after
tax) to reflect the additional amounts expected to be recovered in respect of
the recorded asbestos-related liability. In 1998, the insurance receivable was
adjusted by $200.2 million ($130.5 million after tax) for the same reason.
The net amount of the adjustments recorded during the fourth quarter of 2000
($208.0 million after insurance recovery) reflects adverse experience in the
latter part of 2000 versus certain underlying assumptions used to estimate
Grace's liability for asbestos-related litigation. The net amount of the 1998
adjustment was $376.1 million pre-tax. After the 2000 adjustment, Grace's
recorded liability for asbestos-related litigation is $1,105.9 million gross
and $733.9 million net of insurance recovery.
====================================================== ============ ===========
ESTIMATED LIABILITY FOR ASBESTOS-RELATED LITIGATION
(Dollars in millions) 2000 1999
------------------------------------------------------ ------------ -----------
Asbestos-related liability expected to be satisfied
within one year............................... $ 178.4 $ 199.3
Asbestos-related liability expected to be satisfied
after one year................................ 927.5 884.7
------------ -----------
Total asbestos-related liability ................ $ 1,105.9 $ 1,084.0
====================================================== ============ ===========
The current portion of Grace's asbestos-related liability is based on
management's estimate as of the respective balance sheet date of indemnity
payments and defense costs expected to be paid within one year. The amounts
recorded at each balance sheet date reflect Grace's estimate as of the balance
sheet date, based on measures governed by generally accepted accounting
principles, of probable and estimable liabilities for asbestos-related
litigation in all material respects. However, due to the Filing and the
uncertainties of the asbestos-related litigation, actual amounts could differ
materially from the recorded liability.
ASBESTOS INSURANCE
Grace has settled with and been paid by its primary insurance carriers with
respect to both property damage and bodily injury cases and claims. Grace has
also settled with its excess insurance carriers that wrote policies available
for property damage cases; those settlements involve amounts paid and to be
paid to Grace. In addition, Grace has settled with many excess insurance
carriers that wrote policies available for bodily injury claims in layers of
insurance that Grace believes may be reached based on its current estimates.
Insurance coverage for asbestos-related liabilities has not been commercially
available since 1985.
The asbestos-related insurance asset represents amounts expected to be received
from carriers under settlement agreements for defense and disposition costs to
be paid by Grace. Estimated insurance reimbursements relate to property damage
and bodily injury cases and claims pending at year-end 2000 and bodily injury
claims expected to be filed in the future.
Activity in Grace's notes receivable from insurance carriers and
asbestos-related insurance receivable during 2000 and 1999 was as follows:
====================================================== ============ ===========
ESTIMATED INSURANCE RECOVERY ON ASBESTOS-RELATED
LIABILITIES
(Dollars in millions) 2000 1999
------------------------------------------------------ ------------ -----------
NOTES RECEIVABLE
Notes receivable from insurance carriers, beginning
of year, net of discount of $0.8 (1999 - $2.3)
$ 5.3 $ 18.0
Proceeds received under asbestos-related insurance
settlements .................................. (3.2) (14.2)
Current year amortization of discount ........... 0.6 1.5
------------------------------------------------------ ------------ -----------
Notes receivable from insurance carriers, end of
year, net of discount of $0.2
(1999 - $0.8) ................................ 2.7 5.3
------------------------------------------------------ ------------ -----------
INSURANCE RECEIVABLE
Asbestos-related insurance receivable, beginning of
year ......................................... 366.1 425.0
Proceeds received under asbestos-related insurance
settlements .................................. (82.4) (58.9)
Increase in asbestos-related insurance receivable 85.6 --
------------------------------------------------------ ------------ -----------
Asbestos-related insurance receivable, end of
year ......................................... 369.3 366.1
------------------------------------------------------ ------------ -----------
Total amounts due from insurance carriers..... 372.0 371.4
Expected to be realized within one year ...... (83.8) (75.2)
------------------------------------------------------ ------------ -----------
Expected to be realized after one year ....... $ 288.2 $ 296.2
====================================================== ============ ===========
F-15
4. DISCONTINUED OPERATIONS
------------------------------------------------------------------------------
PACKAGING BUSINESS TRANSACTION
As discussed in Note 1, the Spin-off and the Merger were completed on March 31,
1998. Prior to the Spin-off and the Merger, Old Grace and a Packaging Business
subsidiary borrowed $1,258.8 million (inclusive of $2.2 million of bank fees)
and made a cash transfer of $1,256.6 million to Grace, which used the
transferred funds to repay substantially all of Grace's debt (see Note 12). The
borrowed funds are shown as a net financing activity of discontinued operations
in the Consolidated Statement of Cash Flows for 1998. In the Merger and a
related recapitalization, for each Old Grace common share outstanding at the
close of trading on March 31, 1998, each shareholder received .536 shares of
New Sealed Air common stock and .475 shares of New Sealed Air convertible
preferred stock. Upon the completion of the Spin-off and the Merger, the
shareholders of Old Grace owned (a) 100% of the specialty chemicals businesses
(through their ownership of 100% of the Company's outstanding shares) and (b)
approximately 63% of New Sealed Air, on a fully diluted basis.
The Packaging Business transaction resulted in an adjustment to shareholders'
equity of $196.4 million, representing Grace's net investment in the Packaging
Business.
During 1998, Grace made certain amendments to one of its domestic pension
plans, which included offering a lump sum settlement option to former Grace
employees not currently receiving benefits. During 1999, a significant number
of the lump sum offers were settled. The Packaging Business Transaction also
required the Company to split certain pension plans and recognize a net
curtailment loss for other plans. In 1999, the Company recognized a pre-tax
noncash charge of $9.1 million ($5.7 million after tax), relating to
settlements of the lump sum offers with former Packaging Business employees,
which is included in "Income from discontinued operations, net of tax" in the
Consolidated Statement of Operations. In 1998, the Company recognized a net
pre-tax loss of $8.4 million ($5.5 million after-tax) in connection with those
changes. This net pre-tax loss is included in "Income from discontinued
operations, net of tax" in the Consolidated Statement of Operations.
CROSS COUNTRY STAFFING
In July 1999, Grace completed the sale of substantially all of its interest in
Cross Country Staffing (CCS), a provider of temporary nursing and other
healthcare services, for total cash proceeds of $184.6 million. The Company's
investment in CCS had been accounted for under the equity method. The sale
resulted in a net pre-tax gain of $76.3 million ($32.1 million after tax),
including the cost of the Company's purchase of interests held by third parties
in CCS and the amount payable under CCS's phantom equity plan prior to closing
under the sale transaction. The gain and the operations of CCS prior to the
sale are included in "Income from discontinued operations, net of tax" in the
Consolidated Statement of Operations. Certain contingent liabilities, primarily
related to tax matters of CCS, have been retained by the Company and are
included in other current liabilities in the Consolidated Balance Sheet.
RETAINED OBLIGATIONS
Under certain divestiture agreements, Grace has retained contingent obligations
that could develop into situations where accruals for estimated costs of
defense or loss would be recorded in a period subsequent to divestiture under
generally accepted accounting principles. Grace assesses its retained risks
quarterly and accrues amounts estimated to be payable related to these
obligations when probable and estimable.
During the years ended December 31, 2000 and 1999, Grace revised its estimate of
the outcome of certain retained obligations of discontinued operations based on
current circumstances. During 2000, as a result of the revised estimate, Grace
recorded a net charge of $6.2 million ($4.1 million after tax). This charge was
offset by a foreign pension premium refund and the reduction of previously
established accruals for environmental remediation. During 1999, the revised
estimate resulted in an additional charge of $25.7 million ($16.7 million after
tax). These charges are included in "Income from discontinued operations, net of
tax" in the Consolidated Statement of Operations.
F-16
========================================= ============== =========== ==========
RESULTS OF DISCONTINUED OPERATIONS
(Dollars in millions) 2000 1999 1998
----------------------------------------- ---------- ----------- ----------
Net sales ............................ $ -- $ -- $ 431.2
---------- ----------- ----------
(Loss) income from operations before
taxes.............................. -- (17.7) 14.7
Income tax provision ................. -- 8.0 (13.8)
---------- ----------- ----------
(Loss) income from discontinued
operations ........................ -- (9.7) 0.9
Net gains on dispositions of businesses -- 76.3 --
Provision for income taxes on
dispositions of businesses......... -- (44.2) --
Other charges, net of tax............. -- (16.7) --
---------- ----------- ----------
TOTAL INCOME FROM
DISCONTINUED OPERATIONS............ $ -- $ 5.7 $ 0.9
========== =========== ==========
BASIC EARNINGS PER SHARE FROM
DISCONTINUED OPERATIONS............ $ -- $ 0.08 $ 0.01
DILUTED EARNINGS PER SHARE FROM
DISCONTINUED OPERATIONS............ $ -- $ 0.08 $ 0.01
========================================= ========== =========== ==========
5. INCOME TAXES
-------------------------------------------------------------------------------
The components of (loss) income from continuing operations before income taxes
and the related (provision for) benefit from income taxes are as follows:
===================================== ============== ============ ============
INCOME TAXES - CONTINUING OPERATIONS (Restated)
(Dollars in millions) - 2000 1999 1998
------------------------------------- -------------- ------------ ------------
(Loss) income from continuing operations before income taxes:
Domestic...................... $ (94.7) $ 135.9 $ (275.8)
Foreign....................... 75.0 67.5 52.6
-------------- ------------ ----------
$ (19.7) $ 203.4 $ (223.2)
============== ============ ==========
(Provision for) benefit from income taxes:
Federal - current............. $ (66.2) $ (21.2) $ 51.2
Federal - deferred............ 39.4 (26.4) 7.0
State and local - current..... (20.0) (3.5) (1.3)
Foreign - current............. (21.8) (23.1) (21.9)
Foreign - deferred............ (1.4) 1.0 (6.5)
-------------- ------------ ----------
$ (70.0) $ (73.2) $ 28.5
============== ============ ==========
The components of (loss) income from consolidated operations before income
taxes and the related (provision for) benefit from income taxes are as follows:
===================================== ============== ============= ============
INCOME TAXES - CONSOLIDATED
OPERATIONS (Dollars in millions) (Restated)
2000 1999 1998
------------------------------------- -------------- ------------- ------------
(Loss) income from consolidated operations before income taxes:
Domestic...................... $ (94.7) $ 168.9 $(342.0)
Foreign....................... 75.0 67.5 77.1
-------------- ------------- ---------
$ (19.7) $ 236.4 $(264.9)
============== ============= =========
(Provision for) benefit from income taxes:
Federal - current............. $ (66.2) $ (40.7) $ 63.1
Federal - deferred............ 39.4 (29.9) 13.7
State and local - current..... (20.0) (7.8) (3.6)
Foreign - current............. (21.8) (23.1) (36.4)
Foreign - deferred............ (1.4) 1.0 (1.0)
-------------- ------------- ---------
$ (70.0) $ (100.5) $ 35.8
===================================== ============== ============= =========
At December 31, 2000 and 1999, net deferred tax assets consisted of the
following items:
=================================================== ============== ============
DEFERRED TAX ANALYSIS (Restated)
(Dollars in millions) 2000 1999
--------------------------------------------------- -------------- ------------
Liability for asbestos-related litigation..... $ 387.1 $ 379.4
Net operating loss/tax credit
carry forwards............................. 178.6 90.6
Deferred state taxes.......................... 90.2 90.2
Liability for environmental remediation....... 61.2 75.4
Other post-retirement benefits................ 66.1 70.5
Deferred charges.............................. 54.4 58.6
Reserves and allowances....................... 43.3 56.5
Research and development...................... 32.6 31.7
Pension benefit............................... 15.9 19.8
Foreign loss/credit carry forwards............ 10.0 8.7
Other......................................... 13.6 11.5
-------------- ------------
Total deferred tax assets..................... 953.0 892.9
-------------- ------------
Asbestos-related insurance receivable......... (123.1) (121.7)
Pension assets................................ (79.8) (68.2)
Properties and equipment...................... (52.1) (58.4)
Other......................................... (62.3) (72.5)
-------------- ------------
Total deferred tax liabilities................ (317.3) (320.8)
-------------- ------------
Valuation allowance .......................... (169.6) (153.2)
-------------- ------------
Net deferred tax assets....................... $ 466.1 $ 418.9
=================================================== ============== ============
The valuation allowance shown above arises from uncertainty as to the
realization of certain deferred tax assets, primarily foreign tax credit
carryforwards and state and local net operating loss carryforwards. Based upon
anticipated future results, Grace has concluded that it is more likely than not
that the balance of the net deferred tax assets, after consideration of the
valuation allowance, will be realized. However, given the Company's current net
operating loss carryforward position, such benefits are unlikely to be utilized
for the foreseeable future.
At December 31, 2000, there were $236.5 million of net operating loss
carryforwards, representing deferred tax assets of $82.8 million, with
expiration dates through 2020; $54.6 million of foreign tax credit
carryforwards with expiration dates through 2006; $6.6 million of general
business credit carryforwards with expiration dates through 2013; and $34.6
million of alternative minimum tax credit carryforwards.
The differences between the benefit (provision) for income taxes at the federal
income tax rate of 35% and the Company's overall income tax (provision) benefit
for continuing operations are summarized as follows:
F-17
================================= =============== ================ ============
INCOME TAX (PROVISION) BENEFIT (Restated)
ANALYSIS (Dollars in 2000 1999 1998
millions)
--------------------------------- --------------- ---------------- ------------
Tax benefit (provision)
at federal corporate rate.. $ 6.9 $ (71.2) $ 78.1
Change in provision resulting from:
Nontaxable
income/non-deductible
expenses................. (1.6) (0.1) 5.2
State and local income taxes,
net of federal income tax
benefit.................. (1.8) (1.9) (0.9)
Federal and foreign taxes on
foreign operations....... 1.5 0.5 (33.1)
Tax and interest relating to
tax deductibility of
interest on COLI policy
loans (See note 15)...... (75.0) -- --
Valuation allowance for tax
assets................... -- -- (20.8)
Other, net.................. -- (0.5) --
--------------------------------- --------------- ---------------- ------------
Income tax (provision) benefit $ (70.0) $ (73.2) $ 28.5
================================= =============== ================ ============
Federal, state, local and foreign taxes have not been provided on approximately
$145.4 million 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 $11.2 million and additional federal
income taxes to the extent they are not offset by foreign tax credits. It is
not practicable to estimate the total tax liability that would be incurred upon
such a distribution.
6. ACQUISITIONS
-------------------------------------------------------------------------------
During 2000, Grace completed six acquisitions for cash consideration of $49.0
million and an obligation related to intangible assets of $19.6 million. During
1999, Grace completed one acquisition for all cash. All acquisitions were
accounted for under the purchase method of accounting. The results of
operations of each acquisition are included in the Consolidated Financial
Statements from the date of each acquisition. Pro-forma results of operations
have not been presented because the effects of these acquisitions were not
material on either an individual or aggregate basis.
7. OTHER INCOME
-------------------------------------------------------------------------------
Components of other income are as follows:
================================= =============== ================ ============
OTHER INCOME
(Dollars in millions) -------------- 1999 1998
2000
--------------------------------- --------------- ---------------- ------------
Net gain on settlement of notes
receivable................ $ -- $ 18.5 $ --
Investment income............ 25.5 14.0 8.0
Gain on disposal of
assets.................. 5.5 13.6 --
Tolling revenue.............. 2.3 -- 11.7
Interest income.............. 9.7 4.2 4.9
Other miscellaneous income ..
6.5 6.4 11.8
--------------------------------- --------------- ---------------- ------------
Total..................... $ 49.5 $ 56.7 $ 36.4
================================= =============== ================ ============
8. COMPREHENSIVE (LOSS) INCOME
-------------------------------------------------------------------------------
The tables below present the pre-tax, tax and after tax components of Grace's
other comprehensive (loss) income for the years ended December 31, 2000, 1999
and 1998:
======================================= =========== ============ ========
Tax After
Year Ended Pre-tax (Expense) Tax
December 31, 2000 Amount Benefit Amount
(Dollars in millions)
--------------------------------------- ----------- ------------ ---------
Unrealized (loss) on security:
Change in unrealized appreciation
during year...................... $ (8.0) $ 2.7 $ (5.3)
Reclassification adjustment for gains
realized in net income........... (19.0) 6.6 (12.4)
----------- ------------ -----------
Net unrealized gains................ (27.0) 9.3 (17.7)
Minimum pension liability adjustments (2.2) (1.6) (3.8)
Foreign currency translation
adjustments...................... (34.1) -- (34.1)
----------- ------------ -----------
Other comprehensive loss............ $ (63.3) $ 7.7 $ (55.6)
======================================= =========== ============ ===========
======================================= =========== ============ ===========
Year Ended Tax After
December 31, 1999 Pre-tax (Expense) Tax
(Dollars in millions) Amount Benefit Amount
--------------------------------------- ------------ ------------ - -----------
Unrealized gains on security:
Change in unrealized appreciation
during year...................... $ 11.5 $ (4.0) $ 7.5
Reclassification adjustment for gains
realized in net income........... (9.3) 3.3 (6.0)
------------ ----------- ----------
Net unrealized gains................ 2.2 (0.7) 1.5
Minimum pension liability adjustments 4.4 (1.6) 2.8
Foreign currency translation
adjustments...................... (19.3) -- (19.3)
------------ ----------- ----------
Other comprehensive loss............ $ (12.7) $ (2.3) $ (15.0)
======================================= ============ =========== ==========
F-18
======================================= ============== ============ =========
Year Ended Tax After
December 31, 1998 Pre-tax (Expense) Tax
(Dollars in millions) Amount Benefit Amount
--------------------------------------- -------------- ------------ ---------
Unrealized gains on security:
Change in unrealized appreciation
during year...................... $ 29.5 (10.3) $ 19.2
Reclassification adjustment for gains
realized in net income........... (4.1) 1.4 (2.7)
-------------- ------------ ---------
Net unrealized gains................ 25.4 (8.9) 16.5
Minimum pension liability adjustments (20.0) 9.4 (10.6)
Foreign currency translation
adjustments...................... (7.2) -- (7.2)
-------------- ------------ ---------
Other comprehensive loss............ $ (1.8) $ 0.5 $ (1.3)
======================================= ============== ============ =========
9. OTHER BALANCE SHEET ACCOUNTS
-------------------------------------------------------------------------------
================================================= =============== =============
(Dollars in millions) 2000 1999
------------------------------------------------- --------------- -------------
NOTES AND ACCOUNTS RECEIVABLE, NET
Trade receivables, less allowance of $3.9 (1999
- $3.8)................................... $ 172.2 $ 165.7
Other receivables, less allowances of $0.5
(1999 - $0.3)............................. 25.0 27.9
--------------- -------------
$ 197.2 $ 193.6
================================================= =============== =============
INVENTORIES (1)
Raw materials ............................... $ 32.7 $ 34.9
In process .................................. 22.4 16.7
Finished products ........................... 96.4 83.6
General merchandise ......................... 22.0 20.2
Less: Adjustment of certain inventories to a
last-in/first-out (LIFO) basis ........... (29.3) (27.2)
--------------- -------------
$ 144.2 $ 128.2
================================================= =============== =============
(1) Inventories valued at LIFO cost comprised 50.1% of total inventories at
December 31, 2000 and 45.5% at December 31, 1999.
===============================================================================
OTHER ASSETS
Plan assets in excess of defined benefit
pension obligation........................ $ 200.1 $ 298.9
Unamortized costs of overfunded pension plans 104.7 (27.6)
Deferred charges ............................ 44.3 52.4
Long-term receivables, less allowances of $0.8
(1999 - $0.8) ............................ 2.4 2.6
Investments in unconsolidated affiliates..... 3.6 --
Patents, licenses and other intangible assets 39.2 20.2
--------------- -------------
$ 394.3 $ 346.5
================================================= =============== =============
OTHER CURRENT LIABILITIES
Retained obligations of divested businesses . $ 67.2 $ 85.1
Accrued compensation ........................ 32.6 36.9
Costs of business restructurings ............ 2.7 13.6
Environmental remediation ................... 36.2 43.9
Deferred compensation ....................... 10.5 --
Accrued interest ............................ 6.3 5.7
Other accrued liabilities ................... 90.9 101.1
--------------- -------------
$ 246.4 $ 286.3
================================================= =============== =============
OTHER LIABILITIES
Other postretirement benefits ............... $ 189.1 $ 201.4
Environmental remediation ................... 138.7 171.6
Defined benefit obligations in excess of
pension plan assets ...................... 167.8 161.8
Unamortized costs of underfunded pension plans (36.0) (33.1)
Deferred compensation ....................... 9.5 32.1
Long-term self insurance reserve ............ 5.6 7.8
Retained obligations of divested businesses . 10.9 14.0
Taxes payable, including interest ........... 103.0 --
Other accrued liabilities ................... 27.0 10.6
--------------- -------------
$ 615.6 $ 566.2
================================================= =============== =============
F-19
10. PROPERTIES AND EQUIPMENT
-------------------------------------------------------------------------------
================================================= =============== =============
PROPERTIES AND EQUIPMENT
(Dollars in millions) 2000 1999
------------------------------------------------- --------------- -------------
Land......................................... $ 16.3 $ 18.7
Buildings.................................... 329.6 330.9
Information technology equipment............. 67.5 63.2
Machinery, equipment and other............... 1,076.5 1,061.0
Projects under construction.................. 47.2 51.8
--------------- -------------
Properties and equipment, gross.............. 1,537.1 1,525.6
Accumulated depreciation and amortization.... (935.4) (908.3)
--------------- -------------
Properties and equipment, net................ $ 601.7 $ 617.3
================================================= =============== =============
Interest costs are incurred in connection with the financing of certain assets
prior to placing them in service. Grace capitalized interest costs for
continuing operations of $1.0 million in 2000, $0.8 million in 1999, and $2.8
million in 1998. Depreciation and lease amortization expense relating to
properties and equipment amounted to $84.6 in 2000, $86.6 million in 1999 and
$89.6 million in 1998. Grace's rental expense for operating leases amounted to
$18.0 million in 2000, $15.6 million in 1999 and $15.7 million in 1998. See
Note 15 for information regarding contingent rentals.
At December 31, 2000, minimum future payments for operating leases were
(dollars in millions):
===============================================================================
MINIMUM FUTURE PAYMENTS UNDER OPERATING LEASES
-------------------------------------------------------------------------------
2001.................................................... $ 10.2
2002.................................................... 9.2
2003.................................................... 9.0
2004.................................................... 8.7
2005.................................................... 8.7
-------------
Total minimum lease payments............................ $ 45.8
================================================================= =============
The above minimum lease payments are net of anticipated sublease income of
$13.5 million in 2001, $13.6 million in 2002, $6.9 million in 2003, $1.8
million in 2004 and $0.7 million in 2005.
11. LIFE INSURANCE
-------------------------------------------------------------------------------
Grace is the beneficiary of life insurance policies on certain current and
former employees with benefits in force of approximately $2,286 million and a
net cash surrender value of $104.3 million at December 31, 2000. The policies
were acquired to fund various employee benefit programs and other long-term
liabilities and are structured to provide cash flow (primarily tax-free) over
an extended number of years. The following table summarizes activity in these
policies for 2000 and 1999:
======================================== ============== ============== =========
ACTIVITY SUMMARY -
LIFE INSURANCE
(Dollars in millions) 2000 1999 1998
---------------------------------------- -------------- -------------- ---------
Earnings on policy assets.............. $ 36.8 $ 31.6 $ 33.8
Interest on policy loans............... (30.4) (29.5) (30.8)
Policy loan repayments................. 5.2 3.4 1.6
Annual premiums........................ 2.5 2.4 3.8
Other activity......................... 8.6 (3.3) 0.4
-------------- -------------- ---------
Change in net cash value............ $ 22.7 $ 4.6 $ 8.8
======================================== ============== ============== =========
Gross cash value....................... $ 452.4 $ 432.4 $ 431.8
Principal - policy loans............... (325.8) (331.0) (334.3)
Accrued interest - policy loans (22.3) (19.8) (20.5)
-------------- -------------- ---------
Net cash value......................... $ 104.3 $ 81.6 $ 77.0
======================================== ============== ============== =========
Insurance benefits in force............ $ 2,286.0 $ 2,309.0 $2,325.0
======================================== ============== ============== =========
Tax-free proceeds received............. $ 18.7 $ 15.3 $ 4.6
======================================== ============== ============== =========
Policy loans bore interest at an average annualized rate of 9.2% during the
year ended December 31, 2000, compared to an average of 8.4% for the year ended
December 31, 1999. Policy assets are invested primarily in general accounts of
the insurance carriers and earned returns at average annualized rates of 8.2%
for 2000 and 7.3% for 1999.
The Company's financial statements display income statement activity and
balance sheet amounts on a net basis, reflecting the contractual
interdependency of policy assets and liabilities.
F-20
12. DEBT AND EXTRAORDINARY ITEM
--------------------------------------------------------------------------------
================================================= ================ =============
COMPONENTS OF DEBT
------------------------------------------------ 2000 1999
(Dollars in millions)
------------------------------------------------- ---------------- -------------
SHORT-TERM DEBT
Bank borrowings (6.9% weighted average interest
rate at December 31, 2000) (1)............ $ 400.0 $ --
8.0% Notes Due 2004 (3)...................... 5.7 --
7.75% Notes Due 2002 (3)..................... 2.0 --
Other short-term borrowings (2).............. 14.2 13.0
---------------- -------------
$ 421.9 $ 13.0
================ =============
LONG-TERM DEBT
Bank borrowings (5.6% weighted average interest
rate at December 31, 1999) (1)............ $ -- $ 89.7
8.0% Notes Due 2004 (3)...................... -- 5.7
7.4% Notes Due 2000 (3)...................... -- 24.7
7.75% Notes Due 2002 (3)..................... -- 2.0
Sundry indebtedness with various maturities
through 2004.............................. -- 1.1
---------------- -------------
$ -- $ 123.2
================ =============
Full-year weighted average interest rates on
total debt (4)............................ 7.0% 6.3%
================================================= ================ =============
(1) Under bank revolving credit agreements in effect at December 31, 2000,
Grace could borrow up to $500.0 million at interest rates based upon the
prevailing prime, federal funds and/or Eurodollar rates. Of that amount,
$250.0 million was available under short-term facilities expiring, unless
extended, in May 2001, and $250.0 million was available under a long-term
facility expiring in May 2003. As a result of the Filing, Grace is in
default of the bank revolving credit agreements and accordingly, the
balance has been reported as short-term debt.
(2) Represents borrowings under various lines of credit and other
miscellaneous borrowings, primarily of non-U.S. subsidiaries.
(3) During 1994, Grace sold $300.0 million of 8.0% Notes Due 2004 at an
initial public offering price of 99.794% of par, to yield 8.0%; during
1993, Grace sold at par $300.0 million of 7.4% Notes Due 2000; and during
1992, Grace sold at par $150.0 million of 7.75% Notes Due 2002. Interest
on these notes is payable semiannually, and the notes may not be redeemed
prior to maturity; however, Grace has repurchased notes from time to time
in response to unsolicited offers. As a result of the Filing, Grace is in
default on the Notes and accordingly, the balance has been reported as
short-term debt.
(4) Computation includes interest expense allocated to discontinued operations
(primarily the Packaging Business) and excludes interest expense and
related financing costs related to the Company's receivables financing
program.
On February 1, 2000, Grace refinanced the 7.4% Notes Due 2000 using the
long-term credit facility expiring May 2003. As a result of the Filing, all of
the Company's debt is callable and therefore not subject to scheduled
maturities.
The amounts of interest expense allocated to discontinued operations (primarily
the Packaging Business) were $13.3 million in 1998. Interest payments amounted
to $23.7 million in 2000, $8.2 million in 1999 and $47.1 million in 1998,
including amounts allocated to discontinued operations.
As discussed in Notes 1 and 4 above, Grace received a cash transfer of $1,256.6
million in connection with the Spin-off and Merger. Grace used the transferred
funds to repay substantially all of its debt. On March 31, 1998, Grace used
$600.0 million of the cash transfer to repay bank borrowings. On April 1, 1998,
Grace repaid $611.3 million principal amount of 8.0% Notes Due 2004, 7.4% Notes
Due 2000 and 7.75% Notes Due 2002 (collectively, Notes), pursuant to a tender
offer that expired on March 27, 1998. On April 1, 1998 Grace also repaid $3.5
million principal amount of Medium-Term Notes, Series A (MTNs) and $6.0 million
of sundry indebtedness.
As a result of this early extinguishment of debt, Grace incurred a pre-tax
charge of $56.4 million ($35.3 million after-tax, or a basic and diluted loss
per share of $0.47) for premiums paid in excess of the Notes' principal amounts
and other costs incurred in connection with the purchase of the Notes and MTNs
(including the costs of settling related interest rate swap agreements). These
costs are presented as an extraordinary item in the Consolidated Statement of
Operations.
13. FINANCIAL INSTRUMENTS
-------------------------------------------------------------------------------
DEBT AND INTEREST RATE SWAP AGREEMENTS
Grace had no outstanding financial derivative instruments at December 31, 2000.
In conjunction with the Packaging Business transaction (see Notes 1 and 4),
Grace settled substantially all of its debt and accordingly, also terminated
all outstanding interest rate swap agreements. In addition, deferred gains on
interest rate agreements associated with the debt retired were also recognized.
The cost of terminating the interest rate swap positions was $22.8 million. The
deferred gains recognized were $15.1 million and are included in the
extraordinary loss from early extinguishment of debt found in the Consolidated
Statement of Operations for the year ended December 31, 1998.
FAIR VALUE OF DEBT AND OTHER FINANCIAL INSTRUMENTS
At December 31, 1999, the fair value of Grace's long-term debt approximated the
recorded value $123.2 million. Fair value is determined based on expected
future cash flows (discounted at market interest rates), quotes from financial
institutions and other appropriate valuation methodologies. The estimates of
fair value are not necessarily indicative of the costs of the offer to purchase
the Notes and the purchase of the MTNs.
F-21
At December 31, 2000 and 1999, the recorded values of other financial
instruments such as cash, short-term investments, trade receivables and
payables and short-term debt approximated their fair values, based on the
short-term maturities and floating rate characteristics of these instruments.
SALE OF ACCOUNTS RECEIVABLE
Prior to the Filing, Grace sold, on an ongoing basis, an approximate $100
million pool of its eligible trade accounts receivable to a multi-seller
receivables company (the "conduit") through a wholly owned bankruptcy-remote
special purpose subsidiary (the "SPS"). Upon sale of the receivables, the SPS
held a subordinated retained interest in the receivables. The estimated fair
value of the subordinated interest, excluding allowance for doubtful accounts,
was $33.2 million at December 31, 2000 and $28.1 million at December 31, 1999,
and was included in other current assets. Under the terms of the agreement, new
receivables are added to the pool as collections reduce previously sold
receivables. Grace services, administers and collects the receivables on behalf
of the SPS and the conduit. Cash remittances, net of proceeds received from the
conduit, during 2000 were $17.0 million. Proceeds received from the conduit, net
of cash remittances, since program inception aggregated $56.3 million. The
proceeds were used for the reduction of other short-term obligations and are
reflected as operating cash flows in the Consolidated Statement of Cash Flows.
