================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------- 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 ------------------- ---------------- 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. ================================================================================

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 2

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 6

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. 7

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. - 2 -

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, - 3 -

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% - 4 -

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 - 9 -

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: - 10 -

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. - 11 -

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. - 12 -

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 - 13 -

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. # # #