Grace has recorded net losses of $5.0 million in 2000 and $3.9 million in 1999
from the corresponding sales to the conduit. Due to the Filing, Grace is no
longer selling receivables to the conduit.
CREDIT RISK
Trade receivables potentially subject Grace to credit risk, given
concentrations in the petroleum and construction industries. Grace's credit
evaluation policies, relatively short collection terms and minimal credit
losses mitigate credit risk exposures. Grace does not require collateral for
its trade accounts receivable.
14. RESTRUCTURING COSTS AND ASSET IMPAIRMENTS
-------------------------------------------------------------------------------
RESTRUCTURING COSTS
During 2000, Grace recorded a net reduction of previous restructuring charges
of $3.9 million to account for new information related to sublease agreements
that lowered previously reserved lease termination costs. This amount is
reported in "Selling, general and administrative expenses" in the Consolidated
Statement of Operations.
During 1999, Grace recorded a net restructuring charge of $2.6 million ($1.7
million after tax) in continuing operations. In the first quarter, a
restructuring charge of $4.3 million ($2.8 million after tax) was recorded for
additional severance cost directly related to the productivity effectiveness
program implemented in the fourth quarter of 1998 (discussed below). The
restructuring charge was offset by the reversal of $1.7 million of prior period
restructuring charges primarily related to the execution of a sublease
agreement for previously reserved lease termination costs. Such amounts are
reported in "Selling, general and administrative expenses" in the Consolidated
Statement of Operations.
In the fourth quarter of 1998, Grace recorded a net restructuring charge of
$19.8 million ($13.3 million after tax) in continuing operations related to the
implementation of a productivity effectiveness program. This program was
designed to increase Grace's overall administrative and operating
effectiveness, thereby reducing costs. These charges consisted primarily of
severance costs associated with the reduction of approximately 350 salaried
employees and approximately 70 hourly employees at the business units and
within the corporate organization. During 1999, it was determined that the
actual number of employees to receive severance costs would be 418. Of this
418, 17 employees are scheduled to receive full cash payments in 2001. Also
included in this charge was a provision for the severance costs of
approximately 60 employees for the Boca Raton, Florida office, as Grace
relocated its headquarters to the Davison Chemicals offices in Columbia,
Maryland. Of this 60, 18 remaining employees are scheduled to receive full cash
payments in 2001. The restructuring charge was offset by the reversal of $5.9
million of prior period restructuring charges related primarily to the decision
not to close certain office facilities that will now be used by the relocated
headquarters and to management's reevaluation of plans to close certain other
facilities subsequent to the Spin-off and Merger (see Notes 1 and 4).
The components of the restructuring charges recorded in 2000, 1999 and 1998,
spending and other activity during those years, and the remaining reserve
balances included in "Other current liabilities" and "Other liabilities" at
December 31, 2000 and 1999, were as follows:
F-22
================================== ============== ============= ===========
Employee
---------------------------------- Termi- Plant/
nation Office
RESTRUCTURING CHARGES Costs Closures Total
(Dollars in millions)
---------------------------------- -------------- ------------- -----------
1998
Restructuring reserve
at December 31, 1997............ $ 20.7 $ 14.9 $ 35.6
Provisions recorded
in continuing operations ....... 20.4 5.3 25.7
Reversal of prior period
restructuring reserves.......... -- (5.9) (5.9)
Cash payments..................... (17.3) (4.8) (22.1)
Restructuring reserve
at December 31, 1998............ $ 23.8 $ 9.5 $ 33.3
================================== ============== ============= ===========
1999
Provisions recorded in
continuing operations .......... $ 4.3 $ -- $ 4.3
Reversal of prior period
restructuring reserves .......... -- (1.7) (1.7)
Cash payments..................... (19.0) (2.1) (21.1)
-------------- ------------- -----------
Restructuring reserve
at December 31, 1999............ $ 9.1 $ 5.7 $ 14.8
================================== ============== ============= ===========
2000
Reversal of prior period
restructuring reserves $ (1.1) $ (2.8) $ (3.9)
Cash payments..................... (5.6) (1.8) (7.4)
---------------------------------- -------------- ------------- -----------
RESTRUCTURING RESERVE
AT DECEMBER 31, 2000 ............ $ 2.4 $ 1.1 $ 3.5
================================== ============== ============= ===========
15. COMMITMENTS AND CONTINGENT LIABILITIES
--------------------------------------------------------------------------
ENVIRONMENTAL
Grace is subject to loss contingencies resulting from extensive and evolving
federal, state, local and foreign environmental laws and regulations relating
to the generation, storage, handling, discharge and disposition of hazardous
wastes and other materials. Grace accrues for anticipated costs associated with
investigatory and remediation efforts where an assessment has indicated that a
liability has been incurred and the amount of loss can be reasonably estimated.
These accruals do not take into account any discounting for the time value of
money. At December 31, 2000, Grace's liability for environmental investigatory
and remediation costs related to continuing and discontinued operations totaled
$174.9 million, as compared to $215.5 million at December 31, 1999. In the
fourth quarter of 1998, Grace entered into a settlement with one of its
insurance carriers which provided for a $57.6 million ($37.4 million after tax)
lump-sum cash payment to Grace for previously incurred costs related to
environmental remediation. Also during the fourth quarter of 1998, Grace
recorded a $19.4 million ($12.6 million after tax) charge to reflect a change
in the environmental remediation strategy for a particular site. The 1998
activity reflects a net pre-tax benefit of $38.2 million ($24.8 million after
tax) related to environmental issues.
Grace's environmental liabilities are reassessed whenever circumstances become
better defined or remediation efforts and their costs can be better estimated.
These liabilities are 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, existing technology, prior experience
in contaminated site remediation and the apportionment of costs among
potentially responsible parties. As some of these issues are decided (the
outcomes of which are subject to uncertainties) or new sites are assessed and
costs can be reasonably estimated, Grace will continue to review and analyze
the need for adjustments to the recorded accruals. However, Grace believes that
it is adequately reserved for all probable and estimable environmental
exposures. Grace's classification of its environmental reserves between current
and noncurrent liabilities is based on expected future cash outlays.
Grace is in litigation with two excess insurance carriers regarding the
applicability of the carriers' policies to Grace's environmental remediation
costs. The outcome of such litigation, as well as the amounts of any recoveries
that Grace may receive, is presently uncertain. Accordingly, Grace has not
recorded a receivable with respect to such insurance coverage.
Grace made cash payments of $47.2 million in 2000, $25.0 million in 1999 and
$36.9 million in 1998 to remediate environmentally impaired sites. These
amounts have been charged against previously established reserves.
In February 2000, a putative class action lawsuit was filed in U.S. District
Court in Missoula, Montana against Grace on behalf of all owners of real
property situated within 12 miles of Libby, Montana that are improved private
properties. The action alleges that the class members have suffered harm in the
form of environmental contamination and loss of property rights resulting from
Grace's former vermiculite mining and processing operations. The complaint
seeks remediation, property damages and punitive damages. While Grace has not
completed its investigation of the claims, and therefore is not able to assess
the extent of any possible liability related to this lawsuit, it has no reason
to believe that its former
F-23
activities caused damage to the environment or property.
In October 2000, a putative class action lawsuit was filed in the 4th District
Court of Minneapolis, Minnesota, against Grace on behalf of all owners of real
property situated near a former vermiculite processing plant in Northeast,
Minneapolis. The action alleges that the class members have suffered harm in
the form of environmental contamination and loss of property rights resulting
from the former vermiculite processing operations. The complaint seeks
remediation, property damages, and punitive damages. These activities are not
expected to result in material liability to Grace.
CONTINGENT RENTALS
Grace is the named tenant or guarantor with respect to leases entered into by
previously divested businesses. These leases, some of which extend through the
year 2017, have future minimum lease payments aggregating $120.0 million, and
are fully offset by anticipated future minimum rental income from existing
tenants and subtenants. In addition, Grace is liable for other expenses
(primarily property taxes) relating to the above leases; these expenses are
paid by tenants and subtenants. Certain of the rental income and other expenses
are payable by tenants and subtenants that have filed for bankruptcy protection
or are otherwise experiencing financial difficulties. Grace believes that the
risk of significant loss from these lease obligations is remote.
INCOME TAXES
The Internal Revenue Service (IRS), on a comprehensive national level, is
challenging the deductibility of interest on policy loans related to corporate
owned life insurance (COLI) policies for years prior to January 1, 1999. In 2000
Grace paid $21.2 million of tax and interest related to this issue for tax years
1990-1992. Subsequent to 1992, Grace deducted approximately $163.2 million in
interest attributable to COLI policy loans. Grace filed a claim for refund of
the amount paid to date and will contest any future IRS assessments on the
grounds that these insurance policies and related loans had, and continue to
have a valid business purpose, that the COLI policies have economic substance
and that interest deductions claimed were in compliance with tax laws in effect
at the time.
Subsequent to year-end, a U. S. District Court ruling, American Electric Power,
Inc. vs. United States, denied interest deductions of a taxpayer in a similar
situation. Until this ruling, Grace's accounting reflected its estimate of
resolution in connection with ongoing tax examinations. Accordingly, Grace has
recorded an additional accrual of $75.0 million (net of tax benefits) for
additional tax exposure and related interest through 2000.
The IRS also has assessed additional federal income tax withholding and Federal
Insurance Contributions Act taxes plus interest and related penalties for
calendar years 1993 through 1995 related to a subsidiary of Grace that formerly
held a majority interest in CCS. The assessments, aggregating $21.8 million,
were made in connection with a meal and incidental expense per diem plan for
travelling healthcare personnel which was in effect through 1999. In July 1999,
Grace sold substantially all of its interest in CCS but retained the potential
tax liability. The matter is currently pending in the U.S. Court of Claims.
Grace has received notification from a foreign taxing authority assessing tax
deficiencies plus interest relating to the purchase and sale of foreign bonds
in 1989 and 1990. This assessment, totaling $10.5 million, is related to the
Bekaert Group, which Grace sold in 1991 but retained liability for tax
deficiencies attributable to tax periods prior to the sale. The matter is
currently before the foreign tax authorities, where protests have been filed,
but no decision has been rendered.
FRAUDULENT CONVEYANCE
Grace and one of its subsidiaries have been named in a putative class action
suit alleging that the 1996 reorganization involving a predecessor of Grace and
Fresenius A.G. and the 1998 reorganization involving a predecessor of Grace and
Sealed Air Corporation were fraudulent transfers. The suit is alleged to have
been brought on behalf of all individuals who presently have lawsuits on file
that are pursuing personal injury or wrongful death claims against any of the
defendants. The other defendants in the suit have all asserted claims against
Grace for indemnification. Grace believes that the suit is without merit.
ACCOUNTING FOR CONTINGENCIES
Although the outcome of each of the matters discussed above cannot be predicted
with certainty, Grace has assessed its risk and has made accounting estimates
as required under generally accepted accounting principles.
F-24
16. SHAREHOLDERS' EQUITY (DEFICIT)
-------------------------------------------------------------------------------
Under its Certificate of Incorporation, the Company is authorized to issue
300,000,000 shares of common stock, $.01 par value. Of the common stock
unissued at December 31, 2000, approximately 14,000,000 shares were reserved
for issuance pursuant to stock options and other stock incentives. The
Certificate of Incorporation also authorizes 53,000,000 shares of preferred
stock, $.01 par value, none of which has been issued. 3,000,000 of such shares
have been designated as Series A Junior Participating Preferred Stock and are
reserved for issuance in connection with the Company's Preferred Stock Purchase
Rights (Rights). A Right trades together with each outstanding share of common
stock and entitles the holder to purchase one hundredth of a share of Series A
Junior Participating Preferred Stock under certain circumstances and subject to
certain conditions. The Rights are not and will not become exercisable unless
and until certain events occur, and at no time will the Rights have any voting
power.
In April 1998, the Company's Board of Directors approved a program to
repurchase up to 20% of the Company's outstanding shares in the open market
(approximately 15,165,000 shares). In total, the Company acquired 15,167,100
shares of common stock for $212.6 million under the program (at an average
price per share of $14.01). During the year ended December 31, 2000, the
Company acquired 3,061,800 shares of common stock for $35.1 million under the
program (at an average price per share of $11.45). In January 1999, Grace
retired 5,476,800 shares of treasury stock with a cost basis of $88.4 million.
In May 2000, the Company's Board of Directors approved a program to repurchase
up to 12,000,000 of the Company's outstanding shares in the open market. During
the year ended December 31, 2000, the Company acquired 1,753,600 shares of
common stock for $12.2 million under the program (an average price per share of
$6.98).
In 1997, Grace established a trust to fund certain deferred employee incentive
compensation and nonemployee director compensation and benefits. Prior to the
Packaging Business transaction discussed in Notes 1 and 4, the trust held only
shares of Grace. Subsequent to the transaction, the trust held shares of Common
Stock of the Company (classified as a component of Shareholder's Equity in the
Consolidated Balance Sheet) and New Sealed Air common and convertible preferred
stock. The trust held approximately 8,800 shares of New Sealed Air common stock
and approximately 7,800 shares of New Sealed Air convertible preferred stock on
December 31, 1999 with a fair market value of $0.9 million, which is classified
as a component of "other assets" in the Consolidated Balance Sheet. During
2000, these shares were sold and the proceeds were used to purchase shares of
Common Stock of the Company. At December 31, 2000, the trust holds only shares
of Company Common Stock and accordingly the cost of those shares and the
related liability are reported as a component of equity in the Consolidated
Balance Sheet.
17. (LOSS) EARNINGS PER SHARE
-------------------------------------------------------------------------------
The following table shows a reconciliation of the numerators and denominators
used in calculating basic and diluted (loss) earnings per share from continuing
operations.
================================== ================ ============== ============
EARNINGS PER SHARE
---------------------------------
(Amounts in millions, except per (Restated)
share amounts) 2000 1999 1998
---------------------------------- ---------------- -------------- ------------
NUMERATORS
(Loss) income from continuing
operations............... $ (89.7) $ 130.2 $ (194.7)
================ ============== ============
DENOMINATORS
Weighted average common shares -
basic calculation........ 66.8 70.7 74.6
Effect of dilutive securities
employee compensation-related
shares................... -- 3.1 --
---------------- -------------- ------------
Weighted average common shares
- diluted calculation...... 66.8 73.8 74.6
================ ============== ============
BASIC (LOSS) EARNINGS PER SHARE $ (1.34) $ 1.84 $ (2.61)
================ ============== ============
DILUTED (LOSS) EARNINGS PER SHARE $ (1.34) $ 1.76 $ (2.61)
================================== ================ ============== ============
As a result of the 2000 and 1998 losses from continuing operations,
approximately 800,000 and 3,470,600, respectively, of employee
compensation-related shares, primarily stock options, were excluded from the
diluted loss per share calculation because their effect would be antidilutive.
Additionally, stock options that could potentially dilute basic loss per share
in the future that were excluded from the computation of diluted loss per
share, because their exercise prices were greater than the average market price
of the common shares, averaged approximately
F-25
9.4 million in 2000, 3.1 million in 1999 and 2.2 million in 1998.
18. STOCK INCENTIVE PLANS
------------------------------------------------------------------------------
Each stock option granted under the Company's stock incentive plans has an
exercise price equal to the fair market value of the Company's common stock on
the date of grant. Options become exercisable at the time or times determined
by a committee of the Company's Board of Directors and may have terms of up to
ten years and one month. The following table sets forth information relating to
such options, as so adjusted, during 2000, 1999 and 1998:
================================================= =============================
STOCK OPTION ACTIVITY 1998
------------------------------------------------- -----------------------------
Average
Number Exercise
of Shares Price
----------------- -----------
Balance at beginning of year................. 20,266,927 $ 8.11
Options granted.............................. 3,316,826 19.12
Options exercised............................ (7,351,329) 6.95
Options terminated or canceled............... (1,942,554) 11.00
-----------------
Balance at end of year....................... 14,289,870 10.87
================================================= ================= ===========
Exercisable at end of year................... 8,880,196 $7.56
----------------- -----------
================================================= =============================
1999
------------------------------------------------- -----------------------------
Balance at beginning of year................. 14,289,870 $ 10.87
Options granted.............................. 2,332,290 13.21
Options exercised............................ (3,811,493) 7.30
Options terminated or canceled............... (280,380) 16.21
-----------------
Balance at end of year....................... 12,530,287 12.27
================================================= ================= ===========
Exercisable at end of year................... 9,212,495 $9.88
----------------- -----------
================================================= =============================
2000
------------------------------------------------- -----------------------------
Balance at beginning of year................. 12,530,287 $ 12.27
Options granted.............................. 2,555,000 13.32
Options exercised............................ (779,863) 7.52
Options terminated or canceled............... (300,215) 13.62
-----------------
Balance at end of year....................... 14,005,209 12.70
================================================= ================= ===========
-----------------
Exercisable at end of year................... 9,386,539 $11.96
================================================= ================= ===========
At December 31, 2000, 6,051,813 shares were available for additional grants.
Currently outstanding options expire on various dates through November 2009.
Following is a summary of stock options outstanding at December 31, 2000:
===============================================================================
STOCK OPTIONS OUTSTANDING
-------------------------------------------------------------------------------
Weighted-
average Weighted- Number Weighted-
EXERCISE Number Remaining average Exercisable average
PRICE Outstanding Contractual Exercise at Exercise
RANGE at 12/31/00 Life Price 12/31/00 Price
-------------------------------------------------------------------------------
$3 - $8 2,596,851 4.01 $ 6.10 2,568,351 $ 6.13
$8 - $13 8,155,366 7.74 12.32 4,454,780 11.57
$13 - $18 642,526 8.32 16.58 360,515 16.65
$18 - $21 2,610,466 8.02 19.46 2,002,893 19.47
------------------------------------------------------------------
14,005,209 7.13 $ 12.70 9,386,539 $ 11.96
===============================================================================
Concurrent with the Packaging Business transaction (see Notes 1 and 4),
outstanding options to purchase Old Grace common stock that were held by
employees of the Packaging Business were converted into options to purchase
common stock of New Sealed Air. All other options were converted into options
to purchase Common Stock of the Company. The number of shares covered by the
options and the exercise prices of such options were adjusted to preserve their
economic value.
In 2000, 1999 and 1998, the Company granted a total of 25,000, 45,000 and
246,933 shares, respectively, of the Company's Common Stock to certain
executives, subject to various restrictions. Such shares are subject to
forfeiture if certain employment conditions are not met. For more information,
see the Form of Restricted Share Award Agreements filed with the Company's Form
10-Q for the quarter ended March 31, 1998. At December 31, 2000, restrictions
on all prior grants of restricted stock, net of forfeitures, lapse as follows:
2001 - 105,011 shares, 2002 -55,000 shares and 2003 - 5,000 shares. The fair
value of the restricted shares at the date of grant is amortized to expense
ratably over the restriction period.
SFAS No. 123, "Accounting for Stock-Based Compensation," permits the Company to
follow the measurement provisions of APB Opinion No. 25, "Accounting for Stock
Issued to Employees," and not recognize compensation expense for its
stock-based incentive plans. Had compensation cost for the Company's
stock-based incentive compensation plans been determined based on the fair
value at the grant dates of awards under those plans, consistent with the
methodology prescribed by SFAS No. 123, the Company's net income (loss) and
related basic earnings (loss) per share for 2000, 1999 and 1998 would have been
reduced to the pro forma amounts indicated below:
================================= ================= ============== ============
PROFORMA EARNINGS
UNDER SFAS NO. 123
(Amounts in millions, except (Restated)
per share amounts) 2000 1999 1998
--------------------------------- ----------------- -------------- ------------
Net (loss) income:
As reported................. $ (89.7) $ 135.9 $ (229.1)
Pro forma (1)............... (98.5) 128.0 (236.6)
Basic (loss) earnings per share:
As reported................. $ (1.34) $ 1.92 $ (3.07)
Pro forma (1)............... (1.47) 1.81 (3.17)
================================= ================= ============== ============
(1) These pro forma amounts may not be indicative of future income (loss) and
earnings (loss) per share.
F-26
To determine compensation cost under SFAS No. 123, the fair value of each
option is estimated on the date of grant using the Black-Scholes option pricing
model, with the following historical weighted average assumptions applied to
grants in 2000, 1999 and 1998:
================================= ================= ============== ============
OPTION VALUE ASSUMPTIONS
2000 1999 1998
--------------------------------- ----------------- -------------- ------------
Dividend yield.............. --% --% --%
Expected volatility......... 59% 39% 30%
Risk-free interest rate..... 6.7% 5% 5%
Expected life (in years).... 4 4 4
================================= ================= ============== ============
Based upon the above assumptions, the weighted average fair value of each
option granted was $6.86 per share for 2000, $5.05 per share for 1999 and $6.15
per share for 1998.
19. PENSION PLANS AND OTHER POSTRETIREMENT BENEFIT PLANS
-------------------------------------------------------------------------------
Grace maintains defined benefit pension plans covering employees of certain
units who meet age and service requirements. Benefits are generally based on
final average salary and years of service. Grace funds its U.S. pension plans
in accordance with U.S. federal laws and regulations. Non-U.S. pension plans
are funded under a variety of methods, as required under local laws and
customs, and therefore cannot be summarized.
During 1998, Grace made certain amendments to one of its domestic pension plans
which included offering a lump sum settlement option to former Grace employees
not currently receiving benefits. During the second quarter of 1999, a
significant number of the lump sum offers were settled. In accordance with SFAS
No. 88, "Employers' Accounting for Settlements and Curtailments of Defined
Benefit Plans and for Termination Benefits," the Company recognized a pre-tax
loss of $11.0 million in connection with these settlements. A pre-tax noncash
charge of $9.1 million ($5.7 million after tax) is included in "Income from
discontinued operations, net of tax" in the Consolidated Statement of
Operations relating to settlements of the lump sum offers with former Packaging
Business employees. A pre-tax noncash charge of $1.9 million is included in
"Selling, general and administrative expenses" in the Consolidated Statement of
Operations for settlements relating to former Grace employees not associated
with the former Packaging Business.
The Packaging Business transaction also required the Company to split certain
pension plans and recognize a net curtailment loss for other plans. In
accordance with SFAS No. 88, the Company recognized a pre-tax loss of $8.4
million ($5.5 million after tax) in 1998, in connection with these plans. This
net pre-tax loss is included in "Income from discontinued operations, net of
tax" in the Consolidated Statement of Operations.
Grace provides certain other postretirement health care and life insurance
benefits for retired employees of specified U.S. units. The retiree medical
insurance plans provide various levels of benefits to employees (depending on
their dates of hire) who retire from Grace after age 55 with at least 10 years
of service. These plans are unfunded, and Grace pays the costs of benefits
under these plans as they are incurred. Grace applies SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," which requires
that the future costs of postretirement health care and life insurance benefits
be accrued over the employees' years of service.
An amendment to the structure of the retiree-paid premiums for postretirement
medical benefits was approved by Grace's Board in November 2000. The amendment
became effective January 1, 2001, and requires all retirees and beneficiaries
covered by the postretirement medical plan to contribute a minimum of 20% of
the calculated premium for that coverage. During 1998, Grace's Board approved
changes to the postretirement medical plan. These changes include "caps" for
pre-65 retirees and post-65 retirees, changes in the method used to coordinate
with Medicare, and changes in deductible and coinsurance levels.
The following summarizes the changes in benefit obligation and fair value of
plan assets during the period:
F-27
<TABLE>
<CAPTION>
=================================================================== ===============================================================
PENSION
---------------------------------------------------------------
------------------------------------------------------------------ U.S. NON-U.S.
CHANGE IN FINANCIAL STATUS OF RETIREMENT PLANS ----------------------------- --------------------------------
(Dollars in millions) 2000 1999 2000 1999
------------------------------------------------------------------- -------------- -------------- ---------------- ---------------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year........................ $ 765.7 $ 918.7 $ 196.9 $ 235.9
Service cost................................................... 6.3 7.3 3.8 5.2
Interest cost.................................................. 54.5 57.7 11.4 11.6
Plan participants' contributions............................... -- -- 0.5 0.7
Amendments..................................................... 2.4 -- 0.1 --
Acquisitions/(Divestitures).................................... 8.3 -- -- --
Curtailments/settlements recognized gains...................... -- -- -- (3.7)
Actuarial (gain) loss.......................................... (17.7) (42.7) 13.8 (22.2)
Benefits paid.................................................. (78.5) (175.3) (11.5) (13.1)
Currency exchange translation adjustments...................... -- -- (15.8) (17.5)
------------------------------------------------------------------- -------------- -------------- ---------------- ---------------
Benefit obligation at end of year.............................. $ 741.0 $ 765.7 $ 199.2 $ 196.9
=================================================================== ============== ============== ================ ===============
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year................. $ 899.9 $ 912.1 $ 224.1 $ 211.8
Actual return on plan assets................................... (28.6) 156.0 (1.6) 28.9
Employer contribution.......................................... 7.4 7.1 4.0 4.7
Plan participants' contribution................................ -- -- 0.5 0.7
Benefits paid.................................................. (78.5) (175.3) (12.2) (13.9)
Currency exchange translation adjustment....................... -- -- (16.5) (8.1)
------------------------------------------------------------------- -------------- -------------- ---------------- ---------------
Fair value of plan assets at end of year....................... $ 800.2 $ 899.9 $ 198.3 $ 224.1
=================================================================== ============== ============== ================ ===============
Funded status.................................................. $ 59.2 $ 134.2 $ (0.9) $ 27.2
Unrecognized transition (asset)/obligation..................... (9.3) (19.3) 0.9 0.8
Unrecognized actuarial loss (gain)............................. 98.9 9.4 14.6 (20.1)
Unrecognized prior service cost/(benefit)...................... 31.0 28.9 4.6 5.6
------------------------------------------------------------------- -------------- -------------- ---------------- ---------------
Net amount recognized.......................................... $ 179.8 $ 153.2 $ 19.2 $ 13.5
=================================================================== ============== ============== ================ ===============
Amounts recognized in the Consolidated Balance Sheet consist of:
Assets in excess of pension obligation...................... $ 127.9 $ 198.5 $ 72.2 $ 100.4
Unamortized costs of overfunded plans....................... 95.6 (5.0) 9.1 (22.6)
Deferred retirement plan costs.............................. (93.3) (87.6) (74.5) (74.2)
Unamortized costs of underfunded plans...................... 25.0 24.0 11.0 9.1
Intangible asset............................................ 6.9 8.1 1.2 0.4
Accumulated other comprehensive loss........................ 17.7 15.2 0.2 0.4
-------------- -------------- ---------------- ---------------
-------------------------------------------------------------------
Net amount recognized.......................................... $ 179.8 $ 153.2 $ 19.2 $ 13.5
=================================================================== ============== ============== ================ ===============
WEIGHTED AVERAGE ASSUMPTIONS AS OF DECEMBER 31
Discount rate.................................................. 7.5% 8.0% 2.3-15.0% 2.3-15.0%
Expected return on plan assets................................. 9.0 9.0 5.0-15.0 5.0-15.0
Rate of compensation increase.................................. 4.5 4.5 2.0-14.0 2.0-14.0
=================================================================== ============== ============== ================ ===============
<CAPTION>
=================================================================== ============================= ==============================
PENSION
----------------------------- OTHER POST-
------------------------------------------------------------------ TOTAL RETIREMENT PLANS
CHANGE IN FINANCIAL STATUS OF RETIREMENT PLANS ---------------------------- ------------------------------
(Dollars in millions) 2000 1999 2000 1999
------------------------------------------------------------------- ------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year........................ $ 962.6 $ 1,154.6 $ 182.7 $ 193.9
Service cost................................................... 10.1 12.5 0.6 0.8
Interest cost.................................................. 65.9 69.3 14.4 12.8
Plan participants' contributions............................... 0.5 0.7 -- --
Amendments..................................................... 2.5 -- (20.0) --
Acquisitions/(Divestitures).................................... 8.3 -- -- --
Curtailments/settlements recognized gains...................... -- (3.7) -- --
Actuarial (gain) loss.......................................... (3.9) (64.9) 22.0 (5.2)
Benefits paid.................................................. (90.0) (188.4) (23.0) (19.6)
Currency exchange translation adjustments...................... ( 15.8) (17.5) -- --
------------------------------------------------------------------- ------------- -------------- -------------- ---------------
Benefit obligation at end of year.............................. $ 940.2 $ 962.6 $ 176.7 $ 182.7
=================================================================== ============= ============== ============== ===============
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year................. $ 1,124.0 $ 1,123.9 $ -- $ --
Actual return on plan assets................................... (30.2) 184.9 -- --
Employer contribution.......................................... 11.4 11.8 23.0 19.6
Plan participants' contribution................................ 0.5 0.7 -- --
Benefits paid.................................................. (90.7) (189.2) (23.0) (19.6)
Currency exchange translation adjustment....................... (16.5) (8.1) -- --
------------------------------------------------------------------- ------------- -------------- -------------- ---------------
Fair value of plan assets at end of year....................... $ 998.5 $ 1,124.0 $ -- $ --
=================================================================== ============= ============== ============== ===============
Funded status.................................................. $ 58.3 $ 161.4 $ (176.7) $ (182.7)
Unrecognized transition (asset)/obligation..................... (8.4) (18.5) -- --
Unrecognized actuarial loss (gain)............................. 113.5 (10.7) 61.9 42.1
Unrecognized prior service cost/(benefit)...................... 35.6 34.5 (74.3) (60.8)
------------------------------------------------------------------- ------------- -------------- -------------- ---------------
Net amount recognized.......................................... $ 199.0 $ 166.7 $ (189.1) $ (201.4)
=================================================================== ============= ============== ============== ===============
Amounts recognized in the Consolidated Balance Sheet consist of:
Assets in excess of pension obligation...................... $ 200.1 $ 298.9 $ -- $ --
Unamortized costs of overfunded plans....................... 104.7 (27.6) -- --
Deferred retirement plan costs.............................. (167.8) (161.8) (176.7) (182.7)
Unamortized costs of underfunded plans...................... 36.0 33.1 (12.4) (18.7)
Intangible asset............................................ 8.1 8.5 N/A N/A
Accumulated other comprehensive loss........................ 17.9 15.6 N/A N/A
------------- -------------- -------------- ---------------
-------------------------------------------------------------------
Net amount recognized.......................................... $ 199.0 $ 166.7 $ (189.1) $ (201.4)
=================================================================== ============= ============== ============== ===============
WEIGHTED AVERAGE ASSUMPTIONS AS OF DECEMBER 31
Discount rate.................................................. N/M N/M 7.5% 8.0%
Expected return on plan assets................................. N/M N/M N/M N/M
Rate of compensation increase.................................. N/M N/M N/M N/M
=================================================================== ============= ============== ============== ===============
</TABLE>
<TABLE>
<CAPTION>
2000 1999
----------------------------------- ----------------------
COMPONENTS OF NET PERIODIC BENEFIT (INCOME) COST NON-U.S. Non-U.S.
(Dollars in millions) U.S. OTHER U.S.
------------------------------------------------------------------------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Service cost......................................................... $ 6.3 $ 3.8 $ 0.6 $ 7.3 $ 5.2
Interest cost........................................................ 54.5 11.4 14.4 57.7 11.8
Expected return on plan assets....................................... (78.2) (18.2) -- (76.0) (17.1)
Amortization of transition asset..................................... (10.0) (0.2) -- (11.5) (0.2)
Amortization of prior service cost (benefit)......................... 7.4 0.6 (6.7) 7.0 0.6
Amortization of unrecognized actuarial loss.......................... 0.8 (0.4) 2.4 3.9 0.3
Net curtailment and settlement loss.................................. -- -- -- 11.0 0.2
------------------------------------------------------------------------- ----------- ----------- ----------- ----------- ----------
Net periodic benefit (income) cost................................... $ (19.2) $ (3.0) $ 10.7 $ (0.6) $ 0.8
========================================================================= =========== =========== =========== =========== ==========
<CAPTION>
1998
---------------- -----------------------------------------
COMPONENTS OF NET PERIODIC BENEFIT (INCOME) COST Non-
(Dollars in millions) Other U.S. U.S. Other
------------------------------------------------------------------------- - -------------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
Service cost......................................................... $ 0.8 $ 7.1 $ 6.5 $ 0.9
Interest cost........................................................ 12.8 55.7 12.6 16.6
Expected return on plan assets....................................... -- (72.4) (19.3) --
Amortization of transition asset..................................... -- (11.5) (0.2) --
Amortization of prior service cost (benefit)......................... (6.7) 7.2 0.3 (2.8)
Amortization of unrecognized actuarial loss.......................... 2.7 1.4 0.3 1.1
Net curtailment and settlement loss.................................. -- 8.4 1.3 --
------------------------------------------------------------------------- - -------------- ------------- ------------ --------------
Net periodic benefit (income) cost................................... $ 9.6 $ (4.1) $ 1.5 $ 15.8
========================================================================= = ============== ============= ============ ==============
</TABLE>
<TABLE>
<CAPTION>
================================= ================================ =============================== ================================
PENSION PLANS WHERE ACCUMULATED OTHER POST-
BENEFIT OBLIGATIONS EXCEED PLAN U.S. NON-U.S. RETIREMENT PLANS
-------------------------------- ------------------------------- --------------------------------
---------------- --------------- -------------- ---------------- ----------------- --------------
ASSETS (Dollars in millions) 2000 1999 2000 1999 2000 1999
--------------------------------- ---------------- --------------- -------------- ---------------- ----------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Projected benefit obligation..... $ 68.7 $ 64.3 $ 72.4 $ 77.6 N/A N/A
Accumulated benefit obligation... 68.2 63.6 62.0 66.8 $ 176.7 $ 182.7
Fair value of plan assets........ -- -- 0.6 4.0 -- --
================================= ================ =============== ============== ================ ================= ==============
</TABLE>
N/M - Not meaningful
N/A - Not applicable
F-28
For measurement purposes, a 6.0% rate of increase in the per capita cost of
covered health care benefits was assumed for 2000. The rate was assumed to
decrease gradually to 5.0% through 2003 and remain at that level thereafter.
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plan. A one-percentage-point increase (decrease)
in assumed health care cost trend rates would increase (decrease) total service
and interest cost components by $0.1 million and $(0.1) million, respectively,
and increase (decrease) postretirement benefit obligations by $1.0 million and
$(1.2) million, respectively.
20. BUSINESS SEGMENT INFORMATION
--------------------------------------------------------------------------------
Grace is a global producer of specialty chemicals and specialty materials. It
generates revenues from two business segments: Davison Chemicals and
Performance Chemicals. Performance Chemicals was formed in 1999 by combining
the previously separate business segments of Grace Construction Products and
Darex Container Products. These businesses were consolidated under one
management team to capitalize on infrastructure synergies from co-location of
headquarters and production facilities around the world. Davison Chemicals
produces a variety of catalysts and silica products. Performance Chemicals
produces specialty construction chemicals, building materials and container
protection products. Intersegment sales, eliminated in consolidation, are not
material. The table below presents information related to Grace's business
segments for 2000, 1999 and 1998; in connection with the adoption of SFAS No.
131, "Disclosure about Segments of an Enterprise and Related Information," only
those corporate expenses directly related to the segment are allocated for
reporting purposes. All remaining corporate items are reported separately and
labeled as such.
<TABLE>
<CAPTION>
================================== ================= ================ ================
BUSINESS SEGMENT DATA (Dollars
in millions) 2000 1999 1998
---------------------------------- ----------------- ---------------- ----------------
NET SALES
<S> <C> <C> <C>
Davison Chemicals............. $ 783.9 $ 751.1 $ 761.4
Performance Chemicals......... 813.5 799.8 784.8
----------------- ---------------- ----------------
Total......................... $ 1,597.4 $ 1,550.9 $ 1,546.2
================= ================ ================
PRE-TAX OPERATING INCOME
Davison Chemicals............. $ 131.6 $ 124.3 $ 107.5
Performance Chemicals......... 95.5 105.8 78.1
----------------- ---------------- ----------------
Total......................... $ 227.1 $ 230.1 $ 185.6
================= ================ ================
DEPRECIATION AND AMORTIZATION
Davison Chemicals............. $ 57.2 $ 59.2 $ 61.3
Performance Chemicals......... 29.3 28.8 28.3
----------------- ---------------- ----------------
Total......................... $ 86.5 $ 88.0 $ 89.6
================= ================ ================
CAPITAL EXPENDITURES
Davison Chemicals............. $ 33.7 $ 48.0 $ 60.5
Performance Chemicals......... 28.3 30.7 39.5
----------------- ---------------- ----------------
Total......................... $ 62.0 $ 78.7 $ 100.0
================= ================ ================
TOTAL ASSETS
Davison Chemicals............. $ 632.3 $ 590.3 $ 603.7
Performance Chemicals......... 479.1 478.3 459.9
----------------- ---------------- ----------------
Total......................... $ 1,111.4 $ 1,068.6 $ 1,063.6
================================== ================= ================ ================
The table below presents information related to the geographic areas in which
Grace operated in 2000, 1999 and 1998.
======================================= =============== ============== ==============
GEOGRAPHIC AREA DATA (Dollars in
millions) 2000 1999 1998
--------------------------------------- --------------- -------------- --------------
NET SALES
United States..................... $ 825.6 $ 783.5 $ 793.5
Canada and Puerto Rico............ 34.4 32.6 33.1
Germany........................... 270.9 290.7 267.2
Europe, other than Germany........ 145.9 156.6 157.0
Asia Pacific...................... 216.8 205.7 205.9
Latin America..................... 103.8 81.8 89.5
--------------- -------------- --------------
Total............................. $ 1,597.4 $ 1,550.9 $ 1,546.2
======================================= =============== ============== ==============
PROPERTIES AND EQUIPMENT, NET
United States..................... $ 408.3 $ 399.0 $ 423.3
Canada and Puerto Rico............ 19.9 20.8 20.1
Germany........................... 61.5 71.3 84.7
Europe, other than Germany........ 39.6 46.8 53.9
Asia Pacific...................... 54.7 61.9 58.6
Latin America..................... 17.7 17.5 20.8
--------------- -------------- --------------
Total............................. $ 601.7 $ 617.3 $ 661.4
======================================= =============== ============== ==============
</TABLE>
F-29
Pre-tax operating income, depreciation and amortization, capital expenditures
and total assets for Grace's business segments are reconciled below to amounts
presented in the Consolidated Financial Statements.
<TABLE>
<CAPTION>
======================================== ============== =============== ==============
RECONCILIATION OF BUSINESS SEGMENT
DATA TO FINANCIAL STATEMENTS
(Dollars in millions) (Restated) (Restated)
2000 1999 1998
---------------------------------------- -------------- --------------- --------------
<S> <C> <C> <C>
Pre-tax operating income - operating
segments........................ $ 227.1 $ 230.1 $ 185.6
Gain on note receivable............ -- 18.5 --
Gain on disposal of assets......... 5.5 13.6 --
Provision for environmental charges,
net............................. -- -- 38.2
Provisions relating to
asbestos-related liabilities and
insurance coverage.............. (208.0) -- (376.1)
Interest expense and related financing
costs........................... (28.1) (16.1) (19.8)
Corporate operating costs.......... (40.0) (52.0) (53.8)
Other, net......................... 23.8 9.3 2.7
-------------- --------------- --------------
(Loss) income from continuing
operations before income taxes..... $ (19.7) $ 203.4 $ (223.2)
======================================== ============== =============== ==============
Depreciation and amortization -
operating segments.............. $ 86.5 $ 88.0 $ 89.6
Depreciation and amortization -
corporate....................... 1.3 1.2 2.5
-------------- --------------- --------------
Total depreciation and amortization $ 87.8 $ 89.2 $ 92.1
======================================== ============== =============== ==============
Capital expenditures - operating
segments........................ $ 62.0 $ 78.7 $ 100.0
Capital expenditures - corporate...
2.8 3.8 0.9
-------------- --------------- --------------
Total capital expenditures......... $ 64.8 $ 82.5 $ 100.9
======================================== ============== =============== ==============
Total assets - operating segments.. $ 1,111.4 $ 1,068.6 $ 1,063.6
Total assets - corporate........... 615.1 595.9 571.0
Asbestos-related receivables....... 372.0 371.4 443.0
Deferred tax assets................ 487.2 440.0 470.4
Net assets of discontinued operations
(0.8) (0.8) 8.3
--------------- -------------- ---------------
Total assets....................... $ 2,584.9 $ 2,475.1 $ 2,556.3
======================================== =============== ============== ===============
</TABLE>
F-30
<TABLE>
<CAPTION>
=============================================================================================================================
QUARTERLY SUMMARY AND STATISTICAL INFORMATION (Unaudited)
(Dollars in millions, except per share)
-----------------------------------------------------------------------------------------------------------------------------
March 31 June 30
------------------------------------------------------------------------- ------------------------- -------------------------
2000
<S> <C> <C>
Net sales (1) ....................................................... $ 384.7 $ 405.1
Cost of goods sold and operating expenses (1)........................ 231.8 239.8
Income (loss) from continuing operations............................. 24.2 34.6
Net income (loss).................................................... 24.2 34.6
Net income per share: (2)
Basic earnings per share:
Continuing operations........................................... $ 0.35 $ 0.51
Net income (loss)............................................... 0.35 0.51
Diluted earnings per share:
Continuing operations........................................... 0.35 0.50
Net income (loss)............................................... 0.35 0.50
Market price of common stock: (4)
High............................................................ $ 14 15/16 $ 14 5/8
Low............................................................. 91/2 11 3/8
Close........................................................... 12 7/8 12 1/8
------------------------------------------------------------------------- ------------------------- -------------------------
1999 (3)
Net sales (1)........................................................ $ 365.1 $ 391.8
Cost of goods sold and operating expenses (1)........................ 226.5 231.5
Income from continuing operations.................................... 18.8 30.4
Net income........................................................... 20.0 25.7
Net income per share: (2)
Basic earnings per share:
Continuing operations........................................... $ 0.26 $ 0.44
Net income...................................................... 0.28 0.37
Diluted earnings per share:
Continuing operations........................................... 0.25 0.42
Net income...................................................... 0.27 0.35
Market price of common stock: (4)
High............................................................ $ 16 11/16 $ 19 1/4
Low............................................................. 11 13/16 12
Close........................................................... 12 1/ 8 19
========================================================================= ========================= =========================
<CAPTION>
====================================================
----------------------------------------------------
September 30 December 31
------------------------- -------------------------
<C> <C>
$ 415.7 $ 391.9
252.4 249.9
34.1 (182.6)
34.1 (182.6)
$ 0.51 $ (2.80)
0.51 (2.80)
0.51 (2.80)
0.51 (2.80)
$ 12 5/8 $ 7 1/8
6 9/16 1 5/16
6 7/8 3 3/16
------------------------- -------------------------
$ 391.6 $ 402.4
231.2 240.1
32.8 48.2
42.0 48.2
$ 0.46 $ 0.68
0.59 0.68
0.44 0.66
0.56 0.66
$ 21 $ 17 9/16
15 3/4 12 13/16
16 3/8 14 1/8
========================= =========================
</TABLE>
(1) The net sales and cost of goods sold amounts presented above reflect a
reclassification of freight costs and sales commissions (previously shown
as a reduction of sales) to cost of sales and selling expenses, in
accordance with Emerging Issues Task Force Consensus No. 00-10,
"Accounting for Shipping and Handling Revenues and Costs ."
(2) Per share results for the four quarters may differ from full-year per
share results, as a separate computation of the weighted average number of
shares outstanding is made for each quarter presented.
(3) The 1999 quarterly summary and statistical information have been restated
to reflect the classification of CCS as discontinued operations, as
described in Note 4 of the Consolidated Financial Statements.
(4) Principal market: New York Stock Exchange.
F-31
<TABLE>
<CAPTION>
=========================================================================================================================
FINANCIAL SUMMARY (1) (Dollars in millions, except per share amounts)
-------------------------------------------------------------------------------------------------------------------------
(Restated)
2000 1999
----------------------------------------------------------------------------------- ------------------ ------------------
<S> <C> <C>
STATEMENT OF OPERATIONS
Net sales .................................................................... $ 1,597.4 $ 1,550.9
Cost of goods sold and operating expenses..................................... 973.9 929.3
Depreciation and amortization................................................. 87.8 89.2
Interest expense and related financing costs.................................. 28.1 16.1
Research and development expenses............................................. 45.7 42.4
(Loss) income from continuing operations before income taxes.................. (19.7) 203.4
(Loss) income from continuing operations...................................... (89.7) 130.2
Income from discontinued operations (2)....................................... -- 5.7
Net (loss) income ............................................................ (89.7) 135.9
----------------------------------------------------------------------------------- ------------------ ------------------
FINANCIAL POSITION
Current assets................................................................ $ 773.9 $ 779.8
Current liabilities........................................................... 1,092.9 769.4
Properties and equipment, net................................................. 601.7 617.3
Total assets.................................................................. 2,584.9 2,475.1
Total debt.................................................................... 421.9 136.2
Shareholders' (deficit) equity - common....................................... (71.3) 111.1
----------------------------------------------------------------------------------- ------------------ ------------------
CASH FLOW
Operating activities.......................................................... $ (121.1) $ 139.8
Investing activities.......................................................... (121.8) 76.7
Financing activities.......................................................... 245.1 (77.5)
Net cash flow................................................................. (7.9) 134.5
----------------------------------------------------------------------------------- ------------------ ------------------
DATA PER COMMON SHARE
(Loss) income from continuing operations...................................... $ (1.34) $ 1.84
Net (loss) income............................................................. (1.34) 1.92
Dividends .................................................................. -- --
Average common shares outstanding (thousands)................................. 66,800 70,749
----------------------------------------------------------------------------------- ------------------ ------------------
OTHER STATISTICS
Dividends paid on common stock................................................ $ -- $ --
Capital expenditures.......................................................... 64.8 82.5
Common stock price range (3).................................................. 14 15/16 - 1 5/16 21 - 11 13/16
Common shareholders of record................................................. 12,240 13,215
Number of employees - continuing operations................................... 6,300 6,300
=================================================================================== ================== ==================
<CAPTION>
=========================================================
----------------------------------------------------------
(Restated)
1998 1997 1996
------------------- ------------------ ------------------
<C> <C> <C>
$ 1,546.2 $ 1,558.9 $ 1,795.5
961.7 969.0 1,060.1
92.1 94.8 97.3
19.8 21.2 30.5
47.4 42.4 55.4
(223.2) 137.4 183.3
(194.7) 85.9 112.9
0.9 175.1 2,744.8
(229.1) 261.0 2,857.7
------------------- ------------------ ------------------
$ 625.6 $ 2,175.5 $ 1,774.9
669.8 1,357.7 1,487.1
661.4 663.3 1,871.3
2,556.3 3,769.4 4,945.8
113.4 1,072.3 1,388.2
42.1 467.9 632.4
------------------- ------------------ ------------------
$ (66.9) $ 236.4 $ 223.3
(114.0) 370.1 2,072.9
196.6 (621.3) (2,267.8)
17.7 (20.7) 27.7
------------------- ------------------ ------------------
$ (2.61) $ 1.16 $ 1.22
(3.07) 3.53 31.06
-- .56 .50
74,559 73,993 91,976
------------------- ------------------ ------------------
$ -- $ 41.2 $ 45.6
100.9 258.7 456.6
21 11/16 - 10 18 1/16 - 9 7/8 12 1/2 - 7 3/8
14,438 15,945 17,415
6,600 6,700 7,100
=================== ================== ==================
</TABLE>
(1) Certain prior-year amounts have been reclassified to conform to the 2000
presentation and to reflect a reclassification of freight costs and sales
commissions (previously shown as a reduction of sales) to cost of sales
and selling expenses in accordance with Emerging Issues Task Force
Consensus No. 00-10, "Accounting for Shipping and Handling Revenues and
Costs."
(2) See Note 4 to the Consolidated Financial Statements for additional
information.
(3) Stock prices have been adjusted so that they are on a basis comparable to
the stock prices following the disposition of the Packaging Business as
described in Notes 1 and 4 to the Consolidated Financial Statements.
F-32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
--------------------------------------------------------------------------------
DESCRIPTION OF BUSINESS
--------------------------------------------------------------------------------
Grace is engaged in specialty chemicals and specialty materials businesses on a
global basis. Its principal business segments are Davison Chemicals, which
produces catalysts and silica products, and Performance Chemicals, which
produces construction chemicals, building materials and container products.
--------------------------------------------------------------------------------
SUBSEQUENT EVENT - VOLUNTARY BANKRUPTCY FILING
--------------------------------------------------------------------------------
On April 2, 2001, W. R. Grace & Co. and 61 of its United States subsidiaries
and affiliates, including Grace-Conn. (collectively, the "Debtors"), filed
voluntary petitions for reorganization (the "Filing") under Chapter 11 of the
United States Bankruptcy Code ("Chapter 11" or the "Bankruptcy Code") in the
United States Bankruptcy Court for the District of Delaware (the "Bankruptcy
Court"). The cases were consolidated and are being jointly administered under
case numbers 01-1139 through 01-1200. Grace's non-U.S. operating subsidiaries
were not a part of the Filing.
The Filing was made in response to a sharply increasing number of
asbestos-related bodily injury claims. These claims are discussed in more detail
in Note 3 to the Consolidated Financial Statements. Under Chapter 11, the
Debtors expect to continue to operate their businesses as debtors-in-possession
under court protection from their creditors and claimants, while using the
Chapter 11 process to develop and implement a plan for addressing the
asbestos-related claims against them.
Background of Filing - On January 29, 2001, Grace announced that recent
developments in asbestos-related litigation had led to a fourth quarter charge
of $208.0 million (net of expected insurance recovery). The charge was made to
account for probable and estimable costs related to several adverse developments
in Grace's asbestos litigation during 2000, including: a significant increase in
bodily injury claims; higher than expected costs to resolve bodily injury and
certain property damage claims; and new class-action lawsuits alleging damages
from a former attic insulation product not previously subject to property damage
litigation. After this adjustment, Grace's recorded liability for asbestos-
related litigation at December 31, 2000 is $1,105.9 million gross and $733.9
million net of insurance recovery. The estimated gross liability represents an
undiscounted stream of payments in decreasing amounts over approximately 40
years. However, due to the Filing and the uncertainties of asbestos-related
litigation, actual amounts could differ materially from the recorded liability.
Grace also announced on January 29, 2001 that it was reviewing the strategic
and operating issues associated with continuing to defend asbestos litigation
through the court system versus voluntarily seeking a resolution of such
litigation through reorganization under Chapter 11. As a result of that review,
the Board of Directors of Grace concluded on April 2, 2001 that a federal
court-supervised Chapter 11 filing provides the best forum available to achieve
predictability and fairness in the claims settlement process. By filing under
Chapter 11, Grace expects to be able to both obtain a comprehensive resolution
of the claims against it and preserve the inherent value of its businesses.
Consequence of Filing - As a consequence of the Filing, all pending litigation
against the Debtors is stayed and no party may take any action to realize its
pre-petition claims except pursuant to order of the Bankruptcy Court. It is the
Debtors' intention to address all of their pending and future asbestos-related
claims and all other pre-petition claims in a plan of reorganization. However,
it is currently impossible to predict with any degree of certainty how the plan
will treat asbestos and other pre-petition claims and the impact the Filing and
any reorganization plan may have on the shares of common stock of Grace.
Generally, under the provisions of the Bankruptcy Code, holders of equity
interests may not participate under a plan of reorganization unless the claims
of creditors are satisfied in full under the plan or unless creditors accept a
reorganization plan that permits holders of equity interests to participate. The
formulation and implementation of the plan of reorganization could take a
significant period of time.
The accompanying Consolidated Financial Statements have been prepared on a
going concern basis, which contemplates continuity of operations, realization
of assets and liquidation of liabilities in the ordinary course of business.
However, as a result of the Filing, such realization of certain Debtors' assets
and liquidation of certain Debtors' liabilities are subject to significant
uncertainty. Further, a plan of reorganization could materially change the
amounts
F-33
and classifications reported in the consolidated financial statements,
which do not give effect to any adjustments to the carrying value or
classification of assets or liabilities that might be necessary as a
consequence of a plan of reorganization.
All of the Debtor's pre-petition debt is now in default due to the Filing.
Accordingly, the accompanying Consolidated Balance Sheet as of December 31, 2000
reflects the classification of the Debtors' pre-petition debt as current.
The Debtors have negotiated a debtor-in-possession revolving credit facility
with Bank of America, N.A. (the "DIP facility") in the aggregate amount of $250
million. The DIP facility has a term of 2 years and bears interest at either
Bank of America's prime rate or a formula based on the LIBOR rate plus 2.00% to
2.25%. The Bankruptcy Court issued an interim approval of the DIP facility,
which allows the Debtors to draw on the DIP facility for 15 days in an amount
not to exceed $50 million.
The Debtors have received approval from the Bankruptcy Court to pay or
otherwise honor certain of its pre-petition obligations, including claims of
trade creditors to a specified amount and employee wages and benefits in the
ordinary course of business.
Accounting Impact - Beginning in the second quarter of 2001, Grace will be
required to follow Statement of Position 90-7 ("SOP 90-7"), "Financial
Reporting by Entities in Reorganization under the Bankruptcy Code." Pursuant to
SOP 90-7, Grace's pre-petition liabilities that are subject to compromise will
be reported separately on the balance sheet at an estimate of the amount that
will ultimately be allowed by the Bankruptcy Court. Obligations of Grace
subsidiaries not covered by the Filing will remain classified on the
consolidated balance sheet based upon maturity dates or the expected dates of
payment. SOP 90-7 also requires separate reporting of certain expenses,
realized gains and losses, and provisions for losses related to the Filing as
reorganization items.
Pro-Forma Balance Sheet Information (Unaudited) - The condensed balance sheet of
the Debtors as if the Debtors had filed petitions for reorganization under
Chapter 11 at December 31, 2000 is as follows:
=============================================================== ===============
PRO-FORMA CONDENSED BALANCE SHEET OF DEBTORS
---------------------------------------------------------------- DECEMBER 31,
(UNAUDITED) 2000
(Dollars in millions)
--------------------------------------------------------------- ---------------
Current Assets:
Cash and cash equivalents................................ $ 37.5
Notes and accounts receivable, net....................... 32.8
Inventories.............................................. 75.2
Other current assets..................................... 81.2
---------------
Total current assets................................. 226.7
Properties and equipment, net............................ 410.0
Asbestos-related insurance receivable.................... 372.0
Deferred income taxes.................................... 482.6
Loans to non-debtor entities............................. 407.0
Investment in non-debtor entities........................ 148.3
Other noncurrent assets.................................. 414.3
---------------
Total assets......................................... $2,460.9
===============
Liabilities Subject to Compromise:
Debt..................................................... $ 409.1
Asbestos-related liability .............................. 1,105.9
Other liabilities........................................ 955.4
---------------
Total liabilities..................................... 2,470.4
Equity...................................................... (9.5)
---------------
Total liabilities and equity.......................... $2,460.9
=============================================================== ===============
-------------------------------------------------------------------------------
CONTINUING OPERATIONS
-------------------------------------------------------------------------------
Set forth below is a chart that lists key operating statistics and percentage
changes for the years ended December 31, 2000, 1999 and 1998. Immediately
following the chart is an overview of the matters affecting the comparison of
2000 and 1999. Each of these items should be referenced when reading
management's discussion and analysis of the results of continuing operations.
The chart below, as well as the financial information presented throughout this
discussion, divides Grace's financial results between "core operations" and
"noncore activities." Core operations comprise the financial results of Davison
Chemicals, Performance Chemicals and the costs of corporate activities that
directly or indirectly support business operations. In contrast, noncore
activities comprise all other events and transactions that are not directly
related to the generation of operating revenue or the support of core
operations. Grace's financial strategy is to maximize returns and cash flows
from core operations to fund business growth and to provide resources to
satisfy its obligations that remain from past businesses, products and events.
F-34
<TABLE>
<CAPTION>
================================================================================== ==================== ===============
ANALYSIS OF CONTINUING OPERATIONS
(Dollars in millions) 2000 1999 (a)
---------------------------------------------------------------------------------- -------------------- ---------------
<S> <C> <C>
NET SALES:
Davison Chemicals....................................................... $ 783.9 $ 751.1
Performance Chemicals................................................... 813.5 799.8
-------------------- ---------------
TOTAL GRACE SALES - CORE OPERATIONS........................................... $ 1,597.4 $ 1,550.9
==================== ===============
PRE-TAX OPERATING INCOME:
Davison Chemicals....................................................... $ 131.6 $ 124.3
Performance Chemicals................................................... 95.5 105.8
Corporate operating costs............................................... (40.0) (52.0)
-------------------- ---------------
PRE-TAX INCOME FROM CORE OPERATIONS........................................... 187.1 178.1
-------------------- ---------------
PRE-TAX (LOSS) INCOME FROM NONCORE ACTIVITIES................................. (188.4) 37.2
Interest expense.............................................................. (28.1) (16.1)
Interest income............................................................... 9.7 4.2
-------------------- ---------------
(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES............................................................... (19.7) 203.4
(Provision for) benefit from income taxes..................................... (70.0) (73.2)
-------------------- ---------------
(LOSS) INCOME FROM CONTINUING OPERATIONS...................................... $ (89.7) $ 130.2
==================== ===============
==================== ===============
KEY FINANCIAL MEASURES:
Pre-tax income from core operations as a
percentage of sales..................................................... 11.7% 11.5%
Pre-tax income from core operations before
Depreciation and amortization........................................... $ 274.9 $ 267.3
As a percentage of sales................................................ 17.2% 17.2%
================================================================================== ==================== ===============
<CAPTION>
==================== =================== ===================
% Change % Change
Fav(Unfav) 1998 (a) Fav(Unfav)
-------------------- ------------------- -------------------
<C> <C> <C>
4.4% $ 761.4 (1.4%)
1.7% 784.8 1.9%
-------------------- ------------------- -------------------
3.0% $ 1,546.2 0.3%
==================== =================== ===================
5.9% $ 107.5 15.6%
(9.7%) 78.1 35.5%
23.1% (53.8) 3.3%
-------------------
-------------------- -------------------
5.0% 131.8 35.1%
-------------------- ------------------- -------------------
NM (340.1) NM
(74.5%) (19.8) 18.7%
131.0% 4.9 (14.3%)
-------------------- ------------------- -------------------
NM (223.2) NM
NM 28.5 NM
-------------------- ------------------- -------------------
NM $ (194.7) NM
==================== =================== ===================
==================== =================== ===================
0.2pts 8.5% 3.0pts
2.8% $ 223.9 19.4%
-- 14.5% 2.7 pts
==================== =================== ===================
</TABLE>
NM = Not meaningful a = Net sales amounts presented herein reflect a
reclassification of freight costs and sales
commissions (previously shown as a reduction of
sales)
MATTERS AFFECTING COMPARISON
Several major factors affect the comparison of earnings from continuing
operations between 2000 and 1999. The factors affecting core operations include
sales generated from six acquisitions, continued contribution from Grace's
productivity initiatives, including Six Sigma, softening of the construction
market, continued strength of the U.S. dollar, and increased energy costs,
including natural gas and petroleum - based raw materials.
The primary factor affecting noncore activities has been the increasingly
difficult asbestos litigation environment, which led to an adjustment in the
fourth quarter of 2000 of $208.0 million after insurance. In 2000, Grace
experienced an 81% increase in the number of claims filed compared with 1999
and higher settlement and litigation costs.
The effect of each of these factors will be quantified throughout management's
discussion and analysis.
NET SALES
The following table identifies the year-over-year increase or decrease in sales
attributable to changes in product volumes, product prices and/or mix, and the
impact of foreign currency translation.
======================= =======================================================
NET SALES 2000 AS A PERCENTAGE
VARIANCE ANALYSIS INCREASE (DECREASE) FROM 1999
----------------------- -------------------------------------------------------
VOLUME PRICE/MIX TRANSLATION TOTAL
------------- --------------- ----------------- -------
Davison Chemicals...... 5.2% 4.4% (5.2%) 4.4%
Performance Chemicals .
3.8% 0.4% (2.5%) 1.7%
Net sales.............. 4.5% 2.3% (3.8%) 3.0%
----------------------- ------------- --------------- ----------------- -------
By Region:
North America........ 3.2% 2.2% -- 5.4%
Europe............... 3.1% 2.7% (12.5%) (6.7%)
Latin America........ 26.8% 2.9% (2.8%) 26.9%
Asia Pacific......... 3.5% 2.2% (0.5%) 5.2%
======================= =======================================================
1999 AS A PERCENTAGE
INCREASE (DECREASE) FROM 1998
----------------------- -------------------------------------------------------
Davison Chemicals...... 0.6% (0.7%) (1.3%) (1.4%)
Performance Chemicals..
1.8% 1.6% (1.5%) 1.9%
Net sales.............. 1.2% 0.5% (1.4%) 0.3%
----------------------- ------------- --------------- ----------------- -------
By Region:
North America........ (2.6%) 1.1% 0.0% (1.5%)
Europe............... 9.3% 0.5% (4.5%) 5.3%
Latin America........ (3.8%) 7.9% (12.5%) (8.4%)
Asia Pacific......... 1.3% (5.6%) 4.3% (0.0%)
======================= ============= =============== ================= =======
F-35
In both 2000 and 1999, volume and foreign currency translation were the primary
factors affecting the change in net sales, as the impact of price changes and
product mix was modest. In 2000, Latin America experienced the most significant
volume increase, attributable to an acquisition in Chile and unusually
unfavorable order patterns in 1999. The 2000 net sales reported for Grace's
international operations, particularly in Europe, were significantly impacted
by the translation of weakened currencies in relation to the U. S. dollar.
In 2000, each segment experienced volume growth, with the silica products and
construction chemicals groups experiencing significant volume increases of 6.3%
and 6.2%, respectively, primarily attributable to acquisitions. Refining
catalysts also experienced strong volume growth of 6.4% in 2000.
In 1999, all product groups, except for refining catalysts and container
sealants, experienced volume growth. A downturn in demand for refining
catalysts in North America and softness of the Latin American market for
container sealants were the primary causes for declines. The most significant
volume increases were experienced in silica products (5.3%) in all regions
except North America, and in construction chemicals (6.5%) in all regions, with
Asia Pacific experiencing the highest growth rate.
PRE-TAX INCOME FROM CORE OPERATIONS
Pre-tax income from core operations was $187.1 million for the year ended
December 31, 2000, compared to $178.1 million for the year ended December 31,
1999, an increase of 5.0%. This increase was primarily attributable to a $12.0
million, or 23.1%, reduction in corporate operating costs as Grace realized
savings resulting from the move of its corporate headquarters from Boca Raton,
Florida to Columbia, Maryland.
Operating income of Davison Chemicals for 2000 was $131.6 million, up 5.9%
versus 1999, as Six Sigma and other productivity initiatives offset rising
natural gas prices. Davison's operating margin of 16.8% was relatively flat
compared to the prior year. Operating income of Performance Chemicals for 2000
was $95.5 million, down 9.7% from 1999, with an operating margin of 12.2%, down
1.5 percentage points from 1999. These unfavorable results were attributable to
both decreased sales resulting from a softening of the worldwide construction
market and increased raw material and transportation costs.
During 2000, Grace continued to focus on productivity improvement, which
produced a 3.3% reduction in unit costs on a constant dollar basis. The
following table provides the productivity index for each business segment and
Grace's core operations in total. The index is calculated using 1998 as the
base year and carving out selling price changes, currency movement and cost
inflation in every year since the base year. The resulting change in cost per
dollar of sales is Grace's productivity measure. Changes in product volume and
mix remain in the productivity equation.
================================= ================= =============== ===========
2000 1999 % Change
PRODUCTIVITY INDEX
--------------------------------- ----------------- --------------- -----------
COST PER $ OF SALES ON A
CONSTANT $ BASIS WITH 1998 AS
BASE YEAR:
Davison Chemicals .......... $ 0.794 $ 0.828 4.1%
Performance Chemicals....... 0.829 0.859 3.5%
Corporate operating cost....
0.024 0.034 29.4%
--------------------------------- ----------------- --------------- -----------
Total core operations....... $ 0.848 $ 0.877 3.3%
================================= ================= =============== ===========
Grace is targeting pre-tax income from core operations in 2001 to improve by
approximately 5% to 10% over 2000. The Davison Chemicals business is expected to
continue to be adversely affected by high natural gas and raw material costs and
the Performance Chemicals business is likely to be affected by continued
softness of construction activity and increasing petroleum-based costs. A large
factor in profit improvement will be the continued success of Grace's
productivity initiatives, including Six Sigma projects.
PRE-TAX (LOSS) INCOME FROM NONCORE ACTIVITIES
The net loss from noncore activities totaled $188.4 million for 2000 compared
to net income from noncore activities of $37.2 million for 1999. The 2000
results included a net asbestos charge (after expected insurance recovery) of
$208.0 million. This charge was necessary to account for adverse developments
in the latter part of 2000 (see "Subsequent Event - Voluntary Bankruptcy
Filing" above). The 2000 net loss also includes $15.0 million of accruals for
legal and environmental matters related to the Company's former operations in
Libby, Montana and legal fees related to certain tax matters. Income in 1999
included an $18.5 million gain from the settlement of notes received as partial
consideration when Grace sold its printing products business in 1994; a $4.8
million gain from sales of noncore real estate; and a $4.4 million gain from
the sale of a corporate aircraft. The remainder of the year-over-year change
after adjusting for these unusual items in 2000 and 1999 consists of
F-36
increased income generated on the Company's pension assets ($24.3 million in
2000 compared to $12.7 million in 1999) and increased revenue from sales of
marketable securities ($19.0 million in 2000 compared to $9.3 million in 1999).
The net loss from noncore activities of $340.1 million in 1998 was primarily due
to an adjustment in the fourth quarter of $376.1 million (net of insurance
recovery) for asbestos-related litigation offset by insurance recovery of $38.2
million related to environmental remediation.
INTEREST AND INCOME TAXES
Net interest expense for 2000 was $18.4 million, an increase of 54.6% from net
interest expense of $11.9 million in 1999. This increase was attributable to
increased average borrowings under the Company's revolving credit facilities
during 2000 to fund acquisitions, capital expenditures and noncore obligations.
Net interest expense decreased 20.1% in 1999 over 1998 net interest expense of
$14.9 million.
The Company's benefit from income taxes at the federal corporate rate of 35%
was $6.9 million for the year ended December 31, 2000. However, the Company
recorded an accrual of $75.0 million in the fourth quarter of 2000 to account
for potential additional taxes and interest relating to the tax deductibility
of interest on the COLI policy loans. This accrual resulted from the fact that
subsequent to year-end, a U. S. District Court ruling denied interest
deductions related to interest on COLI policy loans of a taxpayer in a similar
situation as Grace. The 2001 effective tax rate will also be significantly
impacted by the interest relating to the tax deductibility of interest on the
COLI policy loans as well as the non-deductible fees related to the Filing.
In 2000, Grace paid $21.2 million of tax and interest related to deductions
claimed in 1990 through 1992. Subsequent to 1992, Grace deducted approximately
$163.2 million of interest attributable to COLI policy loans. Grace filed a
claim for refund of the amount paid to date however, Grace could be required to
make additional payments to the IRS, beginning in late 2002, while the issue is
being contested.
The Company's provision for income taxes at the federal corporate rate was
$71.2 million for the year ended December 31, 1999. The primary difference
between this amount and the provision for income taxes at the effective rate of
$73.2 million were state and local income taxes.
DAVISON CHEMICALS
================================= ================= ============== =============
% Change
2000 1999 Fav(Unfav)
NET SALES
--------------------------------- ----------------- -------------- -------------
Refining catalysts ......... $ 445.7 $ 424.9 4.9%
Chemical catalysts.......... 117.0 113.3 3.3%
Silica products............. 221.2 212.9 3.9%
--------------------------------- ----------------- -------------- -------------
TOTAL DAVISON CHEMICALS.....
$ 783.9 $ 751.1 4.4%
================================= ================= ============== =============
================================= ================= ============== =============
% Change
1999 1998 Fav(Unfav)
--------------------------------- ----------------- -------------- -------------
Refining catalysts ......... $ 424.9 $ 444.0 (4.3%)
Chemical catalysts.......... 113.3 106.3 6.6%
Silica products............. 212.9 211.1 0.8%
--------------------------------- ----------------- -------------- -------------
TOTAL DAVISON CHEMICALS.....
$ 751.1 $ 761.4 (1.4%)
================================= ================= ============== =============
Recent Acquisitions
On January 31, 2000 Grace acquired Crosfield Group's hydroprocessing catalyst
business from Imperial Chemical Industries PLC ("ICI"). This business had
approximately $14 million of sales for 2000. In June 2000, Grace acquired the
Ludox colloidal silica business from the DuPont Company, sales from which
accounted for approximately $13 million in silica products for the year 2000.
These acquisitions have been accounted for as a purchase business combination,
and accordingly, the results of operations of the acquired businesses have been
included in the consolidated statement of operations from the date of their
respective acquisitions.
Sales
Davison Chemicals is a leading global supplier of catalysts and silica
products. Refining catalysts, which represented approximately 28% of 2000 and
1999 total Grace sales (29% - 1998), include fluid cracking catalysts (FCC)
used by petroleum refiners to convert distilled crude oil into transportation
fuels and other petroleum-based products, hydroprocessing catalysts which
upgrade heavy oils and remove certain impurities, and chemical additives for
treatment of feedstock impurities. Chemical catalysts, which represented 7% of
2000, 1999 and 1998 total Grace sales, include polyolefin catalysts, which are
essential components in the manufacturing of polyethylene resins used in
products such as plastic film, high-performance plastic pipe and plastic
household containers. Silica products, which represented 14% of 2000, 1999 and
1998 total Grace sales, are used in a wide variety of industrial and consumer
applications such as coatings, food processing, plastics, adsorbents and
personal care products.
F-37
In 2000, refining catalyst sales were $445.7 million, an increase of 4.9% over
1999. Excluding the ICI acquisition discussed above, refining catalysts sales
for the year 2000 were $431.7 million, or a 1.6% increase over 1999. This
increase is a result of volume gains in Latin America, Asia Pacific and Europe
partially offset by volume declines in North America. Excluding the negative
impact of currency translation, 2000 sales were up 9.6%.
Chemical catalyst sales increased 3.3% to $117.0 million in 2000, as growth in
automotive washcoat materials was partially offset by softer demand for
polyolefin catalysts, as producers reduced polymer inventory. Production rates
were revised sharply downward in the fourth quarter of 2000 and are expected to
rebound in the second half of 2001.
Silica products sales in 2000 were up 3.9% to $221.2 million compared to 1999.
Excluding the Ludox(R) acquisition discussed above, silica products sales
declined 2.1% to $208.4 million, as volume gains in coatings and adsorbents
were offset by negative currency translation. Excluding the negative impact of
currency translation, 2000 sales were up 11.2%. This negative translation
effect was primarily due to the fact that a significant portion (45.1% of
sales) of this business is based in Europe, where currencies weakened in
relation to the U. S. dollar during 2000.
In 1999, refining catalyst sales decreased 4.3% compared to 1998, as an overall
reduction in global demand resulted in volume declines in North America and
Asia Pacific, which were only partially offset by volume gains in Europe.
Chemical catalyst sales increased 6.6% largely due to volume growth in North
America and Europe. Silica products sales were up 0.8% in 1999 versus 1998,
with all regions showing favorable volume comparisons, except for North
America. The decline in North America was a result of competitive pressures in
molecular sieve applications.
Operating Earnings
Pre-tax operating income of $131.6 million produced a 5.9% increase over 1999.
The improvement in operating income was primarily attributable to cost savings
generated from Six Sigma (approximately $20 million) which served to fully
offset increased energy costs and the negative impact of foreign currency
translation. Operating margins improved 0.3 percentage points to 16.8%.
Pre-tax operating income of $124.3 million in 1999 improved 15.6% over $107.5
million in 1998. Despite lower sales, operating margins improved 2.4 percentage
points to 16.5%, due to manufacturing efficiencies derived from Grace's
productivity improvement program.
PERFORMANCE CHEMICALS
================================= ================= ============== =============
% Change
2000 1999 Fav(Unfav)
NET SALES
--------------------------------- ----------------- -------------- -------------
Construction chemicals ..... $ 348.7 $ 334.3 4.3%
Building materials.......... 228.0 224.3 1.6%
Container products.......... 236.8 241.2 (1.8%)
--------------------------------- ----------------- -------------- -------------
TOTAL PERFORMANCE CHEMICALS.
$ 813.5 $ 799.8 1.7%
================================= ================= ============== =============
================================= ================= ============== =============
% Change
1999 1998 Fav(Unfav)
--------------------------------- ----------------- -------------- -------------
Construction chemicals ..... $ 334.3 $ 316.0 5.8%
Building materials.......... 224.3 219.8 2.0%
Container products.......... 241.2 249.0 (3.1%)
--------------------------------- ----------------- -------------- -------------
TOTAL PERFORMANCE CHEMICALS.
$ 799.8 $ 784.8 1.9%
================================= ================= ============== =============
Recent Acquisitions
In December 1999 Grace acquired Sociedad Petreos S.A.'s "Polchem" concrete
admixture and construction chemicals business from Cemento Polpaico S.A. Chile,
an affiliate of Holderbank of Switzerland. For 2000, this business had sales of
approximately $6 million. In March 2000, Grace acquired International
Protective Coatings Corp. (IPC) which contributed sales of approximately $5
million for the year 2000. In July 2000, Grace acquired the Hampshire Polymers
business from the Dow Chemical Company. This business had sales of
approximately $12 million for 2000. These acquisitions have been accounted for
as a purchase business combination, and accordingly, the results of operations
of the acquired businesses have been included in the consolidated statement of
operations from the date of their respective acquisitions.
Sales
Performance Chemicals was formed in 1999 by combining the previously separate
business segments of Grace Construction Products and Darex Container Products.
These businesses were consolidated under one management team to capitalize on
infrastructure synergies from co-location of headquarters and production
facilities around the world. The major product groups of this business segment
include specialty construction chemicals and specialty building materials used
primarily by the nonresidential construction industry; and container sealants
and coatings for food and beverage packaging, and other related products.
Construction chemicals, which represented 22% of 2000 and 1999 total Grace
sales
F-38
(20% in 1998) add strength, control corrosion, and enhance the handling and
application of concrete. Building materials, which represented 14% of 2000, 1999
and 1998 total Grace sales, prevent water damage to structures and protect
structural steel against collapse due to fire. Container products, which
represented 15% of 2000 total Grace sales (16% in 1999 and 1998), seal beverage
and food cans, and glass and plastic bottles, and protect metal packaging from
corrosion and the contents from the influences of metal.
Net sales of Performance Chemicals products increased 1.7% in 2000 compared to
1999 despite the effect of currency weakness in Europe and Latin America
compared to the U.S. dollar, which adversely impacted sales by $18.9 million
for 2000. Excluding the impact of this currency translation, sales increased
4.2%.
In 2000, sales of construction chemicals were $348.7 million, an increase of
4.3% over 1999. Excluding the "Polchem" acquisition discussed above, 2000 sales
for construction chemicals were approximately $343 million. The increase was
driven by penetration of high-performance products in all three product areas,
especially durable concrete and value added water reducers programs. However,
the softening construction market served to partially offset gains contributed
by these products. The construction market is not expected to gain strength
during 2001;therefore, minimal sales growth is expected in this product line.
Sales of building materials increased 1.6% to $228.0 million in 2000 compared
to 1999. This growth was attributable to new product sales in fire protection
and volume gains in roofing underlayments. Currency translation in Europe and
weak construction activity in the United Kingdom partially offset these gains.
Sales of container products declined 1.8% in 2000. The acquisition of Hampshire
Polymers drove increases in the second half of the year of $12.0 million, or
5.0% over 1999, while volume gains in can sealing and coatings were more than
offset by unfavorable foreign exchange in 2000.
In 1999, Performance Chemicals sales increased 1.9% compared to 1998, as sales
increases in construction chemicals and building materials were partially
offset by a sales decrease in container products. Sales of construction
chemicals were up 5.8% in 1999, driven by volume growth worldwide and favorable
price/mix in all regions except Asia Pacific. Sales of building materials were
up 2.0% in 1999, reflecting increases in North American volumes and price/mix.
Container products sales decreased 3.1% in 1999 versus 1998. Unfavorable
economic conditions in Latin America and worldwide customer consolidations in
can sealants, offset by favorable price/mix in Europe and Latin America, all
contributed to the sales decline. Currency translation had a 4.0% negative
impact on results year-over-year.
Operating Earnings
Pre-tax operating income decreased 9.7%, from $105.8 million in 1999 to $95.5
million in 2000. This decrease in pre-tax operating income was caused by
increased transportation costs in construction chemicals and higher
petroleum-based raw materials costs in both building materials and container
products, offset by productivity efficiencies realized through Six Sigma
initiatives.
Pre-tax operating income of $105.8 million in 1999 was up 35.5% compared to
pre-tax operating income of $78.1 million in 1998 (which included a $10.3
million restructuring charge taken to cover headcount reduction and a worldwide
site rationalization). Excluding the restructuring charge, the increase was
19.7%. This increase was driven by a $20.0 million improvement in margin,
reflecting sales increases, value-added product penetration and substitution
and manufacturing cost reductions. An increase in operating expenses due to the
consolidation of a Japanese joint venture was offset by continued productivity
initiatives, principally restructuring and consolidation of infrastructure,
resulting in reduced operating, selling and research and development expenses.
DISCONTINUED OPERATIONS
------------------------------------------------------------------------------
PACKAGING BUSINESS
As discussed in Notes 1 and 4 to the Consolidated Financial Statements, the
Spin-off and Merger were completed on March 31, 1998. The 1998 loss from
discontinued operations includes $32.6 million ($28.3 million after tax) of
costs related to the Packaging Business transaction and $8.4 million ($5.5
million after-tax) for a related pension plan curtailment loss.
F-39
CROSS COUNTRY STAFFING
In July 1999, the Company completed the sale of substantially all of its
interest in Cross Country Staffing (CCS), a provider of temporary nursing and
other healthcare services, for total cash proceeds of $184.6 million. The
Company's investment in CCS had been accounted for under the equity method. The
sale resulted in a net pre-tax gain of $76.3 million ($32.1 million after tax),
including the cost of the Company's purchase of interests held by third parties
in CCS and the amount payable under CCS's phantom equity plan. Certain
contingent liabilities, primarily related to tax matters of CCS, have been
retained by the Company.
RETAINED OBLIGATIONS
Under certain divestiture agreements, the Company has retained contingent
obligations that could develop into situations where accruals for estimated
costs of defense or loss would be recorded in a period subsequent to
divestiture under generally accepted accounting principles. The Company
assesses its retained risks quarterly and accrues amounts to be payable related
to these obligations when probable and estimable.
In 2000, Grace recorded net charges of $6.2 million ($4.1 million after tax)
relating to such obligations; a similar charge of $25.7 million ($16.7 million
after tax) was recorded in 1999. Grace is unable to predict whether or to what
extent similar charges will have to be recorded in 2001.
FINANCIAL CONDITION
-------------------------------------------------------------------------------
The charts below are intended to enhance the readers' understanding of Grace's
overall financial position by separately showing assets, liabilities and cash
flows related to core operations from those related to noncore activities. The
Company's financial strategy is to maximize returns and cash flows from core
operations to fund business growth and to provide resources to satisfy noncore
obligations. The Company's management structure and activities are tailored to
the separate focus and accountability of core operations and noncore
activities.
============================================ ================ ===============
CORE OPERATIONS
(Dollars in millions) 2000 1999
-------------------------------------------- ---------------- ---------------
BOOK VALUE OF INVESTED CAPITAL
Receivables ............................. $187.4 $ 181.9
Inventory ............................... 144.2 128.2
Properties and equipment, net ........... 596.2 611.2
Intangible assets and other.............. 437.8 345.9
---------------- ---------------
ASSETS SUPPORTING CORE OPERATIONS........ 1,365.6 1,267.2
Accounts payable and accruals............ (329.9) (358.1)
---------------- ---------------
CAPITAL INVESTED IN CORE OPERATIONS...... $1,035.7 $909.1
After-tax return on avg invested capital 12.0% 12.5%
================ ===============
CASH FLOWS:
Pre-tax operating income ................ $187.1 $178.1
Depreciation and amortization ........... 87.8 89.2
---------------- ---------------
PRE-TAX EARNINGS BEFORE DEPREC./AMORT. ..
274.9 267.3
Capital expenditures .................... (62.1) (82.5)
Businesses acquired ..................... (52.6) (9.4)
Other changes ........................... (123.6) (20.6)
---------------- ---------------
NET CASH FLOW FROM CORE OPERATIONS....... $36.6 $154.8
============================================ ================ ===============
The Company has a net asset position supporting its core operations of $1,035.7
million at December 31, 2000 compared to $909.1 million at December 31, 1999
(including the cumulative translation account reflected in Shareholders' Equity
of $140.2 million for 2000 and $106.1 million for 1999). The change in the net
asset position is primarily due to investments in acquired businesses and
pension credits relating to a strong return on pension assets in 1999.
After-tax return on capital invested in core operations decreased by 0.5
percentage points in 2000, reflecting the 5% increase in core operating
earnings year-over-year coupled with higher overall invested capital. Cash
flows from core operations decreased primarily due to new businesses acquired.
F-40
================================================= =============== ==============
NONCORE ACTIVITIES (Restated)
(Dollars in millions) 2000 1999
------------------------------------------------- --------------- --------------
BOOK VALUE OF ASSETS AVAILABLE TO FUND NONCORE
OBLIGATIONS:
Cash and other financial assets ............... $ 327.2 $ 345.8
Properties and investments .................... 8.2 8.8
Asbestos-related insurance receivable ......... 372.0 371.4
Tax assets, net................................ 295.7 318.3
------------------------------------------------- --------------- --------------
ASSETS AVAILABLE TO FUND NONCORE OBLIGATIONS 1,003.1 1,044.3
------------------------------------------------- --------------- --------------
Noncore liabilities:
Asbestos-related liabilities................... (1,105.9) (1,084.0)
Environmental remediation...................... (174.9) (215.5)
Postretirement benefits........................ (189.1) (201.4)
Retained obligations and other................. (78.1) (99.1)
------------------------------------------------- --------------- --------------
TOTAL NONCORE LIABILITIES...................... (1,548.0) (1,600.0)
------------------------------------------------- --------------- --------------
NET NONCORE LIABILITY.......................... $ (544.9) $ (555.7)
================================================= =============== ==============
CASH FLOWS:
Pre-tax (loss) income from noncore activities..
$ (188.4) $ 37.2
Provision for asbestos-related litigation,
net of insurance recovery...................... 208.0 --
Proceeds from noncore asset sales ............. 9.6 171.1
Other changes.................................. (8.7) 15.0
Cash spending for:
Asbestos-related litigation, net of insurance
recovery................................. (196.2) (42.8)
Environmental remediation................... (47.2) (25.0)
Postretirement benefits..................... (23.0) (19.6)
Retained obligations and other.............. (17.3) (71.7)
------------------------------------------------- --------------- --------------
NET CASH FLOW FROM NONCORE ACTIVITIES ......... $ (263.2) $ 64.2
================================================= =============== ==============
The Company has a number of financial exposures originating from past
businesses, products and events, the largest of which is asbestos-related
liabilities (discussed below and in detail in Notes 1 and 3 to the Consolidated
Financial Statements). These obligations arose from transactions and/or
business practices that date back to when Grace was a much larger company, when
it produced products or operated businesses that are no longer part of its
revenue base, and when government regulations and scientific knowledge were
much less advanced than today. Grace's current core operations, together with
other available assets, are being managed to generate sufficient cash flow to
fund these obligations over time.
The table above displays the 2000 and 1999 book value of Grace's noncore
liabilities and the assets available to fund such liabilities. The Filing could
materially change the amounts reported in the table above, which does not give
any adjustments to the carrying value of assets or liabilities that might be
necessary as a consequence of a plan of reorganization. Each noncore liability
has different characteristics, risks and expected liquidation profile. Taken
together, these liabilities represent $1,548.0 million of Grace's total
liabilities as reflected on its balance sheet at December 31, 2000. Assets
available to fund noncore liabilities consist of cash and cash equivalents, net
cash value of life insurance where Grace is the beneficiary, property and
investments not used in core operations, insurance coverage for
asbestos-related litigation and net tax assets related to noncore liabilities.
These assets, in the aggregate, totaled $1,003.1 million at December 31, 2000.
ASBESTOS-RELATED MATTERS
Grace is a defendant in lawsuits relating to previously sold
asbestos-containing products. In 2000, Grace paid $196.2 million for the
defense and disposition of asbestos-related property damage and bodily injury
litigation, net of amounts received under settlements with insurance carriers,
compared to net expenditures in 1999 of $42.8 million. At December 31, 2000,
Grace's balance sheet reflects a gross liability of $1,105.9 million and a
liability net of insurance recovery of $733.9 million, which represents
management's estimate as of the balance sheet date (in conformity with
generally accepted accounting principles) of the undiscounted net cash outflows
in satisfaction of Grace's current and expected asbestos-related claims.
The Consolidated Balance Sheet at December 31, 2000 includes total amounts due
from insurance carriers of $372.0 million pursuant to settlement agreements
with insurance carriers and net deferred tax assets of $264.0 million related
to future net tax deductions for asbestos-related matters. The recovery of
amounts due from insurance carriers is consistent with the timing of payment of
an asbestos claim. Recovery of the tax benefits, however, is dependent on other
factors such as profitability of the Company's U. S. subsidiaries and, given
the Company's current net operating loss carryforward position, such benefits
are unlikely to be utilized for the foreseeable future.
In the fourth quarter of 2000, Grace recorded a charge of $208.0 million (net of
expected insurance recovery) to account for several adverse developments in its
asbestos-related litigation, including: a significant increase in bodily injury
claims; higher than expected costs to resolve certain property damage and bodily
injury claims; and defense costs related to new class-action lawsuits alleging
damages from a former attic insulation product not previously subject to
property damage litigation. In addition, over the past year, five codefendant
companies in asbestos bodily injury
F-41
litigation have petitioned for bankruptcy court protection, contributing to the
risk that Grace will be subject to more claims than previously projected, with
higher settlement demands.
See Notes 1 and 3 to the Consolidated Financial Statements for further
information concerning asbestos-related lawsuits and claims.
ENVIRONMENTAL MATTERS
Grace is subject to loss contingencies resulting from extensive and evolving
federal, state, local and foreign environmental laws and regulations relating
to the generation, storage, handling, discharge and disposition of hazardous
wastes and other materials. Expenses of continuing operations related to the
operation and maintenance of environmental facilities and the disposal of
hazardous and nonhazardous wastes totaled $26.4 million in 2000, $31.1 million
in 1999 and $38.2 million in 1998. Such costs are estimated to be between $25
and $30 million in each of 2001 and 2002. In addition, capital expenditures for
continuing operations relating to environmental protection totaled $4.0 million
in 2000, $5.7 million in 1999 and $6.3 million in 1998. Capital expenditures to
comply with environmental initiatives in future years are estimated to be
between $5 million and $7 million in each of 2001 and 2002. Grace also has
incurred costs to remediate environmentally impaired sites. These costs were
$47.2 million in 2000, $25.0 million in 1999 and $36.9 million in 1998. These
amounts have been charged against previously established reserves. At December
31, 2000, Grace's liability for environmental investigatory and remediation
costs related to continuing and discontinued operations totaled $174.9 million,
as compared to $215.5 million at December 31, 1999. Future pre-tax cash outlays
for remediation costs are expected to average between $25 and $40 million over
the next few years.
POSTRETIREMENT BENEFITS
Grace provides certain postretirement health care and life insurance benefits
for retired employees, a large majority of which pertain to retirees of
previously divested businesses. These plans are unfunded, and Grace pays the
costs of benefits under these plans as they are incurred.
An amendment, effective January 1, 2001, to the structure of the retiree-paid
premiums for postretirement medical benefits requires all retirees and
beneficiaries covered by the postretirement medical plan to contribute a
minimum of 20% of the calculated premium for that coverage.
RETAINED OBLIGATIONS OF DIVESTED BUSINESSES
The principal retained obligations of divested businesses relate to contractual
indemnification and to contingent liabilities not passed on to the new owner.
At December 31, 2000, Grace had recorded $78.1 million to satisfy such
obligations. Of this total, $10.9 million is expected to be paid over periods
ranging from 2 to 10 years. The remainder represents estimates of probable cost
to satisfy specific contingencies expected to be resolved over the next few
years.
-------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------------------------------------------------------
LIQUIDITY POSITION
Borrowing capacity, which existed at December 31, 2000, is no longer available
and the outstanding balance on the bank borrowings as of December 31, 2000 of
$400.0 million is callable, however it has been stayed as a result of the
Filing. Similarly, the accounts receivable securitization program has been
terminated subsequent to December 31, 2000. However, Grace does have access to a
DIP facility with Bank of America, N.A. in the aggregate amount of $250 million.
In addition, Grace has cash and cash equivalents of $191.9 million and cash
value of life insurance (net) of $104.3 million as of December 31, 2000 (cash
and cash equivalents of $123.3 million and cash value of life insurance (net) of
$64.1 million at March 31, 2001). Management believes that the DIP facility and
the existing liquid assets will be sufficient to meet the operating needs of
Grace over the next year.
CASH FLOW
Grace's net cash flow from core operations was $36.6 million in 2000 compared
to $154.8 million in 1999. The decrease of $118.2 million during 2000 was
principally the result of cash paid for businesses acquired and unfavorable
working capital movements. The pre-tax cash outflow of noncore activities was
$263.2 million in 2000 compared to an inflow of $64.2 million in 1999. The
large variance between years was caused by several items. In 1999, Grace
realized $225.2 million in proceeds from sales of noncore assets, principally
the divestment of Cross Country Staffing. Also, in 2000, asbestos related
spending was unfavorable by $153.5 million due to higher settlement costs for
both property damage and bodily injury claims. The timing of these expenditures
F-42
is impacted in part by the Company's legal and cash management strategies.
Postretirement benefit payments were consistent with the prior year as these
payments are based on comparable year-over-year benefit programs. The payments
for retained obligations of divested businesses and other were lower in 2000
and Grace anticipates that this element of noncore activities will continue to
decrease, as open issues related to these divested businesses are resolved.
Cash flows used for investing activities in 2000 were $121.8 million, compared
to cash provided of $76.7 million in 1999, and cash used of $108.2 million in
1998. Net cash outflows were impacted by businesses acquired in 2000 of $49.0
million and net investment in life insurance policies of $16.3 million, which
is detailed below. In 1999, the sale of Cross Country Staffing generated cash
of $184.6 million. Proceeds from disposals of assets in 2000 were also lower
than 1999, with $11.9 million in 2000 and $40.6 million in 1999. Included in
the 1999 amount was the sale of the corporate aircraft for $20.4 million and
the sale of certain real properties for a total of $17.1 million.
Total Grace capital expenditures for 2000 and 1999 were $64.8 million and $82.5
million, respectively, substantially all of which was directed toward its
business segments. In 1998, Grace made capital expenditures of $100.9 million.
Net cash provided by financing activities in 2000 was $245.1 million as
compared to $77.5 million being used in 1999. This principally represents
borrowings under credit facilities of $286.6 million, net of repayments, to
fund investments in acquired businesses, capital expenditures and no7ncore
obligations. In 1999, $95.3 million used to purchase approximately 7 million of
the Company's shares as part of the 1998 share repurchase program, was
partially offset by proceeds from the exercise of stock options of $26.6
million. Net cash provided by financing activities of $196.6 million in 1998
primarily related to the Packaging Spin-off and Merger described in Notes 1 and
4. In connection with the Packaging Business transaction, Grace received
$1,256.6 million in cash, which was used to repay substantially all of its
debt. On March 31, 1998, Grace used $600.0 million of the cash transfer to
repay bank borrowings. On April 1, 1998, Grace repaid $611.3 million principal
amount of Notes pursuant to a tender offer, $3.5 million principal amount of
MTNs and $6.0 million of sundry indebtedness. As a result of this early
extinguishment of debt, Grace incurred an after-tax charge of $35.3 million for
premiums paid in excess of the Notes' principal amounts and other costs related
to the purchase of the Notes and MTNs (including the costs of settling related
interest rate swap agreements). These costs are presented as an extraordinary
item in the Consolidated Statement of Operations.
LIFE INSURANCE
Grace is the beneficiary of life insurance policies on certain current and
former employees with benefits in force of approximately $2,286 million and a
net cash surrender value of $104.3 million at December 31, 2000, comprised of
$452.4 million in policy gross cash value offset by $348.1 million of policy
loans. The policies were acquired to fund various employee benefit programs and
other long-term liabilities and are structured to provide cash flows (primarily
tax-free) over the next 40-plus years.
The Company intends to utilize policy cash flows, which are actuarially
projected to range from $15 million to $45 million annually over the policy
terms, to fund (partially or fully) noncore liabilities and to earmark gross
policy cash value as a source of funding for noncore obligations. The Company
also intends to explore structuring options for the policies and policy loans
to enhance returns on assets, to reduce policy expenses and to better match
policy cash flows with payments of noncore liabilities.
SHARE ACTIVITY
Grace employees currently receive salaries, incentive bonuses, other benefits,
and stock options. Each stock option granted under the Company's stock
incentive plan has an exercise price equal to the fair market value of the
Company's common stock on the date of grant. In 2000, the Company granted a
total of 2,555,000 options with an average exercise price of $13.32.
Poor stock price performance or other factors have diminished the value of the
option program to current and prospective employees, which caused the Company
to change its long-term incentive compensation program into more of a
cash-based program and provide cash incentives to the broad employee base
through special bonuses and added company contribution to the savings and
investment plan.
In May 2000, the Company's Board of Directors approved a program to repurchase
up to 12,000,000 of the Company's outstanding shares in the open market.
Through December 31, 2000, the Company had acquired 1,753,600 shares of common
stock for $12.2
F-43
million under this program (an average price per share of $6.98).
INFLATION
-------------------------------------------------------------------------------
The financial statements are presented on a historical cost basis and do not
fully reflect the impact of prior years' inflation. While the US inflation rate
has been modest for several years, the Company operates in international areas
with both inflation and currency issues. The ability to pass on inflation costs
is an uncertainty due to general economic conditions and competitive situations.
It is estimated that the cost of replacing Grace's property and equipment today
is greater than its historical cost. Accordingly, depreciation expense would be
greater if the expense were stated on a current cost basis.
THE EURO
-------------------------------------------------------------------------------
Effective January 1, 1999, eleven of the fifteen member countries of the
European Union adopted one common currency known as the euro. Grace has
operations in 9 of the 11 countries which have adopted the euro and is well
positioned to comply with the legislation applicable to its introduction. Grace
anticipates that the euro conversion will not have a material adverse impact on
its financial condition or results of operations.
-------------------------------------------------------------------------------
ACCOUNTING PRONOUNCEMENTS
-------------------------------------------------------------------------------
In March 2000, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation - an Interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies the application of APB Opinion No. 25 and among other issues
clarifies the following: the definition of an employee for purposes of applying
APB Opinion No. 25; the criteria for determining whether a plan qualifies as a
noncompensatory plan; the accounting consequences of various modifications to
the terms of previously fixed stock options or awards; the accounting
consequences of various modifications to the terms of previously fixed stock
options or awards; and the accounting for an exchange of stock compensation
awards in a business combination. FIN 44 was effective July 1, 2000, but
certain conclusions in FIN 44 cover specific events that occurred after either
December 15, 1998 or January 12, 2000. Grace adopted FIN 44 in the third
quarter of 2000 and there was no material impact on Grace's results or
financial position.
In 2000, the FASB issued Statement of Financial Accounting Standards ("SFAS")
No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." This statement replaces SFAS No. 125 (of the
same name). SFAS No. 140 carries over the main provisions of SFAS No. 125 and
also covers issues not addressed in SFAS No. 125 concerning transfers and
servicing of financial assets. The adoption of SFAS No. 140 did not have a
material impact on Grace's financial statements.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements," subsequently updated by SAB 101A and SAB 101B ("SAB 101"). SAB 101
summarizes certain of the SEC's views in applying generally accepted accounting
principles to revenue recognition in financial statements. Grace adopted SAB
101 in the fourth quarter of 2000 and there was no material impact on Grace's
results of operations or financial position.
On June 15, 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires, among other things,
that all derivative instruments be recognized at fair value as assets or
liabilities in the consolidated balance sheet with changes in fair value
recognized currently in earnings unless specific hedge accounting criteria are
met. At December 31, 2000, the Company did not hold or issue any derivative
financial instruments; therefore, the adoption of SFAS No. 133, as amended, on
January 1, 2001 did not have a material impact on Grace's financial statements.
F-44
FORWARD-LOOKING STATEMENTS
-------------------------------------------------------------------------------
The forward-looking statements contained in this document are based on current
expectations regarding important risk factors. Actual results may differ
materially from those expressed. In addition to the uncertainties referred to
in Management's Discussion and Analysis of Results of Operations and Financial
Condition, other uncertainties include the impact of worldwide economic
conditions; pricing of both the Company's products and raw materials; customer
outages and customer demand; factors resulting from fluctuations in interest
rates and foreign currencies; the impact of competitive products and pricing;
success of Grace's process improvement initiatives; the impact of tax and
legislation and other regulations in the jurisdictions in which the Company
operates; and development in and the outcome of the Chapter 11 proceedings
discussed above. Also, see "Introduction and Overview - Projections and Other
Forward-Looking Information" in Item 1 of Grace's current Annual Report on Form
10-K
F-45
Schedule II
W. R. GRACE & CO. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(in millions)
FOR THE YEAR 2000
===============================================================================
Description
-------------------------------------------------------------------------------
VALUATION AND QUALIFYING ACCOUNTS DEDUCTED FROM ASSETS:
Allowances for notes and accounts receivable.............................
Allowances for long-term receivables.....................................
Valuation allowance for deferred tax assets..............................
RESERVES:
Reserves for divested businesses.........................................
===============================================================================
FOR THE YEAR 1999 (RESTATED)
===============================================================================
Description
-------------------------------------------------------------------------------
VALUATION AND QUALIFYING ACCOUNTS DEDUCTED FROM ASSETS:
Allowances for notes and accounts receivable.............................
Allowances for long-term receivables.....................................
Valuation allowance for deferred tax assets..............................
RESERVES:
Reserves for divested businesses.........................................
===============================================================================
FOR THE YEAR 1998 (RESTATED)
===============================================================================
Description
-------------------------------------------------------------------------------
VALUATION AND QUALIFYING ACCOUNTS DEDUCTED FROM ASSETS:
Allowances for notes and accounts receivable.............................
Allowances for long-term receivables.....................................
Valuation allowance for deferred tax assets..............................
RESERVES:
Reserves for divested businesses.........................................
===============================================================================
=============================================================================
Additions/(deductions)
-----------------------------------------------------------------------------
Charged/
Balance at (credited) to Balance
beginning costs and Other at end
of period expenses net * of period
------------------ ------------------- ------------------ -------------------
$ 4.1 $ 0.3 $ -- $ 4.4
0.8 -- -- 0.8
153.2 16.4 -- 169.6
$ 99.1 $ 6.2 $ (27.2) $ 78.1
================== =================== ================== ===================
=============================================================================
Additions/(deductions)
-----------------------------------------------------------------------------
Charged/
Balance at (credited) to Balance
Beginning costs and Other at end
of period expenses net * of period
------------------ ------------------- ------------------ -------------------
$ 5.5 $ (1.4) $ -- $ 4.1
17.1 (16.3) -- 0.8
154.7 (1.5) -- 153.2
$ 76.4 $ 59.8 $ (37.1) $ 99.1
================== =================== ================== ===================
=============================================================================
Additions/(deductions)
-----------------------------------------------------------------------------
Charged/
Balance at (credited) to Balance
Beginning costs and Other at end
of period expenses net * of period
------------------ ------------------- ------------------ -------------------
$ 4.6 $ 2.8 $ (1.9) $ 5.5
16.1 0.2 0.8 17.1
138.2 16.5 -- 154.7
$ 123.5 $ (44.6) $ (2.5) $ 76.4
================== =================== ================== ===================
* 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), cash payments for previously established reserves
for divested business and miscellaneous other adjustments.
Note A: The valuation allowance for deferred tax assets has been restated for
the years ended December 31, 1999 and 1998. See Note 2 to the Consolidated
Financial Statements.
F-46
EXHIBIT 12
W. R. GRACE & CO. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND
COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (a)
(in millions, except ratios)
(Unaudited)
<TABLE>
<CAPTION>
============================================================================= ===================
-------------------
2000 (H)
----------------------------------------------------------------------------- ------------------
<S> <C>
Net (loss) income from continuing operations............................ $ (89.7)
Add (deduct):
Provision for (benefit from) income taxes............................... 70.0
Equity in unremitted (earnings) losses of less than 50%-owned companies.
(0.5)
Interest expense and related financing costs, including amortization of
capitalized interest.................................................... 30.6
Estimated amount of rental expense deemed to represent the interest factor
2.9
------------------
Income (loss) as adjusted............................................... $ 13.3
==================
Combined fixed charges and preferred stock dividends:
Interest expense and related financing costs, including capitalized interest
$ 29.1
Estimated amount of rental expense deemed to represent the interest factor
2.9
------------------
Fixed charges........................................................... 32.0
Preferred stock dividend requirements (b)............................... --
------------------
Combined fixed charges and preferred stock dividends....................
$ 32.0
==================
Ratio of earnings to fixed charges...................................... (g)
==================
Ratio of earnings to combined fixed charges and preferred stock dividends
(g)
============================================================================= ==================
<CAPTION>
=======================================================================
Years Ended December 31, (c)
-----------------------------------------------------------------------
(Restated)
1999 1998 (d) 1997 (e) 1996 (f)
----------------- ----------------- ----------------- -----------------
$ 130.2 $ (194.7) $ 85.9 $ 112.9
73.2 (28.5) 51.5 70.4
(0.2) (1.2) (1.0) (0.4)
18.8 37.5 89.6 169.8
5.2 5.2 6.9 8.4
----------------- ----------------- ----------------- -----------------
$ 227.2 $ (181.7) $ 232.9 $ 361.1
================= ================= ================= =================
$ 17.0 $ 37.4 $ 94.4 $ 186.1
5.2 5.2 6.9 8.4
----------------- ----------------- ----------------- -----------------
22.2 42.6 101.3 194.5
-- -- -- 0.6
----------------- ----------------- ----------------- -----------------
$ 22.2 $ 42.6 $ 101.3 $ 195.1
================= ================= ================= =================
10.23 (g) 2.30 1.86
================= ================= ================= =================
10.23 (g) 2.30 1.85
================= ================= ================= =================
</TABLE>
(a) Grace's preferred stocks were retired in 1996.
(b) For each period with an income tax provision, the preferred stock dividend
requirements have been increased to an amount representing the pre-tax
earnings required to cover such requirements based on Grace's effective
tax rate.
(c) Certain amounts have been restated to conform to the 2000 presentation.
(d) Includes a pre-tax provision of $376.1 for asbestos-related liabilities
and insurance coverage; $21.0 relating to restructuring costs and asset
impairments, offset by a pre-tax gain of $38.2 for the receipt of
insurance proceeds related to environmental matters, partially offset by a
charge to reflect a change in the environmental remediation strategy for a
particular site.
(e) Includes a pre-tax gain of $103.1 on sales of businesses, offset by a
pre-tax provision of $47.8 for restructuring costs and asset impairments.
(f) Includes a pre-tax gain of $326.4 on sales of businesses, offset by
pre-tax provisions of $229.1 for asbestos-related liabilities and
insurance coverage and $34.7 for restructuring costs and asset
impairments.
(g) As a result of the losses incurred for the years ended December 31, 2000
and 1998, Grace was unable to fully cover the indicated fixed charges.
(h) Includes a pre-tax provision of $208.0 million for asbestos-related
liabilities and insurance coverage. The provision for income taxes
includes a $75.0 million charge for tax and interest relating to tax
deductibility of interest on corporate-owned life insurance policy loans.
F-47
EXHIBIT 10.20
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of the 1st day of January, 2001 (this "Agreement"), by
and between W.R. Grace & Co.-Conn., a Connecticut corporation (the "Company"),
and Paul J. Norris (the "Executive").
WHEREAS, Executive has served as the President and Chief Executive Officer
of the Company since November 1, 1998 and as Chairman since January 1999.
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that, in light of increased risks and financial uncertainties facing
the Company and the industry as a whole, it is in the best interests of the
Company and its shareholders to continue to employ Executive, in the capacity
and on the terms and conditions hereinafter set forth.
WHEREAS, Executive is willing to accept continued employment with the
Company in light of such increased risks and financial uncertainties, on the
terms and conditions hereinafter set forth.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
This Agreement specifies the terms and conditions of Executive's continued
employment with the Company as Chairman, President and Chief Executive Officer,
which have been approved by the Board and/or the Compensation Committee of the
Board (the "Compensation Committee"), as applicable.
1. POSITION AND DUTIES
At all times throughout the Employment Term (as defined below), Executive
shall serve as the Company's Chairman, President and Chief Executive Officer.
Executive's principal obligations, duties and responsibilities shall be those
that are generally inherent in those offices and titles. In this regard, all
employees of the Company (and its subsidiaries) shall continue to report
directly or indirectly to Executive. Executive's office shall continue to be
located at the Company's headquarters in Columbia, Maryland.
2. TERM OF AGREEMENT
a) The initial term of Executive's employment under this Agreement shall
be from the date hereof through December 31, 2002, unless Executive's
employment is sooner terminated for any reason (the "Initial Term").
b) Unless Executive or the Company provides written notice to the contrary
at least 180 days prior to the expiration of the Initial Term, or any renewal
term, Executive's employment shall be extended for an additional one-year
renewal term following the expiration of the Initial Term or such renewal term.
The Initial Term, together with any and all renewal terms, are collectively
referred to herein as the "Employment Term." The Employment Term (including any
renewal term) shall terminate upon Executive's termination of employment for
any reason. During any renewal term, Executive's annual base salary and target
percentages under the
Company's annual incentive compensation program (the "Annual Incentive
Compensation Program") and the Company's long-term incentive compensation
program shall be no less favorable to Executive, in the aggregate, than those
applicable to Executive as of the date hereof, and Executive shall continue to
participate in all benefit plans and programs for which he is eligible
(according to the terms of such plans and programs) on terms no less favorable
than those applicable to the most senior executives of the Company from time to
time. Not later than 120 days prior to the commencement of any renewal term, the
Company shall communicate to Executive any change in the annual base salary and
the target percentages under the Annual Incentive Compensation Program and the
Company's long-term incentive compensation program that shall apply to Executive
during such renewal term, consistent with the requirements of this Section 2(b).
3. COMPENSATION
In consideration for, among other things, Executive's continued services
to the Company, Executive's opportunities lost as a result of his continued
employment with the Company, and any risks associated with Executive's
continued employment with the Company, the following compensation provisions
shall apply, except as otherwise indicated, throughout the Employment Term:
a) Executive's annual base salary shall be not less than $875,000.00,
subject to withholding of all taxes and similar charges required by applicable
law to be withheld and subject to annual review by the Board or the
Compensation Committee for possible increase. Executive's salary shall cease to
accrue immediately upon his termination of employment with the Company for any
reason.
b) Subject to Section 2(b), Executive shall continue to participate in the
Company's Annual Incentive Compensation Program, on terms no less favorable
than those applicable to the Company's other most senior executives. The awards
under this Program are in cash, are contingent upon individual performance, are
paid on a calendar year basis and shall be determined by the financial results
of the Company as a whole. In addition, all annual incentive compensation
awards are subject to approval by the Compensation Committee or the Board.
Executive shall be eligible for a targeted award under the program of 75% (or
higher, if deemed appropriate by the Compensation Committee) of Executive's
annual base salary. For the calendar year in which Executive's employment
terminates for any reason (other than Cause), Executive or his beneficiary
shall receive an award under the Annual Incentive Compensation Program at the
time that Executive would have received such award had his employment with the
Company not terminated, in an amount equal to the product of (i) the award to
which Executive would be entitled by operation of the Annual Incentive
Compensation Program for performance in the year of Executive's employment
termination, as if his employment had not terminated, and (ii) a fraction, the
numerator of which is the number of days in the current fiscal year through
Executive's employment termination date, and the denominator of which is 365.
Except as set forth in the preceding sentence, immediately upon Executive's
termination of employment with the Company for any reason, Executive shall
cease to be eligible for awards under the Annual Incentive Compensation
Program.
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c) The final installment of Executive's non-statutory stock option grant
made on November 1, 1998 (covering 146,342 shares) will vest on November 1,
2001. However, these options will vest immediately upon earlier termination of
Executive's employment by the Company without Cause or termination of
employment by Executive on the basis of Constructive Discharge (each, as
defined below), including following a "change in control" of the Company, as
defined in the Executive Severance Agreement (the "Executive Severance
Agreement") dated as of November 1, 1998 between the Company and Executive and
as may be subsequently amended (a "Change in Control"), or upon Executive's
death or disability ("Disability") as defined under the Company's Long-Term
Disability Income Plan (the "LTD Plan"), and Executive shall have a period of
three years after the date of Executive's termination of employment to exercise
those options.
d) The Compensation Committee shall consider Executive for future stock
option grants at such times as grants are considered for other officers of the
Company or at such other appropriate times as the Compensation Committee shall
deem appropriate.
e) The restrictions on the final installment of Executive's restricted
stock award made on November 1, 1998 (covering 56,911 of Grace Common Stock)
will lapse on November 1, 2001. Executive may choose to receive this award in
the form of unrestricted shares or may convert the award to cash in the amount
of $10.25 for each unrestricted share; provided, however, that this restricted
stock award will vest immediately upon termination of Executive's employment by
the Company without Cause, by Executive on the basis of Constructive Discharge
(including following a Change in Control), or by reason of Executive's death or
Disability. Executive will continue to be eligible to vote such shares during
the period of restriction and receive applicable dividends, if any, on such
shares.
f) Within five business days of the date of the execution of this
Agreement, Executive shall have received, for services to be rendered through
December 31, 2001, an $875,000 retention bonus (the "Initial Retention Bonus").
(The $875,000 equals Executive's annual base salary as of the date hereof.) In
addition, if Executive's employment with the Company pursuant to this Agreement
has not sooner been terminated, Executive shall become entitled to receive, and
shall receive: (i) on December 31, 2001, for services to be rendered through
December 31, 2002, a $500,000 retention bonus; and (ii) on December 31, 2002,
an additional $500,000 retention bonus. The payments described in clauses (i)
and (ii) of the immediately preceding sentence are herein collectively referred
to as the "Retention Bonus." If Executive's employment is terminated by the
Company for Cause or by Executive other than on the basis of Constructive
Discharge (including following a Change in Control), death or Disability,
Executive shall forfeit any unpaid portion of the Retention Bonus that
Executive was not entitled to receive on or before the date of such
termination. If Executive's employment is terminated by Executive on the basis
of Constructive Discharge (including following a Change in Control), death or
Disability, or by the Company without Cause, the Company shall pay to Executive
any unpaid portion of the Retention Bonus within five business days of such
termination.
4. CLAWBACK
If Executive terminates his employment prior to December 31, 2001 other
than on the basis of Constructive Discharge (including following a Change in
Control), death, or Disability,
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Executive agrees to repay to the Company a pro rata portion of the Initial
Retention Bonus previously paid to Executive equal to the product of (a)
$875,000 and (b) a fraction, the numerator of which is the number of days in the
period beginning on the date of such employment termination and ending on
December 31, 2001, and the denominator of which is 365. If Executive terminates
his employment after December 31, 2001 and prior to December 31, 2002 other than
on the basis of Constructive Discharge (including following a Change in
Control), death, or Disability, Executive agrees to repay to the Company a pro
rata portion of the Retention Bonus previously paid to Executive equal to the
product of (a) $500,000 and (b) a fraction, the numerator of which is the number
of days in the period beginning on the date of such employment termination and
ending on December 31, 2002, and the denominator of which is 365.
5. SPECIAL STOCK APPRECIATION PAYMENT
a) The Company shall make a stock appreciation payment to Executive
calculated as described in the next sentence, in the event that Executive
exercises any portion of the stock option described in Section 3(c) of this
Agreement that becomes vested (such vested options are referred to below as the
"Vested Initial Options"), at a time when the market value of a share of Grace
Common Stock is greater than the option price per share of the grant. With
regard to any such Vested Initial Options exercised by Executive, the stock
appreciation payment by the Company will be equal to the result of the
following equation: (i) the number of Vested Initial Options exercised,
multiplied by (ii) a dollar amount equal to the option price per share of the
grant minus $10.25.
b) In addition, the Company shall make a stock appreciation payment to
Executive in the event that Executive cancels any portion of his Vested Initial
Options before exercise of such portion and at a time when the market value of
a share of Grace Common Stock is less than (or equal to) the option price per
share of the grant but greater than $10.25. In order to receive such a payment
for canceled options, Executive must inform the Company's chief human resources
officer in writing of Executive's election to cancel any portion of his Vested
Initial Options, and such cancellation shall be effective on the date such
writing is received by that officer. With regard to any Vested Initial Options
cancelled in accordance with that procedure, the payment by the Company under
this Section 5(b) will be equal to the result of the following equation: (i)
the number of Vested Initial Options that are canceled, multiplied by (ii) a
dollar amount equal to the "Fair Market Value" (as defined in the 1998 Grace
Stock Incentive Plan) of a share of Grace common stock on the date that the
cancellation is effective minus $10.25.
c) In the event of Executive's death at a time when Executive's estate (or
other authorized person) is entitled to exercise Vested Initial Options, in
accordance with the terms of the 1998 Stock Incentive Plan, then the payments
and procedures described in this section shall apply with regard to such
person.
6. SEVERANCE PAY ARRANGEMENT
In the event that Executive's employment is terminated by the Company
without Cause or by Executive on the basis of Constructive Discharge during the
Employment Term, Executive shall be entitled to receive a severance payment of
two times the dollar amount that equals 175%
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of Executive's annual base salary at the rate in effect at the time his
employment is terminated. The parties hereby acknowledge that the severance
payment provided for in this Section 6 shall be earned by Executive upon
termination of his employment with the Company and that such severance payment
is intended by the parties to compensate Executive for the hardships he may
suffer as a result of his termination of employment with the Company. The
severance payment shall be paid to Executive in a single lump sum immediately
after Executive's date of employment termination, but in no event later than
five business days after such date. Notwithstanding any language to the contrary
contained in the Executive Severance Agreement, the LTD Plan, and/or the Grace
Executive Salary Protection Plan (the "ESP Plan"), any payments Executive is
entitled to receive under such agreement or plans shall be reduced,
dollar-for-dollar, but not below zero, by any payments actually paid to
Executive pursuant to this Section 6. Similarly, any payments previously paid to
Executive pursuant to the Executive Severance Agreement, the LTD Plan and/or the
ESP Plan Executive shall reduce, dollar-for-dollar, but not below zero, the
amount of Executive's claim for payments owing to him under this Section 6
(which reduction shall be applied first to any portion of such claim that is not
allowable in any bankruptcy case to which the Company is subject).
7. SUPPLEMENTAL PENSION ARRANGEMENT
a) Except as otherwise provided below, Executive shall receive a
supplemental pension from the Company, which considers all of Executive's prior
years of actual service (i) with W.R. Grace & Co. from February 1968 to May
1969 and from February 8, 1971 to August 5, 1981, and (ii) with AlliedSignal
from August 1989 to October 1998 (the "Prior Years of Service"), as if such
service had been continuous service with the Company. The supplemental pension
will be payable from the general assets of the Company and it will not be
pre-funded in any manner.
b) The supplemental pension shall be calculated by applying the Grace
Salaried Retirement Plan and the W.R. Grace & Co. Supplemental Executive
Retirement Plan, effective October 4, 1984, as amended through the date hereof
(the "SERP"), benefit formula to the Prior Years of Service and all of
Executive's years of service with the Company from and after November 1, 1998,
and using Executive's "final average compensation" (as defined by those plans)
to derive a total retirement benefit (the "TRB"); provided, that in determining
"final average compensation," only compensation earned by Executive with
respect to periods from and after November 1, 1998 shall be taken into account.
The Company shall then pay to Executive a supplemental pension equal to the
excess of the TRB over any retirement benefits to which Executive is Entitled
(as defined below) under the Grace Salaried Retirement Plan, the SERP and any
AlliedSignal defined-benefit retirement plans. For purposes of this Agreement,
Executive is "Entitled" to a benefit or payment under a plan, program or other
arrangement to the extent that Executive retains an actual right to receive
such benefit or payment, taking into consideration any reduction of such right
pursuant to any bankruptcy case to which the Company is subject. In the event
Executive does not actually receive a SERP benefit to which Executive is
Entitled, the Company shall pay such benefit to Executive as part of
Executive's supplemental pension benefit pursuant to this Section 7(b).
c) In the event that, prior to November 1, 2001, Executive terminates his
employment other than on the basis of Constructive Discharge (including
following a Change in Control), death, or
- 5 -
Disability, or Executive is terminated by the Company for Cause, Executive shall
not be entitled to receive the supplemental pension payments provided for in
this Section 7.
d) In the event that the Grace Salaried Retirement Plan is amended during
the Employment Term in a manner that affects the calculation of benefits
provided for in this Section 7, then the supplemental pension shall be adjusted
in an equitable manner consistent with such amendment. Any such adjustment
shall be determined by the actuary for the Grace Salaried Retirement Plan;
provided, however, that such adjustment shall not, in any event, decrease
Executive's supplemental pension below the amount that would be calculated
pursuant to this Section 7 based on Executive's Prior Years of Service, all of
his years of service with the Company from and after November 1, 1998, and his
"final average compensation" as of the day immediately preceding the effective
date of such amendment.
e) Notwithstanding anything to the contrary in this Agreement or in any
plan or program relating to Executive's retirement benefits, in the event of
Executive's termination of employment with the Company on or after November 1,
2001, the Company shall, immediately after the date of Executive's termination
of employment with the Company, but in no event later than 30 business days
after such date, pay to Executive, in a lump sum (such lump sum determined,
except to the extent otherwise set forth in Section 7(b), in accordance with
the methodology and assumptions specified under the Grace Salaried Retirement
Plan), all supplemental retirement benefits payable to Executive by the Company
(including pursuant to the supplemental pension arrangement and the SERP),
whether or not payable pursuant to a plan of the Company. Notwithstanding
anything herein to the contrary, in the event Executive's employment with the
Company is terminated on the basis of Constructive Discharge (including
following a Change in Control), the Company shall use all commercially
reasonable efforts to pay Executive the lump sum payment specified in this
Section 7(e) within five business days after the date of Executive's
termination of employment, but in no event later than 30 business days after
such date.
8. CAUSE
"Cause," for purposes of this Agreement, means:
a) Commission by Executive of a criminal act (i.e., any act which, if
successfully prosecuted by the appropriate authorities would constitute a crime
under state or federal law) or of significant misconduct, in each case which
has had or will have a direct material adverse effect upon the business
affairs, properties, reputation, operations, or results of operations or
financial condition of Company,
b) Refusal or failure of Executive to comply with the mandates of the
Board (unless any such Board mandate constitutes a ground for Constructive
Discharge pursuant to Section 9 and, prior to Executive's failure to comply
with such mandate, Executive provides written notice to the Board indicating
that such mandate constitutes a ground for Constructive Discharge), or failure
by Executive substantially to perform Executive's duties hereunder, other than
any failure resulting from Executive's total or partial incapacity due to
physical or mental illness, which refusal or failure has not been cured within
30 days after written notice thereof has been given to Executive, or
- 6 -
c) Any material breach of any of the terms of this Agreement by Executive,
which breach has not been cured within 30 days after written notice thereof has
been given to Executive.
9. CONSTRUCTIVE DISCHARGE
"Constructive Discharge," for purposes of this Agreement, means the
occurrence of any of the following without Executive's prior written consent:
a) any change in Executive's title from that set forth in Section 1 of
this Agreement,
b) the relocation of the Company's headquarters to a location more than 35
miles away from its current site, as set forth in Section 1 of this Agreement,
c) any material diminution in Executive's level of authority and freedom to
exercise the authority delegated to Executive by the Board, other than an
isolated, insubstantial and inadvertent action that is not made in bad faith and
is remedied by the Company within 30 days after written notice thereof has been
given by Executive,
d) the assignment to Executive of any duties inconsistent with Executive's
status as Chairman, President and Chief Executive Officer of the Company, other
than an isolated, insubstantial and inadvertent failure that is not made in bad
faith and is remedied by the Company within 30 days after written notice
thereof has been given by Executive,
e) the Company fails, within 60 days following the entry of an order for
relief with respect to a bankruptcy case (to which the Company is subject) to
properly file a motion to assume this Agreement and all of the Company's
obligations hereunder with the court having jurisdiction over such case,
f) the Company fails to obtain, within 90 days following the entry of an
order for relief with respect to a bankruptcy case (to which the Company is
subject) from the court having jurisdiction over such case, authorization to
assume this Agreement and to pay the compensation and other amounts owing to
Executive under this Agreement when and as such amounts become due and payable
in accordance with the provisions hereof,
g) any material breach of this Agreement by the Company, which breach has
not been cured within 30 days after notice thereof has been given to the
Company by Executive,
h) in accordance with Section 2(b), written notice by the Company to
Executive indicating that the Company does not wish to extend the Initial Term,
or any renewal term, or
i) the determination by Executive that the compensation arrangements
applicable to him during any future renewal term do not comply with Section
2(b) of this Agreement, after notice by Executive to the Company thereof and
failure by the Company to remedy such noncompliance within 30 days of receipt
of such notice; provided, however, that any such notice shall be delivered by
Executive to the Company not later than 90 days prior to the scheduled
commencement of such renewal term.
- 7 -
Any good faith determination of "Constructive Discharge" made by Executive
shall be conclusive.
A termination of employment by Executive on the basis of Constructive Discharge
shall be effectuated by giving the Company written notice of the termination,
setting forth in reasonable detail the specific conduct of the Company that
constitutes Constructive Discharge and the specific provision(s) of this
Agreement on which Executive relies. A termination of employment by Executive
on the basis of Constructive Discharge pursuant solely to Section(s) 9(a),
9(b), and/or 9(e) shall be effective on the fifth business day following the
date such notice is given, unless the notice sets forth a later date (which
date shall in no event be later than 30 days after the notice is given). A
termination of employment by Executive on the basis of Constructive Discharge
pursuant to Section 9(c), 9(d) or 9(f) shall be effective 30 days after such
notice is given.
Executive's failure or delay, at any time throughout the Employment Term, to
exercise Executive's right to terminate his employment on the basis of
Constructive Discharge, shall not be deemed a waiver of any such right, and,
except as otherwise provided in this Section 9, Executive shall continue to
possess such right to terminate his employment based on Constructive Discharge
at any time during the Employment Term.
A termination of Executive's employment by Executive other than on the basis of
Constructive Discharge shall be effectuated by giving the Company written
notice of the termination.
10. RELOCATION ASSISTANCE
Subject to the restrictions set forth in this Section 10, the Company
shall, upon written request from Executive received by the Company after the
date of Executive's termination of employment with the Company, provide to
Executive all relocation assistance described in the Headquarters Office
Relocation Policy (the "Policy") for current employees in effect as of the date
of this Agreement (copy attached hereto). The Company's obligation to provide
relocation assistance to Executive pursuant to this Section 10 shall continue
for a period of two years from the later of the date of Executive's termination
of employment with the Company or the date of termination of Executive's
service as a member of the Board. The relocation assistance to be provided to
Executive pursuant to this Section 10 shall be available only for relocation
within the continental United States. Notwithstanding anything contained in the
Policy to the contrary, the Company shall provide Executive with two months'
salary, grossed up for federal, state and local income taxes, to cover
incidental relocation expenses. In addition, Executive's "capital loss
protection" (in the event Executive sells his current residence) shall be
grossed up for federal, state and local income taxes and shall not be subject
to the limitations set forth in the Policy. Notwithstanding the foregoing, if,
prior to October 31, 2001, Executive terminates his employment other than on
the basis of Constructive Discharge (including following a Change in Control),
death, or Disability, then the Company shall not be required to provide any
relocation assistance to Executive pursuant to this Section 10.
- 8 -
11. LEGAL EXPENSES
The Company agrees to reimburse Executive for reasonable legal expenses,
not to exceed $30,000, that Executive incurs with respect to negotiating this
Agreement.
12. FINANCIAL COUNSELING PROGRAM
As an officer of the Company, Executive shall, throughout the Employment
Term, continue to be eligible to participate in the Company's Financial
Counseling Program. This Program provides Executive with financial and estate
planning and income tax preparation assistance. The Company shall pay up to
$10,000 per calendar year for reasonable expenses relating to such assistance.
13. COMPANY CAR
Throughout the Employment Term, the Company shall continue to arrange for
Executive to lease, at the Company's expense, an automobile of Executive's
choice similar to the automobile currently used by Executive at Company
expense, for Company business and for Executive's personal use.
14. EXECUTIVE PHYSICAL PROGRAM
As an officer of the Company, Executive shall, throughout the Employment
Term, continue to be entitled to receive a Company-paid annual executive
physical examination.
15. CLUB MEMBERSHIP
Throughout the Employment Term, the Company shall continue to
provide Executive with membership at Cattail Creek Country Club of Howard
County, Maryland (or, during the Employment Term, any successor country or
luncheon club of Executive's choice) (the "Club"), in addition to any corporate
club memberships maintained by the Company. With respect to the Club, the
Company shall pay Executive's membership deposit and Executive shall pay any
annual dues applicable to his Club membership. The Company shall not seek to
obtain a refund of any deposit made by the Company to the Club for so long as
Executive continues to pay his annual dues, including during periods following
the Employment Term.
16. VACATION
As an officer of the Company, Executive shall continue to be entitled to
four weeks of paid vacation per full calendar year during the Employment Term
and may carry over unused vacation time in accordance with applicable Company
policy.
17. MISCELLANEOUS FRINGE BENEFITS
As an employee and senior officer of the Company, Executive shall, at all
times throughout his Employment Term, participate in all Company fringe benefit
plans and
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programs, as in effect from time to time (subject to the terms and conditions of
each such plan or program) on terms and conditions no less favorable than those
applicable to the Company's other most senior officers.
18. SECURITY
During the Employment Term, the Company shall continue to provide
appropriate security for Executive, Executive's spouse and Executive's primary
residence.
19. INDEMNIFICATION COMMITMENT
The Company shall, to the extent permitted by applicable law, indemnify
Executive and hold Executive harmless from and against any and all losses and
liabilities Executive may incur as a result of his performance of his duties
hereunder in accordance with the provisions of this Agreement (except those
liabilities that result from any behavior by Executive that is enumerated in
the "Cause" definition of this Agreement). In addition, the Company shall
indemnify and hold Executive harmless against any and all losses and
liabilities that Executive may incur, directly or indirectly, as a result of
any third party claims brought against Executive (other than by any taxing
authority) with respect to the Company's performance of (or failure to perform)
any commitment made to Executive in Section 3 of this Agreement. The Company
shall obtain such policy or policies of insurance as it reasonably may deem
appropriate to effect this indemnification; provided, however, that in no event
shall the Company modify its insurance coverage with respect to Executive in a
manner that renders such coverage less favorable to Executive than that in
force as of the date hereof.
20. AIR TRAVEL
In addition to the usual Company policies regarding air travel by senior
officers on Company business, the Company shall continue to provide Executive
with travel by chartered aircraft or with travel on an aircraft fractionally
owned by the Company, at times requested by Executive including reasonable
personal travel that is included as taxable income to Executive.
21. NOTICES
Executive and the Company agree that any notices and other communications
permitted or required under this Agreement shall be in writing and shall be
given by hand delivery to the other party or sent by registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
If to Executive:
Paul J. Norris
W.R. Grace & Co.
7500 Grace Drive
Columbia, MD 21044
If to the Company:
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W.R. Grace & Co.
Attention: General Counsel
7500 Grace Drive
Columbia, MD 21044
with a copy to:
Andrew R. Brownstein, Esq.
Wachtell, Lipton, Rosen & Katz
51 W. 52nd St.
New York, NY 10019
or to such other address as either party furnishes to the other in writing in
accordance with this Section 21. Notices and communications shall be effective
when actually received by the addressee.
22. GOVERNING LAW AND DISPUTE RESOLUTION
a) Any dispute, controversy or claim arising out of or relating to this
Agreement, a breach thereof or the coverage or enforceability of this Section
22 shall be settled by arbitration in accordance with the laws of the State of
Maryland, without respect to the conflict of laws rules thereof, and the
arbitration shall be conducted in Maryland or such other location as the
Company and Executive may mutually agree in accordance with the Commercial
Arbitration Rules of the American Arbitration Association, as such rules are in
effect in New York, NY on the date of delivery of demand for arbitration, which
demand shall be provided in accordance with Section 21 of this Agreement. The
parties expressly acknowledge that they are waiving their rights to seek
remedies in court, including without limitation the right (if any) to a jury
trial.
b) There shall be three arbitrators, one to be chosen by each party at
will within 10 business days from the date of delivery of demand for
arbitration and the third arbitrator to be selected by the two arbitrators so
chosen. If the two arbitrators are unable to select a third arbitrator within
10 business days after the last of the two arbitrators is chosen by the
parties, the third arbitrator shall be designated, on application by either
party, by the American Arbitration Association.
c) The decision of a majority of the arbitrators shall be final and
binding on both parties and their respective heirs, executors, administrators,
personal representatives, successors and assigns. Judgment upon any award of
the arbitrators may be entered in any court of competent jurisdiction, or
application may be made to any such court for the judicial acceptance of the
award and for an order of enforcement.
d) The Company shall pay the fees and expenses incurred in connection with
any arbitration arising out of this Agreement, including attorney's fees,
unless a majority of the arbitrators concludes that such arbitration procedure
was not instituted in good faith by Executive, in which case each party shall
bear its own expenses.
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23. SUCCESSORS
a) Except as otherwise provided herein, this Agreement is personal to
Executive, and without the prior written consent of the Company, shall not be
assignable by Executive other than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable
by Executive's legal representatives.
b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns. Except as provided in Section 23(c),
this Agreement shall not be assignable by the Company without the prior written
consent of Executive.
c) The Company shall require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to assume expressly and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
"Company" means the Company as hereinbefore defined and any successor to its
business and/or assets as aforesaid that assumes and agrees to perform this
Agreement by operation of law or otherwise.
24. EXECUTIVE'S RIGHTS; SURVIVAL
In no event shall Executive be obligated to seek other employment or take
any other action to mitigate the amounts payable to Executive under this
Agreement, nor shall the amount of any payment required hereunder be reduced by
any compensation or other payment earned or received by Executive as a result
of his employment with any other employer. Except as otherwise provided herein,
all of Executive's rights under Sections 3, 4, 5, 6, 7, 10, 11, 15, 17, 19, 22,
23, 24, 25 and 26 of this Agreement, to the extent applicable, shall survive
the termination of his employment and/or the termination of this Agreement.
25. SEVERABILITY
If any provision of this Agreement is held invalid or unenforceable in
whole or in part, such provision, to the extent it is invalid or unenforceable,
shall be revised to the extent necessary to make the provision, or part
thereof, valid and enforceable, consistent with the intentions of the parties
hereto. Any provision of this Agreement that is held invalid or unenforceable,
in whole or in part, shall not affect the validity and enforceability of the
other provision of this agreement, which shall remain in full force and effect.
26. MISCELLANEOUS
a) The captions of this Agreement are not part of the provisions hereof
and shall have no force or effect.
b) This Agreement may be amended, superseded or canceled only by a written
instrument specifically stating that it amends, supersedes or cancels this
Agreement, executed by Executive and the Company.
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c) Executive and the Company acknowledge that this Agreement contains the entire
understanding of the parties concerning the subject matter hereof, and that this
Agreement supersedes the letter agreement between Executive and the Company
dated October 26, 1998. Except as expressly otherwise provided herein, this
Agreement shall not adversely affect Executive's right to participate in, or
receive any benefit under, any incentive, severance or other benefit plan or
program in which Executive may from time to time participate.
IN WITNESS WHEREOF, Executive has hereunto set his hand and,
pursuant to the authorization from the Board, the Company has caused these
presents to be executed in its name on its behalf, all as of the day and year
first above written.
/s/ Paul J. Norris
-------------------------------------------------------
Paul J. Norris
W.R. GRACE & CO.
By: /s/ W. Brian McGowan
Name:
---------------------------------------------------
W. Brian McGowan
Title: Senior Vice President
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EXHIBIT 10.22
PAUL J. NORRIS
[LOGO OMITTED] Chairman, President & Chief
Executive Officer
W. R. Grace & Co.
7500 Grace Drive
Columbia, Maryland 21044
Tel.: (410) 531-4404
Fax: (410) 531-4414
Email: paul.j.norris@grace.com
January 30, 2001
Mr. David B. Siegel
Sr. Vice President & General Counsel
W. R. Grace & Co.
Suite 300
5400 Broken Sound Blvd. NW
Boca Raton, FL 33487
Dear Dave:
I am pleased to be writing to specify certain terms of your employment
arrangement including a special retention arrangement that has been approved for
you by the Grace Board of Directors. Under that arrangement, the retention
payment described below will be made to you during January 2001, and the
enhanced severance arrangement, also described below, will apply to you,
provided that you accept and agree to the terms of the arrangement and agree to
(a) forego your rights to severance pay under the Company's Productivity and
Effectiveness Program (PEP) and (b) give the Company at least 90 days notice if
you voluntarily retire or resign your employment (under the PEP or otherwise)
prior to December 31, 2002. Please so indicate your acceptance and agreement by
signing and returning a copy of this letter to W. Brian McGowan in Columbia on
or prior to January 31, 2001.
Retention Payment
As a member of the Grace Leadership Team, and in consideration for your
agreements specified above, you will receive a payment equal to $600,000 on or
before February 9, 2001. $300,000 of this payment will be subject to partial
repayment by you in accordance with the provisions set forth below. (Such
$300,000 is referred to in this letter as the "Repayment Amount".)
The $600,000 payment will be considered regular compensation for 2001 for
Federal and State income tax purposes, and therefore the net amount you
actually receive will consider appropriate income tax withholding as well as
other appropriate payroll taxes (e.g., FICA).
However, the payment will not be considered for any Grace compensation or
benefit plan purposes. For example, the payment will not be considered in
determining your Grace annual or any long-term incentive compensation awards
(for which you may remain eligible) nor will any portion of the payment be paid
into Grace's Savings & Investment Plan, nor will the payment be used to
determine your final average compensation under the Grace Salaried Retirement
Plan or the Grace Supplemental Executive Retirement
--------------------------
January 11, 2001
Page 2
Plan (in this regard, the payment will be considered non-pensionable "special
pay"). Also, the payment will not be used to calculate the amount of disability
income or life insurance that you or your beneficiary may become entitled to
under any Grace benefit plan.
Except as provided in the next sentence, you agree to return to Grace a portion
(calculated as specified below) of the total gross amount, if you voluntarily
retire or resign your employment, or if you are terminated by Grace for "Cause"
(as defined below), so that you cease to be a full-time employee of Grace on or
prior to December 31, 2002. You will not be required to return any portion of
the payment to Grace if at any time on or prior to that date you are
involuntarily terminated by Grace without "Cause", or you die or become
permanently and totally disabled, or you resign from Grace for "Good Reason"
(as defined below).
If you terminate employment with Grace on or prior to December 31, 2002, under
circumstances where you are required to return a portion of the total gross
amount, then the amount that you will be required to return will be the result
of the following calculation: $300,000, multiplied by a fraction where the
numerator is equal to (i) 730 minus, (ii) the number of calendar days during
which you were employed by Grace as a full time employee commencing on January
1, 2001 and ending on your last day of full-time employment with Grace, and the
denominator is 730.
Under the terms of this arrangement, you must make any required repayment no
later than 5 business days after your last date of Grace employment as a full
time employee.
If your employment terminates with Grace under circumstances where you are not
required to return a portion of the Repayment Amount, the payment to you under
this letter agreement will not affect in any way the amount or nature of any
other payment you may be entitled to receive from Grace under any other
agreement, plan or program (including but not limited to any Grace severance
plan), as a result of your termination. However, as specified above, you will
not be entitled to any severance payment under the PEP Program.
For purposes of this retention payment only, the following definitions are
applicable:
"Cause" means commission by you of a criminal act or of significant misconduct,
which in the reasonable judgment of the Grace Board (or its designee) has had
or will have a direct material adverse effect upon the business affairs,
properties, operations or results of operations or financial condition of W. R.
Grace & Co. and its subsidiaries, taken as a whole (collectively, the
"Company").
"Good Reason" means any of the following: (1) the reduction of your annual base
salary paid by the Company to an amount that is less than the amount in effect
as of the date of this letter agreement, (2) the Company's requiring any change
to your current arrangement under which you divide your working time
approximately 50% / 50% between Boca Raton, Florida and Columbia, Maryland, or
requiring you to be based in any other location, or (3) a permanent change in
your job duties that is inappropriate to your current status as Senior Vice
President and General Counsel and a member of Grace's management team, even if
your annual base salary is not reduced.
----------------------
January 11, 2001
Page 3
Enhanced Severance Pay
You will be entitled to severance pay equal to two times your annual base
salary at the time of your termination (the "Enhanced Severance Pay"), if you
are involuntarily terminated by Grace under circumstances in which you would
qualify for severance pay under the terms of the Grace Severance Pay Plan for
Salaried Employees (the "Grace Severance Plan"), with the exception that a
requirement by the Company to relocate you to its Columbia, Maryland
Headquarters would not qualify you to receive enhanced severance pay. A copy of
the Summary Plan Description of that Plan (the "SPD") is attached for your
convenience, and I would draw your attention to the sections of that SPD
entitled "When Coverage Applies" and "When Coverage Doesn't Apply", on page 2.
The payment of the Enhanced Severance Pay will be governed by the terms of the
Grace Severance Plan (except, of course, for the calculation of the amount of
severance pay).
If you become entitled to the Enhanced Severance Pay arrangement described
herein and to severance pay or benefits under any other plan or program of
Grace, or arrangement with Grace, then you will only receive severance under
one severance plan, program or arrangement - - the one that provides the
greatest total amount of severance pay to you. For instance, if the Enhanced
Severance Pay arrangement provides the greatest total severance pay, then you
will only receive the Enhanced Severance Pay, and you will not receive any
severance pay or benefits under any other Grace plan, program or arrangement.
Under no circumstances will you receive severance pay or benefits under two or
more severance plans, programs or arrangements.
Continuation of Rights under the PEP
Unless you give the Company 90 days notice of your election to resign your
employment prior to September 30, 2002, you will relocate full time to
Columbia, Maryland on or before January 1, 2003 and will be eligible for all of
the PEP relocation features such as, but not limited to, the Boca Raton home
sale, home purchase in the Columbia, Maryland area, the miscellaneous allowance
and the state income tax lump-sum payment; and in such event you will no longer
be eligible for any of the separation arrangements of the PEP. If you do so
elect to resign, you will be eligible for all of the separation arrangements of
the PEP, such as vesting of all pre-May 10, 2000 stock option grants and
prorated restricted shares, etc., except for the PEP severance pay arrangement.
Until such time as you relocate full time to Columbia, Maryland, in connection
with your dividing your working time between Boca Raton and Columbia, the
Company will continue to provide the following:
o Availability of a furnished, one bedroom/den apartment in Baltimore
o Midsize rental car while on business in Columbia
o Roundtrip coach airfare on travel between Boca Raton and Columbia
In recognition of the above, you agree to pay for all of your other individual
expenses, including meals (except business meals) while in Columbia.
---------------------
January 11, 2001
Page 4
This supercedes the provisions of our June 10, 1999 Agreement. Neither this
letter agreement, nor the retention arrangement described herein, changes your
current employment status with the Company, which means you remain an employee
"at will."
Thank you for your past and anticipated future contributions to Grace.
Sincerely,
Paul J. Norris
Agreed and Accepted
-------------------------------------
-------------------------------------
(Date)
Exhibit 10.23
Human Resources
[LOGO OMITTED] Columbia, Maryland
DATE: March 2001
TO: Participants in the 2001 Long-Term Incentive Program
FROM: M. N. Piergrossi
CC: J. P. Forgach S. K. Krawczel
M. T. Johnson W. B. McGowan
I am pleased to inform you that you have been selected to participate in
Grace's 2001 Long-Term Incentive Program. Grace's LTIP is designed to
target long-term incentives with a value at the 60th percentile of
long-term incentives offered by specialty chemical companies of comparable
size to Grace.
The 2001 Long-Term Incentive Program features a stock option grant and a
long-term cash component.
Grace has incorporated the long-term cash component to maintain the Company's
competitive position regarding long-term incentives, in consideration of
o Excellent company performance that is not reflected by stock appreciation, and
o Perceived value of stock options in today's economy.
STOCK OPTIONS
The option terms are detailed in the enclosed option award and the copy of the
Company's 2000 Stock Incentive Plan.
o Your nonstatutory stock options ("NSO") were granted by the Compensation
Committee of the Board of Directors of W.R. Grace & Co. (the "Company") on
March 7, 2001.
o Your option will enable you to purchase shares of the Company's Common
Stock at the price of $2.40 per share, which is equal to the "Fair Market
Value" of the Company's Common Stock on the date of grant (March 7, 2001).
o This option becomes exercisable in three annual installments (unless there
is a change in control of the Company, in which case this option, along
with any others you hold, would become exercisable in full) and will
expire 10 years from the date of grant.
o If you are subject to U.S. taxes, you will, upon the exercise of this
option, realize ordinary income equal to the option profit (the excess of
the market value of the Common Stock on the date of exercise over the
purchase price under the option); this option profit will be subject to
applicable withholding taxes at that time. Although state income tax laws
are generally similar to the federal law, this is not always the case. If
you are subject to taxes in a country other than the United States, the
tax consequences of the receipt and exercise of your option will be
determined under the tax laws of such country.
THIS DOCUMENT CONSTITUTES PART OF A
PROSPECTUS COVERING SECURITIES THAT
HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933.
- 2 -
o The enclosed option contains a provision permitting you to pay the
purchase price upon the exercise of the option in cash or, with the
permission of the Company (which may be subject to certain conditions), in
shares of the Company's Common Stock delivered to the Company or in a
combination of cash and such shares.
LONG-TERM CASH COMPONENT
Your target long-term cash award was calculated by multiplying the number
of options you were awarded on March 7, 2001 by $6. Your actual award will
be based on the 3-year average annual growth rate (AAGR) in total
corporate pre-tax income from core operations. Payouts are contingent upon
achievement of target AAGR for the 3-year performance period. The target
AAGR is 10%, using 2000 results as the base. The payout will vary with
actual results as shown in the chart below:
----------------------------------------------- ---------------------
2001-2003 AAGR LEVEL ACHIEVED OVER 2000 PAYOUT
AS A % OF TARGET
----------------------------------------------- ---------------------
25% or higher 200%
----------------------------------------------- ---------------------
20% 166%
----------------------------------------------- ---------------------
15% 133%
----------------------------------------------- ---------------------
10% 100%
----------------------------------------------- ---------------------
5% 50%
----------------------------------------------- ---------------------
Less than 5% 0%
----------------------------------------------- ---------------------
For the 2001-2003 Program, cash payments will be made in two installments - 50%
of what is earned based on performance for 2001 and 2002, but no more than 50%
of target, will be paid in March 2003, and the balance will be paid in March
2004. Please see the enclosed administrative practices for further details.
Under U.S. federal income tax law, the value of the cash payments, when
received, will constitute ordinary income and will trigger income tax
withholding obligations at that time. If you are subject to taxes in a country
other than the United States, the tax consequences of the receipt of cash will
be determined under the laws of such country.
- 3 -
ENCLOSURES
o Two copies of your stock option
o One copy of the Company's 2000 Stock Incentive Plan under which your
option was granted (which constitutes Annex A to your option)
o Two copies of your Long-Term Cash Award
o Sample Calculation of Long-Term Cash Award Earned (which constitutes Annex
B to your long-term cash award)
o Administrative Practices - Long-Term Cash Award Program (which constitutes
Annex C to your long-term cash award)
REQUIRED ACTIONS
Please promptly sign and return one copy of the option and one copy of the cash
award to Marihelen Johnson in the Columbia office.
ADDITIONAL QUESTIONS
If you have any questions on this program, please feel free to call me at (410)
531-4183 or Sonya Krawczel at (410) 531-4479.
- 4 -
ANNEX B
SAMPLE CALCULATION OF LONG-TERM CASH AWARD EARNED
Your target Long-Term Cash Award was calculated by multiplying the number of
options you were awarded on March 7, 2001 by $6. Your actual award will be
based on the 3-year average annual growth rate (AAGR) in total corporate
pre-tax income from core operations. Payouts are contingent upon achievement of
target AAGR for the 3-year performance period. The target AAGR is 10%, using
2000 results as the base year.
The Total Corporate Pre-Tax Income (PTI) from Core Operations in 2000 was
$187.1 million. The chart below details five scenarios at different assumed
growth rates. The target growth rate is highlighted.
------------------------------------------------------------------------
ASSUMED GROWTH RATES 2000 PTI 2001
BASE PERIOD
------------------------------------------------------------------------
5.0% $187.1 $196.5
10.0% 187.1 205.8
15.0% 187.1 215.2
20.0% 187.1 224.5
25.0% 187.1 233.9
------------------------------------------------------------------------
-----------------------------------------------------------------------
PERFORMANCE PERIOD (1)
2002 2003 TOTAL PTI
($ IN MILLIONS) 01-03 (2)
-----------------------------------------------------------------------
$206.3 $216.6 $619.3
226.4 249.0 681.2
247.4 284.6 747.2
269.4 323.3 817.3
292.3 365.4 891.6
-----------------------------------------------------------------------
----------------------
PAYOUT
LONG-TERM CASH
AWARD
----------------------
50% (3)
100%
133%
166%
200% (4)
----------------------
(1) Pre-tax income from core operations and adjustments, if any, as may be
approved by the Compensation Committee. Excludes costs associated with
strategic evaluation activities.
(2) All results include full recognition/accrual of Annual Incentive
Compensation Program payments, and, for achievement levels above 10%
(i.e., 15%, 20%, and 25%), all totals include accruals for Long-Term
Incentive Program Payments above the target amount.
(3) If the actual AAGR is below 5%, the payout is zero.
(4) The payout will not be adjusted above 200% for AAGR above 25%.
For the 2001-2003 program, cash payments will be made in two installments: (1)
50% of what is earned based on 2001-2002 performance, but no more than 50% of
target, to be paid in March 2003 and (2) the balance to be paid in March 2004.
The chart below shows the payout schedule and amounts for an employee who
received, in March 2001, 3,400 stock options and whose Targeted Long-Term Cash
Award is $20,400 (i.e., $6 X 3,400).
<TABLE>
<CAPTION>
-------------------------------------- ------------------------------------ ------------------------------------
AAGR LEVEL ACHIEVED PAYOUT IN MARCH 2003 PAYOUT IN MARCH 2004
-------------------------------------- ------------------------------------ ------------------------------------
<S> <C> <C> <C>
5% $5,100 $5,100
-------------------------------------- ------------------------------------ ------------------------------------
10% $10,200 $10,200
-------------------------------------- ------------------------------------ ------------------------------------
15% $10,200 $16,930
-------------------------------------- ------------------------------------ ------------------------------------
20% $10,200 $23,665
-------------------------------------- ------------------------------------ ------------------------------------
25% $10,200 $30,600
-------------------------------------- ------------------------------------ ------------------------------------
<CAPTION>
------------------------------------
TOTAL PAYOUT
------------------------------------
<C>
$10,200
------------------------------------
$20,400
------------------------------------
$27,130
------------------------------------
$33,865
------------------------------------
$40,800
------------------------------------
</TABLE>
- 5 -
ANNEX C
W. R. GRACE & CO.
ADMINISTRATIVE PRACTICES - LONG-TERM CASH AWARD PROGRAM
2001-2003 Performance Period
DEFINITIONS
"Award Payment": An Interim Long-Term Cash Award Payment or Remaining Long-Term
Award Payment, as applicable.
"Board of Directors": The Board of Directors of the Company
"Business": As the context may require, a product line, group, division,
Subsidiary or other organizational entity of the Company
"Committee": The Compensation Committee of the Board of Directors.
"Company": W. R. Grace & Co., a Delaware Corporation and/or, if applicable in
the context, one or more of its Subsidiaries.
"Incomplete Long-Term Cash Awards": A Long-Term Cash Award for which the
Performance Period has not been completed as of the date referenced.
"Interim Long-Term Cash Award Payment": The first installment of a Long-Term
Cash Award that may be paid in the third and final year of the Performance
Period, based on the Company's performance during the first two calendar years
of the Performance Period. This amount will not exceed 50% of the Targeted
Award, regardless of Company performance at the time of payment.
"Key Employee": An officer or other senior, full-time employee of the Company,
who, in the opinion of the Company, can contribute significantly to the growth
and successful operations of the Company.
"Long-Term Cash Award Program": An undertaking by the Company to financially
reward a Key Employee at the end of a Performance Period, which undertaking is
contingent upon or measured by the attainment over the Performance Period of
specified performance objectives determined (on a consolidated or
unconsolidated basis) by changes in the 3-year average annual growth rate
(AAGR) in total Pre-Tax Income from Core Operations.
"Long-Term Cash Award": A cash award, to be paid in the future, which is
granted to Key Employees under the Company's long-term incentive program.
"Long-Term Cash Award Earned": The amount of cash earned by a Participant
pursuant to the terms of a Long-Term Cash Award.
"Participant": A Key Employee who is, or who is proposed to be, a recipient of
a Long-Term Cash Award.
- 6 -
"Performance Period": Except as provided herein, a period of three calendar
years over which a Long-Term Cash Award may be earned, as approved by the
Committee. The first Performance Period under this Plan will commence effective
January 1, 2001 and will end on December 31, 2003. Performance Periods with
respect to different Long-Term Cash Awards to the same individual may overlap.
"Pre-Tax Income from Core Operations": The "pre-tax income from core
operations" of the Company as reported on (and calculated in accordance with)
the statement of W. R. Grace & Co. Continuing Operations- Segment Basis.
"Remaining Long-Term Cash Award Payment": The second installment of the
Long-Term Cash Award that may be paid after the end of the Performance Period,
based on Company performance for the entire Performance Period.
"Subsidiary": A corporation, partnership, limited liability company or other
form of business association of which shares of common stock or other ownership
interests (i) having more than 50% of the voting power regularly entitled to
vote for directors (or equivalent management rights) or (ii) regularly entitled
to receive more than 50% of the dividends (or their equivalents) paid on the
common stock (or other ownership interests), are owned, directly or indirectly,
by the Company.
"Targeted Award": The amount of cash award specified in writing for a
Participant as his or her "Targeted Award" for a Performance Period and which
is subject to and covered by the terms and conditions of a Long-Term Cash
Award. This amount may be different from the Long-Term Cash Award Earned by an
individual.
PLAN ADMINISTRATION
The Plan shall be administered by the Committee, provided that no member of the
Committee shall be eligible to receive a Long-Term Cash Award while serving on
the Committee.
The Committee shall approve (i) the performance measurements and objectives for
each Long-Term Cash Award and (ii) the Performance Period over which a
Long-Term Cash Award is to be earned.
The Committee shall approve (i) the Key Employees who are to be granted
Long-Term Cash Awards and (ii) the Targeted Award subject to each Long-Term
Cash Award.
LONG-TERM CASH AWARDS
The Committee may, at any time or from time to time, grant Long-Term Cash
Awards to Key Employees.
Each Long-Term Cash Award shall be evidenced by a written instrument containing
such terms and conditions as the Committee shall approve, provided the
instrument is consistent with these practices.
- 7 -
No Long-Term Cash Award, nor any payment or right thereunder, shall be subject
in any manner to alienation, sale, transfer, assignment, pledge, encumbrance or
charge, except by will or the laws of descent and distribution, or by the terms
of a Participant's Designation of Beneficiary, if any, on file with the
Company.
In the case of a Key Employee who becomes a Participant after the beginning of
a Performance Period, the Committee may ratably reduce the amount of the
Targeted Award covered by such Employee's Long-Term Cash Award or otherwise
appropriately adjust the terms of the Long-Term Cash Award to reflect the fact
that the Key Employee is to be a Participant for only part of the Performance
Period.
It is the intention of the Committee that Long-Term Cash Awards be related to
the results of the core operations affected by the management actions taken by
the Participants. Subject to the administrative practices that apply to
termination or change in employment status and to the amendment or
discontinuance of Long-Term Cash Awards, the performance objectives applicable
to Long-Term Cash Awards will remain unchanged during the Performance Period
except as follows:
o In the event of the divestment of a Business prior to completion of the
Performance Period, both the performance objectives and results pertaining
to that Business shall be eliminated for the full year in which the
divestment occurs and for any subsequent years.
o In general, acquisitions will be included in the performance results.
TERMINATION OR CHANGE IN EMPLOYMENT STATUS
A Participant shall forfeit all rights to any Award Payment, if, prior to the
date of payment of such Award Payment, the Participant (1) resigns without the
consent of the Committee, (2) retires under a retirement plan of the Company or
Subsidiary before age 62 without the consent of the Committee, or (3) is
terminated for cause.
If a Participant retires under a retirement plan of the Company or Subsidiary
at or after age 62, or ceases employment as a result of death or disability, or
ceases employment as a result of an involuntary termination after a Change in
Control of the Company (as defined herein), during a Performance Period, then
his rights in any Incomplete Long-Term Cash Award related to that Performance
Period shall thereupon vest, and he shall be entitled to receive any Award
Payment of any Long-Term Cash Award Earned he would otherwise have received (at
the time he would have otherwise received the Award Payment), except that the
amount of any Long-Term Cash Award Earned shall be reduced ratably in
proportion to the portion of the Performance Period during which the
Participant was not an employee. If a Participant ceases employment with the
Company for any of the reasons specified in this paragraph, after the
completion of any Performance Period (but before the payment of the Remaining
Long-Term Cash Award Payment related to the completed Performance Period), then
his rights to any Long-Term Cash Award Earned and to such Award Payment related
to the completed Performance Period shall thereupon vest, and he shall be
entitled to receive such Award Payment at the time he would have otherwise
received the Payment.
- 8 -
If a Participant ceases employment with the Company for any reason other than
those indicated in the previous two paragraphs (including by reason of
involuntary termination not for cause, except as provided above with respect to
involuntary termination after a Change in Control of the Company, or transfer
of employment to a buyer of any business unit of the Company), then his rights
in any Incomplete Long-Term Cash Award, and any Award Payment that is unpaid as
of the date the Participant ceases such employment, shall be determined by the
Committee (or the designee of the Committee, which may include the Chief
Executive Officer of the Company) as soon as practicable after the Participant
ceases such employment. All such determinations shall be final and binding on
all parties.
Except as modified by the provisions of the second and third paragraphs of this
section, payments due to Participants pursuant to the applicable preceding
paragraphs, above, shall be calculated and made in accordance with the
provisions described under the section entitled "Calculation of Long-Term Cash
Awards Earned: Form of Payment".
A leave of absence, if approved by the Committee, shall not be deemed a
termination or change of employment status for the purposes of this section,
but, unless the Committee otherwise directs, any Long-Term Cash Award Earned
that a Participant would otherwise have received under a Long-Term Cash Award
Program shall be reduced ratably in proportion to the portion of the
Performance Period during which the Participant was on such leave of absence.
Any consent, approval or direction which the Committee may give under this
section in respect of an event or transaction may be given before or after the
event or transaction.
CALCULATION OF LONG-TERM CASH AWARDS EARNED: FORM OF PAYMENT
Long-Term Cash Awards Earned will be paid to Participants in two installments
(1) the first installment shall be paid in March of the third and final year of
the Performance Period and shall be equal to 50% of what is earned based on the
Company's performance for the first two calendar years of the applicable
Performance Period, but no more than 50% of the Participant's targeted award
(the "Interim Long-Term Cash Award Payment"), and (2) the balance, if any, of
the Long-Term Cash Award Earned will be paid in March after the end of the
third and final year of the Performance Period (the "Remaining Long-Term Cash
Award Payment").
The Committee shall determine the extent to which the performance objectives of
a Long-Term Cash Award have been achieved during the Performance Period and the
amount of any Long-Term Cash Awards Earned (and the amount of any Award
Payment). All calculations in this regard shall be made in accordance with the
generally accepted accounting principles customarily applied by the Company and
shall be submitted to the Committee for its review and approval. The
determination of the Committee shall be final and binding.
- 9 -
GENERAL
Nothing in this document nor in any instrument executed pursuant hereto shall
confer upon a Participant any right to continue in the employ of the Company or
a Subsidiary, or shall affect the right of the Company or a Subsidiary to
terminate his or her employment with or without cause.
The Company or a Subsidiary may make such provisions as it may deem appropriate
for the withholding or any taxes that the Company or a Subsidiary determines it
is required to withhold in connection with any Long-Term Cash Award Earned.
Nothing in a Long-Term Cash Award is intended to be a substitute for, or shall
preclude or limit the establishment or continuation of, any other plan,
practice, or arrangement for the payment of compensation or benefits to
employees generally, or to any class or group of employees, which the Company
or a Subsidiary now has or may hereafter lawfully put into effect, including,
without limitation, any retirement, pension, group insurance, annual bonus,
stock purchase, stock bonus or stock option plan; provided, however, that no
amounts awarded or paid pursuant to any Long-Term Cash Award shall be included
or counted as compensation for the purposes of any employee benefit plan of the
Company or a Subsidiary where contributions to the plan, or the benefits
received from the plan, are measured or determined in whole or in part, by the
amount of the employee's compensation.
The grant of a Long-Term Cash Award to an employee of a Subsidiary shall be
contingent on the approval of the Long-Term Cash Award by the Subsidiary and
the Subsidiary's agreement that (i) the Company may administer such Award on
its behalf and (ii) the Subsidiary will make, or reimburse the Company for, the
payments called for by the Long-Term Cash Award. The provisions of this
paragraph and the obligations of the Subsidiary so undertaken may be waived, in
whole or in the part, from time to time by the Company.
AMENDMENTS AND DISCONTINUANCE
In the event acquisitions, divestments, substantial changes in tax or other
laws or in accounting principles or practices, natural disasters or other
extraordinary events render fulfillment of the performance objectives of a
Long-Term Cash Award impossible or impracticable, or result in the achievement
of the performance objectives without appreciable effort by the Participant,
the Committee may, but shall not be obligated to, amend any such Long-Term Cash
Award in any appropriate manner so that the Participant may earn Long-Term Cash
Awards comparable to those that might have been earned if the extraordinary
event had not occurred.
The Chief Executive Officer of the Company may approve such technical changes
and clarifications to the Long-Term Cash Award Program as necessary, provided
such changes or clarifications do not vary substantially from the terms and
conditions outlined in this description.
- 10 -
In the event a Change in Control of the Company (as defined herein) shall occur
or the Board of Directors has reason to believe that a Change of Control may
occur, the Committee may, with respect to any one or more Long-Term Cash
Awards, (i) reduce the length of a Performance Period to not less than one
year, (ii) make ratable adjustments to performance objectives and Targeted
Awards, (iii) change the methods of measuring the performance objectives, (iv)
accelerate the payment of any Long-Term Cash Awards Earned or any Award
Payment, and (v) take other action deemed by it to be appropriate and in the
best interests of the Company under the circumstances. For the purposes of this
paragraph:
(A) "Change in Control of the Company" means and shall be deemed to have
occurred if (a) the Company determines that any "person" (as such term is
used in Section 13(d) and 14 (d) of the Securities Exchange Act of 1934),
other than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or a corporation owned, directly or
indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company, has become the
"beneficial owner" (as defined in Rule 13d-3 under such Act), directly or
indirectly, of 20% or more of the outstanding common stock of the Company
(provided, however, that a Change in Control shall not be deemed to have
occurred if such person has become the beneficial owner of 20% or more of
the outstanding Common Stock as the results of a sale of Commons Stock by
the Company that has been approved by the Board of Directors); (b)
individuals who are Continuing Directors cease to constitute a majority of
any class of directors of the Board of Directors; (c) there occurs a
reorganization, merger, consolidation or other corporate transaction
involving the Company (a "Corporate Transaction"), in each case, with
respect to which the stockholders of the Company immediately prior to such
Corporate Transaction do not, immediately after the Corporate Transaction,
own 50% or more of the combined voting power of the corporation resulting
from such Corporate Transaction; or (d) the stockholders of the Company
approve a complete liquidation or dissolution of the Company.
(B) "Continuing Director" means any member of the Board of Directors who was
such a member on the date on which this Program was approved by the Board
of Directors, and any successor to a Continuing Director who is approved
as a nominee or elected to succeed to a Continuing Director by a majority
of Continuing Directors who are then members of the Board of Directors.
The granting of Long-Term Cash Awards may be amended or discontinued by the
Committee at any time.
No amendment or discontinuance of Long-Term Cash Awards shall, without a
Participant's consent, adversely affect his rights in any Long-Term Cash Awards
theretofore granted to him, except that, if the Committee so directs, all
Incomplete Long-Term Cash Awards may be terminated prospectively with the same
effect as a termination of employment under the second paragraph of the section
entitled "Termination or Change in Employment Status".
- 11 -
Long-Term Cash Award
Granted to: Name
Effective Date of Grant: Date
Targeted Award: $XX,XXX
Performance Period: January 1, 2001 - December 31, 2003
Under the long-term incentive program of W.R. Grace & Co (the "Company"),
the Compensation Committee (the "Committee") of the Board of Directors of the
Company has granted you a Long-Term Cash Award under which you may earn a
payout in an amount equal to (or, in certain circumstances, greater or less
than) the Targeted Award set forth above, over the Performance Period.
This Targeted Award will be earned by you if the performance objectives
described in Annex B for the Performance Period are met. If the performance
objectives are only partially achieved or are over-achieved, the amount you
actually earn under this Award will be decreased (or eliminated) or increased
as set forth in Annex B.
The consequences of a change in or termination of your employment status
during the Performance Period are described in the attached Administrative
Practices (Annex C).
In all matters regarding the administration of the Long-Term Cash Award,
the Committee has full and sole jurisdiction and discretion, subject to the
provisions of Annex C.
Long-Term Cash Awards are being granted only to a limited number of
executives of the Company and its subsidiaries. This Award should,
consequently, be treated confidentially.
W.R. GRACE & CO.
By:
PAUL NORRIS
CHAIRMAN, CEO, PRESIDENT
Acceptance of the foregoing is
acknowledged this ____________
day of _______________, 2001.
-------------------------------
(Signature of Participant)
-------------------------------
(Please print full name)
[LOGO OMITTED]
EXHIBIT 10.24
Paul J. Norris
Chairman, President & CEO
Corporate Headquarters
W. R. Grace & Co.
7500 Grace Drive
Columbia, MD 21044
May 7, 1999 (410) 531-4404
Fax: (410) 531-4414
Mr. William M. Corcoran
13 North Oak Court
Madison, NJ 07940
Dear Bill,
This letter agreement specifies the terms of your employment with W. R. Grace &
Co. (the "Company") as Vice President, Public Relations, Communications,
Governmental and Environmental Affairs, which will be presented for approval to
the Company's Board of Directors (the "Board") and/or the Compensation
Committee of the Board, as applicable, at its next meeting. The Board is
extremely pleased that you will be joining the Company and believes you will
make a valuable contribution to the Company's future.
If you agree with the terms of this letter agreement, please sign where
indicated below and return one fully executed copy to me. An additional copy of
this letter is also enclosed for your records.
RESPONSIBILITIES
Your employment with the Company is subject to Board approval and will begin as
of June 1, 1999. Your title will be "Vice President, Public Relations,
Communications, Governmental and Environmental Affairs" of the Company, and you
will report to me.
Your principal obligations, duties and responsibilities will generally be to
serve as the "chief spokesperson" for the Company. In this role you will plan,
direct and implement public relations and communications programs for the
external and internal audiences. You will also advise senior management
concerning the political environment and identify, monitor and influence
legislative affairs which impact the Company as well as direct environmental
health and safety projects and Grace "legacy" liabilities. Your office will be
located at the Company's Headquarters in Columbia, Maryland.
TERM OF AGREEMENT
The term of your employment under this agreement will be for a period of three
years, beginning on the date your employment with the Company commences, June
1, 1999 and ending on May 31, 2002 (such period is referred to in this
agreement as your "Employment Term").
William M. Corcoran 5/4/99 Page 2
--------------------------------------------------------------------------------
If your employment as Vice President, Public Relations, Communications,
Governmental and Environmental Affairs of the Company (or in any other
position) continues after the Employment Term, and no other contrary
arrangements have been mutually agreed in writing between you and the Board,
then the arrangements described in this agreement will be discontinued and you
will be an employee of the Company "at will" subject to the same requirements
as similarly situated employees of the Company at that time, except as provided
under the following sections entitled "Severance Pay Arrangement" and "Special
Supplemental Retirement Payment Arrangement".
COMPENSATION
1. Your initial annual base salary as Vice President, Public Relations,
Communications, Governmental and Environmental Affairs will be
$250,000.00. Thereafter, your base salary will be subject to periodic
reviews on the same basis and at the same intervals as are applicable to
other senior officers of the Company.
Your salary will cease to accrue immediately upon your termination of
employment with the Company, whether you voluntarily cease performing
services or otherwise. (Note, however, the provisions below under
"Severance Pay Arrangement".)
2. You will be eligible to participate in the Company's Annual Incentive
Compensation Program. Cash awards under this Program are contingent upon
individual performance, and will be determined by the financial results of
the Company as a whole. As a Vice President at your level, under the
current provisions of the Program, you will be eligible for a targeted
award of 37% of your annual base salary; however, your actual award for
1999 will be no less than $92,5000. All annual incentive compensation
awards are subject to approval by the Compensation Committee and the Board
and will be contingent upon your remaining with the Company through the
date of payment (except with respect to the special provision for the 1999
award described in this paragraph). However, the payment for 1999
described above will be made in March 2000 (reduced, if applicable, on a
prorate basis to exclude any duplicate payments that may be payable to you
under your severance arrangement) even in the event your employment is
terminated by the Company without "Cause" before the date of payment,
including termination of employment without "Cause" following a
change-in-control of the Company. You will not, however, be entitled to
that payment if you voluntarily resign, or are terminated for "Cause",
prior to March 2000.
3. Management will recommend that you be granted a stock option at its next
meeting, covering 32,500 shares of Grace Common Stock at the "Fair Market
Value" on such date, which will vest in three approximately equal
installments of 10,883, 10,883 and 10,884 on the date following each
anniversary of the date of your grant, in 2000, 2001 and 2002,
respectively; provided, however, all such installments would vest
immediately upon termination of employment by the Company without "Cause"
including termination of employment without "Cause" following a
change-in-control of the Company. The stock option will be granted under
the Company's 1998 Stock Incentive Plan, which will govern the terms of
that option, except as otherwise provided by this letter agreement.
William M. Corcoran 5/4/99 Page 3
--------------------------------------------------------------------------------
You will be eligible to receive periodic stock option grants in the future
at the same times as other officers of the Company, and covering a number
of shares consistent with your position as an officer of the Company.
4. Management will recommend that you will be granted a restricted stock
award covering 10,000 shares of Grace Common Stock on the date of the next
Board Meeting, with the provision that you will vest in all of the shares
and the restrictions will lapse at the end of 3 years, i.e., the
expiration of the Employment Term on May 31, 2002; provided, however, any
such shares will vest immediately upon the termination of your employment
by the Company, without "Cause" (including termination of employment by
the Company without "Cause" following a "change-in-control" of the
Company, within the meaning of your "Executive Severance Agreement"
described below), or upon your death or disability as defined under the
Company's Long-Term Disability Income Plan.
5. Consistent with your election as an officer of the Company, the Board will
be requested to authorize the Company to enter into an Executive Severance
Agreement or a so-called "golden parachute" with you. In general, the
terms of that agreement would provide for a severance payment of 3 times
the sum of your annual base salary plus your targeted annual incentive
compensation award, and certain other benefits, in the event your
employment terminates under certain conditions following a
change-in-control of the Company.
The form and provisions of your Executive Severance Agreement will be the
same as applicable to other elected officers of the Company.
SEVERANCE PAY ARRANGEMENT
If your employment is terminated by the Company without "Cause" during your
Employment Term, you will be entitled to the severance payment described in the
next sentence. The severance payment will be 2 times a dollar amount equal to
137% of your annual base salary at the time your employment is terminated. The
severance payment may be made to you in installments, at the same time and in
the same manner as salary continuation payments, over a period of two years
beginning as of the date you are terminated. However, at your option, the
entire severance payment may be paid to you in a single lump-sum as soon as
practical after your termination (if approved by the Compensation Committee).
At the end of the day your Employment Term expires (i.e., May 31, 2002), this
severance pay arrangement will no longer be applicable to you, and your
continued employment with the Company will be as an employee "at will",
provided, however, you will, as of the day immediately after that date, become
entitled to a severance payment of one times a dollar amount equal to 137% of
your annual base salary, if you are terminated by the Company without "Cause",
at any time after May 31, 2002.
You will not, in any event, however, be entitled to the severance payment
described above if, at the time your employment terminates, your employment
terminates as the result of your death, or you are entitled to payments under
your Executive Severance Agreement described above, or to disability income
payments under the Grace "LTD Plan" and/or "ESP Plan" described below.
William M. Corcoran 5/4/99 Page 4
--------------------------------------------------------------------------------
Also, if you receive a severance payment under this agreement, you will not be
entitled to any other severance pay from the Company.
SPECIAL SUPPLEMENTAL RETIREMENT PAYMENT ARRANGEMENT
Management will recommend that the Board approve a special retirement
arrangement to recognize, in part, your service with prior employers and to
provide you with meaningful mid-career accrual of retirement benefits. As
described below, the Company will provide you with additional years of credited
service, with a maximum of 4 additional years, in determining your total
retirement benefits from the Company. The benefit associated with those
additional years would be calculated as if that additional benefit would be
payable under the W. R. Grace & Co. Retirement Plan for Salaried Employees and
the Supplemental Executive Retirement Plan ("SERP") formulas (as described in
items 2 and 3 below).
Basically, the additional service would be credited to you as follows:
1. You would be credited with a minimum of 4 years of credited service on
your date of employment.
2. Following your date of employment, you will be credited with an additional
one-half year of credited service under this supplemental arrangement for
each year of credited service you earn under the Grace Salaried Retirement
and Supplemental Executive Retirement Plans.
For example, if you were employed for 2 years after your date of
employment, your total retirement benefit (i.e., from the plans plus the
supplemental arrangement) would be based on the minimum of 4 years of
credited service since your accumulated service (i.e., service under the
plans plus under the supplemental arrangement) would be less than the
minimum, i.e., 3 years ( 2 x 1.5). If you were employed for 4 years, you
would receive a total retirement benefit based on 6 years of credited
service since your credited service under the plans and the supplemental
arrangement would exceed the minimum number (i.e., 4). After 6 years, your
total retirement benefit would be based on 9 years of credited service;
and if you are employed for 8 years, your total retirement benefit would
be based on 12 years of credited service.
3. After 10 years of employment with the Company, credited service would
accrue each year under the Grace Retirement and Supplemental Retirement
Plans only, because you would already have been credited with the maximum
number of additional years of credited service under the supplemental
arrangement - 4. For example, after 9 years of employment with the
Company, your total retirement benefit would be based on 13 years of
credited service.
The supplemental retirement payment would not be offset by any benefits payable
to you from any of your previous employers, and would be payable from the
general assets of the Company -- it would not be pre-funded in any manner.
This supplemental retirement arrangement would apply only if your employment
with the Company ceases on or after the date your Employment Term expires
(i.e., May 31, 2002), or if you are terminated during that Term, without
"Cause", including termination without "Cause" following a change-in-control of
the Company. However, in any event, this arrangement would not be applicable if
you voluntary terminate your employment before
William M. Corcoran 5/4/99 Page 5
--------------------------------------------------------------------------------
your Employment Term expires, or if you are terminated for "Cause" prior to the
expiration of that Term. In the event of your death while you are entitled to a
supplemental benefit, that benefit will be payable as governed by the terms of
the Salaried Retirement Plan and the Supplemental Executive Retirement Plan.
For purposes of determining any supplemental retirement benefit that may be
payable to you, if you leave the Company after the expiration of your
Employment Term or you are terminated by the Company without "Cause", your
"final average compensation" will be determined in accordance with the formula
provided under the basic Salaried Retirement Plan, i.e., your final average
compensation would be determined by the number of months you are employed if
less than 60 months.
Note, if the Grace Salaried Retirement Plan is amended in a manner that affects
the calculation of benefits, while you are employed by the Company, then this
supplemental retirement payment may be adjusted in an equitable manner
consistent with such amendment. Any such adjustment will be determined by the
actuary for the Salaried Retirement Plan; but such adjustment may not in any
event decrease your supplemental retirement payment below an amount that would
be calculated based on your years of service and "final average compensation"
as of the day before the effective date of such amendment.
DEFINITION OF CAUSE
"Cause", for purposes of this agreement, means:
(i) Commission by you of a criminal act (i.e., any act which, if successfully
prosecuted by the appropriate authorities would constitute a crime under
State or Federal law) or of significant misconduct, which has had or will
have a direct material adverse effect upon the business affairs,
properties, operations or results of operations or financial condition of
Company,
(ii) Refusal or failure of you to comply with the mandates of the Board, or
failure by you to substantially perform your duties hereunder, other than
such failure resulting from your total or partial incapacity due to
physical or mental illness, which refusal or failure has not been cured
within 30 days after notice has been given to you, or
(iii) Breach of any of the terms of this agreement by you, which breach has not
been cured within 30 days after notice has been given to you.
RELOCATION ASSISTANCE
The Company will provide relocation assistance to you under the Headquarters
Official Relocation Policy for current employees with the following features of
the current "Productivity Efficiency Plan" relocation policy: a monthly
renters/commuters allowance of $2,500 per month, for up to 12 months (total of
$30,000); and, if you elect to purchase a home in Maryland within one year of
your start date, a miscellaneous relocation allowance equal to 2 months of base
salary, grossed up for income taxes; and a maximum $75,000 new home purchase
allowance, up to the difference between your new home price and your old home
selling price, less total renters/commuters expenses. The allowance will be in
the form of an interest-free loan, forgiven over five years, and will be
taxable as income to you.
William M. Corcoran 5/4/99 Page 6
--------------------------------------------------------------------------------
OTHER BENEFIT PROGRAMS
As a senior officer of the Company, you will also be eligible to participate in
the following benefit plans and programs (subject to the actual provisions of
the plans and programs, and as amended from time to time):
1. The Grace Deferred Compensation Program provides that you may elect to
defer a portion of your base salary (from a minimum of $200 per month to a
maximum of 25% of base salary) and all or a portion of your annual
incentive compensation. Deferred amounts are credited with interest equal
to the greater of (i) the prime rate plus 2 percentage points or (ii) 120%
of the prime rate.
2. The W. R. Grace & Co. Retirement Plan for Salaried Employees ("Grace
Salaried Retirement Plan") is a "tax qualified" plan that provides a
pension at retirement equal to 1.50% of final average compensation (as
defined by the Plan, which includes annual base salary and annual
incentive compensation in the sixty (60) consecutive highest-paid months
during the last 180 months of employment), less 1.25% of the primary
Social Security benefit, multiplied by years of credited service.
Participation in this Plan is effective the beginning of the month
following one (1) year of employment with credited service retroactive to
the first of the month beginning on or following the date of hire. A
participant becomes 100% vested upon the earlier of (1) reaching five
years of service or (2) attaining age 55.
3. The W. R. Grace & Co. Supplemental Executive Retirement Plan ("SERP") is
an unfunded Company plan that supplements benefits under the Grace
Salaried Retirement Plan. The SERP pays retirement benefits which would
otherwise be paid under the terms of the Salaried Retirement Plan, but for
limits and exclusions imposed by tax law. For example, pension benefits
related to base salary or incentive compensation awards, which an
executive elects to defer, will be paid under the provisions of the SERP
(not the Grace Salaried Retirement Plan). The SERP also pays any pension
benefits that an executive accrues in excess of the "tax qualified" plan
limits (currently $130,000 per year) and compensation limit (currently
$160,000 per year). Participation, vesting and payment options in the SERP
follow the same rules as the Grace Salaried Retirement Plan.
4. The W. R. Grace & Co. Salaried Employee Savings & Investment Plan ("S&I
Plan"). At the beginning of the month following one (1) year of
employment, the S&I Plan permits you to save a portion of your
compensation up to a maximum permitted by law by contributing such amount
to the Plan by payroll deduction. With respect to the first 6% you
contribute, the Company will match $1 of Grace stock for each $2 you save.
Your contributions are invested in one or more of seven funds at your
option. Grace's S&I Plan is a so-called "401(k) plan" and, therefore, a
portion of your contribution can, at your election, be treated as deferred
income for tax purposes. Amounts of allowable contributions are subject to
certain Internal Revenue Code limits, one of which limits annual
before-tax savings amounts (for 1999, this limit is $10,000). The S&I Plan
currently permits an 8% maximum savings rate for before-tax amounts.
5. The W. R. Grace & Co. Savings & Investment Plan Replacement Payment
Program is designed to "make-up" matching Company contributions that are
not paid due to the compensation threshold limit under the Internal
Revenue Code. To be eligible to receive a "make-up" payment each year, an
executive must participate in the S&I Plan
William M. Corcoran 5/4/99 Page 7
--------------------------------------------------------------------------------
at a rate of at least 6% during the entire year until he or she reaches the
compensation limit. The replacement payment then equals 3% of the year's
plan compensation in excess of the legally-imposed compensation limit
(which is $160,000 for 1999).
You may elect to receive your replacement payment by check at the time
annual incentive compensation awards are paid or credited (which is
currently in March of the year following the year to which the payment
relates), or you may elect to defer the replacement payment you would
otherwise receive. If you choose to defer the payment, you will receive
earnings credited under the Deferred Compensation Program.
6. The W. R. Grace & Co. Long-Term Disability Income Plan ("LTD Plan"). You
will become eligible to participate in the LTD Plan on a voluntary and
contributory basis on the first of the month following or coincident with
your date of employment. Generally, the LTD Plan provides for a monthly
income of 60% of base monthly earnings should you become disabled, within
the meaning of the Plan. The maximum monthly benefit under the Plan is
$30,000.
7. Executive Salary Protection Plan ("ESP Plan"). Consistent with your status
as a senior officer of the Company, beginning with the first date of your
employment with the Company, you will commence participation in the ESP
Plan. Under the ESP Plan, in the event of your death while employed by the
Company and prior to age 70, the Company will continue to pay a portion of
your base salary to your beneficiary(ies) for a period of time depending
upon your age at death. This Plan also provides certain disability
benefits which are supplemental to the Company's LTD Plan.
8. The W. R. Grace & Co. Voluntary Group Accident Insurance Plan. You will
become eligible to participate in this Plan effective on the first date of
employment. Participation is voluntary and requires employee
contributions. Under the terms of the Plan, you may elect coverage of
$10,000 through $500,000. Coverage is available on an individual basis or
under a family plan.
9. The W. R. Grace & Co. Business Travel Accident Insurance Plan. You will
become a participant in this Plan effective on the first date of your
employment with the Company. The Plan provides protection against death,
permanent total disability or dismemberment. The principal sum is 5 times
your annual base salary (with a maximum principal sum of $1,500,000). In
your case, as in the case of other executives, the usual requirements that
you be away from home or normal place of work and that you be on Company
business do not apply in order to be eligible for coverage.
10. The W. R. Grace & Co. Group Term Life Insurance Program. You will
participate in the Company's basic group term life insurance plan under
which coverage is 1.5 times your annual base salary.
Supplemental life insurance coverage, which is voluntary, is also
available at moderate rates based on your age, up to an additional 3 times
your annual base salary (with a maximum of $1,500,000 of supplemental
coverage). Dependent life insurance is also available to your spouse and
unmarried dependent children to age 19 (or to age 23 if the child
regularly attends school full-time).
William M. Corcoran 5/4/99 Page 8
--------------------------------------------------------------------------------
11. Personal Excess Liability Insurance is effective on the first day of
employment, as an officer of the Company, for a $4,000,000 limit of
liability. Coverage is for personal liability claims made against you or a
family member for bodily injury, property damage, and personal injury. The
policy extends liability coverage over and above what is covered by the
primary underlying liability coverage contained in your homeowners,
automobile, watercraft and recreational vehicle insurance policies.
12. The W. R. Grace & Co. Group Medical Plan is effective on the first day of
employment and offers protection to you, your spouse and unmarried
children to age 19 (age 23 if the child regularly attends a qualified
school on a full-time basis). The Baltimore/ Washington network medical
plan utilizes an established network of doctors and hospitals in the area.
Employees have a choice of two different plan options and a total of four
different providers of coverage. The Point of Service (POS) option allows
you the choice to use a network provider or the freedom to go outside the
network for medical care; an HMO option requires that you use network
providers only. The POS option is provided by Aetna U.S. Healthcare and
the three local HMO options are provided by Freestate Health Plans, M.D.
IPA and Kaiser Permanente. Employees and their family members must choose
a primary care physician who will oversee all of their medical needs. Your
cost for participation in 1999 and hereafter, under the current plan
provisions, will be 40% of the monthly premium
You will also have the opportunity to contribute to a flexible spending
account up to $5,000 per year.
An employee hired after January 1, 1993, qualifies for post-retirement
medical coverage if he or she has at least 10 years of service at
retirement (age 55 or later). Qualification for this coverage gives the
retiree access to medical coverage in the Grace plan, but the retiree is
expected to pay 100% of the premium cost of this coverage. Premium cost is
determined annually based on experience. Actual claims dollars are paid by
the Company.
13. The W. R. Grace & Co. Dental Plan is fully paid for by the Company and
provides coverage for you and your eligible family members from on the
first day of employment. Benefits under the plan reflect whether dental
services are obtained from an in-network or out-of-network provider.
14. Executive Registry Program. Under this Program you will have access to a
network of medical services offered by leading hospitals and medical
centers in large cities throughout the U.S. and abroad. These hospitals
and medical centers serve as sources where members can obtain high-quality
emergency medical care while traveling or temporarily living away from
home either in the U.S. or abroad.
FINANCIAL COUNSELING PROGRAM
As an officer of the Company, you will be eligible to participate in the
Company's Financial Counseling Program. This Program provides you with
financial and estate planning and income tax preparation assistance. The
Company will pay up to $4,000 per calendar year for reasonable, supportable
expenses, except that the maximum amount for the first year of your
participation will be $9,000.
William M. Corcoran 5/4/99 Page 9
--------------------------------------------------------------------------------
COMPANY CAR
The Company will arrange for you to lease, at the Company's expense, an
automobile for use on Company business and for your personal use. The terms of
the coverage will be the same as those provided for other officers of the
Company, including a purchase price cap of $35,000.
EXECUTIVE PHYSICAL PROGRAM
As an officer of the Company, you will be eligible to receive a Company-paid
annual executive physical examination.
VACATION
As an officer of Grace, you will be entitled to four weeks paid vacation per
full calendar year during your Employment Term.
MISCELLANEOUS
This Agreement may be amended, superseded or canceled only by a written
instrument specifically stating that it amends, supersedes or cancels this
Agreement, executed by you and the Company.
You and the Company acknowledge that this agreement supersedes any other
agreement between you and the Company concerning the subject matter hereof.
If you have any questions regarding any expectations of your new position,
please call me.
If you have any questions regarding the compensation and Company benefit plans
and programs, please feel free to call Bill Monroe, Vice President, Human
Resources, at (561) 362-2221.
William M. Corcoran 5/4/99 Page 10
--------------------------------------------------------------------------------
Bill, we are very excited about your joining the Grace organization and look
forward to a productive and mutually rewarding relationship.
Sincerely,
Paul J. Norris
Chairman, President
& Chief Executive Officer
Attachment
cc: W. B. McGowan
W. L. Monroe
M. N. Piergrossi
AGREED AND ACCEPTED:
------------------------
William M. Corcoran
------------------------
Date
EXHIBIT 10.28
PAUL J. NORRIS
Chairman, President & Chief
Executive Officer
[LOGO OMITTED]
W.R. Grace & Co.
7500 Grace Drive
Columbia, Maryland 21044
Tel.: (410) 531-4404
Fax: (410) 531-4414
Email: paul.j.norris@grace.com
December __, 2000
Dear ________________________:
I am pleased to be writing to specify the terms of the retention arrangement
that has been approved for you by the Grace Board of Directors. Under that
arrangement, the retention payment described below will be made to you during
January 2001, and the enhanced severance arrangement, also described below,
will apply to you, provided that you accept and agree to the terms of the
arrangement indicating your intention to remain with Grace for two years, by
signing and returning a copy of this letter to W. Brian McGowan in Columbia on
or prior to December 31, 2000.
Retention Payment
You will receive a payment equal to 100% of your annual base salary. In your
case, the total gross amount of that payment will be $____________. The payment
will be considered regular compensation for 2001 for Federal and State income
tax purposes, and therefore the net amount you actually receive will consider
appropriate income tax withholding as well as other appropriate payroll taxes
(e.g., FICA).
However, the payment will not be considered for any Grace compensation or
benefit plan purposes. For example, the payment will not be considered in
determining your Grace annual or any long-term incentive compensation awards
(for which you may remain eligible) nor will any portion of the payment be paid
into Grace's Savings & Investment Plan, nor will the payment be used to
determine your final average compensation under the Grace Salaried Retirement
Plan or the Grace Supplemental Executive Retirement Plan (in this regard, the
payment will be considered non-pensionable "special pay"). Also, the payment
will not be used to calculate the amount of disability income or life insurance
that you or your beneficiary may become entitled to under any Grace benefit
plan.
Except as provided in the next sentence, you agree to return to Grace a portion
(calculated as specified below) of the total gross amount, if you voluntarily
retire or resign your employment, or if you are terminated by Grace for "Cause"
(as defined below), so that you cease to be a full-time employee of Grace on or
prior to December 31, 2002. You will not be required to return any portion of
the payment to Grace if at any time on or prior to that date you are
involuntarily terminated by Grace without "Cause", or you die or become
permanently and totally disabled, or you resign from Grace for "Good Reason"
(as defined below).
If you terminate employment with Grace on or prior to December 31, 2002, under
circumstances where you are required to return a portion of the total gross
amount, then the amount that you will be required to return will be the result
of the following calculation: The total gross amount of the payment, multiplied
by a fraction where the numerator is equal to (i) 730 minus, (ii) the number of
calendar days during which you
--------------------
December __, 2000
Page 2
were employed by Grace as a full time employee commencing on January 1, 2001 and
ending on your last day of full-time employment with Grace, and the denominator
is 730.
Under the terms of this arrangement, you must make any required repayment no
later than 5 business days after your last date of Grace employment as a full
time employee
If your employment terminates with Grace under circumstance where you are not
required to return a portion of the total gross amount, the payment to you
under this letter agreement will not affect in any way the amount or nature of
any other payment you may be entitled to receive from Grace under any other
agreement, plan or program (including but not limited to any Grace severance
plan), as a result of your termination.
For purposes of this retention payment only, the following definitions are
applicable:
"Cause" means commission by you of a criminal act or of significant misconduct,
which in the reasonable judgment of the Grace Board (or its designee) has had
or will have a direct material adverse effect upon the business affairs,
properties, operations or results of operations or financial condition of W. R.
Grace & Co. and its subsidiaries, taken as a whole (collectively, the
"Company").
"Good Reason" means any of the following: (1) the reduction of your annual base
salary paid by the Company to an amount that is less than the amount in effect
as of the date of this letter agreement, (2) the Company's requiring you to be
based anywhere other than the metropolitan area in which your office is located
as of the date of this letter agreement, or (3) a permanent change in your job
duties that is inappropriate to your current status as a member of Grace's
management team, even if your annual base salary is not reduced.
Enhanced Severance Pay
You will be entitled to severance pay equal to two times your annual base
salary at the time of your termination (the "Enhanced Severance Pay"), if you
are involuntarily terminated by Grace under circumstances in which you would
qualify for severance pay under the terms of the Grace Severance Pay Plan for
Salaried Employees (the "Grace Severance Plan"). A copy of the Summary Plan
Description of that Plan (the "SPD") is attached for your convenience, and I
would draw your attention to the sections of that SPD entitled "When Coverage
Applies" and "When Coverage Doesn't Apply", on page 2. The payment of the
Enhanced Severance Pay will be governed by the terms of the Grace Severance
Plan (except, of course, for the calculation of the amount of severance pay).
If you become entitled to the Enhanced Severance Pay arrangement described
herein and to severance pay or benefits under any other plan or program of
Grace, or arrangement with Grace (including but not limited to the special
severance pay agreement between you and Grace), then you will only receive
severance under one severance plan, program or arrangement - - the one that
provides the greatest total amount of severance pay to you. For instance, if
the Enhanced Severance Pay arrangement provides the greatest total severance
pay, then you will only receive the Enhanced Severance Pay, and you will not
receive any severance pay or benefits under any other Grace plan, program or
arrangement. Under no circumstances will you receive severance pay or benefits
under two or more severance plans, programs or arrangements.
------------------
December __, 2000
Page 3
Neither this letter agreement, nor the retention arrangement described herein,
changes your current employment status with the Company, which means you remain
an employee "at will."
Thank you for your past and anticipated future contributions to Grace.
Sincerely,
Paul J. Norris
Agreed and Accepted
-------------------------------------
-------------------------------------
(Date)
EXHIBIT 21
W. R. GRACE & CO., A DELAWARE CORPORATION
U.S. SUBSIDIARIES
12/31/2000
----------------------------------------------- --------------------------------
STATE OF INCORPORATION
SUBSIDIARY NAME
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
A-1 Bit & Tool Co., Inc. DE
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
Alewife Boston Ltd. MA
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
Alewife Land Corporation MA
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
Amicon, Inc. DE
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
CB Biomedical, Inc. DE
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
CCHP, Inc. DE
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
Coalgrace, Inc. DE
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
Coalgrace II, Inc. DE
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
Construction Products Dubai, Inc. DE
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
Creative Food 'N Fun Company DE
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
Darex Puerto Rico, Inc. DE
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
Del Taco Restaurants, Inc. DE
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
Dewey and Almy, LLC DE
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
Ecarg, Inc. NJ
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
Five Alewife Boston Ltd. MA
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
G C Limited Partners I, Inc. DE
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
G C Management, Inc. DE
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
GEC Management Corporation DE
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
GN Holdings, Inc. DE
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
GPC Thomasville Corp. DE
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
Gloucester New Communities Company, Inc. NJ
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
Grace A-B Inc. DE
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
Grace A-B II Inc. DE
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
Grace Asia Pacific, Inc. DE
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
Grace Chemicals, Inc. DE
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
Grace Chemical Company of Cuba IL
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
Grace Collections, Inc. DE
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
Grace Culinary Systems, Inc. MD
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
Grace Drilling Company DE
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
Grace Energy Corporation DE
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
Grace Environmental, Inc. DE
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
Grace Europe, Inc. DE
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
Grace Germany Holdings, Inc. DE
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
Grace H-G Inc. DE
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
Grace H-G II Inc. DE
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
Grace Hotel Services Corporation DE
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
Grace International Holdings, Inc. DE
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
Grace Management Services, Inc. DE
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
Grace Offshore Company LA
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
Grace PAR Corporation DE
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
Grace Petroleum Libya Incorporated DE
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
Grace Receivables Purchasing, Inc. DE
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
Grace Tarpon Investors, Inc. DE
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
Grace Ventures Corp. DE
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
Grace Washington, Inc. DE
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
W. R. Grace Capital Corporation NY
----------------------------------------------- --------------------------------
1
----------------------------------------------- --------------------------------
STATE OF INCORPORATION
SUBSIDIARY NAME
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
W. R. Grace & Co.-Conn. CT
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
W. R. Grace Land Corporation NY
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
Gracoal, Inc. DE
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
Gracoal II, Inc. DE
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
Guanica-Caribe Land Development Corporation DE
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
Hanover Square Corporation DE
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
Homco International, Inc. DE
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
Ichiban Chemical Co., Inc. DE
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
L B Realty, Inc. DE
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
Litigation Management, Inc. DE
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
Monolith Enterprises, Incorporated DC
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
Monroe Street, Inc. DE
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
MRA Holdings Corp. DE
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
MRA Intermedco, Inc. DE
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
MRA Staffing Systems, Inc. DE
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
Remedium Group, Inc. DE
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
Southern Oil, Resin & Fiberglass, Inc. FL
----------------------------------------------- --------------------------------
----------------------------------------------- --------------------------------
Water Street Corporation DE
----------------------------------------------- --------------------------------
2
NON-U.S. SUBSIDIARIES
----------------------------------------------------------------------------
COUNTRY/
Subsidiary Name
----------------------------------------------------------------------------
----------------------------------------------------------------------------
ARGENTINA
----------------------------------------------------------------------------
----------------------------------------------------------------------------
W. R. Grace Argentina S.A.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
WRG Argentina, S.A.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
AUSTRALIA
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Grace Australia Pty. Ltd.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
BELGIUM
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Grace N.V.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Grace Silica N.V.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
BRAZIL
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Grace Brasil Ltda.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Grace Davison Ltda.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
PEADCO-Engenharia, Comercio Industria Ltda.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
CANADA
----------------------------------------------------------------------------
----------------------------------------------------------------------------
GEC Divestment Corporation Ltd.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Grace Canada, Inc.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
W. R. Grace Finance (NRO) Ltd.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
CHILE
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Grace Quimica Compania Limitada
----------------------------------------------------------------------------
----------------------------------------------------------------------------
CHINA - PEOPLE'S REPUBLIC OF
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Grace China Ltd.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
COLOMBIA
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Grace Colombia S.A.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
W. R. G. Colombia S.A.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
CUBA
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Envases Industriales y Comerciales, S.A.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Papelera Camagueyana, S.A.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
DENMARK
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Grace A/S
----------------------------------------------------------------------------
----------------------------------------------------------------------------
FRANCE
----------------------------------------------------------------------------
----------------------------------------------------------------------------
W. R. Grace SAS
----------------------------------------------------------------------------
----------------------------------------------------------------------------
GERMANY
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Grace Darex GmbH
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Grace GP G.m.b.H.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Grace Holding G.m.b.H.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Grace Management GP G.m.b.H.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
GREECE
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Grace Hellas E.P.E.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
HONG KONG
----------------------------------------------------------------------------
----------------------------------------------------------------------------
W. R. Grace (Hong Kong) Limited
----------------------------------------------------------------------------
----------------------------------------------------------------------------
W. R. Grace Southeast Asia Holdings Limited
----------------------------------------------------------------------------
----------------------------------------------------------------------------
HUNGARY
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Grace Ertekesito Kft.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
INDIA
----------------------------------------------------------------------------
----------------------------------------------------------------------------
W. R. Grace & Co. (India) Private Limited
----------------------------------------------------------------------------
----------------------------------------------------------------------------
INDONESIA
----------------------------------------------------------------------------
----------------------------------------------------------------------------
PT. Grace Specialty Chemicals Indonesia
----------------------------------------------------------------------------
3
----------------------------------------------------------------------------
IRELAND
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Amicon Ireland Limited
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Grace Construction Products (Ireland) Limited
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Trans-Meridian Insurance (Dublin) Ltd.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
ITALY
----------------------------------------------------------------------------
----------------------------------------------------------------------------
W. R. Grace Italiana S.p.A.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
JAPAN
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Grace Chemicals K.K.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Grace Japan Kabushiki Kaisha
----------------------------------------------------------------------------
----------------------------------------------------------------------------
KOREA
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Grace Korea Inc.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
MALAYSIA
----------------------------------------------------------------------------
----------------------------------------------------------------------------
W. R. Grace (Malaysia) Sendiran Berhad
----------------------------------------------------------------------------
----------------------------------------------------------------------------
W. R. Grace Specialty Chemicals (Malaysia) Sdn. Bhd.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
MEXICO
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Grace Container, S. A. de C. V.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
W. R. Grace Holdings, S. A. de C. V.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
NETHERLANDS
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Amicon B.V.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Denac Nederland B.V.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Storm van Bentem en Kluyver B.V.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
W. R. Grace B.V.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
NETHERLANDS ANTILLES
----------------------------------------------------------------------------
----------------------------------------------------------------------------
W. R. Grace N.V.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
NEW ZEALAND
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Grace (New Zealand) Limited
----------------------------------------------------------------------------
----------------------------------------------------------------------------
PHILIPPINES
----------------------------------------------------------------------------
----------------------------------------------------------------------------
W. R. Grace (Philippines), Inc.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
POLAND
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Grace Sp. z o.o.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
RUSSIA
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Darex CIS LLC
----------------------------------------------------------------------------
----------------------------------------------------------------------------
SINGAPORE
----------------------------------------------------------------------------
----------------------------------------------------------------------------
W. R. Grace (Singapore) Private Limited
----------------------------------------------------------------------------
----------------------------------------------------------------------------
SOUTH AFRICA
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Grace Davison (Proprietary) Limited
----------------------------------------------------------------------------
----------------------------------------------------------------------------
W. R. Grace Africa (Pty.) Limited
----------------------------------------------------------------------------
----------------------------------------------------------------------------
SPAIN
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Grace, S.A.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
SWEDEN
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Grace AB
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Grace Sweden AB
----------------------------------------------------------------------------
----------------------------------------------------------------------------
TAIWAN
----------------------------------------------------------------------------
----------------------------------------------------------------------------
W. R. Grace Taiwan, Inc.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
THAILAND
----------------------------------------------------------------------------
----------------------------------------------------------------------------
W. R. Grace (Thailand) Limited
----------------------------------------------------------------------------
----------------------------------------------------------------------------
UNITED KINGDOM
----------------------------------------------------------------------------
----------------------------------------------------------------------------
A.A. Consultancy & Cleaning Company Limited
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cormix Limited
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Borndear 1 Limited
----------------------------------------------------------------------------
4
----------------------------------------------------------------------------
Borndear 2 Limited
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Borndear 3 Limited
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Chasmbridge Limited
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Darex UK Limited
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Emerson & Cuming (Trading) Ltd.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Emerson & Cuming (UK) Ltd.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Grace Construction Products Limited
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Servicised Ltd.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
W. R. Grace Limited
----------------------------------------------------------------------------
----------------------------------------------------------------------------
VENEZUELA
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Grace Venezuela, S.A.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Inversiones GSC, S.A.
----------------------------------------------------------------------------
5
EXHIBIT 24
POWER OF ATTORNEY
The undersigned hereby appoints ROBERT M. TAROLA, MARK A. SHELNITZ, and
DAVID B. SIEGEL as his true and lawful attorneys-in-fact for the purpose of
signing the Annual Report on Form 10-K of W. R. GRACE & CO. for the year ended
December 31, 2000, 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/ John F. Akers
-----------------
John F. Akers
Dated: March 31, 2001
POWER OF ATTORNEY
The undersigned hereby appoints ROBERT M. TAROLA, MARK A. SHELNITZ, and
DAVID B. SIEGEL as his true and lawful attorneys-in-fact for the purpose of
signing the Annual Report on Form 10-K of W. R. GRACE & CO. for the year ended
December 31, 2000, 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/ Ronald C. Cambre
----------------------
Ronald C. Cambre
Dated: March 16, 2001
POWER OF ATTORNEY
The undersigned hereby appoints ROBERT M. TAROLA, MARK A. SHELNITZ, and
DAVID B. SIEGEL as his true and lawful attorneys-in-fact for the purpose of
signing the Annual Report on Form 10-K of W. R. GRACE & CO. for the year ended
December 31, 2000, 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/ Marye Anne Fox
--------------------
Marye Anne Fox
Dated: March 16, 2001
POWER OF ATTORNEY
The undersigned hereby appoints ROBERT M. TAROLA, MARK A. SHELNITZ, and
DAVID B. SIEGEL as his true and lawful attorneys-in-fact for the purpose of
signing the Annual Report on Form 10-K of W. R. GRACE & CO. for the year ended
December 31, 2000, 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/ John J. Murphy
-------------------
John J. Murphy
Dated: March 16, 2001
POWER OF ATTORNEY
The undersigned hereby appoints ROBERT M. TAROLA, MARK A. SHELNITZ, and
DAVID B. SIEGEL as his true and lawful attorneys-in-fact for the purpose of
signing the Annual Report on Form 10-K of W. R. GRACE & CO. for the year ended
December 31, 2000, 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/ Thomas A. Vanderslice
-----------------------------
Thomas A. Vanderslice
Dated: March 16, 2001
POWER OF ATTORNEY
The undersigned hereby appoints ROBERT M. TAROLA, MARK A. SHELNITZ, and
DAVID B. SIEGEL as his true and lawful attorneys-in-fact for the purpose of
signing the Annual Report on Form 10-K of W. R. GRACE & CO. for the year ended
December 31, 2000, 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/ Paul J. Norris
-------------------
Paul J. Norris
Dated: March 19, 2001
EXHIBIT 99.1
W. R. GRACE & CO.
BOARD OF DIRECTORS -- AUDIT COMMITTEE
CHARTER
GENERAL. The primary function of the Audit Committee is to assist the
Board of Directors in fulfilling its oversight responsibilities by reviewing
the financial information provided to shareholders and others; the systems of
internal controls that management and the Board have established; and the
auditing, accounting and financial reporting process generally. Consistent with
this function, the Audit Committee should encourage the continuous improvement
of, and should foster adherence to, the Company's policies, procedures and
practices at all levels. The overarching responsibilities of the Audit
Committee are to:
1. Serve as an independent and objective party to monitor the Company's
annual and quarterly financial reporting process and internal control
system.
2. Review and appraise the audit efforts of the Company's independent
accountants and internal auditing department.
3. Provide an open avenue of communication among the independent
accountants, the internal auditors, management and the Board of
Directors.
COMPOSITION. The Audit Committee shall consist of three or more
independent members of the Board of Directors, who shall be designated in the
manner specified in the Company's By-laws. The Audit Committee members shall
meet the requirements of the New York Stock Exchange.
RESPONSIBILITIES AND DUTIES. The Audit Committee is expected to carry out
the following responsibilities and duties:
1. Meet at least three times per year, or more frequently as
circumstances dictate. As part of its responsibility to foster open
communication, the Committee should meet with the director of
internal auditing, the independent accountants and management in
separate executive sessions to discuss any matters that the Committee
or these groups believe should be discussed privately.
2. Review and reassess the adequacy of this Charter at least annually.
3. After consultation with management, recommend to the Board of
Directors the selection of independent accountants, approve the fees
and other compensation to be paid to the independent accountants and
approve the discharge of the independent accountants when
circumstances warrant. The independent accountants for the Company
are ultimately accountable to the Board of Directors and Audit
Committee.
4. Evaluate the independence of the internal auditing department and the
independent accountants. The Audit Committee is responsible for
ensuring that the independent accountants submit on a periodic basis
to the Audit Committee a formal written statement delineating all
relationships between the independent accountants and the Company.
The Audit Committee is also responsible for actively engaging in
dialogue with the independent accountants with respect to any
disclosed relationships or services that may impact the objectivity
and independence of the independent accountants and for recommending
that the Board of Directors take appropriate action to ensure the
independence of the independent accountants.
5. Review and concur in the appointment, replacement, reassignment or
dismissal of the director of internal auditing.
6. Inquire of management, the director of internal auditing and the
independent accountants as to the areas of significant risk and/or
exposure to the Company and assess the steps taken by management to
minimize such risk and/or exposure.
7. Review, in consultation with management, the independent accountants
and the director of internal auditing, the audit scope and plan of
the internal auditors and the independent accountants to assure
completeness of coverage, reduction of redundant efforts and the
effective use of audit resources.
8. Consider, in consultation with management, the rationale for
employing audit firms other than the principal independent
accountants.
9. Consider and review with management, the independent accountants and
the director of internal auditing:
a. The Company's internal controls, including information system
controls and security.
b. Significant findings and recommendations of the independent
accountants and the internal auditing department, together with
management's responses thereto.
c. Significant difficulties encountered during the course of the
audit, including any restrictions on the scope of work or access
to required information.
d. Significant changes required in the audit scope and/or plan.
e. The internal auditing department budget and staffing.
f. Compliance by the internal auditing department with the IIA's
Standards for the Professional Practice of Internal Auditing.
g. The internal auditing department charter.
10. Review the following with management, the independent accountants and
the internal auditing department following completion of the annual
audit:
a. The Company's annual financial statements and related notes.
b. The independent accountants' audit of the financial statements
and their report thereon.
c. Significant changes required in the audit scope and/or plan.
d. Significant difficulties encountered during the course of the
audit, including any restrictions on the scope of work or access
to required information.
e. Other matters related to the conduct of the audit that are
required to be communicated to the Audit Committee under
generally accepted auditing standards.
11. Review with the management and the independent accountants the
Company's quarterly financial reports prior to the release of
earnings and/or the Company's quarterly financial statements. The
Chair of the Committee or his/her designee may represent the entire
Audit Committee for purposes of this review.
12. In conjunction with the Committee on Corporate Responsibility, review
the Company's standards of business conduct and related procedures
intended to ensure compliance with those standards, and review with
the director of internal auditing and the independent accountants the
results of
2
their review of the Company's monitoring of compliance with its code
of conduct or similar policies.
13. Review legal and regulatory matters that may have a material impact
on the Company's financial statements, related Company compliance
policies, and programs and reports received from regulators.
14. Oversee the taking of appropriate action to correct irregularities
and implement audit recommendations.
15. Report Audit Committee actions to the Board of Directors with such
recommendations as the Audit Committee may deem appropriate.
16. Conduct or authorize investigations into any matters within the scope
of its responsibilities. The Audit Committee shall be empowered to
retain independent counsel, accountants and/or others to assist it in
the conduct of any investigation.
17. Annually prepare a report to shareholders as required by the
Securities and Exchange Commission for inclusion in the Company's
annual proxy statement.
18. Perform such other functions as are required by law, by the Company's
Certificate of Incorporation or By-laws, or by the Board of
Directors.
RESPONSIBILITIES AND DUTIES NOT EXCLUSIVE. The responsibilities and duties
of a member of the Audit Committee are in addition to those arising out of
membership on the Board of Directors.
LIMITATIONS ON DUTIES. While the Audit Committee has the responsibilities
and powers set forth in this Charter, it is not the duty of the Audit Committee
to plan or conduct audits or to determine that the Company's financial
statements are complete and accurate and are in accordance with generally
accepted accounting principles. This is the responsibility of management and
the independent accountants. Nor is it the duty of the Audit Committee to
conduct investigations, to resolve disagreements, if any, between management
and the independent accountants or to assure compliance with laws and
regulations and the Company's policies, procedures and practices.
Approved by the Audit Committee March 2, 2000
3
EXHIBIT 99.2
#2778
Corporate Communications
[LOGO OMITTED]
W. R. Grace & Co.
7500 Grace Drive
Columbia, MD 21044
CONTACT:
Media Relations: Investor Relations:
William Corcoran Francine Gilbert
(410) 531-4203 (410) 531-4283
OR OR
Thomas M. Daly, Jr. Bridget Sarikas
Kekst and Company (410) 531-4194
(212) 521-4800
W. R. GRACE & CO. FILES VOLUNTARY CHAPTER 11 PETITION
TO RESOLVE ASBESTOS CLAIMS
-- COMPANY'S BUSINESSES WILL CONTINUE TO OPERATE AS USUAL --
-- CONTINUED EMPHASIS ON PREMIER PRODUCTS AND CUSTOMER SERVICE --
COLUMBIA, MARYLAND, APRIL 2, 2001 - W. R. Grace & Co. (NYSE: GRA) today
announced that the Company has voluntarily filed for reorganization under
Chapter 11 of the United States Bankruptcy Code in response to a sharply
increasing number of asbestos claims. This Chapter 11 filing includes 61
of Grace's domestic entities. None of the Company's foreign subsidiaries
are included in this filing.
The filing, made today in the U.S. Bankruptcy Court in Wilmington,
Delaware, will enable the Company to continue to operate its businesses in
the usual manner under court protection from its creditors and claimants,
while using the Chapter 11 process to develop and implement a plan for
addressing the asbestos-related claims against it. The Company intends to
work closely with asbestos claimants and other creditors to develop a plan
of reorganization that will both address valid asbestos claims in a fair
and consistent manner and establish a sound capital structure for
long-term growth and profitability.
The Company also announced that it has obtained $250 million in
debtor-in-possession financing from Bank of America, N.A.. Following the
court's approval, the Company can use these funds to help meet the future
needs and obligations associated with operating its business, including
payment under normal terms to suppliers and vendors for all goods and
services that are provided after today's filing.
2
The Company expects that employees will continue to be paid in the normal
manner, and their benefits will not be disrupted. The Company's qualified
pension plan for retirees and vested current and former employees is fully
funded and protected by federal law.
Grace's Chairman, President, and Chief Executive Officer Paul J. Norris
said, "This is a voluntary decision that, although very difficult, was
absolutely necessary for us. We believe that the state court system for
dealing with asbestos claims is broken, and that Grace cannot effectively
defend itself against unmeritorious claims. The best forum available to
Grace to achieve predictability and fairness in the claims settlement
process is through a federal court-supervised Chapter 11 filing. By filing
now, we are able to both obtain a comprehensive resolution of the claims
we are facing and preserve the inherent value of our businesses. Under
Chapter 11, litigation will be stayed and Grace will be able to address
all of the valid claims against it in a fair and consistent manner in one
proceeding. In the meantime, we will continue to operate our business in
the usual manner, meeting all of our responsibilities to customers,
employees, suppliers, and business partners. There is no other forum
currently existing that would allow us to accomplish all of these
objectives."
Mr. Norris continued, "Until recently, Grace was able to settle claims
through direct negotiations. The filings of claims had stabilized, and
annual cash flows were manageable and fairly predictable. In 2000, the
litigation environment changed with an unexpected 81% increase in claims,
which we believe is due to a surge in unmeritorious claims. Trends in case
filings and settlement demands, which show no signs of returning to
historic levels, have increased the risk that Grace will not be able to
resolve its pending and future asbestos claims under the current system."
"Moreover, the recent Chapter 11 filings of Babcock & Wilcox,
Pittsburgh-Corning, Owens Corning, Armstrong, and GAF are resulting in a
significant increase in damages sought by claimants from Grace. Grace will
now seek, through the court-supervised Chapter 11 process, to identify and
implement a reasonable and just procedure for making payments to creditors
and claimants determined to have valid claims against the Company."
Mr. Norris added that, "Grace is a fundamentally sound company with strong
cash flow. We have a clear leadership position in all of our major
markets, many of them in industries vital to the economy. Over the past
several years, the senior management and employees together have led the
Company to many significant achievements, including streamlining the
Company's operations and driving growth and productivity through our
strategic growth initiatives and Six Sigma."
"We are confident that, once we can finally resolve this difficult issue,
the Company can leverage its inherent value and strong cash flow to emerge
from reorganization as a strong, financially sound enterprise. In the
meantime, we will operate as we
(more)
3
always have, providing premier quality products and customer service. We
urge Congress to pass legislation to address what the Supreme Court has
described as an 'elephantine mass of asbestos cases' that defies customary
judicial administration."
Grace's asbestos liabilities largely stem from commercially purchased
asbestos added to some of its fire protection products. The Company ceased
to add any asbestos to its products in 1973. Grace is a co-defendant with
many other companies in asbestos litigation, and has claims filed against
it across the country. The Company to date has received over 325,000
asbestos personal injury claims, and has paid $1.9 billion to manage and
resolve asbestos-related litigation. For the year 2000, asbestos-related
claims against the Company were up 81% from the prior year with even
higher increases for the first three months of 2001. Five other major
companies involved in asbestos-related litigation have voluntarily filed
for Chapter 11 under the US Bankruptcy Code since January 1, 2000,
bringing the total to 26 companies since 1982.
In light of the Chapter 11 filing, Grace's Annual Meeting of Stockholders,
scheduled for May 10, 2001, has been cancelled.
GRACE is a leading global supplier of catalysts and silica products,
specialty construction chemicals and building materials, and container
products. With annual sales of approximately $1.6 billion, Grace has over
6,000 employees and operations in nearly 40 countries. For more
information, visit Grace's web site at www.grace.com or call the Grace
Financial Reorganization hotline at 1-800-472-2399 (for international
calls use your incountry AT&T Direct Access Number).
This announcement contains forward-looking statements that involve risks
and uncertainties, as well as statements that are preceded by, followed by
or include the words "believes," "plans," "intends", "targets", "will,"
"expects," "anticipates," or similar expressions. For such statements,
Grace claims the protection of the safe harbor for forward-looking
statements contained in the Private Securities Litigation Reform Act of
1995. Actual results may differ materially from the results predicted, and
reported results should not be considered as an indication of future
performance. Factors that could cause actual results to differ from those
contained in the forward-looking statements include those factors set
forth in Grace's most recent Annual Report on Form 10-KA and quarterly
reports on Form 10-Q, which have been filed with the SEC. # # #